Hedge accounting is the third phase in the IFRS 9 project. Under IFRS 9, hedge accounting is principles-based and replaces the rules-based accounting requirements of IAS 39, providing better support to the risk management function at financial institutions. The standard also supports investor relations, by allowing for enhanced disclosures about risk management activities in financial statements.

The model for hedge accounting under IFRS 9 is markedly different from the rules-based hedge accounting requirements of IAS 39, with enhanced disclosures on risk management activity. The new model more closely aligns accounting with risk management activities. The objective of this phase is to improve the ability of investors to understand risk management activities and to assess the amounts, timing and uncertainty of future cash flows. The new standard allows for a more holistic reflection of risk management activities in financial statements.

Oracle Financial Services Hedge Management and IFRS Valuations helps financial services institutions compute the fair value of financial instruments and manage effective hedge relationships. New IFRS and other regulatory requirements for documentation and transparency make traditional manual and silo-based processes used for these functions no longer practical.

Accounting for financial instruments is increasingly complicated in today’s volatile market, subject to frequent interest rate and other shocks. Oracle Financial Services Hedge Management and IFRS Valuations is a next-generation solution that is fully integrated with Oracle’s Financial Services Analytical Applications and which shares a common customer account level data model and application architecture.

With the solution, FSIs will have:

• A more process-driven capability to manage valuation and hedge, from a central location
• An open architecture framework that is fully auditable from front to back, and which caters to a fully documented and transparent hedge process stored throughout its life cycle
• Flexibility in the valuations process – FSIs will be able to classify a financial instrument into any of the prescribed valuation categories, and to reclassify on a need to basis; in addition, it provides for the ability to use effective interest rate (EIR) to calculate fair value, as well as robust and disciplined methods for discounted cash flow valuations, including multi-currency.
• A disciplined process to defining and documenting hedging relationships
• A common data model and cash flow valuation engine
• Ability to integrate with an FSI’s financial accounting hub and other accounting systems
• Powerful business intelligence analytics and reporting on valuation and hedge effectiveness