Warm up your spell check, drag out your accounting text books, pull up fasb.org and share your reactions to the FASB’s proposed changes to derivative accounting and financial instrument reporting. The comment letter process is a key part of the FASB’s efforts to improve financial reporting. They see comment letters as “essential to develop[ing] the best solutions to accounting and reporting issues and prevent[ing] standards that are unworkable in application, too costly, or even inconsistent with basic concepts.”
Specifically your input to the FASB should address questions they have poised to you as preparers and or users of financial statements as well as support for or concerns you have about the basis or practicality of the proposal. Prepare “articulate, well-presented arguments that emphasize theoretical support” as well as examples that address specific implementation issues. Letters that just applaud or deride positions will be given little weight as the FASB is not trying to win a popularity contest (remember stock options). Obviously, avoid derogatory comments. I was surprised to read comments like “I am amazed that we are even having this discussion” and “The proposal to have banks mark their loans to market is idiotic at best” among the 150+ letters already submitted.
Areas that you might consider addressing in a comment letter include (one or two points critical to your company accompanied by company specific facts and applications would be best):
- Affirm move to qualitative support for effective relationships, to reduce ridiculous costs associated with regressing obviously effective relationships (give examples) and supporting some through very rigorous (and expensive) audit validations.
- The need to hedge currency risk when corporations manufacture or have costs in one currency and generate revenues in another and how often the intercompany exposure is the only non-functional currency transaction that meets the remaining criteria for hedge accounting.
- Request clarification whether currency cash flow hedges are automatically dedesignated when a hedged transaction is recorded or if dedesignation is required (closing out the hedge and executing a second derivative to protect the same cash flow.)
- Position that voluntary dedesignation is not an abuse of hedge accounting and that executing two offsetting transactions in the market place in order to get a different accounting effect is inefficient and burdensome.
- Support accelerating the effective date for changes to the derivative accounting portion of the exposure draft.
