RT Journal Article
SR Electronic
T1 Beyond Adoption
JF Special Issues
FD Institutional Investor Journals
SP 25
OP 29
VO 2001
IS 1
A1 James J. Rozsypal
A1 John Woods
A1 Michael T. Dolan
YR 2001
UL https://pm-research.com/content/2001/1/25.abstract
AB With the deadline for adoption of FAS 133 behind us, now is the perfect time for companies to refine their hedging strategies and risk management infrastructures both to optimize their initial implementation and to reduce operational risk to ensure ongoing compliance with this complex standard. Optimizing initial implementation can take the form of 1) evaluating alternative hedging strategies with the goal of reducing quarterly earnings volatility and/or 2) taking advantage of the standard's greater flexibility for hedging foreign-exchange risk. The key to reducing operational risk is to ensure that the six elements of the corporate risk management infrastructure (policies, processes, organization structure, management reports, methodologies, and systems/data) are aligned and working together to control all facets of the hedge accounting process. For high-volume derivatives end users, automation may be the only way to reduce the operational risk to acceptable levels. However, until vendor products catch up, companies may have to rely upon a patchwork of in-house solutions and third-party software and also accept a higher degree of operational risk.