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      1. CNS Treasury Knowledge Base
      2. Getting Started With CNS

      Hedge Accounting Automation

      This article explains how CNS Treasury automates hedge accounting from strategy setup to designation, documentation, effectiveness testing, and journal entry generation.

      1. Overview

      With CNS Treasury’s advanced platform and bank connectivity enabled, hedge accounting for FX and interest rate risk can be fully automated.
      This eliminates the need to manually designate each deal, saving time and reducing errors.

      2. Strategy Setup

      • During onboarding, CNS configures your hedge accounting strategies (e.g., FX strategies, interest rate swap strategies).

      • Strategies can be updated by CNS or by users with the appropriate permissions.

      • Once set, strategies are applied automatically to relevant trades.

      3. Automated Designation

      • When a connected bank transaction is captured (e.g., from BNZ), CNS automatically:

        • Selects the correct hedge accounting strategy.

        • Designates the deal under that strategy.

      • This means you can go straight to running reports without having to manually manage hedge designations.

      4. Hedge Documentation

      Purpose:

      • Provides auditors with the trade details at the time of designation.

      How to Run:

      1. Go to the Hedge Documentation Report.

      2. Select the trade date (e.g., 21/05/2024).

      3. Run and export the report to PDF.

      4. The report includes all trades designated under the strategy at that date.

      5. Effectiveness Testing & Credit Adjustments

      Purpose:

      • Tests the hedge’s performance and calculates any required CVA (Credit Valuation Adjustment) or DVA (Debit Valuation Adjustment).

      How it Works:

      • CNS applies a credit curve (e.g., BBB-rated) as a proxy for your own credit risk.

      • The bank’s CDS curve is also applied.

      • For short-dated FX, CVA/DVA amounts are often minimal and may not require P&L adjustments.

      • More significant for interest rate swaps (covered outside this onboarding series).

      6. Journal Entries

      Purpose:

      • Generates accounting entries for hedge accounting at period-end.

      How to Run:

      1. Run the Journal Entries report for the relevant date (e.g., 30/06).

      2. Export to PDF or Excel.

      3. The report includes:

        • Notional splits (short-term/long-term assets and liabilities).

        • Derivative asset/liability values.

        • Fair value reserves.

        • P&L impact (if applicable, e.g., when deals are de-designated).

      7. De-Designation

      • If your policy is to de-designate once an invoice is raised, P&L impacts will appear in the journal entries report.

      • For guidance on de-designations and discontinues, contact support@cnstreasury.com.

      8. Support

      For more details, see the CNS Knowledge Base or contact support@cnstreasury.com.