Save Options Hedging Strategy
Fight To Get Hypothetical Derivative Method
Sign the Petition - Act Now !
Comments need to be received by 11 january 2008
Thoughts from
Industry Leaders:
"It is unfortunate that the IASB does not appear to recognise that one-sided risks inherently contain time value and should be modelled as hypothetical options. By taking this restrictive line the Board will be giving IFRS reporters a less favourable treatment than their US GAAP counterparts. Fortunately this is only a proposal so companies can still comment, and hopefully the IASB will see the light before this change goes live."
Sebastian di Paola
Treasury Solutions
“On behalf of all the membersof the EACT and ATEL,we strongly encourage the IASB to reconsider this amendment which may end up destroying shareholder value as all companies face volatile financial markets and need to more easily use options to hedge.”
François Masquelier
Head of Treasury & Corporate Finance, RTL Group
Honorary Chairman of EACT
"The saying 'you manage what you measure' is core to treasury activities. Disallowing the use of hypothetical options to model one sided risks will increase income statement volatility and undoubtedly further reduce companies’ freedom to use vanilla options, causing greater disruption to the balance in companies’ hedge portfolios. We strongly encourage the IASB to issue guidance explicitly allowing their use."
Johann Kruger
IFRS Consultant
Lloyds TSB Financial Markets
Relevant Links
& Articles:
For more information on the Exposure Draft of Proposed Amendments to IAS 39 Financial Instruments:
Click here
For an analysis of Vanilla Options and Time Value Volatility by
Johann Kruger
Download Whitepaper
For more information about Reval:

Letter FromRevalCEO Jiro Okochi as Originally Appeared In CFO Magazine Magazine,
December 2007/ January 2008 Edition:
Janet Kersnar
CFO Europe
An Economist Group business
26 Red Lion Square
London WC1R 4HQ
Dear CFOs who like hedging with options,
Time is running out for those of you who want to hedge forecasted sales, floating rate debt, energy purchases or other cash flow hedges using options. The International Accounting Standards Board (“IASB”) in its September 2007 Exposure Draft has proposed an amendment (Paragraph AG99E) to IAS 39 that would define and eliminate a favourable method for treating the time value of vanilla options. Currently it is possible, and is allowed by some audit firms, to defer all P&L volatility from vanilla options (including collars) until the underlying hedged transaction occurs, consistent with the fundamental objective of hedging accounting in IAS 39.
Following the proposed amendment to IAS 39, most traditional and conservative option hedging strategies will have less favourable accounting outcomes. Changes in option time value could no longer be deferred in Reserves because of new limitations to the prescribed effectiveness assessments under IAS 39 and will result in more P&L volatility. Balanced hedging portfolios, which are critical for shareholder value creation/preservation, tend to include options. It is therefore in the best interest of your business and shareholders that the accounting treatment and economic substance of option hedges are aligned and not to suffer the consequences of a change to the accounting standards.
I urge you and your peers to either write a letter directly to the IASB or to log on to and electronically sign a petition opposing the amendment. Comments must be received by 11 January 2008 so you need to act now.
Best Regards,

Jiro Okochi
CEO & Co-Founder, Inc.