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Describe disclosure requirements for derivatives and risk.

Describe disclosure requirements for derivatives and risk.

EBK CONTEMPORARY FINANCIAL MANAGEMENT
EBK CONTEMPORARY FINANCIAL MANAGEMENT
14th Edition
ISBN:9781337514835
Author:MOYER
Publisher:MOYER
Chapter20: Financing With Derivatives
Section: Chapter Questions
Problem 8QTD
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Describe disclosure requirements for derivatives and risk.

Expert Solution
Step 1

As per FAS 161- Please see below :

Disclosures to be made in the footnotes for derivatives-

  1. An entity's objective for holding or using derivative instruments.
  2. Details about instrument's underlying risk exposure like: Interest rate risk, credit risk, equity risk, foreign risk, commodity risk, other risks
  3. The level of entity's derivative activity.
  4. Disclosures related to counter party credit risk.

 

Disclosures in the balance sheet to be included as :

  1. Tabular presentation of fair value at end of the period in the balance sheet, that is the period end market value
  2. Realized/ unrealized gains/loss over the period.
  3. Derivatives in asset positions are presented separately from derivatives in a liability position.
  4. Collateral amounts associated with derivatives are excluded in the table.

 

Disclosures in the income statement to be included as :

  1. Entities disclose the gains/losses for those amounts that are reported in income statement. These are to be presented by primary risk exposure.
  2. The statement does not require the disclosure of gains and losses on derivatives to distinguish between those that exist at the end of the reporting period and  those that are no longer held.
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