Procedure for Separate Accounting of Interest and Exchange Rate Components of the Fair Value of a Set of Financial Instruments: IFRS

Abstract

The research considers the development of the principles of separate accounting and analysis of the interest and exchange rate components of the fair value of a set of financial instruments under the International Financial Reporting Standards (IFRS). The aim of the work is to consider a practical situation with a deferred payment for financial instruments received under an agreement, while the participants of the scheme hedged economic transactions using derivative financial instruments. Here, from the standpoint of accounting and analytics, the mechanism of separation of interest and exchange rate elements, which directly affect the fair value of the forward contract, is of significant importance. It also related this to the requirements of IFRS standards. The research has developed a procedure for separate accounting of these financial components. In particular, it has worked out an algorithm for accounting and mathematical evaluation of exchange rate differences when hedging cash flows of debt instruments with currency forwards. The methodological base of the research includes dynamic situational analysis, system analysis, models of financial mathematics, analytical procedures of the modern theory of financial accounting. The theoretical and practical significance of the research lies in the development of scientific and applied tools based on accounting and process models and evaluation algorithms. The accounting can use the developed procedures, analytical and audit services of banks and corporations in preparing and analyzing financial statements under IFRS.