Accounting for Financial Instruments

Catalog description

Accounting for Financial Instruments Description of Course: This course provides a conceptually sound and comprehensive treatment of the complex and imperfectly consistent financial reporting rules for financial instruments and structured financial transactions. The following terminology clarifies what this means. • Financial reporting rules include both accounting and disclosure requirements. • A financial instrument may be a financial asset or a financial liability. A financial asset is the right to receive cash or other financial instruments or to exchange financial instruments on favorable terms. A financial liability is the obligation to pay cash or other financial instruments or to exchange financial instruments on unfavorable terms. • Structured financial transactions typically involve multiple financial instruments or transactions. Securitizations and repurchase agreements are examples of structured financial transactions. • Structured financial transactions generally unbundle and repackage the risk and value of the financial instruments involved in the transactions, thereby enabling the counterparties to obtain desired economic, financial reporting, regulatory capital, and tax outcomes. o Frequently (but not universally) desired financial reporting outcomes include: income management through realization of gains or losses on sale; off-balance sheet accounting (i.e., reduced reported debt and thus leverage) for collateralized financing transactions; hedge accounting (which reduces reported income volatility for the hedging relationship); preferred financial statement classification and/or presentation; and reduced disclosure.