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Debt Modification May Lead to Hedge Accounting Questions

Tammy Whitehouse | December 29, 2014

Auditors are reminding companies again at the end of 2014 to be cautious of the financial reporting implications if they are issuing or modifying debt to take advantage of low interest rates.

Capital markets are starting to anticipate a move in 2015 by the Federal Reserve to increase interest rates for the first time after years of flat rates during economic strife. PwC says in an alert on a variety of year-end issues that it knows of many companies exploring issuance new debt or modification to existing debt to beat the expected rate increase. The firm is warning companies to take a close look at the contractual provisions for any signs of embedded derivatives that may need to be broken out and reported separately under accounting rules.

“Embedded derivatives rarely have the word ‘derivative’ associated with them in the debt agreement, making them more...

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