Issue:

A beverage company required accounting advisory services to review and redocument its commodities hedging program. The company purchases coffee beans in this spot market and roasts them for key suppliers, such as Dunkin and Costco. A Big Four auditing firm was applying substantive testing each quarter based on minimal client documentation of the hedged risks and unspecific identification and hedge designation of new trades when executed.

Outcome:

The hedging memo that was prepared by the client was redrafted to automatically designate trades upon verification of key terms from a customer authorization email and rewritten as a program memo, fully discussing hedged risks incorporating ongoing designation of trades, effectiveness testing, and qualitative monitoring of key terms.

Highlights:

This unique engagement included high visibility to the CFO, and the new hedging program had to be approved by one of the Big Four national offices. The engagement required a detailed review of supplier agreements, historical trading information, existing client documentation, and very precise language to be included in the redrafted hedge documentation in accordance with ASC 815.

Note: This work was performed prior to joining Stout.