Great class, broke down the complex FAS 133 requirements into chewable sizes.

Susan Tuey, Financial Reporting Manager, Science Applications International Corp., San Diego, CA

Applying SFAS 133: Accounting for Derivative Instruments and Hedging Activities

One and one half days — 12 CPE Credits

The most difficult accounting standard in history demands crystal clear explanation! This course has helped hundreds of participants learn the building blocks of derivatives accounting from the ground up plus many practical tips for smooth implementation. With the help of a brilliant instructor, you will be ready to tackle this complex standard. Together with the course manual, you will receive a copy of the FASB's latest compilation of SFAS 133 with its related amendments and a copy of SFAS 161.

Topics include:

• An Overview of SFAS 133

• SFAS 133 Definition of a Derivative Instrument

• Accounting Principles for Derivative Instruments

• Hedging Activities

• Fair Value Hedges

• Cash Flow Hedges

• Foreign Currency Hedges

• Hedge Documentation

• Disclosure, including SFAS 161

Course Schedule

Day 1

8:30 - 9:00 a.m. – Registration/Continental Breakfast

9:00 - 9:10 a.m. – Introduction and Overview of the Course

• Big picture and schedule for the day
• Preview the major issues with which you will have to grapple

9:10 - 9:45 a.m. – An Overview of SFAS 133 as Amended

• Objectives of the pronouncement
  • Why did the FASB adopt this approach?
• Key risks and pitfalls
• Effective date
• Fundamental assumptions of the pronouncement
  • Fair value treatment
  • Hedge criteria – why are they fairly limiting?
  • Rationale for these fundamental assumptions
  • Controversy and history
• Derivative accounting issues
  • Examples (forward contract and interest rate swap)
  • GAAP for derivatives as established in SFAS 133
• Hedge accounting
  • Current GAAP for hedging activities
  • GAAP for hedging as established in SFAS 133
  • Other comprehensive income treatment
  • Other comprehensive income treatment for cash flow hedges
• Transition issues
• SEC comments to date on SFAS 133
• Revisions from the DIG

9:45 - 10:30 a.m. – SFAS 133 Definition of a Derivative Instrument

• Underlyings
  • Value derived from a price, index, etc.
  • Commodity contracts and related issues
  • Change in value of derivative versus change in price of underlying
• Notional amount
• Initial net investment
  • Minimal amount
• Net settlement – a key element of the definition
  • When is settlement net?
  • When is net settlement possible?
• Embedded derivatives
  • Determining appropriate accounting for embedded derivatives
  • When to separate
• Which instruments are not derivatives?
• “Normal purchases and sales” and other items excluded from the definition
• Examples

10:30 - 10:45 a.m. – Break

10:45 - 11:15 a.m. – Accounting Principles for Derivative Instruments

• Fair Value
• Basis for Fair Value Accounting
• Impact of FASB’s SFAC 7 on present value computations
• Future impact of FASB’s fair value project
• Measurement of unrealized gains and losses
• Accounting treatment of unrealized gains and losses
  • Current income
  • Hedging activities
  • Other comprehensive income treatment in specific cases for cash flow hedge

11:15 - Noon – Hedging Activities

• Definitions
• Documentation requirements
• Documentation in risk management policy
• Importance of assessing effectiveness
• Details of criteria to be met to qualify for hedge accounting
  • Hedged item, derivative, nature of hedged risk
• How to assess effectiveness
  • Examples
  • Quantitative tools required
• Impact on reported earnings and volatility
  • What if anything can be done?
• Guidance from the FASB
• The Derivative Implementation Group
• Where is SFAS 133 likely to deny hedge treatment
• Impact of the FASB's exposure draft for hedge accounting

Noon - 1:00 p.m. – Luncheon

1:00 - 2:45 p.m. – Fair Value Hedges in Detail

• Definition
• Example hedging transaction, strategy and implementation Accounting
• Current earnings for derivative and hedged item
• Examples and case studies

2:45 - 3:00 p.m. – Break

3:00 - 5:00 p.m. –  Cash Flow Hedges in Detail

• Definition
• Example hedging transaction, strategy and implementation Accounting
• Comprehensive income treatment
• Examples and case studies

5:00 - 6:30 p.m. – Cocktail Party for Participants and their Guests

Day 2

8 - 8:30 a.m. – Continental Breakfast

8:30 - 10:45 a.m. – Foreign Currency Hedges

• Definition
• Changes from SFAS 138
• Hedging foreign currency assets and liabilities
• Intercompany transactions that can be hedged
• Example of a hedging transaction, strategy and implementation Accounting
• Comprehensive income treatment
• Examples and case study

10:45 - 11:00 a.m. – Break

11:00 - 11:30 a.m. – Disclosures and SFAS 161

• Gathering information for disclosure requirements
• Effective date and estimating the time to prepare
• Accounting system impact
• Relationship to risk management strategy

11:30 - Noon – Questions and Answers, Concluding Issues

Course Objective: To learn the requirements of SFAS 133, Accounting for Derivative Instruments and Hedging Activities, and to learn how to implement this new standard.
Prerequisites/Advance Preparation: None.
Experience level: Intermediate.

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