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Business and Policy Areas
Business and Policy Areas

FASB Issues ED on Derivatives and Hedging Activities

December 8, 2006

In an effort to better convey the risks entities intend to manage when using derivative instruments, a new FASB exposure draft would require additional information about the effects of derivative and hedging activities on a company's financial statements. The ED is titled “Disclosures about Derivative Instruments and Hedging Activities—an Amendment of FASB Statement No. 133.” The proposed statement addresses concerns that existing disclosure requirements associated with FASB Statement No. 133 do not provide adequate information to financial statement users.

The exposure draft would:

• enhance the current disclosure framework by requiring that objectives and strategies for using derivative instruments be discussed in terms of underlying risk and accounting designation
• require tabular disclosure of notional and fair value amounts of derivatives instruments and the gains and losses on derivatives instruments and related hedged items
• require disclosure of information about counterparty credit risk and the existence and nature of contingent features in derivative instruments.

The requirements of the proposed statement would be effective for financial statements issued for fiscal years and interim periods ending after December 15, 2007 (fiscal 2008 for the majority of higher education institutions), with early application encouraged. The proposed statement would encourage but would not require disclosures for earlier periods at initial adoption. In years after initial adoption, the proposed statement would require disclosures for earlier periods.

Written comments on the ED are due by March 2, 2007.  NACUBO encourages independent institutions to read and respond to the ED by the comment deadline. NACUBO plans to comment based on input from NACUBO’s Accounting Principles Council but encourages all members to provide insights for contribution to the comment letter.  Members with feedback on the ED should contact Sue Menditto, director, accounting policy.  The ED is available on the FASB Web site.