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| Tuesday, February 9, 2010 |
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ANALYSIS
March 2, 2009
Sagging Index no longer reflects what’s going on in the market, some say, Replacements? Google it, to start.
March 2, 2009
Downward price spiral will actually boost the cost of capital for most companies. CFOS, take note.
March 2, 2009
The latest bailout at AIG could be a preview of how the president will deal with Wall Street.
March 2, 2009
No corporate defaults. Big debt offerings. Percolating CP issuance. Things may be looking up in the capital markets.
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December 18, 2008 4:29 PM ET
The Financial Accounting Standards Board’s little-noted decision last week to indefinitely postpone a proposed revision to its famously complex accounting rules for derivatives is good news for companies that use such financial instruments to hedge risk, observers say. The FASB had intended to simplify the rules, known as FAS 133, and eliminate differences that exist between them and their counterpart under International Financial Reporting Standards, IAS 139. But the proposed revision to FAS 133 would have eliminated a number of provisions that make it easier for companies to avoid having changes in the fair value of their derivatives affect their earnings. That drew complaints from preparers of financial statements and others and led the FASB to back down. Not only has the board withdrawn the proposal, but it hasn’t said when it will re-introduce a revised version. The decision means, for starters, that companies will be able to continue to use a so-called "short-cut” method to account for plain-vanilla interest-rate swaps. This eliminates the need for extra testing and documentation to make sure hedges are effective so that changes in the value of the financial instruments involved can be recorded on the user’s balance sheet instead of income statement. Also, companies will continue to be able to separate the risks they’re hedging with a given instrument into expected changes in overall fair value or cash flows, interest-rate risk, credit risk, or a combination thereof. The elimination of that ability to bifurcate risk would likely have meant more changes reported to the income statement, adding to earnings volatility, said Jiro Okochi, CEO of Reval, a risk management consulting firm. Also, the revision, known as FAS 133R, would have required companies that want to terminate a hedge to buy another to offset the position. Currently, companies can simply end a derivative’s designation as a hedge at their discretion. While observers expect the FASB to revisit these issues once the date established by the Securities and Exchange Commission on when U.S. companies can report their results in either U.S. GAAP or IFRS draws near. But under the SEC’s roadmap for such convergence of international and U.S. rules, that won’t happen until 2014 at the earliest. Until then, said Mr. Okochi, the FASB will have “swept [FAS 133R] under the rug.”
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