Background documentationHA Rule 500: Hedge Adjustment OCI / Write-Ups and Write-Downs P&L

 

The HA rule 500 Hedge Adjustment OCI / Write-Ups and Write-Downs P&L is used in the following hedging scenarios:

  • 710 CFH: Security Hedged with Interest Rate Swap

  • 720 CFH: Loan Hedged with Interest Rate Swap

Prerequisites

In Customizing for the Transaction Manager under Start of the navigation path General Settings Next navigation step Accounting End of the navigation path, you need to make the required settings for the valuation in the following Customizing activities:

  • In the Customizing activity Assign Update Types for Valuation, assign the update types to be used for the flows of the valuation (such as for the write-ups and write-downs).

  • In Customizing activity Assign Alternative Update Types for Position Outflows, enter the alternative update types for posting the hedge adjustment (condition: P-HA: Hedge Adjustment).

  • In the Customizing activity Assign Update Types for Derived Business Transactions, define the update types for the classification in the P-Hedge Accounting: Classification area.

Features

Valuation Before the Start of a Hedging Relationship

Amortizations are assigned to the position component 1007 (= Amortization).

Write-ups and write-downs in the security are written to the position component 1002 (= Security Valuation).

The update type is determined on the basis of the settings made in the Customizing activity Assign Update Types for Valuation.

Valuation at the Start of the Hedging Relationship (Designation)

During a designation, transfer postings are made from the free-standing subpositions to the hedged subpositions or to the subpositions to be hedged. Before these transfer postings are made, the free-standing subpositions are valuated as part of a derived business transaction. Valuation at the start of the hedging relationship uses the same procedure as valuation before the start of the hedging relationship.

Valuations During the Hedging Relationship

Valuations during hedging relationships are performed as key date valuations (transaction TPM1) or as part of derived business transactions. Examples of valuations as part of derived business transactions are the valuations for designation and dedesignation.

With a key date valuation, a check is run as to whether the hedging relationship is effective both retrospectively and prospectively.

The result of the valuation can only be posted if effectiveness is given.

In the case of ineffectiveness, the hedging relationship has to be dedesignated manually. Valuations as part of derived business transactions also affect business transactions in the future (for example, with a designation, valuation is performed at the time of the dedesignation). For this reason, the existence of a valid effectiveness test is not a prerequisite for creating the derived business transaction. Consequently, valuation as part of a derived business transaction can also be performed for an ineffective hedging relationship. However, at the time when you fix the derived business transaction, the hedging relationship must be effective. In the case of ineffectiveness, the hedging relationship has to be dedesignated manually (see also: Dedesignation of an Ineffective Hedging Relationship).

  • Hedging Instrument Valuation

    • In the case of effectiveness

      Write-ups and write-downs in the security are divided into an effective part and an ineffective part. For this, the value change of the hedging instrument is classified with the value change of the hedged item.

      The effective write-up/write-down amount is written to the position component 1301 (= Hedge Adjustment). The update type is determined using the settings made in the Customizing activity Assign Update Types for Valuation and can be overwritten with a different update type using the Customizing activity Alternative Update Types for Position Outflows (condition: P-Hedge Accounting: Hedge Adjustment). This enables you to post the hedge adjustment to a separate account.

      In addition, a separate posting item is used to write the effective write-up/write-down amount to the position component 1303 (= Effective). The system determines the update type using the settings in the Customizing activity Assign Update Types for Derived Business Transactions in the P-Hedge Accounting: Classification area.

      The ineffective write-up/write-down amount is written to the position component 1002 (= Security Valuation). The update type is determined on the basis of the settings made in the Customizing activity Assign Update Types for Valuation. In addition, a separate posting item is used to write the ineffective write-up/write-down amount to the position component 1304 (= Ineffective). The system determines the update type using the settings in the Customizing activity Assign Update Types for Derived Business Transactions in the P-Hedge Accounting: Classification area.

    • In the case of ineffectiveness

      Amortizations are assigned to the position component 1007 (= Amortization). The update type is determined on the basis of the settings made in the Customizing activity Assign Update Types for Valuation.

      Write-ups and write-downs in the security are divided into an effective part and an ineffective part. For this, the value change of the hedging instrument is classified with the value change of the hedged item. A detailed log for the valuation log shows how the split of the valuation result is achieved.

      The effective write-up/write-down amount is written to the position component 1002 (= Security Valuation). The update type is determined on the basis of the settings made in the Customizing activity Assign Update Types for Valuation. In addition, a separate posting item is used to write the effective write-up/write-down amount to the position component 1303 (= Effective). The system determines the update type using the settings in the Customizing activity Assign Update Types for Derived Business Transactions in the P-Hedge Accounting: Classification area.

      The ineffective write-up/write-down amount is written to the position component 1002 (= Security Valuation). The update type is determined on the basis of the settings made in the Customizing activity Assign Update Types for Valuation. In addition, the ineffective write-up/write-down amount is written to the position component 1304 (= Ineffective). The system determines the update type using the settings in the Customizing activity Assign Update Types for Derived Business Transactions in the P-Hedge Accounting: Classification area.

  • Hedged Item Valuation

    • In the case of effectiveness and in the case of ineffective

      Amortizations are assigned to the position component 1007 (= Amortization). The update type is determined on the basis of the settings made in the Customizing activity Assign Update Types for Valuation. Write-ups and write-downs in the security are written to the position component 1002 (= Security Valuation). The update type is determined on the basis of the settings made in the Customizing activity Assign Update Types for Valuation.

Valuation at the End of the Hedging Relationship

During a dedesignation, transfer postings are made from the hedged subpositions or to the subpositions to be hedged to the free-standing subpositions.

Before these transfer postings are made, the hedged subpositions or the subpositions to be hedged are valuated as part of derived business transactions. Valuation at the end of the hedging relationship corresponds to valuation before the start of the hedging relationship.

Manual Dedesignation of an Ineffective Hedging Relationship

With a manual dedesignation, an additional retrospective effectiveness test is included in the test plan. This test needs to be executed manually.

  • If the test is effective, the valuation performed as part of the dedesignation is performed in the "Effective" mode.

  • If the test is ineffective, the valuation performed as part of the dedesignation is performed in the "Ineffective" mode.