Unbundling Hedge Execution From Hedge Accounting: An À La Carte Approach

Many organizations prefer to execute their own hedges but find that hedge accounting, the most technical and time-intensive part of the process, can strain resources.  HedgeStar makes it easy to separate the two.  Clients can continue managing hedge strategy and trade execution in-house while outsourcing some or all of the hedge accounting work, from initial program setup to ongoing effectiveness testing, valuations, and audit-ready reporting.  This à la carte model provides maximum flexibility: outsource only the tasks that make sense, keep control where you want it, and scale services up or down as business needs evolve.  You pay only for what you use, with no requirement to bundle hedge execution and accounting.

Why Hedge Accounting Creates Challenges

To get the benefits of hedge accounting and minimize earnings volatility, hedge accounting requires more than just understanding the standards. It involves:

• Specific creation, setup and documentation to accomplish and maintain compliance with ASC 815, IFRS 9, or GASB 53.
• Continuous effectiveness testing to prove that hedges are working as planned and are compliant with the applicable accounting standard, whether it be ASC 815, IFRS 9, or GASB 53.
• Accurate valuations and reporting to ensure controls are in place for collateral management and that financial statements are audit-ready.

Hedge accounting is a highly specialized and complex discipline that demands deep technical expertise.  It requires access to precise financial and market data, the ability to accurately value a wide range of derivative instruments, and strong statistical analysis skills to ensure compliance with accounting standards.  Because of its specialized nature and the resources required to perform it correctly, hedge accounting is particularly well suited to being outsourced to dedicated specialists who focus exclusively on this intricate area of financial risk management.

A Flexible Approach to Outsourcing Your Hedge Accounting

Unlike many providers, HedgeStar does not require clients to bundle hedging and hedge accounting services together.  We understand that many organizations are comfortable managing their own hedging activities, however still value an independent partner that specializes in hedge accounting to handle the derivative accounting to help streamline their process.

HedgeStar provides flexible, à la carte hedge accounting services.  Not only does HedgeStar not require our clients to turn over hedge execution to us, we also allow clients to engage for a single component or for comprehensive hedge accounting services as needed.  HedgeStar’s approach is designed to fit seamlessly with a client’s existing processes and provide the level of assistance that best suits their needs.

Benefits of Outsourcing Your Hedge Accounting

Outsourced hedge accounting services are designed to reduce complexity while ensuring compliance and accuracy. Depending on your needs, you can select from:

• Initial program setup – Comprehensive documentation and structure to ensure hedges qualify for hedge-accounting treatment from the outset.
• Ongoing hedge-effectiveness testing – Scheduled evaluations to confirm hedges continue to meet all accounting and compliance requirements.
• Valuations and reporting – Independent daily mark-to-market valuations and CVA/DVA fair-value calculations to support collateral monitoring, management oversight, and external audits.
• General ledger balances and reconciliations – Accurate posting and periodic reconciliation of hedge-related entries to maintain integrity of the G/L and financial statements.

This à la carte model gives you the freedom to outsource only what makes sense for your team, without paying for unnecessary add-ons.

Hedging Made Simple

HedgeStar’s approach lets clients execute their own hedges while outsourcing as much, or as little, of the hedge accounting as they choose.  Whether a client needs help with select technical tasks or a full suite of services, we can tailor the arrangement to fit their workflow.  This flexibility allows clients to offload the time-consuming or specialized steps that make sense for their situation, retain control where they prefer, and scale services up or down as the business evolves.  Clients pay only for what they need, never for bundled extras.  After all, HedgeStar’s motto is Hedging Made Simple!

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About HedgeStar

Founded in 2004, HedgeStar is a leading independent provider of outsourced valuation and independent hedge accounting services for financial instruments including interest rate, currency, and commodity derivatives. HedgeStar provides derivative fair value calculations, cash flow hedge accounting, fair value hedge accounting, and risk management services.

The HedgeStar team is comprised of valuation experts, Certified Public Accountants (CPAs), and hedging program professionals. We deliver our services with a personal touch. We understand our clients and their portfolios and are an extension of their risk, finance and accounting departments. We strive to live by our core values every day.