FAS 133 Accounting Regulations

Financial Advisory Standard 133 was introduced to enhance the relevancy of accounts for derivatives and other offbalance sheet items which had previously not been included int he accounting standards. FAS 133 is the equivalent of IFRS 39, but differs from FRS 13 in that FRS 13 is for disclosure purposes only and does not include any on PL account accounting for derivatives transactions. Under FAS 133 all derivatives must be valued at the market value with the change in valuation flowing through the PL account, it is possible to have the value hedge accounted however. To qualify for hedge accounting under 133, the hedge effectiveness should typically be at least 80%, hedge effectiveness is the amount the hedge (the derivative) changes with the change in value to the underlying asset.