FASB suggests more in-depth derivatives reporting

The US Financial Accounting Standards Board (FASB) has issued a proposal for more rigorous reporting of derivatives in financial statements.

The proposed changes, affecting FASB Statement 133, would mean the purposes behind companies’ uses of derivatives and related hedged items would have to be made explicit, along with contingent and counterparty risks. FASB said the changes were a reaction to concerns from the accounting community that present rules do not provide enough information.

FASB’s proposal requires accounting statements to discuss the aims and strategies of using particular derivatives, including information on what risks are being hedged against. Tables revealing details of derivatives would contain the purposes of their notional amounts and fair values, gains and losses, and location – as well as whether or not they are leveraged. Related hedged items would also be given similar treatment. In addition, the proposal would require disclosure of contingent features in derivatives contracts, together with the assets they might affect and counterparty credit risks.

FASB is taking written comments on the proposal until March. If incorporated into financial accounting standards, the new requirements would be effective for statements of periods ending after December 15, 2007.