Week 5 Case C11 6 TO Mark Becker CFO FROM Investment Division Accountant DATE November 8 2012 SUBJECT Results of hedge accounting research For detrainment of Rainy Day insurance company investment portfolio can hedge accounting can be used or not According FASB Statement No 133 Accounting for Derivative Instruments and Hedging Activities it provided specific requirements for classifying a derivative as a Hedge Hedges under Statement No 133 are applicable to foreign currency exchange risk in which currency exchange rates change overtime interest rate risks particularly for companies owing variable rate debt instruments and commodity risks whose future commodity prices may be quite different from spot prices In our case if hedge accounting cannot be used the changes in the fair value of the futures contract will be included in net income However the changes in the fair value of the bond portfolio will continue to be reported as other comprehensive income but not in net income Note that FASB No 133 ASC 815 amends FASB No 115 ASC 320 requires the gain or loss on an available for sale security designated as a hedged item to be recognized in current earnings during the period The marked to market value for the available for sale securities was recognized in other comprehensive income FASB No 133 specifies that the change in intrinsic value of fair value hedges be recognized currently in net earnings of the period The difference from cash flow hedges in which the changes in intrinsic value were taken to other comprehensive income It is important to note that FASB 133 does not permit hedge accounting for hedges of trading securities