FASB Requires New Disclosures for Credit Derivatives

Sellers of credit derivatives are now required to provide a better view of the risks around such instruments following the completion of new guidance from the Financial Accounting Standards Board.

The newly published staff position amends Financial Accounting Standard No. 133, Accounting for Derivative Instruments and Hedging Activity, to require new disclosures by sellers of credit derivatives, such as credit default swaps, credit spread options, and credit index products, including those embedded in complex, hybrid financial instruments. The guidance says sellers of credit derivatives must provide more information about the potential downside of changes in credit risk, especially as it affects the entity’s financial position, financial performance, and cash flow.

FASB says users of financial statements have complained that existing accounting...