Statement on Accounting Disclosure About Derivative Financial Instruments

The Financial Economists Roundtable (FER) is a group of senior financial economists who meet annually to discuss current policy questions relating to investments, corporate finance, financial institutions, and financial markets. The FER issues statements from time to time about specific topics of current importance to increase the awareness and understanding of public policymakers, the financial economics profession, the communications media, and the general public. At its 1995 meeting, the FER examined reporting requirements for financial assets and liabilities as well as derivatives. Its statement here reflects the consensus view of the majority of members attending. In brief, it recommends that: 1. All financial assets and liabilities, and derivatives used to hedge them, should be recorded at fair value, i.e., should be marked to market. 2. Profits and losses on derivatives used to hedge non- financial assets or future expenditures should be recognized in the same period that the specified event or hedged item is taken into income or expense. 3. External reporting must be supported by an adequate risk management internal control system