• FASB 161 Requires Additional Disclosure about Derivative Investments and Hedging Activities
  • June 17, 2008
  • Law Firm: Ropes & Gray LLP - Boston Office
  • In response to recent increases in the use and complexity of derivative instruments and hedging activities, in March 2008, the Financial Accounting Standards Board (“FASB”) amended FASB Statement No. 133 (“FASB 133”) by issuing FASB Statement No. 161 (“FASB 161”), entitled Disclosures about Derivative Instruments and Hedging Activities. FASB 161 expands upon the disclosures already required by FASB 133 to help users of financial statements better understand how and why an entity uses derivative instruments, how derivatives and related hedged items are accounted for under FASB 133, and how an entity’s financial position, financial performance and cash flows are affected by the use of these types of instruments. Specifically, for each reporting period, entities must disclose their objectives for holding or issuing derivative instruments, the context needed to understand those objectives, and their strategies for achieving those objectives. A distinction must be made between instruments used for risk management and those used for other purposes. Transparency is improved by requiring line item(s) of the fair value amounts of derivative instruments be identified in the statement of financial position, and by requiring the amount of gains and losses be reported in the statement of financial performance, quantitatively, in a tabular format. The information is to be presented by type of derivative contract, for instance, interest rate, foreign exchange, equity, commodity, credit or other types of contracts. In addition, entities must disclose credit-risk-related contingent features of any derivative instruments they hold or issue. They must also disclose the circumstances in which the features could be triggered in derivative instruments that are in a net liability position at the end of the reporting period and their aggregate fair value amounts.

    FASB 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008.