It is instructive to note that Statement 53 excludes certain financial instruments from its scope, even though they may meet the definition of a derivative instrument
If a proportion of the derivative instrument
is designated and qualify in as a hedging instrument and a proportion is not designated and qualifying as a hedging instrument, an entity would allocate the related amounts to the appropriate categories within the disclosure table.
Definition of derivative instruments
focusing on the distinguishing characteristics of a derivative instrument
--settlement factors, leverage, and net settlement;
A derivative instrument
is a financial instrument or other contract with all three of the following characteristics:
The new standard provides specific criteria that governments will use to determine whether a derivative instrument
will result in an effective hedge.
More than 90% of survey respondents match the accounting of these instruments with the economics of the transaction by recognizing the effects of the derivative instrument
at the same time as the hedged item.
Recognizing changes in the fair value of derivative instruments
in net income in each period during the existence of the derivative instrument
, rather than when the forecasted transaction is settled, will result in quarterly changes to previously reported AOCI, retained earnings, operating income and net income.
The standard requires that all derivatives, with certain exceptions, be recorded at their fair value as either an asset or a liability, and changes the previous accounting definition of a derivative instrument
, which focused on freestanding contracts such as options and forwards.
If a Fund invests in a derivative instrument
, it could lose more than the principal amount invested.
While the impact of the change in any reporting period can be significant, the overall impact on operating income, net income and EBITDA (earnings before interest taxes depreciation and amortization) over the life of each derivative instrument
will be the same.
2001, concludes that synthetic GICs meet Statement 133's definition of a derivative instrument
from the perspective of the issuer.
If certain conditions are met, an entity may elect to designate a derivative instrument