by Helen Kane
The threat of a break from the Euro has been making headlines for the last few months.
Hedge Trackers has been evaluating the implications to your currency risks and specifically
the threats to special hedge accounting under ASC815. We recommend you evaluate any
currency pair involving the Euro in a cash flow hedge program against the following
recommendations.
1. Current documentation should indicate the specific countries whose Euro revenues/expenses are being hedged.
2. If the hedged sales/expenses are not resident in a single entity the layering of countries needs to be clear: e.g. we are hedging the first XXXX of EUR denominated expenses applied (daily) to Germany, then France, then Spain, then Italy.
3. Cash flow hedge probability should contemplate any uncertainty that a defection of the Euro may cause in corporate forecasts. Recall that Euro hedged items must be “probable of occurring” to continue special hedge accounting treatment.
This might be an appropriate time to consider “net investment hedging” under FAS133, as a hedge of assets (especially cash) held in foreign functional subsidiaries that might be at risk.
