Recent Releases: DERIVATIVES EXPOSURE DRAFT

GAAFR Review, October, 2007 by Gauthier, Stephen J

At the end of June 2007, the Governmental Accounting Standards Board (GASB) issued an exposure draft (ED) on Accounting and Financial Reporting/or Derivative Instruments. The ED follows up on an earlier preliminary views (PV) document issued by the board in April 2006 (see GAAFR Review, June 2006). The new ED retains the same basic approach as the PV, but with some significant modifications to certain of its applications.

Essential characteristics of a derivative

Settlement factors. The term derivative is used to describe a financial instrument or contract that derives its value from something else. Specifically the value of a derivative depends upon two settlement factors:

* Reference rate. A variable that can be objectively verified (e.g., a security price index,...

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