Akuntansi Derivatif dan Hedging

Akuntansi Derivatif dan Hedging Direktorat Jenderal Pengelolaan Utang

Presented : Dwi Martani

Agenda

DJPU J U

1.

Latar Belakang

2.

Akuntansi

3.

Standar Akuntansi

4 4.

Ilustrasi Transaksi

DJPU J U

Derivative e at e Secu Securities t es

Latar Belakang

Market risks

commodity price risk

interest rate risk

foreign currency risk

DJPU J U

Instrumen Keuangan

DJPU J U

Derivative Securities

Hedges adalah kontrak yang melindungi dari risiko pasar – misalnya, misalnya forward, forward options options, and swaps. swaps Derivative securities, or simply derivatives,

adalah kontrak yang nilainya diturunkan dari nilai aset lain atau item ekonomi tertentu – saham/stock, bond, commodity price, interest rate, or currency exchange rate Sulit untuk mencari derivatif yang benar-benar dapat melindungi diri dari risiko. Risiko Ri ik Æ ketidakpastian k tid k ti di masa mendatang d t Melindungi dari risiko = memastikan ketidakpastian. Kontrak lindung nilai memiliki risiko

DJPU J U

Derivative Financial Instruments

A derivative is a financial instrument that meets the following three criteria: Its value changes in response to a change in an “underlying”

Requires little or no initial investment

Settled at a future date

Scope Exemption: IAS 39:5 exempts contracts which meet the definition of a derivative from the standard if the contract is entered into to meet the entity’s usual purchase, sale or usage requirements Tan & Lee Chapter 9

©2009

6

Derivative Securities

DJPU J U

Instrumen keuangan atau kontrak lain dengan karakteristik:

Nilainya berubah akibat dari perubahan variabel yg mendasari (spt suku bunga, bunga harga, harga nilai tukar, dll). Tanpa investasi awal neto atau nilainya lebih k il dari kecil d i nilai il i kontrak k t k sejenis j i yang memberi b i pengaruh yang sama thd perubahan faktor pasar. Diselesaikan pd tgl tertentu di masa mendatang.

DJPU J U

Tujuan Akuntansi Hedging

DJPU J U

Klasifikasi Derivatif F Freestanding t di derivatif d i tif ( ti (option, forward contract, swap, future contract) t t) Embedded derivatif

DJPU J U


Example of derivative instruments and their underlying Types of derivative instruments

Underlying

Used by

Option contracts (call and put)

Security price

Producers, trading firms Producers firms, financial institutions, and speculators

Forward F d contracts t t e.g. foreign exchange forward contract

Foreign F i exchange rate

V i Various companies i

Future F t contracts t t e.g. commodity futures

Commodity C dit prices

Producers P d and d consumers

Swaps

Interest rate

Financial institutions

Tan & Lee Chapter 9

©2009

10

DJPU J U

Derivative Securities Derivatives e at es

Hedge Fair Value Hedge

Speculative Cash Flow Hedge

Foreign Currency Hedge

Fair Value Hedge

Cash Flow Hedge

Hedge of Net Investment in Foreign O Operation ti

DJPU J U


• Use of derivatives 1. Manage market risk 2. Reduce borrowing cost 3. Profit from trading or speculation

• Types of derivatives 1 For 1. Forward ard type t pe derivatives deri ati es such s ch as forward for ard contracts, contracts ffuture t re contracts and swaps 2. Option-type derivatives such as call and put options, caps and collars and warrants 3. Free standing derivatives 4. Embedded derivatives

Tan & Lee Chapter 9

©2009

12

DJPU J U

Forward Contracts

•

An agreement between two parties (counterparties) whereby one party agrees to buy and the other party agrees to sell a specified amount (notional amount) of an item at a fixed price (forward rate) for delivery at a specified future date (forward date)

•

Can either be a forward purchase contract or a forward sales contract, depending on the perspective of the counterparties

“A” Company

Sells Forward Contract

“Forward sales contract” Tan & Lee Chapter 9

“B” Company

“Forward purchase contract” ©2009

13

DJPU J U

Forward Contracts

• Not standardized contracts as they are not traded on an exchange – They entail counterparty risks – They are can be tailored to specific needs of counterparties – They involve lower transaction costs

• Fair value of forward contract: Notional x amount where

(‫׀‬Current forward rate – contracted forward rate ‫)׀‬ (1+r)

t

Contracted forward rate is forward rate fixed at inception

r = discount rate

Current forward rate is forward rate for remaining period to maturity

t = period to maturity

At inception date, the fair value of a forward contract is nil. Tan & Lee Chapter 9

©2009

14

DJPU J U

Future Contracts

•

A future contract is similar to a forward contract except that it is a standardized contract and is traded on an exchange

•

Futures contracts are marked-to-market and settled on a daily basis

•

Futures contracts require payment of a margin deposit which has to be maintained throughout the contract period

•

Wide range of exchange-traded future contracts – Commodity futures – Interest rate futures – Currencyy futures

Tan & Lee Chapter 9

©2009

15

DJPU J U

Option Contracts

•

Contract that gives holder the right but not the obligation to buy or sell a specified item at a specified price

•

2 type of option contracts 1. Call option – right, but not obligation to buy 2. Put option – right, but not obligation to sell

•

Can be American option (exercisable anytime to expiration) or European option (exercisable only on maturity date)

•

Can also be customized (not traded) or standard contract quoted on exchange (listed options)

Tan & Lee Chapter 9

©2009

16

Option Contracts

DJPU J U

•

Main features – Purchaser (holder) pays premium to seller (writer of option) – Holder has the right, but not obligation to perform; while write has obligation g to p perform – Asymmetrical pay-off profile • Holder has limited loss (due to premium) and unlimited gain • Writer has limited g gain and unlimited loss

Relationship between the strike price and the underlying Strike price> Underlying y g (spot price)

Strike price> Underlying y g (spot price)

Strike price> Underlying y g (spot price)

Holder of call option

Out-of-the-money

At-the-money

In-the-money

Holder of put option

In-the-money

At-the-money

Out-of-the-money

Tan & Lee Chapter 9

©2009

17

DJPU J U

•

Option Contracts

Fair value of option contract Fair value of an option = Intrinsic value + Time value

Listed options = quoted price Not traded options = Valuation model ( Black-Scholes model)

Diminishes over time Zero at expiration

Call option = Max [0, Notional amount x (Spot price – Strike Price) Put option = Max [0, Notional amount x (Strike price – Spot Price)

Tan & Lee Chapter 9

©2009

18

DJPU J U

•

Embedded Derivatives Derivative that is part of a hybrid financial instrument Hybrid Instrument Host Instrument Embedded derivative: Linked to underlying and change in underlying causes change in cash flow

•

Example is bond whose ultimate proceed are linked to price of commodity, such as oil, or to a consumer price index

Tan & Lee Chapter 9

©2009

19

DJPU J U

•

Split Accounting of Embedded Derivatives IAS 39 requires embedded derivatives to be separately recognized from the host instrument and accounted for in the same way as a stand-alone derivative if the following conditions are met:

Conditions for separation of embedded derivative Economic characteristics and risk of host instrument are not closely related to that of the derivative

Tan & Lee Chapter 9

There is a separate instrument with same terms as the embedded derivative

©2009

Hybrid instrument is not measured at fair value, with changes in fair value recognized in profit and loss

20

DJPU J U

Accounting for Derivatives

Default accounting treatment for derivatives under IAS 39: • Derivatives are classified under the Fair Value through Profit or Loss category and changes in their fair values are taken to income statement • Exception - when a derivative is designated as a hedge of an identified risk and the hedge is effective effective. In this case case, accounting for the derivative follows hedge accounting rules

Tan & Lee Chapter 9

©2009

21

DJPU J U

Accounting for Forward Contract At inception

During life of contract Dr Forward Contract (asset) Cr Gain on forward contract

No jjournal entry y as fair value is nil

Tan & Lee Chapter 9

Closing position or at expiration Dr Cash Cr Forward contract

or Dr Loss on forward contract Cr Forward Contract (liability)

Dr Forward contract

j fair value and Adjust record gain/loss

Close out and record net settlement of contract

©2009

Cr Cash

22

Accounting for Future Contract

DJPU J U

At inception

During life of contract Dr Cash Cr Gain on future contract

Dr Margin deposit Cr Cash

payment y of Record p initial margin deposit Tan & Lee Chapter 9

Closing position or at expiration Dr Cash Dr Gain on future f t re contract Cr Margin Contract

or Dr Loss on futures contract Cr Cash

Dr Cash Cr Loss on future contract Cr Margin Contract

Record dailyy settlement of future contracts

Close out and recover margin deposit

©2009

23

DJPU J U

Purchased Option Contract At inception

During life of contract Dr Option Contract Cr Gain on future contract

Dr Option contract (asset) Cr Cash

Closing position or at expiration Dr Cash* Dr Gain on option contract Cr Option Contract

or Dr Loss on futures contract Cr Option p Contract

Dr Cash* Cr Loss on option contract Cr Option Contract (* assume expires in-the-money)

payment y of Record p initial margin deposit Tan & Lee Chapter 9

Adjust j for fair value and record gain/loss ©2009

Close out and record net settlement of contract 24

DJPU J U

Written Option Contract At inception

During life of contract Dr Option Contract Cr Gain on future contract

Dr Cash Cr Option contract (liability)

or Dr Loss on futures contract Cr Option p Contract

Closing position or at expiration Dr Option contract Cr Gain on Option Contract (Expires out-of-themoney) Dr Option contract Dr Loss on option Cr Cash (Expires in-the-money)

Record p payment y of initial margin deposit Tan & Lee Chapter 9

Adjust j for fair value and record gain/loss ©2009

Close out and record net settlement of contract 25

DJPU J U

•

Hedging Propose is to neutralize an exposed risk – Loss on hedge item offset by gain on hedging instrument – Reduce volatility than preserve gains

•

Other ways of hedging through non-derivative derivatives – Money market instruments (money market hedge) – Natural hedge (offsetting foreign currency assets and liability in the same currency)

•

Special accounting rules called “hedge hedge accounting accounting” applies when derivatives are used for hedging purposes

Tan & Lee Chapter 9

©2009

26

DJPU J U

Rationale of Hedge Accounting

•

Arises because of the mismatch of income-offsetting income offsetting effect between hedged item and hedging instrument

•

Situations requiring hedge accounting – Hedge item and hedging instrument are measured using different bases (One is at cost while the other is at fair value) – Hedged item yet to be recognized in financial statement – Different treatment for changes in fair value (changes taken to equity while the other is taken to income statement)

Tan & Lee Chapter 9

©2009

27

DJPU J U

Risks That Qualify for Hedge Accounting

Interest rate risk

Foreign exchange risk

Spec c risks Specific s s that qualify for hedge accounting

Risks must be specific risk, not general business risks

Tan & Lee Chapter 9

Price risk

Credit risk

Possible for a derivative to hedge more than one risk

©2009

28

DJPU J U

Qualifying Hedging Instruments (IAS 39: 72 – 73)

• Instruments that qualify include: – D Designated i t dd derivatives i ti ((exceptt written itt options) ti ) – Embedded Derivatives – Designated non-derivatives financial asset/ liability that hedge f i exchange foreign h risks i k only l

• Value used to determine hedge effectiveness – If used in its entirety, fair value is used – If broken into time value and intrinsic value, permissible to use intrinsic value. However, it must be explicitly documented at inception

• If derivative is used as a hedge of more than 1 risk – Individual designated component must meet hedge accounting criteria – Permissible for portion of notional amount to be designated Tan & Lee Chapter 9

©2009

29

DJPU J U

Qualifying y g Hedged g Items (IAS 39: 78 -79)

Qualify

Do not qualify

•

Financial assets and liabilities with exposure to changes in fair value

•

Held-to-maturity instruments (regardless of fixed rate or variable rate)

•

Non-financial assets exposed to foreign exchange or price risks

•

Investment in an associated company

•

Firm commitment

•

Highly g yp probable forecast transaction with exposures to future cash flows

•

Net investment in foreign entity Tan & Lee Chapter 9

©2009

30

DJPU J U

Criteria for Hedge Accounting (IAS 39 39: 88)

C diti Conditions tto b be mett ffor h hedge d accounting ti tto apply l Enterprise must have exposure to risk that affects income statement Derivative contract specifically entered to hedge underlying exposure Hedge must be highly effective Effectiveness of hedge can be reliably measured Hedging relationship must be formally documented at the inception of the hedge Tan & Lee Chapter 9

©2009

31

DJPU J U

•

•

Assessing Hedge Effectiveness IAS 39:9 - The degree to which changes in the fair value or cash flows of the hedged item that is attributable to a hedged risk are offset by changes in the fair value or cash flow of the hedging instrument Hedge effectiveness is evaluated – Prospectively on inception of hedge; and – Retrospectively p y on an ongoing g g basis

•

On inception, hedge effectiveness is assessed on – Comparison of the principal or critical terms – Historical analysis – Correlation analysis

Tan & Lee Chapter 9

©2009

32

DJPU J U

Efektivitas Hedging

Efektifitas dihitung secara prospektif dan retrospektif H il aktual Hasil kt l berada b d dalam d l ki kisaran 80 125% Seluruh lindung nilai yang tidak efektif diakui dalam laporan L/R (termasuk ketidakefektifan dalam kisaran 80 -125%)

DJPU J U

Efektivitas Hedging

Risks must be identifiable Risk must be foreseeable Risk must be realisticallyy measured Precise attribution of hedging instrument to hedged g item Reason: p of hedging g g in financial report p should be Impact as neutral as possible

Kriteria & Dokumentasi

DJPU J U

Kriteria Tdpt kebijakan tertulis, tujuan manajemen risiko & strategi lindung nilai. Hubungan H b li d lindung nilai il i diharapkan dih k efektif f ktif utk tk saling li menghapuskan perubahan nilai wajar.

Dokumentasi

Identifikasi hedged items vs hedging instruments. Sifat risiko yang dilindungi Strategi manajemen risiko dan lindung nilai Penilaian efektifitas instrumen lindung nilai

DJPU J U

Assessing Hedge Effectiveness

•

During the duration of hedge, hedge effectiveness is assessed on dollar-offset method:

•

Hedge effectiveness ratio (HER):

Hedge effectiveness Changes in fair value or future cash flow of hedging instrument = (or delta ratio) Changes in fair value or future cash flow of hedged item 08 0.8

12 1.25

Effective hedge (IAS 39: AG 105b)

•

Exceptions for effective hedge even if HER falls out of range – IAS S 39 a allows o s hedge edge e effectiveness ect e ess to be assessed o on cu cumulative u at e bas basis s if hedge is designated and conditions are properly documented

Tan & Lee Chapter 9

©2009

36

DJPU J U

•

Assessing Hedge Effectiveness Exclusion of time value of certain derivatives to be excluded from hedge relationship – Derivative separated into 2 component 1. Time value (options) or interest (forwards) 2. Intrinsic (options) or spot element (forwards) – Excluded time value taken to income statement as per default treatment – Should result in highly effective hedge, as intrinsic/ spot component moves in tandem with underlying, while time/interest component does not – If critical terms of hedging instruments and hedged item are exactly the same, HER should be equal or around 1

Tan & Lee Chapter 9

©2009

37

DJPU J U

Classification of Hedging Relationships

Causes Fair value hedge

Cash flow hedge

Hedge of a net investment in a f i entity foreign tit Tan & Lee Chapter 9

Explanation Hedge of “the the exposure to changes in fair value of a recognized asset or liability or an unrecognized firm commitment, or an identified portion of such asset, liability or firm commitment, which is attributable to a particular risk i k and d could ld affect ff t profit fit or loss” l ” (IAS 39 39:86a) 86 ) Hedge of “the exposure to variability in cash flows that (i) is attributable to a particular risk associated with a recognized i d assett or liliability bilit ((such h as allll or some ffuture t interest payment on variable debt instrument )or a highly probable future transaction, and ((ii)) could affect p profit or loss” ((IAS 39:86b)) Hedge of the foreign currency risk associated with a foreign operation whose financial statements are required to be translated into the presentation currency of the parent company ©2009

38

DJPU J U

Classification of Hedging Relationships

•

The designation of a derivative as a fair value hedge or a cash flow hedge is determined by the hedged risk, that is, whether the entity has a fair value exposure or a cash flow exposure

•

An exception where a derivative can be designated as either a fair value hedge or a cash flow hedge is where the hedged risk is the foreign exchange risk of a firm commitment

Tan & Lee Chapter 9

©2009

39

DJPU J U

Accounting for a Fair Value Hedge

Hedged Item (recognized asset or liability or firm commitment)

Hedging Instruments

Change in fair value

Change in fair value Income statement Gain (loss) on hedging instrument offset loss (gain) on hedged item

Balance sheet Change in fair value adjusted against carrying amount Tan & Lee Chapter 9

Change in fair value adjusted against carrying amount ©2009

40

Illustration 1: Hedge of inventory (fair value hedge)

DJPU J U

Scenario 31/10/20x3 Inventory of 10,000 ounces of gold Carried at cost of $3 $3,000,000 000 000 ($300 per ounce) Price of gold was $352 per ounce

1/11/20x3 Sold forward contract on 10,000 10 000 ounce for forward price of $350 ounce Forward contract matures on 31/3/20x4

31/12/20x3 F Forward d price i ffor 31/3/20 31/3/20x4 4 contract t t was $340 per ounce and d spott price i of gold was $342 per ounce Hedge effective ratio of 1 on 31/12/20x3

Tan & Lee Chapter 9

©2009

41


DJPU J U

1/11/20x3 No entry or just a memorandum entry as the fair value of the forward contract is nil 31/12/20 3 31/12/20x3 Dr

Forward contract ……………….

Cr C

Gain on Ga o forward o a d contract co t act ……...

100,000 100,000 00,000

Gain on forward contract: 10,000 x ($340 -$350) Dr

Loss on inventory ………………

Cr

Inventory ………………………..

Taken to income statement

100 000 100,000 100,000

Gain on forward contract: 10,000 x ($342 - $352)

Tan & Lee Chapter 9

©2009

42


DJPU J U

31/3/20x4 Inventory y is sold to third-party p y at $ $330 p per ounce ((also maturity y date of forward contract Dr

Forward contract ……………….

Cr

Gain on forward contract ……...

100,000 100 000 100,000

Gain on forward contract: 10,000 x ($330 -$340) Dr

Loss on inventory ………………

Cr

Inventory ………………………..

120 000 120,000 120,000

Gain on forward contract: 10,000 x ($330 - $342) Dr

Cash ……………………………..

Cr

Sales …………………………….

3,300,000 3,300,000

Sale of inventory: 10,000 10 000 x $330 Tan & Lee Chapter 9

©2009

43

DJPU J U

Accounting for a Cash Flow Hedge Effective Cash Flow Hedge (IAS 39:95)

Effective portion of gain/ loss

Ineffective portion of gain/ loss

Recognized directly in equity through statement of changes in equity

Recognized in profit or loss

Tan & Lee Chapter 9

©2009

44

DJPU J U

Accounting for a Cash Flow Hedge Cash flo flow hedges are applicable to the following: follo ing

Forecasted transactions involving financial and d non-financial fi i l assets/liabilities which will result in cash inflow/ outflow

Tan & Lee Chapter 9

IInterest t t rate t swaps

©2009

Other transactions which affect future cash flows

45

Effective and ineffective portions

DJPU J U

Scenario 1/1/20 1 1/1/20x1 Entered into futures contract to hedged forecast transaction at 30/4/20x1 Classified as cash flow hedge Period ending

∆ in fair value of future contracts

∆ in present value of expected future cash flow

31/1/20x1

$100

$(105)

28/2/20x1

90

(80)

31/3/20x1

103

(105)

30/4/20x1

(38)

45

Tan & Lee Chapter 9

©2009

46

Illustration 2: DJPU J U

Effective and ineffective portions of a cash flow hedge

Determination of effective and ineffective portions of a cash flow hedge Effective Lesser of portion two credited/ cumulative (debited) amount in to equity in absolute current period terms (c) (

Ineffective portion credited/ (debited) to income statement in current period

Period ending

Cumulative ∆ in FV of future contracts (a)

Cumulative ∆ in PV of expected cash flow (b)

31/1/20x1

$100

$(105)

$100

$100

$0

28/2/20x1

190

((185))

185

85

5

31/3/20x1

293

(290)

290

105

(2)

30/4/20x1

255

(245)

245

(45)

7

Tan & Lee Chapter 9

©2009

47

DJPU J U

•

Hedge of a Net Investment i a Foreign in F i Entity E tit Hedge risk is foreign exchange risk – Applies to foreign operations whose functional currencies are the currencies of the country where the foreign operations are located – Closing g rate method may y result in significant g translation loss from depreciating currencies

•

Accounting g treatment similar to cash flow hedge g

Hedge effectiveness =

Cumulative change in fair value of hedging instrument (A) Cumulative translation difference on net investment (B)

– Hedge is effective if the delta ratio is between 0.8 and 1.25. – Unlike a fair value hedge or a cash flow hedge, a non-derivative is allowed to be the hedging instrument instrument, for example example, a foreign currency loan. Tan & Lee Chapter 9

©2009

48

DJPU J U

Hedge g of a Net Investment in a Foreign g Entity y

Scenario Functional currency is the dollar ($) Acquired 100% interest in foreign company (functional currency is FC)

31/12/20x3 Exchange rate is $1.85 to FC1 Loan of FC1 FC1,200,000 200 000 at 5% interest taken to hedge foreign investment Foreign currency translation reserves showed $15,000 (credit balance)

31/12/200x4 31/12/200 Exchange rate is $1.70 to FC1 Average rate is $1.78 to FC1 Foreign company reported net profit of FC380,000 Tan & Lee Chapter 9

©2009

49

DJPU J U

Hedge g of a Net Investment in a Foreign g Entity y

Translation difference in foreign investment’s FS for 31/12/20x4 On net assets on 1/1/20x4 (FC 1,200,000 x $(1.70-1.85) …….

$(180,000)

On net profit for 20x4 (FC380,000 x $(1.70-1.85) ……………..

(30,400)

Translation loss for 20x4

$(210,400)

Foreign currency translation reserves (credit balance)

(195,400)

Journal entries for parent 31/12/20x3 Dr

Cash ……………………………..

Cr

Loan payable …………………...

2 200 000 2,200,000 2,200,000

The loan payable is designated as a hedge of the net investment: FC1 200 000 x spott rate FC1,200,000 t off $1 $1.85 85 Tan & Lee Chapter 9

©2009

50

DJPU J U

Hedge of a Net Investment in a Foreign Entity

31/12/20x4 Dr

Interest expense p ……………….

Cr

Accrued interest ………………..

106,800 , 106,800

Interest expense during the year at 5% x FC1,200,000 x $1.78 Dr

Accrued interest ………………..

Cr

Cash ……………………………..

Cr

Exchange gain ………………….

106,800 102,000

Taken to equity 4 800 to 4,800 t offset ff t translation loss

Settlement of accrued interest at year-end Dr

Loan payable …………………...

Cr

Foreign currency translation reserves …………………………

180,000 180,000

Exchange gain on FC loan taken directly to equity: FC 1,200,000 x ($1.70 - $1.85) Tan & Lee Chapter 9

©2009

51

DJPU J U

Discontinuation or Termination of Hedge Accounting

Consideration for discontinuation or termination of hedge accounting

Hedging instrument has reached maturity date or is closed off or terminated

Criteria for hedge accounting is no longer met

Hedge designation is revoked

Accounting treatment depends on type of hedge

Tan & Lee Chapter 9

©2009

52

DJPU J U

Penghentian Lindung Nilai

DJPU J U

•

Evaluation of Hedge Accounting Objective of hedge accounting – Reflect effectiveness of hedging activities of a firm – Reduce volatility of reported earnings

•

Compliance with hedge accounting may result in considerable expenditure of resources

•

There are challenges in compliance with hedge accounting criteria for macro hedges

•

Issue is whether the additional costs of compliance more than offset the benefit of applying hedge accounting

Tan & Lee Chapter 9

©2009

54

DJPU J U

Referensi

Tan & Lee Advance Financial Accounting, ch 9: Accounting f Derivatives for D i ti and dH Hedge d A Accounting ti PSAK 50 dan 55 IAS 32 dan 39 International Financial Reporting Standards – Certificate Learning Material The Institute of Chartered Accountants Accountants, England and Wales Materi Public Hearing PSAK 55

[email protected] atau [email protected] 081318227080 / 08161932935 /