FASB May Re-Open Talks on Derivatives and Hedging Activities

The Financial Accounting Standards Board (FASB) may re-start discussions on one of its most controversial standards–accounting for derivatives.

Financial Accounting Standard 133–Accounting for Derivative Instruments and Hedging Activities–took effect in 2000 and angered many business owners. Companies were required to report fair value for certain items such as derivatives and other securities on the balance sheet, and adjust earnings to reflect changes in market value.

The FASB will consider developing separate projects that will focus on issues connected with derivatives that were raised during discussions on another project, the Fair Value Measurement project.

One project would concentrate on accounting for energy-trading and risk-management contracts, which are considered derivatives, CFO.com reported.

In comments on the Fair Value Measurement project, many financial companies complained about “marking to market,” saying that market price may not always reflect creditworthiness.

"Credit standing of an entity clearly has an impact on the economic value of that entity's trading liabilities," wrote Goldman Sachs Group managing director and principal accounting officer Sarah E. Smith. "Reflecting that impact on the balance sheet results in a better fair value estimate."

Linda MacDonald, manager of the Fair Value Measurement project, told CFO.com that the board will consider whether to revisit the derivatives issue early in June. "There are a lot of issues we need to cover with that one."

Derivatives are complicated financial instruments that are being used more widely, sparking concern by Federal Reserve chairman Alan Greenspan and others.

Greenspan, in a speech last week, said that big financial players, such as banks and hedge funds that use derivatives, must always assess whether they are managing risk effectively.

"The rapid proliferation of derivatives products inevitably means that some will not have been adequately tested by market stress," Greenspan said. Financial players, he said, "must be aware of the risk-management challenges associated with the use of derivatives ... and they must take steps to ensure that those challenges are addressed."

You may like these other stories...

IRS must take oath on Lerner emails: judgeMackenzie Weinger of Politico reported on Thursday that a federal judge ordered the IRS to explain under oath how it lost emails connected to Lois Lerner, the ex-IRS official at the...
Credit Suisse says pension assets at risk unless court delays sentencingJohn Letzing of the Wall Street Journal reported on Wednesday that Credit Suisse Group AG says its management of billions of dollars in assets for...
The prospect of International Financial Reporting Standards (IFRS) being fully adopted in the United States in the near future are growing less likely, as the Financial Accounting Standards Board (FASB) and the International...

Upcoming CPE Webinars

Jul 16
Hand off work to others with finesse and success. Kristen Rampe, CPA will share how to ensure delegated work is properly handled from start to finish in this content-rich one hour webinar.
Jul 17
This webcast will cover the preparation of the statement of cash flows and focus on accounting and disclosure policies for other important issues described below.
Jul 23
We can’t deny a great divide exists between the expectations and workplace needs of Baby Boomers and Millennials. To create thriving organizational performance, we need to shift the way in which we groom future leaders.
Jul 24
In this presentation Excel expert David Ringstrom, CPA revisits the Excel feature you should be using, but probably aren't. The Table feature offers the ability to both boost the integrity of your spreadsheets, but reduce maintenance as well.