Financial Statement Outcomes When Alternative Derivative Hedging Designations Exist

When alternate reporting methods exist, financial statement preparers tend to select methods that provide more favorable results.  Certain hedging transactions may be designated as either a fair value hedge or a cash flow hedge.  Both designations achieve the objective of matching the gain <loss> on the derivative with the loss <gain> on the hedged item in the same reporting period.  However, the cash flow hedge accounting tends to create a greater appearance of equity volatility.

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Accounting for Derivatives and Hedging Activities: Comparison of Cash Flow versus Fair Value Hedge Accounting

Issues in Accounting Education ◽

10.2308/tnae.2008.23.1.13 ◽

2008 ◽

Vol 23 (1) ◽

pp. 13 ◽

Cited By ~ 1

Author(s):

Pamela A. Smith ◽

Mark J. Kohlbeck

Keyword(s):

Cash Flow ◽

Fair Value ◽

Hedge Accounting

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Accounting for Derivatives and Hedging Activities: Comparison of Cash Flow versus Fair Value Hedge Accounting

Issues in Accounting Education ◽

10.2308/iace.2008.23.1.103 ◽

2008 ◽

Vol 23 (1) ◽

pp. 103-117

Author(s):

Pamela A. Smith ◽

Mark J. Kohlbeck

Keyword(s):

Board Of Directors ◽

Cash Flow ◽

Fair Value ◽

Hedge Accounting ◽

Limited Experience

Warfield Company is considering hedging the risk associated with (1) an available-for-sale (AFS) security portfolio and (2) an anticipated purchase of oil. Warfield's Board of Directors has limited experience in this area and has requested that you summarize the accounting and reporting implications if these items are hedged. The hedged risk in these two transactions can be either the risk associated with the cash flow or the risk associated with changes in the fair value. The two risks are discussed in separate parts of the case.

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THE EFFECT OF FAIR VALUE IMPLEMENTATION ON CASH FLOW FORECASTING (CASE STUDY: BANKING COMPANY LISTED IN INDONESIAN STOCK EXCHANGE YEAR 2014-2015)

AKUNTABILITAS ◽

10.29259/ja.v11i1.8929 ◽

2019 ◽

Vol 11 (1) ◽

pp. 59-70

Author(s):

Riesa Morita Yuliasari ◽

Mukhtaruddin Mukhtaruddin ◽

Tertiarto Wahyudi

Keyword(s):

Cash Flow ◽

Quantitative Research ◽

Stock Exchange ◽

Secondary Data ◽

Sampling Technique ◽

Fair Value ◽

Financial Statement ◽

Historical Cost ◽

Cash Flow Forecasting

This study has one main objectives; to investigate about the significant effect of fair value implementation in forecasting cash flow on Banking Company in Indonesia. The methodology used in this research is quantitative research, so the data are collected from secondary data by using purposive sampling technique of Banking Company’s Financial Statement uploaded in Indonesian Stock Exchange which related to this research. The number of sample in this research are 36 financial statement of Banking Company in Indonesia for year 2014 and 2015 consist of 18 financial statement that implement fair value and 18 financial statement that still implement historical cost. The results of this study show that the implementation of fair value does significantly influence cash flow forecasting of Banking Company in Indonesia.

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An Analysis Of Factors Impacting The Value-Relevance Of SFAS No. 107 Fair Value Disclosures

Journal of Business & Economics Research (JBER) ◽

10.19030/jber.v1i4.2995 ◽

2011 ◽

Vol 1 (4) ◽

Author(s):

Daniel R. Brickner

Keyword(s):

Value Relevance ◽

Fair Value ◽

Relative Magnitude ◽

Financial Statement ◽

Font Size ◽

Historical Cost ◽

Financial Condition ◽

The Difference

This study examines the impact of hypothesized factors on the value-relevance of SFAS No. 107 fair value disclosures.  These factors include firm size, the relative magnitude of the difference between the fair value and the historical cost measurements for each financial instrument, firm financial condition, and the quality of a firm’s financial statement audit.  A pooled valuation model is employed on the sample of 867 firm years for banks and bank holding companies during the period of 1996 and 1997.   The results indicate that the SFAS No. 107 fair value disclosures for investment securities, net loans, and long-term debt are value-relevant in explaining the market value of common equity for the sample banks.  With respect to the hypothesized factors, firm size was found to have a statistically significant impact on the value-relevance of the disclosures for net loans and long-term debt.  Additionally, the relative magnitude of the difference between the fair value and historical cost had a statistically significant effect on the value-relevance of the disclosure for investment securities and long-term debt.  Finally, firm financial condition and the quality of a firm’s audit were found to have a statistically significant impact on the fair value disclosure for net loans.  The results of this study are descriptive of the behavior of financial statement users with respect to these fair value disclosures.  The implications of this study’s findings are useful for both accounting standard-setters and preparers of financial statements.  Taken together, these findings suggest that the market does not respond to the SFAS No. 107 fair value disclosures at their face value alone or without considering their context.  Specifically, it appears to look to other factors that may impact the relevance and/or reliability of these disclosures.

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Issues of Hedge Accounting in IFRS in Consolidated financial Statement

Accounting Analysis Auditing ◽

10.26794/2408-9303-2019-6-1-40-49 ◽

2019 ◽

Vol 6 (1) ◽

pp. 40-49 ◽

Cited By ~ 1

Author(s):

A. Yu. Kuzmin

Keyword(s):

Fair Value ◽

Parent Company ◽

Financial Statement ◽

Practical Implementation ◽

Financial Risks ◽

Negative Consequences ◽

General Group ◽

Typical Situation ◽

Evaluation Procedures ◽

Hedge Accounting

In consolidated accounting the reflection of the financial results of the valuation and the accounting processes can present a challenge. That requires the development of special procedures of the joint accounting of financial results of the hedging that are consistent with the provisions of IFRS.There is a typical situation, characterized by the following components: internal hedging operations initiated by subsidiaries to the parent company create open positions with different parameters for the parent company; maternal unit of the company responsible for the management of financial risks at the general group level, in order to eliminate the negative consequences of the changes of conditions for the groups in the market, can hedge transactions by buying a single forward contract with significantly different from intra-group transactions parameters.The need to develop special procedures of joint financial hedging results, consistent with the provisions of certain IFRS standards has been proven in the article. Within the limits of tasks there have been designed and documented evaluation procedures for joint accounts for hedge accounting fair value and cash flow hedging contracts groups formed as a purely financial articles, and non-financial articles. With a view to the practical implementation of the evaluation procedures there have been proposed the methods of assessment of corresponding objects of accounting as well as the aspects of hedge effectiveness criteria have been investigated.

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Hedge Accounting and Market Value of Quoted Manufacturing Firms in Nigeria: Panel Data Evidence

International Journal of Accounting & Finance Review ◽

10.46281/ijafr.v2i1.20 ◽

2018 ◽

Vol 2 (1) ◽

pp. 21-38

Author(s):

Alasin Captain Briggs

Keyword(s):

Panel Data ◽

Cash Flow ◽

Significant Relationship ◽

Oil And Gas ◽

Market Value ◽

Fair Value ◽

Business Environment ◽

Cross Sectional ◽

Hedge Accounting ◽

Oil And Gas Firms

In a developing economy such as Nigeria, the business environment is characterized with risk that affects the operational efficiency and the performance of quoted firms. There is needed to make policies that will hedge against risk in the operating environment. This study examined the effect of hedge accounting on the market value of quoted oil and gas firms. A sample of 10 oil and gas firms was selected based on data quality and availability to address the requirements of the variables in the regression model. The study modeled market value as linear function of cash flow hedging, investment hedging and fair value hedging. Cross sectional data was sources from financial statement of the selected firms from 2011 to 2016. From the panel data result, (Fixed Effect Model) the study found that cash flow hedging have positive and significant relationship with market value while fair value hedging and investment hedging have positive but not significant relationship with market value of the quoted oil and gas firms. We therefore recommend that hedge accounting policies should be properly integrated to the operational objectives of the firms.

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PENGARUH MANAJEMEN LABA TERHADAP ABNORMAL RETURN

Jurnal Kajian Akuntansi dan Auditing ◽

10.37301/jkaa.v0i0.4842 ◽

2009 ◽

Author(s):

Zirman Zirman ◽

Lily Lily

Keyword(s):

Earnings Management ◽

Cash Flow ◽

Significant Influence ◽

Stock Price ◽

Abnormal Return ◽

Real Earnings Management ◽

Financial Statement ◽

Discretionary Accrual ◽

Stock Price Reaction ◽

Flow Components

This research investigates the consequence of earnings management by analyzing stock price reaction to the full set financial statement in 2008 which can be used by investors to detect earnings management by the firms. This research investigated two forms of earnings management (accrual and real earnings management). The samples is drawn from firms in IDX Statistic 2008 which categorized as active in frequency, value or volume. The method of analysis of this research used multi regression. The results show (1) discretionary accrual had negative significant influence to abnormal return, (2) abnormal cash flow from operation had negative significant influence to abnormal return. The results implicate that the investors are aware of the accrual earnings management (discretionary accrual) and real earnings management (abnormal cash flow) components in the earnings reported by the firms and they react negative to this components.

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Market Pricing of SFAS 133 Cash Flow Hedge Accounting and U.S. Multinationals' Derivatives Use

SSRN Electronic Journal ◽

10.2139/ssrn.1266786 ◽

2008 ◽

Author(s):

Stephen D. Makar ◽

Li Wang ◽

Pervaiz Alam

Keyword(s):

Cash Flow ◽

Market Pricing ◽

Hedge Accounting ◽

Sfas 133

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SFAS No. 123 Disclosures and Discounted Cash Flow Valuation

Accounting Horizons ◽

10.2308/acch.2000.14.2.169 ◽

2000 ◽

Vol 14 (2) ◽

pp. 169-189 ◽

Cited By ~ 12

Author(s):

Leonard C. Soffer

Keyword(s):

Cash Flow ◽

Stock Options ◽

Stock Option ◽

Financial Statement ◽

Employee Stock Options ◽

Financial Statement Analysis ◽

Discounted Cash Flow ◽

Employee Stock Option ◽

Valuation Technique ◽

Discounted Cash Flow Valuation

One of the cornerstones of financial statement analysis is the discounted cash flow valuation. Despite the broad use of this valuation technique, and the economic importance of employee stock options to firm values, there is little guidance on how employee stock options should be incorporated in a valuation. This paper provides a comprehensive approach to doing so, including consideration of the income tax implications of option exercises, the simultaneity of equity and option valuation, and the use of the disclosures that were mandated recently by Statement of Financial Accounting Standards No. 123. The paper provides a comprehensive example using Microsoft's fiscal 1997 financial statements and employee stock option disclosure. This paper should be of interest to academics and practitioners involved in corporate valuation and financial statement analysis.

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Determinants and Consequences of Firms' Derivative Accounting Decisions

Journal of Financial Reporting ◽

10.2308/jfr-2019-0014 ◽

2020 ◽

Vol 5 (1) ◽

pp. 81-114 ◽

Cited By ~ 1

Author(s):

Spencer Pierce

Keyword(s):

Financial Reporting ◽

Accounting Standards ◽

Fair Value ◽

Financial Accounting ◽

Firm Risk ◽

Accounting Firms ◽

Earnings Volatility ◽

Hedge Accounting ◽

Reported Earnings ◽

Jel Classifications

ABSTRACTFinancial accounting standards require derivatives to be recognized at fair value with changes in value recognized immediately in earnings. However, if specified criteria are met, firms may use an alternative accounting treatment, hedge accounting, which is intended to better represent the underlying economics of firms' derivative use. Using FAS 161 disclosures, I examine determinants of hedge accounting use and the effects of hedge accounting on financial reporting and capital markets. I find variation in firms' hedge accounting use and provide evidence that compliance costs of applying hedge accounting affect firms' decision to use hedge accounting. Firms decrease their reported earnings volatility via derivatives that receive hedge accounting and could further decrease their earnings volatility if hedge accounting were applied to all their derivatives. Inconsistent with arguments given for using hedge accounting, I fail to find a decrease in investors' assessments of firm risk from using hedge accounting.JEL Classifications: M40; M41; G32.

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