RT Journal Article
SR Electronic
T1 Meeting the “Highly Effective Expectation” Criterion for Hedge Accounting
JF The Journal of Derivatives
FD Institutional Investor Journals
SP 79
OP 87
DO 10.3905/jod.2000.319136
VO 7
IS 4
A1 Ira G. Kawaller
A1 Paul D. Koch
YR 2000
UL https://pm-research.com/content/7/4/79.abstract
AB The continual attempts of FASB to revise and regularize the accounting treatment of derivatives positions in a firm's accounting statements has led to the recent Financial Accounting Standard No. 133. The use of hedge accounting procedures, which is generally highly desired by firms engaged in hedging with derivatives, may now require that the hedge be “highly effective.” the meaning of this term, however, is not fully specified. And, given both the versatility of derivatives and the “noise” (or “basis risk”) that can affect the relationship between the market for a derivative instrument and its underlying, it is not surprising that difficult cases can be found. Kawaller describes the “highly effective” criterion of the new rule and considers how it should best be applied.