Report Number

1994-013

Abstract

A major objective of the FASB's financial instruments project, inclusive of SFAS 105, SFAS 107 and SFAS 119, is to provide information useful to investors in assessing the credit and market rish associated with the use of off-balance-sheet ifnancial instruments. We survey 1992 SFAS 105 and SFAS 107 disclosures on Foreign Exchange Derivatives (FXD) to: (1) benchmark current practice by summarizing quantitative and qualitative disclosures of FXD, and (2) examine the usefulness of current disclosures in assessing market and credit rish related to FXD. In achieving these objectives, we provide insight into how leading U.S. multinationals operationalize accounting standards related to off-balance-sheet financial instruments and identify disclosrue attributes of footnotes unarticulateld to the financial statements. We conclude from our survey that (1) some firms make extensive us of FXD, (2) there is substantial compliance with SFAS 105 and SFAS 107 requirements, (3) large dealers comply with the FASB's credit rish disclosure requirements, (4) book and air values of FXD are small relative to contract and notional amounts and (5) disclosures providing information on market rish are deficient due to lack of both specificity and quantification.

Date of this Version

1-1-1994

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