A Survey on Accounting for Derivatives and Other Financial Instruments

How to Cite

A Survey on Accounting for Derivatives and Other Financial Instruments. (1998). Journal of Business Strategies, 15(2), 131-147. https://doi.org/10.54155/jbs.15.2.131-147


In response to the recent growth in the use of derivative financial instruments, the Financial Accounting Standards Board (FASB) recently required all companies to make certain classifications and disclosures for such "complex" financial instruments. Yet, the Securities and Exchange Commission (SEC) and the FASB now demand even further reporting requirements - including requiring companies to recognize the "fair value" (and resultant gains and losses) of their financial derivatives as well as make other "qualitative disclosures" of the potential risk of holding such financial securities. The provisions of the current and proposed standards will affect significantly virtually all types of companies, especially those using derivative instruments. Hence, those preparing and evaluating financial statements under this emerging set of standards must comprehend these new provisions. The paper first discusses the current standards relating to financial derivatives and other financial instruments; it then provides examples of "leading" disclosures of such financial instruments. Then, based upon the responses to a mail questionnaire, the paper discusses how key groups view potential SEC changes in accounting for derivatives. All four of the groups generally agree with the provisions of SFAS No. 119 and most favor the recently passed, increased reporting standards.


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