The Impact of Not Electing Hedge Accounting

Minneapolis, MN | August 24, 2023 | HedgeTalk Newsletter | By: John Trefethen, Director & Co-Founder

Table of Contents:

Market Moving Headlines
Interest Rates
Currencies
Commodities
Concept of the Week: Risk versus Speculation
Quote of the Week

Market Moving Headlines

US existing home sales fall to a 6-month low.
US new home sales jump to a 17-month high
Japanese Yen holds near a 9-month low.
Oil prices are down for the third session in a row.
US services activity expands the least in six months.
US factory sector shrinks more than expected.
US mortgage rates the highest since 2000.

Interest Rates

Green, grey, and white chart for US treasury market

Currencies

Commodities

Concept of the Week: the impact of not electing hedge accounting

Hedge accounting is a specialized and preferred accounting treatment that allows companies to mitigate the volatility in their financial statements that can result from value fluctuations in certain financial instruments used for hedging purposes. When companies do not use hedge accounting and instead account for hedging activities on a mark-to-market basis, several potential impacts can arise:

Earnings volatility
Income statement distortion
Inaccurate financial ratios
Risk management effectiveness is diminished
Impact on debt covenants
Investor confidence can wain
Higher cost of capital

It is important to note that the decision to use hedge accounting depends on a variety of factors including the company’s risk management objectives, the nature of its hedging activities, and the accounting standard it follows. Contact HedgeStar to help guide you through this important decision.