Derivatives provide the most efficient way for organisations to protect themselves from the potential negative affects of market fluctuations, whether in foreign exchange, commodities or interest rates.

But, while the use of derivatives to hedge risk gives the financial insurance needed, it can also lead to accounting exposure, because under existing accounting standards businesses must report on balance sheet gains and losses resulting from derivative activity, based on fair market value (FMV).

In certain conditions, however, derivatives entered into solely to hedge underlying exposure can be treated using hedge accounting instead of investment accounting, thereby exempting the hedging instrument from current accounting standards.

SD’s tailor-made solution fits your specific accounting guidelines using the appropriate effectiveness-measuring method. Hedging effectiveness is measured following the necessary regulations while at the same time market data integrity is maintained through the use of SD’s own market data.

SD also provides Hedge Accounting consulting services – pre-hedging. Once a financial exposure is identified – such as expected revenue in a foreign currency, a floating-rate loan or volatility in the commodities market – SD can analyse the effectiveness of several hedging strategies – before the hedge is made, thus increasing the organisation’s effectiveness from both a financial and an accounting perspective.

Key benefits of SD’s Hedge Accounting solution include:

• Enhanced market data integrity
• Fair value systems modeling that is identical for asset pricing modules (SDX) and for hedging effectiveness services
• Cost effectiveness – since fair value already pertains to hedged items evaluation cycles are short and cost-effective
• Our wealth of experience that is designed to help you avoid improper financial presentation that may lead to a restatement requirement