FASB wants derivatives reported at fair value.

Testifying before the House Committee on Banking, Finance and Urban Affairs on the issue of derivatives, Dennis R. Beresford, chairman of the Financial Accounting Standards Board, said the FASB planned to issue an accounting standard on derivative disclosures this fall and an exposure draft on hedge accounting by the end of the year. He reiterated his support for the inclusion of such disclosures in 1994 financial statements.

The FASB is considering various approaches to address accounting for derivatives and hedge accounting, both of which would require reporting derivative financial instruments at fair value.

The committee was especially interested in Beresford's views on HR 4503, a bill that would mandate specific disclosures on derivatives. The FASB, which always has worked to avoid the need for government intervention in setting accounting standards, exposed a statement addressing derivatives in April (see "FASB Issues ED on Derivatives," JofA, July94, page 10).

"Many of the specific disclosures in the bill resemble existing and proposed FASB requirements," Beresford said. "However, we are concerned that establishing such specific disclosures in a statue is unlikely to stand the test of time....Furthermore, the derivatives market continues to evolve at a rapid pace, with new instruments and new twists on old instruments appearing constantly. What was once important information is no longer important, and vice versa."

Referring to the growing use of derivatives by businesses and what he called the lack of understanding of these instruments by the users of financial statements, Beresford said, "Even sophisticated financial statement users have described themselves as 'confounded' or 'mystified.' No one profits from such a situation."