Assignment: Financial Reporting
Read the case study below and explain the proper disclosures for derivatives:
The chief financial officer (CFO) of your company has asked you to review an interest rate hedging proposal that aims to help reduce the organization's interest expenses. Your review indicates that the organization has available $30 million in cash immediately, with a specific amortization table on paying back the funds (over the next 20 years starting in Year 2). The organization's borrowing rate is determined to be 5.0% per annum, while the implicit rate of this transaction is 5.5%. What are some of the financial disclosure issues you would raise with the CFO?
Review other organizations' GAAP disclosures in the SEC 10-K and 10-Q filings. You can find these on the Yahoo Finance website. You can find these types of disclosures in Item 7 in the SEC 10-K (critical accounting estimates).
Analyze accounting issues associated with the case study. Questions you may want to consider (but should not limit yourself to) include:
1. What were the recommendations provided by the Certified Financial Analyst (CFA) Institute in their report?
2. How have other authoritative bodies addressed these accounting disclosures of derivatives? (Consider bodies such as SEC, the Public Company Accounting Oversight Board [PCAOB], FASB, and IASB).
3. What are the accounting implications of this transaction for the organization?
4. What FASB guidance has been issued to address these concerns and why?
5. What are the short-term (i.e., cash flow) and long-term (i.e., debt level) considerations the organization should be concerned about? How should they be disclosed?
6. What type of controversy exists with accounting for derivatives? Can they be treated as an asset, a liability, or both? Support your answer with examples.
What are some of the issues you would raise with the CFO? Provide the proper accounting treatment for derivatives supported by current and relevant literature.
Write a scholarly paper, utilizing a minimum of 4 scholarly references beyond the course readings, focusing on accounting for derivative disclosures. Your paper should explain the proper accounting treatment for derivatives.
Submit your 4-5-page paper in Microsoft Word format using the APA Paper Guide.
FINANCIAL REPORTING DISCLOSURES- Investor Perspectives on Transparency, Trust, and Volume.