Why US firms fear FASB's rule 133
Euromoney, is part of the Delinian Group, Delinian Limited, 4 Bouverie Street, London, EC4Y 8AX, Registered in England & Wales, Company number 00954730
Copyright © Delinian Limited and its affiliated companies 2024
Accessibility | Terms of Use | Privacy Policy | Modern Slavery Statement

Why US firms fear FASB's rule 133

It's been going on for seven years, and has taken up more of the US Federal Accounting Standard Board's (FASB's) time than any other rule. US bankers and issuers hate it, claiming it will force an unwanted change in borrower strategies and will even hit earnings. They've lobbied Congress to get it nullified, and the board has responded with a year's postponement and by changing some of the strictures. Yet still the complaints roll in from those few who claim to understand it. Systems still aren't ready, and there is less than a year to go before it comes into effect. Who'd have thought that an accounting rule-change could cause such a furore? Antony Currie reports on the dilemmas and debates around rule FAS133

Now for the good news


It's September 2000, and US companies are getting panicked. As are equity analysts and debt underwriters. It's the first reporting quarter for those companies whose financial year starts in June, and the fear is that many could see their earnings differ wildly from estimates. Investors will be shocked, share prices could rise or fall sharply. Corporate treasurers fear for their jobs.

It must surely be because they've lost control of their businesses, been engaging in sharp practice, blown money on bad acquisitions? Nothing quite so dramatic. The cause of this potential pandemonium is an accounting rule change by the Federal Accounting Standards Board, called FAS133, dealing with derivatives and hedge accounting.

Yes, an accounting rule change. It is a rule that GECC's treasurer, Jeffrey Werner, referred to at a recent Euromoney conference as "one of the biggest obstacles US issuers in foreign markets have faced in 10 years".

Its purpose is to get companies to mark derivatives transactions to market, and account for them on their balance sheets for the first time. So as of next year all derivatives positions will have to be revealed under the section "other comprehensive income".

Gift this article