Beware hedge accounting pitfalls

Moore Stephens,
the shipping accountancy firm, has discovered the potential pitfalls of the
harsh conditions related to hedge accounting, warning ‘the devil is in the

The lesson was learned after a major energy shipping group
Teekay disclosed it had
fallen foul of the detail in US Generally Accepted Accounting Principles (GAAP)
earlier this year, placing the onus on other companies to avoid similar mistakes
in an extremely turbulent market, Lloyd’s List reports.

David Chopping, Moore Stephens partner, notes US GAAP, together with
International Financial Reporting Standards (IFRS), allow hedge accounting in
‘limited circumstances’, but that documentation requirements are ‘extremely

It was the documentation requirements which Teekay appears to have failed to
meet. Teekay’s August announcement revealed it had ‘discovered that since 2003
certain of its derivatives did not qualify for hedge accounting treatment…
because aspects of the company’s hedge documentation did not meet the strict
technical requirements of the standard.’

Further reading:

the Lloyd’s List story

Related reading

Fiona Westwood of Smith and Williamson.