FASB offers compromise on derivatives.By a 5 to 2 vote, the minimum margin needed for approval, the Financial Accounting Standards Board Financial Accounting Standards Board (FASB) Board composed of independent members who create and interpret Generally Accepted Accounting Principles (GAAP). agreed to prepare an exposure draft on derivatives reporting that would require companies to record changes in derivatives value on balance sheets. Gain or loss treatment would depend on how the derivative is used and what type of exposure, if any, is being hedged. Gains and losses on derivatives that are effective hedges of assets and liabilities would be included in income, for example, but so would the offsetting gains and losses on the item being hedged. "It's a realistic approach," James A. Johnson James A. Johnson could refer to:
New York City City (pop., 2000: 8,008,278), southeastern New York, at the mouth of the Hudson River. The largest city in the U.S. , told the Journal. "I think the FASB FASB See: Financial Accounting Standards Board FASB See Financial Accounting Standards Board (FASB). is trying to do a good job of updating its model in this difficult area." Johnson pointed out that managing risk has become a sophisticated task, and using derivatives to hedge against risk is becoming common. This is a strategy that really has nothing to do with such highly publicized pub·li·cize tr.v. pub·li·cized, pub·li·ciz·ing, pub·li·ciz·es To give publicity to. Adj. 1. publicized - made known; especially made widely known publicised events as the Orange County crisis. He presented a simplified example of two identical oil companies: One decides to hedge its exposure to oil price fluctuations with derivatives--financial instruments that derive their value from underlying positions or indices--and one leaves itself exposed. "Suddenly, these are two very different companies. Investors must have information on how these two companies are managing risk. Without it, they will reach erroneous conclusions about the true economic exposures each company faces." With so much at stake, "corporate clients are going to be watching the development of this standard very closely," said Johnson. Previous statement erased e·rase tr.v. e·rased, e·ras·ing, e·ras·es 1. a. To remove (something written, for example) by rubbing, wiping, or scraping. b. FASB project manager Robert Wilkins Robert Timothy Wilkins was a seminal blues guitarist and vocalist. Of African American and Cherokee descent, he was born January 16, 1896, in Hernando, Mississippi, 21 miles from Memphis, Tennessee. He died May 26, 1987. told the Journal that although the exposure draft hadn't even been written yet, it was likely the new statement would completely supersede To obliterate, replace, make void, or useless. Supersede means to take the place of, as by reason of superior worth or right. A recently enacted statute that repeals an older law is said to supersede the prior legislation. Statement no. 119, Disclosure about Derivative Financial Instruments and Fair Value of Financial Instruments. Johnson saw that statement as a stopgap at a time when there were limited derivatives disclosure rules and some were needed fast. The planned statement should be acceptable to businesses using derivatives to hedge risk, ending a lot of controversy. Although the ED will go through the usual review process, neither Wilkins nor Johnson expected major changes between it and the final statement. "The FASB is not going up the river without a map. So many of the complex hedging issues have been considered already. I imagine things will move fairly rapidly now," said Johnson. The FASB hopes to have the ED available at the end of June, with a final statement by the end of this year or early in 1997. |
|
||||||||||||||||||
Printer friendly
Cite/link
Email
Feedback
Reader Opinion