FAS 161 Financial Reporting

Since the issuance of FASB Statement 133 in 1998, the use of derivatives and other hedging activities, as well as their complexity, has increased dramatically.  The expanded FAS 161 financial reporting requirements address the following:

• How and why does an entity use derivative instruments?
• What are the risks related to using derivatives?
• What effect do the derivatives have on the financial statements?

To learn more about FAS 161, and how to implement FAS 161 into your entity’s financial reporting, contact DerivActiv at 1-866-200-9012

FAS 161 Enhanced Financial Reporting

• Entities must provide disclosure outlining the reasons for using derivative instruments.  Disclosures should be in the context of overall risk exposure.
• For derivatives used as hedges, the reporting should include a description of hedges used for i) fair value hedges, ii) cash flow hedges, and iii) foreign currency hedges.
• For derivatives held solely as investments, the reporting needs to provide the purpose for holding such an investment.
• A statement should be made about the organization’s objectives and strategies for using derivative instruments in the context of the entity’s overall risk exposure.  These statements should be made as they relate to interest rate risk, foreign exchange rate risk, commodity price risk, credit risk and equity price risk.
• For each reporting period the following should be reported in tabular form by type of derivative:
  • The counterparty and fair value of derivatives reported in the financial statements;
  • The amount of gains and losses reported in the statement of operations;
  • The effective portion of gains and losses on cash flow hedges and net investment hedges recognized in other comprehensive income or reclassified out of other comprehensive income and into earnings;
  • The portion of gains and losses for cash flow hedges and net investment hedges representing i) the amount of the hedge’s ineffectiveness and ii) the amount excluded from the assessment of hedge effectiveness; and
  • Derivative contracts not designated as hedges.
• For each reporting period for which a statement of financial position is presented, the following should be reported:
  • The existence and nature of credit risk-related contingent features and circumstances that could be triggered in derivates that are in a net liability position;
  • The aggregate fair value of such derivatives;
  • The aggregate fair value of assets that are reported as collateral;
  • The aggregate fair value of additional assets that would be reported as collateral; and
  • The aggregate fair value of assets needed to settle the derivative contract if credit-related features were triggered.