The FASB requires entities that hold or issue derivative instruments to disclose the purpose for holding or issuing such instruments, the context needed to understand the objectives, and strategies for achieving the objectives. With respect to derivative instruments that are designated as hedges, the FASB calls for the following disclosures:
1. The objective of using hedging instruments and the strategies for achieving the objective.
2. Descriptions of the various types of hedges, such as fair value hedges and cash flow hedges.
3. A description of the entity’s risk-management policy for hedging types, along with a description of the types of transactions that are hedged.
In addition, specific disclosures for fair value hedges include the following:
1. The current period effect on earnings traceable to hedge ineffectiveness, the portion of gain or loss excluded from the assessment of hedge effectiveness, and where net gains or losses are reported on the income statement.
2. The amount of gain or loss recognized in earnings when a firm commitment no longer qualifies as a fair value hedge.
For a cash flow hedge, specific additional disclosures include the following:
1. The current period effect on earnings traceable to hedge ineffectiveness, the portion of gain or loss excluded from the assessment of hedge effectiveness, and where net gains or losses are reported on the income statement.
2. The transactions or events that will result in reclassification of OCI to earnings and the amount to be reclassified within the next 12 months.
3. For other than variable interest rate hedges, the maximum length of time over which forecasted transactions are being hedged.
4. The amount of gains or losses reclassified as earnings, because it is probable that a forecasted transaction will not occur.Certain other disclosures are required for hedges relating to an investment in a foreign operation.