Magazine article The CPA Journal

Survey Finds Consistency in Derivative Accounting

Magazine article The CPA Journal

Survey Finds Consistency in Derivative Accounting

Article excerpt

It suggests that complete overhaul of accounting rules are unnecessary.

Acording to a survey of financial nd 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, 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% of survey respondents match the accounting of these instruments with the economics of the transaction by recognizing the effects of the derivative instrument at the same time as the hedged item.

In addition, 96% of respondents require correlation between the effects of the derivative and the hedged item, while 91% require the derivative to be linked to specific assets or liabilities or homogeneous pools. Moreover, 99% 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.

The FASB exposure draft on derivative accounting, which would significantly affect reporting for derivatives and hedges, attempts to simplify what the FASB believes are diverse and complex current practices. …

Search by... Author
Show... All Results Primary Sources Peer-reviewed

Oops!

An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.