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29realization of political potential of the youth , to win younger generation over rather than strengthen their own position.
In this connection political socialization of modern Russian young people has to be carried out in order to achieve their full integration into public and political structures which could neutralize protest moods among the most active social groups of the population, students in the first place. After all one of the features of the youth is their openness and ability to lead civil dialogue which, in our opinion, is the most effective and fast means of reaching compromise on the way of building democratic state.
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3. Malik E.N. Features of inclusion of youth to the political sphere of society of modern Russia//Education and society. 2008. No. 4. Page 8-10.
4. Manoylo A.V. Counteraction to distribution of ideology of color revolutions in the youth environment.//Electronic magazine "World politics". 2015. No. 1. - Page 180-191.
5. Merkulov P. A. Realization of the state youth policy in the Oryol region.//Knowledge. Understanding. Ability. 2013. No. 4. Page 60-64.
6. Merkulov P. A., Malik E.N., Budarina K.A. Institutsionalization of the youth organizations and associations in modern Russia: problems and prospects//Power. 2015. No. 4. - Page 140-145.
7. "A Maidan in Russia: it is improbable and is undesirable". VCIOM Press release No. 2791//[Electronic resource]//wciom.ru. / Date of the address 12.03.2015.
8. Tsybakov D. L., Malik E.N. Modification of functions of the interstate unions in the conditions of increase of a conflictogenity of world politics//the Central Russian messenger of social sciences. 2014. No. 4. Page 167-173.
USE OF THE PRINCIPLES OF IFRS (IAS) 39 "FINANCIAL INSTRUMENTS: RECOGNITION AND ASSESSMENT" FOR BANK FINANCIAL ACCOUNTING
Abstract
Accounting of credit unions significantly differs from accounting of other managing subjects. In this regard, the importance of preparation of financial accounting by credit unions according to requirements of the International Financial Reporting Standards (IFRS) increases. The purpose of the paper is to use the principles of IFRS (IAS) 39, to consider features of financial assets and financial obligations regarding risks (hedging).
Keywords
International Financial Reporting Standards, financial asset, financial obligation, hedging
AUTHOR Svetlana Mullinova
PhD in Economics, Associate Professor Department of Accounting Kuban State Agricultural University Krasnodar, Russia s.mullinova@mail.ru
One of the most actual problems of development of accounting in Russia is adaptation of the existing national account system to requirements of the International Financing Reporting Standards (IFRS). To improve quality of information provided in financial reports to user, credit unions should provide adequate disclosures on various operations, and comprehensive and reasonable information, which completely describes their financial situation.
Within IFRS (IAS) 32 "Financial instruments: submission of information" and IFRS (IAS) 39 "Financial instruments: recognition and assessment" we consider concepts of assets and obligations and their classification [4, 5].
The financial instrument is any contract, the result of which is financial asset of one credit union and financial obligation or the share tool of another union [4, 8].
Regardless of the used tools, term of operation and type of risk, the sense of any operation of hedging is reduced to simultaneous commission of two opposite operations.
Thus the interconnected operations are divided into:
- the hedged item - asset, obligation or operation, which result is accuracy of currency risk, commodity risk, risk of interest rate or capital risk;
- the hedging tool - operation organized for and directed on reduction or clearing of such risk [5, 8].
Example 1. The bank plans to buy large object of fixed assets for currency at the end of the year. However, there is a risk of increase foreign exchange rate.
For the purpose of risk minimization of exchange rate, the bank signs the currency forward contract with execution for estimated date of purchase of fixed assets that will give the chance of acquisition of currency on the recorded conditions. The hedging instrument can be futures, forwards, derivative tools and non-productive tools (under currency items). In this example, future transaction on purchase of object of fixed assets represents the hedged item, and the currency forward is the hedging tool.
Futures and options are used to decrease investments risks into market securities. Futures allow to record terms of transaction before its realization in the future. Each of the transaction parties can transfer the obligations under the agreement to any agent of the market. As any obligation, futures have to be guaranteed. As a rule, deposit is used as a guarantee [6, 7, 14].
The option represents the right (but not a duty) to carry out the transaction in the future on the stipulated conditions with possibility of concession of this right. Thus the right to carry out the transaction arises upon purchase of option, and duty - upon its sale. Options as any right, have to be paid by the party getting this right [6, 7, 14].
Example 2. The credit union has the debt obligation in $5,000,000, which should be paid in two years. It also concluded the agreement to sale $5,000,000 on the fixed price.
In this case the obligation expressed in foreign currency can be considered as hedging toolor cash flows, or fair value of the firm agreement on currency sale.
According to the item 78 of IFRS (IAS) 39 "Financial instruments: recognition and assessment" the hedged item (or operation subject to a certain risk) can be:
- the asset (obligation) recognized in balance;
- the unrecognized firm agreement, the expected transaction, concerning which there is a high probability of its commission;
- pure investment into foreign operation [5, 8]
Depending on a type of the hedged risk of IFRS (IAS) 39 "Financial instruments: recognition and assessment" there are three types of hedging:
- fair value;
- cash flows;
- pure investments into the foreign company [5, 8].
Example 3. Change of profitability of the capital of the credit union, which stocks are in the investor's portfolio, can be leveled by acquisition of options of "fetters" (the
rights to sale stocks at determined price). This operation can be considered as operation of hedging of fair value of investments in stocks.
It is important to note that banks belong operations to the above types of hedging independently, according to the type of the hedged risk, to which this or that financial instrument is subjected, and to the own hedge strategy, which has to be stated in the internal documents concerning policy of hedging [1, 7, 11].
Let's return to conditions of the example 2. The credit union has the debt obligation in US dollars, which should be repaid in two years. The credit union also concluded the agreement on sale of US dollars on the fixed price in two years (in the volume equivalent to the obligation size). Thus the obligation expressed in foreign currency can be considered as hedging tool or cash flows, or fair value of the firm agreement on currency sale.
Sometimes it is difficult to define, which financial instrument is the hedged item and which one is the hedging tool. In the example 2, currency component of the agreement on currency sale can be appointed as hedging tool- for hedging the part of change of fair value of the debt obligation, which is connected with currency risk [3].
Therefore, definiteness at a choice of hedging type depends on strategy of the management of the credit union concerning insurance of risks. The chosen type of hedging directly impacts on reflection of results of hedging in financial statements [1, 2, 13].
The financial result from change of fair value of the hedged item and hedging tool is reflected in "The report on profit or loss and the other cumulative income" as the general result of two interconnected operations [11].
For operations defined as hedging of fair value, change of fair value of the hedged items and hedging tool in each reporting period are reflected in "The report on profit or loss and the other cumulative income". As the financial instruments participating in hedging render opposite effect on financial result of bank activity for the reporting period, minimization of fluctuation of result from use of financial instruments is reached [3].
When hedging future cash flows, changes of fair value of the derivative instrument of hedging are collected in the capital. Revaluation of fair value of the hedged item is not carried out in view of the item absence. The results of revaluation of hedging tool, which are saved up in the capital in the period of commission of the hedged transaction, and in case of leaving of investment, are subject to transfer in "The report on profit and loss and the other cumulative income" [9].
Initial accumulation of changes of fair value in the capital is provided for hedging investments into foreign bank: changes of fair value of hedging tool, the hedged investment are collected in the capital and are the subject to recognition in "The report on profit and loss and the other cumulative income" after leaving foreign investment (table 1).
TABLE 1. HEDGING TOOLS
Hedging type The accounting of changes under the hedged item The accounting of changes on the hedging tool
Hedging of fair value "Report on profit or loss and other cumulative income" "Report on profit or loss and other cumulative income"
Hedging of cash flows The capital (after the hedged operation is reflected in "The report on profit or loss and the other cumulative income")
Hedging of pure investments into a foreign company The capital (after the hedged operation is reflected in "The report on profit or loss and the other cumulative income) The capital (after the hedged operation is reflected in "The report on profit or loss and the other cumulative income")
Differences between hedging accounting and financial tools accounting:
1) when hedging in each case the derivative hedging tool is registered and estimated at fair value, unlike financial instruments, not being participants of hedging operations and estimated in the reporting either on fair, or at the amortized cost;
2) the financial result from change of fair value of the hedged item and hedging tool is reflected in "The report on profit or loss and the other cumulative income";
3) if the special order of hedging is not applied, change of fair value of a separate financial tool can belong to "The report on profit or loss and the other cumulative income".
Example 4. The bank XXX has an obligation in foreign currency, which repayment period comes in 12 months. The bank wishes to hedge the obligation sum, which is subject to payment from fluctuations of exchange rate. For this purpose, it signs the forward contract for purchasing foreign currency in 12 months.
If the credit union ignores the hedging relations between the specified financial instruments, it considers the financial obligation in currency and the derivative by the general rules and independent image. Thus the financial obligation will be reflected at the amortized cost with reference of depreciation in "The report on profit or loss and the other cumulative income". The result of revaluation of fair value of the forward contract (derivative) is also subject to reference in "The report on profit or loss and the other cumulative income".
If the bank considers operation as hedging of cash flows of the sum, which is subject to repayment in the future and considers it effective, change of fair value of the forward contract in the current reporting period has to be reflected in the capital. When there comes the obligation repayment period, it will be overestimated taking into account change of a currency exchange course with reference of exchange difference in "The report on profit or loss and the other cumulative income" [2]. It is obvious that at non-use of a special order of hedging, the financial result for the current reporting period will be influenced by change of fair value of the forward contract. The financial result of that reporting period, in which there will be a repayment of the obligation, will be respectively distorted.
IFRS (IAS) 39 "Financial instruments: recognition and assessment" fixed the requirement that only those credit unions, which plan operations of hedging, can apply a special order and declare it in the domestic policy. Besides the announcement of strategy of hedging in internal acts, banks have to show efficiency of the performed operations of hedging of risks (the maximum smoothing of risks is reached). And only the effective part of these operations has to be considered according to a special order [5].
Efficiency of hedging is the degree, in which it was succeeded to compensate change of fair value or the cash flows connected with the hedged risk with hedging tool [8].
IFRS (IAS) 39 "Financial instruments: recognition and an assessment" established the criteria of high efficiency of hedging:
- change of the hedged item will be completely compensated for the account of change of fair value or cash flows of the hedging tool;
- actually reached results fluctuate from 80 to 125% [5, 8].
It is necessary to note that hedging operations are sometimes unsuccessful. Before making the decision on need of insurance of risk, it is necessary to define, whether this type of risk needs insurance and the stability of market to have opportunity to predict a tendency of its movement.
Hedging on the forward market allows the credit unions to increase efficiency of intra firm planning and to secure itself against negative influence of factors of environment. Use of tools of the forward market for insurance of risks allows to bring the bank to a certain level of definiteness in its activity and to level the risks connected with its functioning, to plan the current activity of the credit union competently and accurately. Thus considering both tactical and operational, and strategic objectives of
bank. The tough rules of the accounting of hedging established in IFRS (IAS) 39 "Financial instruments: recognition and assessment" compel the management of bank to plan and control efficiency of the financial operations more carefully.
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