and other corporations to make big changes in how they account for derivatives. The changes are needed, the nation's accounting standards-setters said Friday, to clarify for investors what companies hope to accomplish with swaps and forwards, and to better measure whether they are succeeding. "Clearly, investors need help in understanding derivatives and the related risks and uncertainties," said Michael Sutton, chief accountant of the Securities and Exchange Commission. To accomplish this, the SEC will soon propose regulations requiring public corporations to explain in their annual reports what role derivatives play in their business operations, and quantify the risks they pose, Mr. Sutton said at an American Institute of Certified Public Accountants banking conference here. Meanwhile, the Financial Accounting Standards Board plans by the middle of next year to issue a hedge accounting proposal that will require companies with derivatives holdings to either mark all their derivatives to market value, or mark all their financial instruments to market value. Dennis Beresford, chairman of FASB, said that under this approach, "derivative financial instruments would become much more transparent, much more obvious on the balance sheet." Mr. Sutton said he doubts banks will have much trouble complying with the SEC's new disclosure rules, and no one in the audience - composed chiefly of bank financial officers and auditors - appeared to disagree. But Mr. Beresford was barraged with critical questions about the accounting standards board's hedge accounting plans. One audience member, for example, wanted to know why FASB didn't build on current accounting rules for derivatives instead of adopting an all-new approach. Mr. Beresford's response: "The current accounting rules are inconsistent, incomplete, and contradictory. I don't think you could expand the current treatment other than to say, 'Do whatever you want with derivatives.'" A FASB action that brought friendlier comments was the board's recent decision to grant what Mr. Beresford called an "amnesty, window of opportunity, or mulligan" during which banks will be allowed to move securities out of the held-to-maturity category. On Wednesday, the board released a "Guide to Implementation of Statement 115" that says companies can, between Nov. 15 and Dec. 31, reclassify their securities. The 50-page guide, arranged in a question-and-answer format, costs $11. To order it, call the FASB at 203-847-0700.
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