With quixotic courage, the Governmental Accounting Standards Board has issued a preliminary views document on one of accounting's most confounding issues - reporting on derivatives.The suggested standard would require governmental financial statements to report derivatives at fair value in the balance sheet, unless the instrument is effectively hedging the risk that it was issued to offset. In such cases, the derivative's fair value would be reported in the balance sheet as either deferred charges or deferred credits, with no effect of fair value changes on the change statement.

"I think GASB is trying its best to find a balance between a desire for appropriate financial disclosure and a goal of not making the disclosure overly burdensome," said Peter Shapiro, a managing director of Swap Financial Group and a member of the GASB task force that helped develop the document. "They've come up with a number of workable ways to category a hedge as effective and allow for a deferral of recognition of any ineffectiveness, and all of that is a positive result. It is way better than what the Financial Accounting Standards Board has done in its Statements 133 and 138."

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