Accounting and Financial Reporting for Derivative Instruments. Derivatives Notional amounts outstanding, 1987-present. $683.7 trillion in June 2008. Source: International Swaps and Derivatives Association, Inc., 2008. Types of Derivatives that Accountants Encounter.
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$683.7 trillion in June 2008
Source: International Swaps and Derivatives Association, Inc., 2008
% of notional amounts outstanding – as of June 2008 – Source Bank for International Settlements
Synthetic instrument method Instruments
Synthetic rate should be within 90% - 111% of fixed rate.
Derivative cash flows 80% - 125% of debt.
R2 (measure of the proportion of the variance in a dependent variable about its mean that can be explained by changes in the independent variable.) must be ≥ 0.80.
F-statistic (confidence level) must have 95% confidence.
Corridor must be80% - 125% of debt.Effectiveness Corridors
Fixed pay 3.57872%
Variable receive – 49.96% of LIBOR + 78bps
Auction rate paid
Note that the actual synthetic rate paid will vary depending on the difference between the auction rate paid and the variable rate received.
Since these are between 90 and 111%, then derivative is effective – changes reflected only in statement of net assets.
Way out of corridor (2.81% ÷ 3.58% = 78.49%)
Fair value is calculated by taking the net present value of the cash flows at 3%. Fair value of the derivative is the swaption, less the borrowing. The change in fair value is the current year’s less the previous year’s fair value.
The beginning balance is the original fair value of the borrowing. The interest accrual is the beginning fair value x 3% x (180/360). The swap payments are after the exercise date. Ending balance = beginning + interest – payments. The $1,250,000 starts in 2½ years until maturity.
Not supposed to foot unless counting statement of activities
Not supposed to foot unless counting statement of net assets
Eric S. Berman, CPA
Commonwealth of Massachusetts