The FASB responds to the sharp increase in the use and complexity of derivatives instruments by issuing Statement No. 161 - Disclosures about Derivative Instruments and Hedging Activities. SFAS No. 161 asks entities to provide qualitative disclosures about the objectives and strategies for using derivatives, quantitative data about the fair value of and gains and losses on derivative contracts, and details of credit-risk-related contingent features in their hedged positions.
The new standard also improves transparency about the location and amounts of derivative instruments in an entity’s financial statements; how derivative instruments and related hedged items are accounted for under Statement 133; and how derivative instruments and related hedged items affect its financial position, financial performance, and cash flows.
FASB Statement No. 161 requires disclosure of the fair values of derivative instruments and their gains and losses in a tabular format. It also provides more information about an entity’s liquidity by requiring disclosure of derivative features that are credit risk–related. Finally, it requires cross-referencing within footnotes to enable financial statement users to locate important information about derivative instruments.
The FASB said investors have increasingly expressed concerns that the disclosure requirements under SFAS No. 133 don’t provide adequate information about the risks many entities are exposed to through their use of derivatives.
The new standard is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged.
Press release
Full statement on standard 161
Summary
© Graham Bishop
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