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Statements of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities, commonly known as FAS 133, is an accounting standard issued in June 1998 by the Financial Accounting Standards Board (FASB) that requires companies to measure all assets and liabilities on their balance sheet at “fair value”.
In finance, a derivative is a contract between a buyer and a seller. The derivative can take various forms, depending on the transaction, but every derivative has the following four elements: an item (the "underlier") that can or must be bought or sold, a future act which must occur (such as a sale or purchase of the underlier),
Accounting standards enable hedge accounting for three different designated forex hedges: A cash flow hedge may be designated for a highly probable forecasted transaction, a firm commitment (not recorded on the balance sheet), foreign currency cash flows of a recognized asset or liability, or a forecasted intercompany transaction.
The word derivative sounds fancy and perhaps a little intimidating. But the key thing to know about derivatives is that they are a financial contract whose value is derived from the value of ...
The International Accounting Standards IAS 32 and 39 help to give further direction for the proper accounting of derivative financial instruments. IAS 32 defines a “financial instrument” as “any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity”. [4]
Financial instruments are monetary contracts between parties. They can be created, traded, modified and settled. They can be cash (currency), evidence of an ownership, interest in an entity or a contractual right to receive or deliver in the form of currency (forex); debt (bonds, loans); equity (); or derivatives (options, futures, forwards).
In finance, a forward contract, or simply a forward, is a non-standardized contract between two parties to buy or sell an asset at a specified future time at a price agreed on in the contract, making it a type of derivative instrument.
Gains and losses on derivatives held as cash flow hedges (only for effective portions) [IAS 39/ "FAS 133" – "Accounting for Derivative Instruments and Hedging Activities"] Gains and losses resulting from translating the financial statements of foreign subsidiaries (from foreign currency to the presentation currency) [IAS 21/ "FAS 52 ...