WASHINGTON -- The final disclosure standards for derivatives that the Financial Accounting Standards Board plans to issue in early October will be much more flexible than those the board proposed in April, board officials and market participants said yesterday.
"We wanted to provide more flexibility so that people could begin complying with them right away," said Jeff Mahoney, an assistant project manager with the private sector standards-setting board.
The final standards "will not resolve everyone's concerns about derivatives, but they are a small step in the right direction," Mahoney said.
"They should give those reading financial statements a better picture of an organization's use of derivatives," he said.
The draft standards were eased after market participants had complained they would be burdensome and costly for dealers and not very useful for investors.
The final standards, however, may fall short of what some Securities and Exchange Commission officials have been seeking, commission officials said yesterday.
SEC commissioner Richard Roberts and other officials complained earlier this year that FASB's draft standards did not go far enough in requiring disclosures of derivatives information.
Roberts said the SEC is pleased that the board is moving forward with disclosure standards, but may supplement the board's standards with its own guidance in the future.
The board's final standards generally will be effective for 1994 financial statements, but will be delayed one year for market participants with less than $150 million in total assets.
The standards will require market participants to report only the average fair values of derivatives held for trading during the reporting period, rather than the average maximum and minimum fair values as had been proposed in April.
The standards will also permit market participants' net gains and losses from trading activities to be segregated according to any category consistent with the management of those trading activities, such as by class of financial instrument, risk, or business activity.
"In other words, the net gains and losses will relate to the total trading picture and will include not only derivatives but other financial instruments and nonfinancial assets that are used in connection with trading activities," Mahoney said.
Securities firm officials are particularly pleased with this change in the standards.
"Our principal objection was that disclosing gains and losses based on derivatives only would have been a major burden because business records are kept along business lines and are not segregated according to types of financial instruments," said Don Ringsmuth, a senior vice president with the Public Securities Association.
The final standards also will clarify that market participants should put disclosures about the fair values of derivatives and other financial instruments in a single footnote or in a summary table that cross-references other fair-value disclosures.
The draft standards had said only that these derivatives disclosures be put in one general area of the financial statement.
The final standards would, in effect, revise or expand two of the board's existing standards -- Statement 105 or "Disclosure of Information about Financial Instruments with Off-Balance Sheet Risk and Financial Instruments with Concentrations of Credit Risk," which took effect in 1990, and Statement 107, or "Disclosures About Fair Value of Financial Instruments," which took effect in 1992.
