Academic journal article The Government Accountants Journal

Survey Finds Consistency in Derivative Accounting

Academic journal article The Government Accountants Journal

Survey Finds Consistency in Derivative Accounting

Article excerpt

Suggests complete overhaul of accounting rules is unnecessary

According to a survey of financial and nonfinancial organizations that use derivative instruments in conjunction with risk management activities, there is consistency in the accounting for risk management activities.

The survey, which was requested by the staff of the Financial Accounting Standards Board (FASB) and conducted by KPMG Peat Marwick LLP, revealed that there is consistency in how organizations currently account for the four primary types of derivative instruments: futures, forwards, swaps and options. More than 90 percent of survey respondents match the accounting of these instruments with the economies of the transaction, by recognizing the effects of the derivative instrument at the same time as the hedged item.

In addition, 96 percent of respondents require correlation between the effects of the derivative and the hedged item while 91 percent require the derivative to be linked to specific assets or liabilities or homogenous pools. Moreover, 99 percent of those surveyed reported that they require that derivative instruments be designated and documented as relating to a particular risk management strategy in order to qualify for risk management accounting.

While the vast majority of organizations responding require a specific assessment of the risks being managed for derivative instruments to qualify for special treatment, practice varied in the criteria organizations use to define and evaluate risk and the business levels at which risks are measured. …

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