Designated, tested,
marked to fair value.
Aleq documents the hedge at inception, tests effectiveness every period, and marks each derivative — routing the change to OCI or earnings exactly where the standard puts it.
Document it, test it, then mark it.
Hedge accounting has to be earned — it starts with contemporaneous documentation and holds only while the hedge stays effective. Below is the GBP/USD forward.
Every instrument, marked and placed.
Each derivative is carried at fair value, with its designation and the destination of its mark — OCI for cash-flow hedges, earnings for fair-value hedges. Aleq keeps the whole book current and re-tests effectiveness every period.
| Instrument | Notional | Fair value | Mark to |
|---|---|---|---|
| GBP/USD forwardcash flow · 98% | £2.40M | $12,140 | OCI |
| SOFR swapcash flow · match | $5.00M | $18,400 | OCI |
| EUR/USD forwardfair value · 97% | €1.80M | $(14,200) | earnings |
| Net fair value | $5.70M | $16,340 | — |
Tested every period — and routed.
Hedge accounting holds only while the hedge stays highly effective. Aleq re-tests each period, splits the effective portion from any ineffectiveness, and routes the mark — deferring the effective portion in OCI and reclassifying it to earnings when the hedged item finally hits.
Designation is a decision. You make it.
Hedge accounting is an election, and it must be documented at inception — the hedged item, the instrument, the risk, the effectiveness method — or it's lost for good. Aleq drafts the designation memo from the trade and the exposure and holds it for your sign-off, contemporaneous and complete.
The forward hedges the FX risk in highly-probable forecasted GBP sales — a cash-flow hedge under ASC 815-20. Critical terms match the exposure, so a qualitative dollar-offset method is appropriate. Documentation is dated to the trade to keep the election contemporaneous.
Where the mark goes depends on the hedge.
FX forwards, rate swaps, fair-value hedges, net-investment hedges — each routes its mark to a different place. Aleq tests and books the right one.
Lock the rate on forecasted sales — mark to OCI.
A forward hedging forecasted foreign-currency revenue is a cash-flow hedge: the effective portion sits in OCI and reclassifies to revenue when the sale lands. Aleq tests effectiveness each period and routes the mark accordingly.
- Effective portion deferred in OCI until the sale hits earnings.
- Reclassification moved to revenue when the forecast occurs.
- Effectiveness tested by dollar-offset each period.
Turn floating-rate debt into a fixed cost.
A pay-fixed, receive-floating swap on variable-rate debt is a cash-flow hedge of interest payments. Aleq defers the effective portion in OCI and reclassifies it to interest expense as each payment settles, so the P&L sees a fixed rate.
- Pay-fixed swap converts floating interest to fixed.
- OCI deferral reclassified to interest expense each period.
- Critical-terms match supports a highly-effective conclusion.
Hedge a firm commitment — both sides hit earnings.
A forward hedging a recognized asset or firm commitment is a fair-value hedge: both the derivative and the hedged item are marked through earnings, so the gains and losses offset in the same period. Aleq books both sides together.
- Both marked to earnings derivative and hedged item, together.
- Natural offset the two move against each other each period.
- Firm commitments the unrecognized commitment becomes an asset.
Hedge a foreign sub — the mark lands in CTA.
A hedge of the net investment in a foreign operation defers its effective portion in the cumulative translation adjustment, alongside the translation it offsets. Aleq routes the mark to CTA and keeps it there until the operation is sold.
- Effective portion deferred in CTA within OCI.
- Offsets translation moves with the foreign-sub translation.
- Released on disposal recycled to earnings when the sub is sold.
What controllers and auditors ask.
Does it require documentation at inception?
Yes — and it's where hedge accounting is most often lost. Aleq drafts the designation memo from the trade and the exposure, dated to inception, so the hedge qualifies. Without contemporaneous documentation there's no hedge accounting, and Aleq won't pretend otherwise.
How is effectiveness tested?
By the method documented at inception — qualitative critical-terms match where it fits, or a quantitative dollar-offset or regression otherwise. Aleq re-tests each period and shows the ratio against the 80–125% corridor.
Where does the mark go?
Cash-flow hedges defer the effective portion in OCI and reclassify to earnings when the hedged item hits; fair-value hedges run both sides through earnings; net-investment hedges sit in CTA. Aleq routes each mark to the right place automatically.
What happens if a hedge fails the test?
Hedge accounting is discontinued prospectively, amounts already in OCI are handled per the standard, and the derivative marks to earnings going forward. Aleq flags the break the period it happens and shows the impact.
Can it produce the ASC 815 disclosures?
Every period exports the instrument-by-instrument fair values, designations, effectiveness results, and the OCI roll-forward with expected reclassifications — tied to the ledger and the trade confirmations.
Put your hedges on Aleq.
Connect your treasury book. Watch Aleq document each hedge at inception, test effectiveness every period, mark every derivative, and route the change to OCI or earnings — the designation drafted for your sign-off, the disclosure tied out.