Accounting for Derivatives (US-GAAP)

Jörg Decker

• Publisher: GRIN Verlag
• Year: 2003
• eBook ISBN: 9783638206440
• Edition: 0
• Topic: Business
• Subtopic: Accounting
• Index: Business

Seminar paper from the year 2003 in the subject Business economics - Accounting and Taxes, grade: 1, 7 (A-), Technical University of Braunschweig (Economics - Controlling), course: Intenational Accounting, language: English, abstract: Some years before the financial scandal of Enron, which was mainly caused by the misuseof derivatives, the Financial Accounting Standard Board (FASB) began deliberatingon issues related to derivatives and hedging transactions.1 The cause of thinking aboutchanges in accounting for derivatives was a problematic situation in 1986 (comparableto current situation in Germany). For example, the applicatory use was very complicatedand transactions with derivatives were not transparent enough. There were only clearstandards for a few product groups and transactions with derivatives were not reportedon the balance sheet.2In consequence, first in 1986, a work program called Project on Financial Instrumentswas founded.3 In 1992 the members of the FASB received the responsibility in workingon derivatives and continued improving the existing statement for about six years inmore than 100 meetings. In June 1998 (06/16/1998) the Statement for Financial AccountingStandard (SFAS) No. 133 "Accounting for Derivative Instruments and HedgingInstruments" passed as an outcome of these efforts and is valid for every entity.4Some public voices say, it is one of the most complex and controversial standards everissued by the FASB.5Statement No. 133 replaced FASB Statement No. 80 (Accounting for Future Contracts), No. 105 (Disclosure of Information about Financial Instruments with Off-Balance-SheetRisk and Financial Instruments with Concentrations of Credit Risk) and No. 119 (Disclosuresabout Derivative Financial Instruments and Fair Value of Financial Instruments).6 Also FASB Statement No. 52 (Foreign Currency Translation) and No. 107(Disclosures about Fair Value of Financial Instruments) were amended, by including the"disclosure provisions about concentration of credit risk" form Statement No. 105 inStatement No.107.Despite the fact that the new Statement was issued in June 1998 it only was effective onfinancial statements for fiscal years beginning after June 15, 2000. [...]1 Cp. Ernst & Young LLP (2002), p. 1.2 Cp. Henne, T.(2000), p. 51.3 Cp. Zander, D. (2000), p. 985.4 Cp. Maulshagen, A./Maulshagen, O. (1998), p. 2151.5 Cp. International Treasurer (1999).6 Cp. Ernst & Young LLP (2002), p. 1.