29Financial Instruments

  1. Perspective and Issues
  2. Concepts, Rules, and Examples
    1. Derivative Instruments
    2. Disclosure Requirements—Not-for-Profit Organization
    3. Concentration of Credit Risk
    4. Fair Value Disclosures
    5. Fair Value Measurement Option

Perspective and Issues

The GAAP requirements pertaining to Accounting for Derivative Instruments and Hedging Activities are contained in FASB ASC 815. The accounting under this topic applies to all entities, including not-for-profit organizations. It specifies recognition of all derivatives in the balance sheet as assets or liabilities measured at fair value. Derivatives could be specifically designated as hedges. One particular issue that specifically affects not-for-profit organizations involves split-interest agreements that may contain an embedded derivative. Split-interest agreements are addressed in Chapter 12.

Concepts, Rules, and Examples

Derivative Instruments

FASB ASC 815 has two main components. First, it requires that derivatives be recognized as either assets or liabilities in the statement of financial position and that they be measured at fair value. Second, it specifies the accounting for changes in the fair values of derivatives, that is, unrealized gains and losses.

On the first component, not-for-profit organizations would follow the requirements of FASB ASC 815, as would commercial enterprises (albeit not-for-profit organizations are far less likely to have derivative instruments to record as assets and liabilities than ...

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