The Non-designation of Derivatives as Hedges for Accounting Purposes

Show full item record

Please use this identifier to cite or link to this item: http://hdl.handle.net/1853/26315

Title: The Non-designation of Derivatives as Hedges for Accounting Purposes
Author: Mulford, Charles W. ; Comiskey, Eugene E.
Abstract: The FASB recently issued Proposed Statement of Financial Accounting Standards, Accounting for Hedging Activities: An Amendment of FASB Statement No. 133. The proposed standard simplifies the accounting for hedging activities and generally increases the appeal of hedge accounting. In this report we survey firms’ reporting practices and examine hedges and hedge accounting generally and seek to determine why firms may decide not to designate derivativesas hedges for accounting purposes. In reviewing the reports of a large sample of firms, we find the following four explicit reasons why companies may decide not to designate derivatives as accounting hedges: (1) the substantial cost of documentation and ongoing monitoring of designated hedges; (2) the availability of natural hedges that can be highly effective; (3) a new accounting standard that broadens the applicability of natural or economic hedges; and (4) qualifying hedges are not available or are too costly or documentation is untimely, inadequate, or unavailable. In addition, a fifth reason, not offered as such by the surveyed firms, is the increased risk of restatement that accompanies hedge accounting. The proposed standard combined with the recently-released SFAS 159, The Fair Value Option for Financial Assets and Liabilities, offer companies a welcome relief to the onerous accounting and reporting requirements of SFAS 133.
Type: Technical Report
URI: http://hdl.handle.net/1853/26315
Date: 2008-09
Contributor: Georgia Institute of Technology. College of Management
Georgia Institute of Technology. Financial Analysis Lab
Publisher: Georgia Institute of Technology
Subject: Economics
Accounting

All materials in SMARTech are protected under U.S. Copyright Law and all rights are reserved, unless otherwise specifically indicated on or in the materials.

Files in this item

Files Size Format View
fal_ga_tech_cf_hedges_2008.pdf 171.8Kb PDF View/ Open

This item appears in the following Collection(s)

Show full item record