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Updating Financial Statements for Codification

(Complete Article from the September '09 Newsletter)

The Hedge Accounting View 

In our June issue, we covered some of the motivations and implications of the FASB's Codification™ project. Effective July 1, codification must be implemented for 10-Qs and 10-Ks starting with any statement issued after the effective date. For many companies, this means Q3 of 2009. Here are some pointers to make the adoption easier, at least when it comes to derivatives accounting.

While the Codification™ recast all of US GAAP into this new reference system, there are a finite number of topics and sections that apply to corporate hedgers, specifically topics 806-860 are of interest to financial risk managers. For example, 815 covers derivative and hedging and most FAS 133 elements; 820 focuses on fair value measurement and disclosures per FAS 157, and 830 addresses foreign currency accounting. [For a more granular and very helpful breakdown, we note that Matthew Daniel of Citi wrote a very informative piece in Citi's CSG Monthly issue 53, July 2009. If you are a Citi client you may be able to get a copy of the publication; it contains a lot of practical advice on how to implement Codification within the hedge accounting world.]

Some of the key topics to read are contained within 815. There is codification of the precise documentation requirements for special hedge accounting detailed in 815-20-25 together with eligibility of hedged items and hedge instruments. Brand new is a section called "Implementation Guidance and Illustrations" offering relatively detailed examples (don't expect too much). Fair value and cash flow hedges are addressed independently in 815-25 and 30, respectively. Net investment hedging can be found in 815-35. The codification also contain useful examples and direct links to related guidance.

Effective September 2009, you and/or your auditors need to replace references to existing guidance with the correct number under Codification™. Helpfully, there's a cross referencing functionality, which makes the search for sections, topics and specific paragraph less burdensome.