Financial Analysts Journal

What Analysts Need to Know about Accounting for Derivatives

  1. Ira G. Kawaller

By the end of 2002, public companies in the United States were required to comply with a new set of accounting rules related to corporate use of derivative instruments. Financial Accounting Statement (FAS) No. 133 has subsequently become widely recognized as the most complex set of accounting rules yet to be promulgated. And just as those who prepare financial statements had to learn how to accommodate to the new requirements, analysts also must understand this standard in order to interpret derivative results appropriately. Despite the added transparency of FAS No. 133, a lack of familiarity with it can easily lead analysts to erroneous conclusions.

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