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SAP tools to manage FASB133 requirements

There has been a push recently to get the treasury department at our company to move on to our SAP system so that...

we can reduce the number of non-SAP systems that we must support. They are resisting because they say that they heard SAP can not handle FAS133. Unfortunately, I do not know what FAS133 is and no one I have talked to seems to know if SAP can handle it. Are you familiar with FAS133 and does SAP have functionality to deal with it?

The short answer is YES.

The long answer is, FASB133 refers to Rule #133 of the Financial Accounting Standards Board, which as of January 2001 regulates, among other things, how derivatives are to be accounted for when companies use them for hedging. For example, if a US-based company enters into a contractual agreement today to pay one of its vendors Great British Pounds (GBP) for some product or service in one years time, they may then also immediately enter into a foreign exchange (FX) contract with another party to buy GBP, one year from now, in order to lock in or hedge the currency exposure created by the vendor agreement.

Over its life the FX contract must be periodically revalued and, unless certain conditions dictated in FASB133 are met, this rule requires that all fluctuations in value must be recognized in the company's earnings (P&L) rather than simply reflected on its balance sheet as OCI (other compensatory income).

In the SAP R/3 4.7 release (or SAP R/3 4.6C release, with the SAP Corporate Finance Management CFM Bolt-on), SAP provides a comprehensive set of tools in its Hedge Management functionality that enables companies to meet all of the statutory requirements of FASB133, including exposure documentation, effectiveness testing, hedge relationship management and accounting treatment (both effective and ineffective portions of a derivative).


This was last published in June 2003

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