The Financial Accounting Standards Board has issued a staff position aimed at improving disclosures about credit derivatives.
FASB Staff Position No. 133-1 requires more information about the potential adverse effects of changes in credit risk on the financial position, financial performance and cash flows of the sellers of credit derivatives. It amends FASB Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities," to require disclosures by sellers of credit derivatives, including derivatives embedded in hybrid instruments.
Over the past few years, credit default swaps have become the most dominant product of the credit derivatives market, FASB noted. They also have become a focus of attention because of the recent turmoil in the credit markets. Some sellers of credit derivatives have seen a large number of obligations referenced in credit default swaps facing actual or potential defaults, resulting in large liabilities and potential credit downgrades.
The FASB staff position addresses concerns that the current disclosure requirements do not adequately address the potential negative effects of changes in credit risk.
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