Derivatives: new disclosures required

In March 2008, FASB issued SFAS 161, Disclosures about Derivative Instruments and Hedging Activities, which expands disclosures about derivative instruments and hedging activities. Derivatives are financial instruments with a value derived from fluctuations in the share of an underlying asset, liabi...

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Bibliographic Details
Published in:The CPA journal (1975) 2008-11, Vol.78 (11), p.28
Main Authors: Apostolou, Barbara, Apostolou, Nicholas G
Format: Article
Language:English
Subjects:
Accounting
Balance sheets
Banking industry
Contracts
Derivatives
Disclosure
Disclosure (Securities law)
Fair value
FASB statements
Financial accounting standards
Financial performance
Financial statements
Foreign exchange rates
Futures
Hedging
Interest rates
Investment banks
Investments
Liability
Over the counter trading
Risk exposure
SFAS 161
Stock prices
Swaps (Finance)
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Summary:In March 2008, FASB issued SFAS 161, Disclosures about Derivative Instruments and Hedging Activities, which expands disclosures about derivative instruments and hedging activities. Derivatives are financial instruments with a value derived from fluctuations in the share of an underlying asset, liability, interest rate, exchange rate, or index. Derivatives can be traded over-the-counter (OTC) or on an exchange. OTC derivatives are traded directly between two parties, without using an exchange to facilitate the trade. SFAS 161 improves transparency by disclosing more information as to where derivative investments are reflected in the financial statements and the amounts of such derivatives. Issuers must now disclose the fair values of derivatives and their gains and losses in a tabular format, which should enable investors to better assess the contribution of derivatives to earnings and financial risk. In addition, companies must now reveal more information about risk exposure, and distinguish between derivatives used for risk management and those used for speculation.
ISSN:0732-8435