How To Fix THMHR_ADMIN414 - Hedging relationship &1 &2 dissolved due to proven ineffectiveness

SAP Error Message - Details

• Message type: E = Error

• Message class: THMHR_ADMIN - Messages for managing hedge relationships

• Message number: 414

• Message text: Hedging relationship &1 &2 dissolved due to proven ineffectiveness

What causes this issue?

The system issues an error message and will not allow you to continue with this transaction until the error is resolved.

System Response

How to fix this error?

Procedure for System Administrators

Error message extract from SAP system. Copyright SAP SE.

Smart SAP Assistant

• What is the cause and solution for SAP error message THMHR_ADMIN414 - Hedging relationship &1 &2 dissolved due to proven ineffectiveness ?

  The SAP error message THMHR_ADMIN414 indicates that a hedging relationship has been dissolved due to proven ineffectiveness. This typically occurs in the context of hedge accounting, where the effectiveness of a hedging relationship is assessed to ensure that it meets the criteria set by accounting standards (such as IFRS or GAAP).
  Cause:
  
  
  Ineffectiveness Assessment: The hedging relationship is deemed ineffective based on the results of the effectiveness testing. This can happen if the changes in the fair value or cash flows of the hedged item do not offset the changes in the fair value or cash flows of the hedging instrument within the required range.
  
  
  Market Conditions: Changes in market conditions, such as volatility in interest rates, foreign exchange rates, or commodity prices, can lead to a situation where the hedging instrument no longer effectively offsets the hedged item.
  
  
  Changes in Hedged Item: If there are changes in the characteristics of the hedged item (e.g., changes in the underlying asset or liability), it may lead to ineffectiveness.
  
  
  Documentation Issues: Lack of proper documentation or failure to meet the hedge accounting requirements can also lead to this error.
  
  
  Solution:
  
  
  Review Effectiveness Testing: Conduct a thorough review of the effectiveness testing results to understand why the hedging relationship was deemed ineffective. This may involve analyzing the correlation between the hedged item and the hedging instrument.
  
  
  Adjust Hedging Strategy: If the hedging relationship is ineffective, consider adjusting your hedging strategy. This may involve changing the hedging instrument, modifying the hedged item, or using a different hedging technique.
  
  
  Reassess Documentation: Ensure that all documentation related to the hedging relationship is complete and meets the necessary accounting standards. This includes documenting the risk management objective, the hedging strategy, and the effectiveness testing methodology.
  
  
  Re-establish Hedging Relationship: If appropriate, you may need to re-establish a new hedging relationship that meets the effectiveness criteria. This may involve creating a new hedge or modifying the existing one.
  
  
  Consult with Accounting Experts: If you are unsure about the next steps or the implications of the ineffectiveness, it may be beneficial to consult with accounting or financial experts who specialize in hedge accounting.
  
  
  Related Information:
  
  Hedge Accounting Standards: Familiarize yourself with the relevant accounting standards (e.g., IFRS 9, ASC 815) that govern hedge accounting and effectiveness testing.
  SAP Documentation: Review SAP documentation and support notes related to hedge accounting and the specific error message THMHR_ADMIN414 for additional insights and troubleshooting steps.
  Training and Resources: Consider training for your finance and accounting teams on hedge accounting practices and the use of SAP for managing hedging relationships.
  
  By addressing the underlying causes and implementing the suggested solutions, you can resolve the error and ensure that your hedging relationships are effective and compliant with accounting standards.