By Lisa Wallace
Year-end audit is fast approaching for many companies. In preparing for an audit of your hedge accounting program, keep in mind the following key control areas:
- Have all derivatives, including embedded derivatives, been identified?
- Are all derivatives on balance sheet at fair value?
- Are the values in OCI reconcile-able to future transactions?
- Is the hedge documentation complete and easily accessible?
- Have the effectiveness tests been completed in accordance with the documentation?
- Are the hedged transactions still probable of occurring?
- Have gains and losses been released to income when the hedged item impacted earnings and consistent with documentation?
- Have the necessary disclosures, including tabular and non-tabular requirements, been met? (See ASC 815)
We suggest that you strongly encourage the auditors to begin looking at derivatives and hedge accounting issues early in the audit (preferably at interim). Too often this is an area that is addressed at the very end of the audit when potential issues can easily turn into a last-minute crisis.
