Pushing the boundaries

The introduction of IAS 39 this year has caused some corporate treasurers to rethink their use of derivatives. Banks are looking to structure derivatives solutions that achieve the economic objective of a hedge, while avoiding undue volatility on the balance sheet. But is this just a pipe dream? Duncan Wood investigates

It's nearly a year since IAS 39 came into effect, yet the new accounting rules for derivatives are still causing howls of protest from corporate derivatives users, who have to accept earnings volatility as the cost of using more complex hedging products. Banks are now testing the boundaries of IAS 39 as they look for ways to structure a new generation of products that combine risk management sophistication with favourable accounting treatment – but corporate auditors are pushing back.

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