Volatility in the Rand – Is hedge accounting a feasible solution?

Volatility in the Rand – Is hedge accounting a fe...

The recent volatility in the South African rand (ZAR) has seen many local corporates scrambling to control the impact of the dwindling value of the local currency on their financial results. The exchange rate to the USD has fluctuated widely in the past five years, from a low of R6.6 to as high as R10.6, an over 60 percent movement. This is not a new development in the local market but has been pronounced over the past year.

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Key points

  • The SA economy, as a net importer, is highly impacted by these changes.
  • As the rand devalues, the cost of importing foreign goods in local currency rises, creating additional inflationary pressures.
  • The differing accounting recognition and measurement criteria applied to various components of a hedge relationship create volatility in the financial reporting
  • The only accounting mechanism to control this mismatch is to apply hedge accounting.

This factsheet outlines hedge accounting requirements and exchange rate volatility for South African business.

How can KPMG help?

KPMG has technical excellence and deep practical experience on the application of hedge accounting. We have provided advisory and audit support to leading financial institutions, State Owned Companies (SOCs) and corporate treasuries in South Africa. This has enabled us to develop specific and robust hedge accounting solutions that fully comply with the rigorous requirements of IAS 39, while still being practically implementable and scalable to a company’s existing processes and operations. We developed this depth of industry-specific knowledge through years of hands-on experience in adding and enabling client hedge accounting solutions.

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