Audit and Accounting Guide - Depository and Lending Institutions

Chapter 18 Derivative Instruments: Futures, Forwards, Options, Swaps, and Other Derivative Instruments

Gray shaded text in this chapter reflects guidance issued but not yet effective as of the date of this guide, July 1, 2018, but becoming effective on or prior to December 31, 2018, exclusive of any option to early adopt ahead of the mandatory effective date. Unless otherwise indicated, all unshaded text reflects guidance that was already effective as of the date of this guide.

Introduction

18.01 The following section provides a discussion about the economic uses of derivative instruments and hedging activities. Refer to FASB Accounting Standards Codification (ASC) 815, Derivatives and Hedging, for accounting guidance on these topics.

18.02 The derivative instruments addressed in this chapter, which include futures, forwards, swaps, and option contracts, as well as other financial contracts with similar characteristics, have become important financial management tools for banks and savings institutions. These instruments collectively are referred to in this chapter as derivative instruments, which are defined for accounting purposes in paragraphs 83–139 of FASB ASC 815-10-15. This chapter provides background information on basic contracts, risks, and other general considerations to provide a context for related accounting and auditing guidance.

18.03 This chapter focuses on end uses of derivatives, rather than on the broader range of activities that includes the marketing ...