ipsas 29—financial instruments: recognition and measurement - IFAC

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FINANCIAL INSTRUMENTS: RECOGNITION AND MEASUREMENT The illustrations that follow assume that an entity had the following expected future net cash flows and hedging positions outstanding in a specific currency, consisting of interest rate swaps, at the beginning of Period X0. The cash flows shown are expected to occur at the end of the period and, therefore, create a cash flow interest exposure in the following period as a result of the reinvestment or repricing of the cash inflows or the refinancing or repricing of the cash outflows. The illustrations assume that the entity has an ongoing interest rate risk management program. Schedule I shows the expected cash flows and hedging positions that existed at the beginning of Period X0. It is included here to provide a starting point in the analysis. It provides a basis for considering existing hedges in connection with the evaluation that occurs at the beginning of Period X1. Schedule I End of Period: Expected Cash Flows and Hedging Positions Quarterly period X0 X1 X2 X3 X4 X5 n (units) CU CU CU CU CU CU CU Expected net cash flows Outstanding interest rate swaps: Receive-fixed, payvariable (notional amounts) Pay-fixed, receivevariable (notional amounts) Net exposure after outstanding swaps 1,100 1,500 1,200 1,400 1,500 x,xxx 2,000 2,000 2,000 1,200 1,200 1,200 x,xxx (1,000) (1,000) (1,000) (500) (500) (500) x,xxx 100 500 500 700 800 x.xxx The schedule depicts five quarterly periods. The actual analysis would extend over a period of many years, represented by the notation “…n.” An entity that manages its interest rate risk on an entity-wide basis re-evaluates its cash flow exposures periodically. The frequency of the evaluation depends on the entity’s risk management policy. For the purposes of this illustration, the entity is re-evaluating its cash flow exposures at the end of Period X0. The first step in the process is the generation of forecast net cash flow exposures from existing interest-earning assets and interestbearing liabilities, including the rollover of short-term assets and short-term liabilities. Schedule II below illustrates the forecast of net cash flow exposures. A common technique for assessing exposure to interest rates for risk management purposes is an interest rate sensitivity gap analysis showing the gap between interest rate-sensitive assets and interest rate-sensitive liabilities over different time intervals. Such an analysis could be used as a starting point for identifying cash flow exposures to interest rate risk for hedge accounting purposes. 1255 IPSAS 29 IMPLEMENTATION GUIDANCE PUBLIC SECTOR
FINANCIAL INSTRUMENTS: RECOGNITION AND MEASUREMENT Schedule II Forecast Net Cash Flow and Repricing Exposures Quarterly period Notes X1 X2 X3 X4 X5 n (units) CU CU CU CU CU CU CASH INFLOW AND REPRICING EXPOSURES – from assets Principal and interest payments: Long-term fixed rate (1) 2,400 3,000 3,000 1,000 1,200 x,xxx Short-term (roll over) (1)(2) 1,575 1,579 1,582 1,586 1,591 x,xxx Variable rate – principal payments Variable rate – estimated interest Total expected cash inflows Variable rate asset balances Cash inflows and repricings IPSAS 29 IMPLEMENTATION GUIDANCE 1256 (1) 2,000 1,000 – 500 500 x,xxx (2) 125 110 105 114 118 x,xxx 6,100 5,689 4,687 3,200 3,409 x,xxx (3) 8,000 7,000 7,000 6,500 6,000 x,xxx (4) 14,100 12,689 11,687 9,700 9,409 x,xxx CASH OUTFLOW AND REPRICING EXPOSURES - from liabilities Principal and interest payments: Long-term fixed rate (1) 2,100 400 500 500 301 x,xxx Short-term (roll over) (1)(2) 735 737 738 740 742 x,xxx Variable rate – principal payments Variable rate – estimated interest Total expected cash outflows Variable rate liability balances Cash outflows and repricings (1) – – 2,000 – 1,000 x,xxx (2) 100 110 120 98 109 x,xxx 2,935 1,247 3,358 1,338 2,152 x,xxx (3) 8,000 8,000 6,000 6,000 5,000 x,xxx (4) 10,935 9,247 9,358 7,338 7,152 x,xxx NET EXPOSURES (5) 3,165 3,442 2,329 2,362 2,257 x,xxx
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ipsas 29—financial instruments: recognition and measurement - IFAC

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