Financial instruments pg148

Question 1

Financial Instruments Defined

Answer 1

1. Cash
2. Evidence of ownership interest in entity
3. Contracts result in exchange of cash or ownership
   interest in entity and both:
   > Imposes on one entity a contractual
   obligation/duty(liability)
   > Conveys to second entity a contractual right (asset)
4. Derivatives (defined in separate lesson)

Question 2

These MUST be disclosed for ALL Financial Instruments

Answer 2

1. Fair Value (W/ exceptions
2. Related Carrying amt
3. Whether instrument/amt is asset or liability

Question 3

Fair Value Disclosure Exceptions

Answer 3

1. Employer’s & plan’s obligations
2. Substantially extinguished debt
3. Insurance contracts and certain investments made by
   insurance entities
4. Lease Contracts
5. Warranty Obligations
6. Unconditional Purchase Contracts
7. Investments accounted for under equity method
8. Noncontrolling interest in consolidated sub
9. Equity instruments issued & classified in shareholders equity

Question 4

Disclosures about each significant concentration of credit risk

Answer 4

1. Info about common activity, region, or economic characteristic that identifies concentration
2. Max amt of loss due to credit risk–gross FV
3. Entity’s policy of requiring collateral or other security to support financial instruments subject to credit risk
4. Entity’s policy of entering into master netting arrangements to reduce credit risk associated with financial instruments

Question 5

Market Risk Disclosures for Financial Instruments

Answer 5

Encouraged but NOT required

-Quantitative info

Question 6

Qualitative Disclosures under SEC

Answer 6

• Qualitative disclosures from GAAP are not extensive expect for concentrations of credit risk
• -SEC However requires the following:
  1. Market Risk
  2. Interest Rate Risk
  3. Foreign Currency Risk
  4. Commodity Price Risk
  5. Similar Risks
• **These disclosures are found in Mgmt discussion & analysis NOT FS or notes of FS

Question 7

Quantitative Disclosures & Class Disclosures

Answer 7

GAAP: Concentrations of credit risk other than that quantitative disclosures about financial instruments are nominal

SEC: Required to proved quantitative disclosures about market risk and those are in MGMT D&A NOT FS or notes of FS

SEC: Also requires to provide separate presentation in BS of Financial Instruments by class