A number of firms recognized that non-derivative hedging
techniques can also be highly effective.
Further, taxpayers frequently change their hedging
strategies; thus, hedge identifications or policies may not cover newly implemented hedging
Prior to the issuance of the final hedging
regulations,(2) significant controversies arose between the IRS and taxpayers about the fundamental definition of, and requirements for, a hedging
transaction for tax purposes -- especially in the aftermath of the 1988 U.
90, the company looked like it did a great job beating the budget rate, but it could have achieved it without hedging
In reviewing hedging
transactions, it is also advisable to assess whether they were properly identified, as required by Regs.
We believe that the diversity and training of our members enable us to bring an important, balanced, and practical perspective to the issues raised by the proposed regulations relating to the income tax treatment to be accorded to hedging
transactions effected on a consolidated, and generally, "net" basis.
Perhaps that thinking helps explain the curious case of Peugeot-Citroen, whose CFO, Yann Delabriere, insisted that there would be no currency hedging
on his watch, even as a strengthening euro was cutting margins in Peugeot's automotive division by 41.
I would expect that many companies, particularly smaller institutions, just assumed that their hedging
strategies were at least 80% effective without actually calculating the correlation rate, and their outside accountants were reluctant to challenge their clients on the issue of documentation.
446-4(b) provides that the accounting method applied to hedging
transactions must clearly reflect income, and therefore must reasonably match the timing of items from the hedge with items from the instrument being hedged.
We believe that the diversity and training of our members enable us to bring an important, balanced, and practical perspective to the issues raised by the temporary and proposed regulations relating to the income tax treatment to be accorded to hedging
92--Auditing Derivative Instruments, Hedging
Activities, and Investments in Securities(1) (Supersedes Statement on Auditing Standards No.
Significant uncertainty regarding the character of gains and losses from hedging
transactions has existed since the Supreme Court's decision in Arkansas Best Corp.
Given the stepped-up regulatory, public and media scrutiny, it's crucial for you to evaluate which risks your company hedges and how you account for your hedging