Academic journal article Journal of Accountancy

GASB Issues Guidance on Derivatives

Academic journal article Journal of Accountancy

GASB Issues Guidance on Derivatives

Article excerpt

The Governmental Accounting Standards Board released Technical Bulletin no. 94-1, Disclosures about Derivatives and Similar Debt and Investment Transactions. The bulletin clarifies disclosure requirements for state and local governments that directly or indirectly use, hold or sell derivatives.

Last year, Orange County, California, filed for bankruptcy; it ultimately suffered a $1.69 billion loss in the value of its investment fund because of a heavily leveraged, interest-rate-sensitive investment strategy that included derivatives (see "The Question of Derivatives," and "Be Skeptical, Dig for Facts, Orange County CPA Urges,"). Thomas B. Strayer, assistant project manager at GASB, said this technical bulletin had been available as an exposure draft before Orange County was news. "One of the reasons for this bulletin," said Strayer, "was the concern that existing accounting standards did not specifically address derivative disclosures."

The bulletin is based on the existing requirement that governments need to make all disclosures necessary to prevent misleading financial statements. "There already are standards that specifically require certain types of disclosures," said Strayer. …

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