|
PureBytes Links
Trading Reference Links
|
I'll refer you to Statement of Financial Accounting Standards (SFAS) No.
133, Accounting for Derivative Instruments and Hedging Activities. It was
put out for exactly the reasons you mention:
Aaron Schindler
www.schindlertrading.com
----- Original Message -----
From: "cwest" <cwest@xxxxxxxxxxxx>
To: "Omegalist" <omega-list@xxxxxxxxxx>
Sent: Thursday, June 27, 2002 12:04 PM
Subject: Aaccounting & Derivatives
> With the noise level about accounting practices and disclosure lately,
I've
> had some discussion about what should be accounted for with derivatives,
and
> I'd appreciate any comments that address this issue. For example, the
> purchase and/or sale of a futures contract explicitly incurs a liability,
> however, the amount of the liability is unknown. Generally, one's accounts
> reflect the amount of margin applied to the transaction and not the
inherent
> contingency of the liability.
>
> The amount of the contingency of loss comes more into focus at the moment,
> and therefore how should one account for it. Marking to market the daily
> profit and/or loss incurred while a futures contract is current or open is
> an approach, but the contingency of the full exposure isn't considered
> within a balance sheet (this way). Analogously one could say that a
> portfolio of stocks also has a "disastrous contingency" which isn't
account
> for.
>
> Might it be necessary to consider the notional value of a futures contract
> as an asset and its corresponding liability is that amount less the amount
> of margin held in a brokers account or paid? That would be more in line
with
> how the value of a portfolio is represented, which is also marked to
market.
>
> Colin West
>
|