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International GAAP 2012: Generally Accepted Accounting Practice under International Financial Reporting Standards by Ernst & Young

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Chapter 44

Financial instruments: Derivatives and embedded derivatives

1 Introduction

2 Definition of A Derivative

2.1 Changes in value in response to changes in underlying

2.1.1 Notional amounts

2.1.2 Underlying variables

2.1.3 Non-financial variables specific to one party to the contract

2.2 Initial net investment

2.3 Future settlement

3 Examples of Derivatives

3.1 Common derivatives

3.2 In-substance derivatives

3.3 Regular way contracts

4 Embedded Derivatives

5 Embedded Derivatives: The Meaning of ‘Closely Related’

5.1 Financial instrument hosts

5.1.1 Foreign currency monetary items

5.1.2 Interest rate indices

5.1.3 Term extension and similar call, put and prepayment options in debt instruments

5.1.4 Interest rate floors and caps

5.1.5 Inflation-linked debt instruments

5.1.6 Commodity- and equity-linked interest and principal payments

5.1.7 Credit-linked notes

5.1.8 Convertible and exchangeable debt instruments

5.1.9 Puttable instruments

5.1.10 Callable equity instruments

5.2 Contracts for the sale of goods or services

5.2.1 Foreign currency derivatives

5.2.1.A Functional currency of counterparty

5.2.1.B Routinely denominated in commercial transactions

5.2.1.C Commonly used currencies

5.2.1.D Examples and other practical issues

5.2.2 Inputs, ingredients, substitutes and other proxy pricing mechanisms

5.2.3 Inflation-linked features

5.2.4 Floors and caps

5.2.5 Fund performance fees

5.3 Leases

5.3.1 Foreign currency derivatives

5.3.2 Inflation-linked features

5.3.3 Contingent ...

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