PracticeConsultingFINANCIAL REPORTING –

FINANCIAL REPORTING -

FASB proposes fair value accounting for derivatives.

Derivatives will appear in US company accounts at fair value under final reporting guidelines expected from US standards setters by the year-end.

The Financial Accounting Standards Board’s statement will allow gains and losses on changes in derivatives’ fair values to be deferred through hedge accounting, provided that the hedging relationship is ‘highly effective’ in offsetting changes in fair values or cashflows. Last year’s proposals placed more emphasis on management intention.

Pauline Wallace, technical partner in Arthur Andersen’s financial markets division, said: ‘Putting the onus on effectiveness should make the standard easier to implement.’

The guidance should take effect on 1 January 1999 for companies with calendar-year reporting cycles. It will be the first issued by a national standard setter on the measurement of derivatives.

The International Accounting Standards Committee has taken a wider approach by addressing all financial instruments, not just derivatives, and is in danger of missing its 1998 guidance deadline.

In the UK, the Accounting Standards Board has so far only issued an exposure draft that calls for greater disclosure of financial instruments. Last week, the Scots ICA criticised the proposals for ‘introducing too much, too quickly’.

The institute’s Accounting Standards Committee expressed concerns over the practical problems in making the disclosures.

David Bentley, convener of the committee, said: ‘Time delays between a company’s year-end and publication of its accounts may lead to the disclosures being out-of-date and therefore misleading.’

The disclosure of fair values would not help readers of the accounts to assess the risks associated with a company’s treasury operations, he added.

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