How does a company determine whether its market risk exposures are material enough to require the quantitative and qualitative disclosures specified by the new rules?
Answer To determine if the quantitative and qualitative disclosures must be furnished, a company must perform the following procedure: Step 1: Categorize its market risk sensitive instruments into two portfolios: instruments entered into for trading purposes, and all other instruments. Step 2: further categorize instruments within the two portfolios by type of market risk exposure category (interest rate risk, foreign currency exchange rate risk, commodity price risk, etc.). Step 3: the company must assess the materiality of the market risk exposure for each category within each portfolio. This assessment must evaluate both (1) the materiality of the fair values of market sensitive instruments as of the end of the latest fiscal year, and (2) the materiality of potential, near-term losses in future earnings, fair values and cash flows from reasonably possible near-term changes in market rates or prices. If either is material, then the company should disclose the quantitative and qualita
Related Questions
- How does a company determine whether its market risk exposures are material enough to require the quantitative and qualitative disclosures specified by the new rules?
- If a company is exposed to several market risks but only one of the risk exposures is material, is disclosure of other immaterial market risks required?
- If a company does not use derivatives, are quantitative disclosures of market risk required?
