Fair Value Accounting

IAS 39 and FASB 133

Agenda Program
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Prague, NH Hotel Prague
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General Introduction to Fair Value Accounting
FASB 133, IAS 39 and other Important Standards
Treatment of Loans and Bonds
Treatment of Derivatives
Fair Value Hedges and Cash Flow Hedges
Macro Hedging
Treatment of Embedded Derivatives
Treatment of Asset Securitisation
The objective of this seminar is to give you a good understanding of important accounting and valuation issues related to loans, securities and other banking products.

First, we shall give a general introduction to fair value accounting, explaining the concept of "Fair Value", and we discuss the overall implications of fair value accounting for the income statement and the balance sheet.

We then take a closer look at the main accounting principles that govern financial reporting. Our main focus will be US GAAP and IAS, in particular the standards FASB 115, FASB133 and IAS39 that all relate to financial and derivative instruments. We discuss the differences in the treatment of assets and liabilities classified as "trading", "available for sale" and "held to maturity", and we carefully explain the exact meanings of "fair value accounting", "hedge accounting" etc. We also explain and discuss the controversial issue of "macro hedging", which has led to a dispute between the accounting standard setters and the EU Commission.

We then look in more detail into how fair value is calculated for selected financial instruments such as bonds, loans, leasing transactions, repos and derivatives. In each case, we explain how the valuation (and changes in the valuation) flows into the P&L and balance sheet statements, using a real-life financial report from a global bank as a practical case study.

Moreover, we also look at the treatment of foreign exchange transactions and of complex instruments with embedded derivatives. Finally, we explain how "Asset Securitization" and other structured finance products are valued and treated for accounting purposes.

Program of the seminar: Fair Value Accounting

The seminar timetable follows Central European Time (CET).

09.00 - 09.15 Welcome and Introduction

09.15 - 12.00 General Introduction to Fair Value Accounting

  • The Purpose of Accounting and Valuation
  • Overview of Accounting Principles
    • Cost based accounting
    • Accrual accounting
    • Fair value accounting
  • Pros and Cons of Using �Fair Value� Accounting

International Accounting Standards

  • Important US GAAP Standards Related to Financial Instruments
    • FAS 115 and FAS 133
  • Important IAS Standards Related to Financial Instruments
    • IAS 30, IAS 32, and IAS 39

12.00 - 13.00 Lunch

13.00 - 16.30 Treatment of Loans and Non-Derivative Securities

  • Treatment of Loans
    • The amortized cost principle
    • Case: Treatment of loan in �banking book�
  • Treatment of Bonds
    • Classification as held for trading, available for sale or held to maturity
    • Calculating fair value for securities
    • Treatment of realized and unrealized capital gains
    • Recognition of impairment
    • Case: Zero Coupon Bond
    • Case: Coupon Bond
  • Treatment of Stocks and other Equity Instruments
  • Exercises

09.00 - 09.15 Recap

09.15 - 12.00 Treatment of Derivatives

  • Derivatives Defined According to IAS 39 and FAS 133
  • General Rules for Treatment of Derivatives
    • Trading positions
    • Hedge accounting
  • General Principles for Valuation of Derivatives
    • Valuation of �forwards� and �options�
  • Treatment of Pure Trading Positions in Derivatives (Cases)
    • FX Forwards
    • FRAs
    • Bond Forwards and Futures
    • Swaps
    • Interest Rate Options
    • FX, Equity and Bond Options
    • Credit Derivatives
  • Exercises

12.00 - 13.00 Lunch

13.00 - 16.30 Hedge Accounting

  • What Is �Hedge Accounting�?
  • Criteria for Using Hedge Accounting
  • Types of Hedges
    • Fair value hedge
    • Cash flow hedge
    • Hedge of a net investment in foreign entity
  • Rules for Testing Hedge Efficiency
  • Cases
    • Hedging FX risk using fair value and cash flow hedges (forwards and options)
    • Fair value hedge of fixed-rate interest-bearing debt
    • Cash flow hedge of forecasted interest payments with an interest rate swap
  • Exercises

09.00 - 09.15 Recap

09.15 - 12.00 Macro Hedging

  • What Is a �Macro Hedge�?
  • How Banks Use Swaps and Other Derivatives to Hedge the Banking Book
  • IAS Criteria for Macro Hedging
  • The EU Implemented Rules
  • Case
    • Macro hedging of banking book (loans and deposits)
  • Exercise

Treatment of Embedded Derivatives

  • Criteria for Separation of Embedded Derivative from Host Contract
  • Examples Illustrating Application of the Clearly-and- Closely-Related Criterion to Derivative Instruments Embedded in Hybrid Instruments
  • Exercise

12.00 - 13.00 Lunch

13.00 - 16.00 Treatment of Asset Securitisation

  • General Introduction to Asset Securitization
  • Critical issues in Accounting for Securitizations
    • �True Sale�
    • �Retained Interest�
  • The Accounting Framework
    • Accounting for transfers and servicing
    • Measurement (valuation)
    • Treatment of synthetic securitizations
  • Cases and Examples
  • Exercises

Evaluation and Termination of the Seminar

Training catalogue in PDF
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