AFP Blogs

The IASB published today an exposure draft on how to account for the fair value changes of liabilities due changes in an entity’s own credit.  In summary, the IASB has tentatively decided that when an entity elects the fair value option, and marks to market its liabilities, the changes associated with their own credit would not flow through the income statement as a gain or loss.  Rather, those changes would be reported through OCI. All other noncredit related changes would continue to flow through the P&L.?

As you may recall AFP has been very vocal to the IASB and to FASB on this issue. AFP’s Financial Accounting and Investor Relations (FAIR) Committee issued comments letters to both bodies stating our objection with credit changes flowing through the P&L. In making this decision, the IASB now acknowledges that “volatility in profit or loss resulting from changes in the credit risk of liabilities that an entity chooses to measure at fair value is counter-intuitive and does not provide useful information to investors.”

This seems to be a positive step the IASB has made and demonstrates that they are listening and attempting to address our members concerns.?

At the meeting held last week FASB reaffirmed its postion to move toward a “bifurcation by risk” model to evaluate hedge effectiveness.  Key features of the possible hedge accounting model to be included in the forthcoming Exposure Draft are as follows:

1. The shortcut method and critical terms match method would be eliminated. An entity would no longer have the ability to assume a hedging relationship is reasonably effective and recognize no ineffectiveness in net income during the term of the hedge. 
2. Entities would be able to designate particular risks as the risks being hedged in a hedging relationship. Only the effects of the risks hedged would be reflected net income.
3. Entities would be required to perform a qualitative (rather than quantitative) test at inception to demonstrate that an economic relationship exists between the hedging instrument and the hedged item or forecasted transaction. However, in certain situations a quantitative test may be necessary at inception. 
4. As part of the hedge effectiveness assessment, entities would be required to demonstrate that changes in fair value of the hedging instrument would be reasonably effective in offsetting the changes in the hedged item’s fair value or the variability in the hedged cash flows for the risk or risks hedged by the entity in that hedging relationship. 
5. After inception of the hedging relationship, an entity would need to qualitatively (or quantitatively, if necessary) reassess effectiveness only if circumstances suggest that the hedging relationship may no longer be reasonably effective.
6. An entity would not be permitted to discontinue hedge accounting by simply removing the designation of a hedging relationship. Hedge accounting can be discontinued only if the criteria for hedge accounting are no longer met or the hedging instrument expires, is sold, terminated, or exercised.

AFP staff in conjunction with AFP’s Finanical Accounting and Investor Relations (FAIR) Task Force is currently evaluating the proposed guidance to determine the impact the proposed rules may have on Treasury Professionals.  The complete discussion summary can be viewed at FASB’s website.  Your views on this issue is also welcome.  If you have any comments on the proposal please feel free to contact Salome J. Tinker, AFP’s Director of Accounting at sjtinker@afponline.org or simply leave a reply below.   

Treasurers and controllers are the targets of cyber-fraud, according to the Financial Services Information Sharing and Analysis Center, receiving e-mails that contain a virus-laden attachment or a link that installs mal-ware designed to steal passwords upon opening. The scammers then conduct wire-transfer fraud in increments of less than $10,000 to avoid banks’ anti-money-laundering reporting requirements. (more…)

Consider using risk-based collections instead of targeting the largest and oldest dollar amounts first. That’s the advice from Rob Olsen, VP/Chief Risk Officer, Wright Express Financial Services Corp.

The result: Wright’s DSO is 19, helping to minimize costs and maximize cash flow. (more…)

Has the job market improved for treasury and finance professionals? According to some headhunters, large and even some midsize financial-services institutions have begun hiring, although not at the pace they were a couple of years ago. (more…)

General Electric faces a myriad of counterparty credit risk: from over 15,000 bank accounts worldwide, to credit exposure from derivatives used to hedge interest rate and currency risk, to short-term investments in everything from third-party money market funds to reverse repurchase agreements. By developing tools to assess its counterparty risk daily, GE’s treasury risk management team helped the company and, in the process, won the 2009 AFP Pinnacle Award for risk management. (more…)

Even Fortune 100 companies sometimes face treasury challenges — as Microsoft’s treasury department will tell you. Microsoft tackled one of the profession’s most common, but toughest, tasks: producing an accurate, consolidated global cash forecast. For its efforts, Microsoft won the 2009 AFP Pinnacle Award for innovation. (more…)

The next time you grumble about your treasury department’s big challenge, consider the Herculean task the City of Los Angeles Office of the Treasurer faced when it updated its processes:

- A $17 billion annual budget with 50,000 workers
- A 30-year-old payments system
- A highly politicized office environment
- The largest budget deficit in the city’s history
- An overwhelming resistance to change.

Despite all that, the Los Angeles Office of Treasury succeeded, winning the 2009 AFP Pinnacle Award for strategy along the way. Here’s what it accomplished:

- Reduced unidentified deposits from 1,220 to less than 20 per month
- Automated general ledger posting, resulting in the reduction of 107 FTE hours per week
- Realized annual float savings of $1,127,000 from implementation of four controlled disbursement accounts
- Decrease compensating balances with an associated increase in return on investment of $4,025,000.

LA’s Treasury Department will be honored for its effort at the AFP’s Annual Conference, Oct. 4-7.

Read more about it in the next issue of Exchange.

There is one silver lining for beleaguered treasury and finance professionals this past year—unprecedented opportunity to shine. No surprise, then, that AFP received a record number of submissions for its annual Pinnacle Awards, sponsored by Wachovia, a Wells Fargo Company. The bumper crop of submissions was among the highest quality in the history of the Pinnacle Awards, which annually recognize excellence in treasury and finance.

This year’s Pinnacle Award winners, and their winning category, are the City of Los Angeles (Strategy), General Electric (Risk Management) and Microsoft (Innovation). (more…)

How long do you wait until contacting a vendor or customer who hasn’t paid? The answer, according to C.J. Wimley: It depends.

Wimley, EVP of Corporate Solutions with SunGard, advocates risk-based collections. Some customers and vendors are riskier than others, he says, so they merit closer scrutiny.

“Don’t wait until 15 days late; call three days before payment is due,” Wimley says of high-risk customers and vendors. “When you properly do credit in trade receivables you assign a risk rate with customers. It’s as important as the credit process.”

According to the Credit Research Foundation, only about 20% of companies use risk-based collections.

Look for more from Wimley in a future issue of Payments. Wimley also will speak at AFP’s Annual Conference, Oct. 4-7, in San Francisco.