GASB 53 Hedging Derivatives

If a government has entered into a hedging derivative, through GASB 53 reporting requirements, governments will provide additional information about their hedging derivative instruments. Although governments will be allowed to combine their hedging derivative instruments in their reporting, the differences in the terms of the derivatives may lead to this information being disclosed individually for many of them, eliminating the value of aggregation. The information includes:

• An explanation of a government’s objective for entering into the hedging and how it plans to achieve that objective
• Significant terms of the derivative, such as: notional amount, indexes or interest rates upon which it is based, any options embedded in the derivative, starting and ending dates, amount of cash that changed hands (if any) when the derivative was initiated
• If the item being hedged is debt, then the government will disclose the net cash flows of the hedging derivativ
• The exposure risks to which the derivative exposes the government: termination risk, credit risk, the credit quality rating of the firm, the maximum potential loss if the firm fails to fulfill its obligations, the collateral or other security supporting the derivatives, significant concentrations of credit risk with a particular firm or firms, Interest rate risk, basis risk, rollover risk, market-access risk, Foreign currency risk.

MuniMarket Pulse Podcast on GASB 53

To learn more about GASB 53 and the requirements for reporting, MuniMarket Pulse has produced an audio podcast interview with Jim Towne, Senior Vice President of DerivActiv on the subject. Listen to the podcast here.

DerivActiv performs valuations on all types of derivatives, from interest rate swaps, foreign exchange (FX), fixed income and equities. In addition we perform all of the GASB 53 calculations and provide a report to the governmental entity that can be used to prove the hedging relationship to the auditors. For more information, contact a DerivActiv representative to discuss your particular requirements at 866-200-9012.

If you are interested in learning more about GASB 53 reporting, you can download a GASB 53 white paper.