• Tax efficient (intragroup) hedging activities

    An increasing number of transactions are being concluded in a foreign currency, resulting in greater currency exchange risks. To limit these risks, entities use various types of hedging methods and instruments. In this article we discuss the distinction between the hedging of internal positions versus external positions from a group’s perspective and possible ways to use tax systems to avoid (taxable) currency exchange exposures within the group.

  • The 8th EU Directive

    The auditing and accountancy world has come under greater scrutiny after the Enron-Arthur Andersen scandal in 2001. While the US legislators reacted quickly with Sarbanes-Oxley, in Europe the response has been more gradual. In Europe, national and EU law makers judged that there was a different legal environment in this region. However, the Parmalat case shows that Europe is not immune to accounting scandals. As one of the measures to improve the transparency and quality of statutory audits in Europe, the European Parliament and the Council of Ministers have now passed a new revised 8th EU Company Law Directive, sometimes also known as the ‘Auditing Directive’.

  • Managing interest rate risk with options

    Having previously focused on how swaps can be used to manage interest rate risk exposures, this month we look at the use of interest rate options. Interest rate options are an additional tool which can be used to hedge the exposure of current and future borrowing requirements against changes in interest rates. Options allow companies to limit their exposure to higher interest rates, without restricting their potential to benefit from lower interest rates.

  • Interest rate risk – managing it with swaps

    In last month’s article on interest rate risk, we described different methods of measuring interest rate exposure. Companies can decide how to manage the risks involved by identifying and measuring the effect that interest rate changes can have on a company’s assets and liabilities. There are many interest rate risk management strategies and tools available to the Treasurer. This month we focus on the use of interest rate swaps.

  • Interest rate risk management – measurement

    The management of interest rate risk is an important part of corporate risk management. The active management of interest rate exposure minimises the risk of incurring losses and opportunity costs from movements in interest rates. In the first of four articles on interest rate risk management, we define interest rate risk and focus on the methods of measuring interest rate risk exposure.

  • Treasury and audit – conducting a systems audit

    As the role of technology in treasury continues to expand, it is essential to ensure that the systems you have in place are functioning correctly and that the risk of fraud or error is kept to a minimum. This month, in the last article in our series on treasury and audit, we discuss the sort of risks that auditors look out for and the advances in auditing technology that are shaping the way that data are monitored.

  • Treasury and audit

    As financial markets become more complex, corporates are increasingly using derivative financial instruments such as forward forwards, futures, options and swaps. These can help to manage financial risks originating in the volatility of foreign exchange rates, interest rates or commodity prices. However, the use of these instruments has added a new dimension of financial risk for companies and their shareholders, as the current value of a company’s asset or liability may be in excess of the amount at which the instrument is accounted for. The internal or external audit team will therefore need to determine whether all financial instruments are being properly valued and accounted for.

  • Treasury and audit using the treasury audit to reduce risk

    Increasingly complex financial instruments and new technology have added to the amount of risk the treasury function is exposed to. At the same time recent corporate scandals have led to new corporate governance regulations being put in place. In many countries senior management is now held accountable for the implementation and verification of efficient risk management systems in the treasury control framework. In order to confidently sign for the efficiency of control systems, the management board relies on the independent assessment of treasury controls and operations in the form of treasury audits.

  • Foreign exchange risk management in an M&A environment

    For multinational treasurers, managing foreign exchange exposures on a daily basis is an important role in itself. However in an acquisitive environment, the role can take on a different complexion. Treasurers will be required to evaluate any risk associated when making a foreign acquisition, to manage the purchase payments and then to quickly understand the impact of the acquisition on the newly enlarged group's foreign exchange exposure.

  • Managing FX translation risk part V – IAS 21

    In the final part of the translation risk series we take a closer look at IAS 21 and the accounting treatment and translation methods this standard prescribes for the translation of financial statements denominated in a foreign currency.