Corporate Case Study: Tracking & Reporting for Hedges

June 20, 2014 Parke Shissler

Corporate Case Study: Tracking & Reporting for Hedges

Our Client:

A global musical instruments manufacturer and distributor who actively manages FX and interest rate risk exposures.

Situation:

The company was managing over 1,500 derivative instruments in Excel and was applying hedge accounting for more than half of their derivatives portfolio. They were applying a hedge accounting methodology that caused some earnings volatility and wanted to evaluate whether another approach, such as regression for effectiveness assessment and hypothetical derivative method for measurement, could produce better results. The period end process was taking longer than our client wanted, and, unfortunately, it was necessary to enter and maintain every derivative into multiple systems or spreadsheets.
The company was seeking to implement a hedging, hedge accounting & derivative reporting solution that would:

  • Ease the administrative burden of tracking and reporting derivative transactions
  • Eliminate risk of errors in tracking and reporting portfolio performance
  • Produce GAAP compliant valuations (including CVAs) in a timely manner each period end
  • Integrate with the company’s other relevant systems
  • Provide all hedge accounting designations, journal entries, effectiveness testing, disclosures, valuations and customized reporting in an automated and timely manner

Outcome:

The company sought Chatham’s hedging and hedge accounting technology solution in order to address the risks and objectives identified. We successfully loaded the company’s transactions into Chatham’s systems, including accounting treatments, journal entry balances, and valuation history, including CVAs. Chatham and the company worked in partnership to redesignate certain hedging instruments, apply methodologies that were more ideal for the goals and objectives of the company, and train the company treasury and finance staff in multiple areas.
From kickoff to complete implementation, including performance of parallel testing, the process took less than 4 months. Management’s goals were achieved and the company now has a seamless, easy to use, and best practice solution for all of their derivative needs.

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