FASB Proposes Improved Disclosures for Derivatives and Hedging Activities

Norwalk, CT, December 8, 2006—The Financial Accounting Standards Board today issued a proposal that would provide investors and others with better information about the effects of derivative and hedging activities on a company's financial statements. The proposed Statement specifically addresses constituents' concerns that existing disclosure requirements associated with FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities, do not provide adequate information to financial statement users.

"The proposed disclosure requirements are intended to enhance understanding of how and why entities use derivatives, how they are accounted for in an entity's financial statements, and how they affect an entity's financial position, results of operations, and cash flows," said Kevin Stoklosa, FASB Project Manager.

Accordingly, today's exposure draft would enhance the current disclosure framework by requiring that objectives and strategies for using derivative instruments be discussed in terms of underlying risk and accounting designation. The exposure draft would require tabular disclosure of notional and fair value amounts of derivatives instruments and the gains and losses on derivatives instruments and related hedged items. Additionally, the proposed Statement would require disclosure of information about counterparty credit risk and the existence and nature of contingent features in derivative instruments.

In the FASB's view, these disclosures seek to better convey the risks the entity is intending to manage and the additional risks the entity may be taking on when using derivative instruments. In addition, the requirements will make clear how derivatives and related hedged items affect reported amounts in the financial statements.

"Given the complicated nature of derivative instruments and the many different complex hedging strategies used to manage risk, it may be difficult for users to understand the effect derivatives have on an entity's financial position, results of operations, and cash flows," Mr. Stoklosa added. "The information required by the disclosures in the proposed Statement will enable users to better understand that effect as well as to better compare the effects between different entities."

The requirements of the proposed Statement would be effective for financial statements issued for fiscal years and interim periods ending after December 15, 2007, with early application encouraged. The proposed Statement would encourage but would not require disclosures for earlier periods at initial adoption. In years after initial adoption, the proposed Statement would require disclosures for earlier periods.

Open Due Process

The Board is seeking written comments on the proposal by March 2, 2007. Parties interested in providing input on today's proposal entitled, Disclosures about Derivative Instruments and Hedging Activities—an amendment of FASB Statement No. 133, should submit their comments by email to, File Reference No. 1510-100. Those without email may send their comments to:


Technical Director-File Reference No. 1510-100
Financial Accounting Standards Board
401 Merritt 7
PO Box 5116
Norwalk, Connecticut 06856-5116


About the Financial Accounting Standards Board

Since 1973, the Financial Accounting Standards Board has been the designated organization in the private sector for establishing standards of financial accounting and reporting. Those standards govern the preparation of financial reports and are officially recognized as authoritative by the Securities and Exchange Commission and the American Institute of Certified Public Accountants. Such standards are essential to the efficient functioning of the economy because investors, creditors, auditors, and others rely on credible, transparent, and comparable financial information. For more information about the FASB, visit our website at