DEMYSTIFYING DERIVATIVES ACCOUNTING
Adding Value Through Corporate Disclosure, Market Data and FAS 133 Compliance

A Special Report Sponsored By

JULY 2002

A Special Report from

July 2002

MAKE RISK AN ADVANTAGE

DEMYSTIFYING DERIVATIVES ACCOUNTING
Adding Value Through Corporate Disclosure, Market Data, and FAS 133 Compliance
Since their rise to popularity in the early 1970s, people have viewed derivatives with both awe and fear. Derivatives users range from traders, who seek to profit by making markets and speculating on price fluctuations, to end-users, who use derivatives to hedge and protect their natural exposure to input or output prices. Almost without exception, managing and accounting for derivatives is second nature to banks and to derivatives market makers. But even among the most sophisticated players we have seen spectacular blow-ups that are not directly linked to valuation or accounting tools, but rather, result from flaws in a firm's policy and business processes. To avoid a similar fate, all companies must adopt sound derivatives accounting policies. In this paper, we first offer help for companies struggling with derivatives accounting and lay the foundation for a sound hedging program. We then focus on the importance of independent market data, the cornerstone of any serious derivatives accounting plan. Finally, Kiodex’s CFO offers a frank discussion on decreasing a company's risk profile.

CONTENTS
PREPARE YOUR POLICIES Derivatives Accounting Compliance
The right business process can make derivatives accounting and FAS 133 compliance more than just a corporate necessity.

2

POSITION YOUR COMPANY A Case for Independent Market Data
What is quality data? For a company that doesn't have it, it often means a serious hit to bottom line profits.

6

PROTECT YOUR VALUE Adding Value Through Corporate Disclosure
Discover what smart managers already know: A strategic accounting process for derivatives reduces risk,