The disclosure of information on derivatives under SFAS No. 133: Evidence from the Dow 30

Statement of Financial Standards No. 133 (SFAS No. 133), “Accounting for derivative instruments and hedging activities” became effective for all publicly held companies for fiscal periods starting after 15 December 2000. Consequently, 31 December 2001 was the first reporting date for most companies under its provisions. This study examines the annual reports of the 30 companies that comprise the Dow Jones Industrial Average to determine the extent to which these companies complied with the provisions of SFAS No. 133. A surprising finding was that a large number of the sample companies reported that the effect of their hedging activities was immaterial. The study also found that the information disclosed about the derivatives held by the sample of companies was scattered throughout their annual reports, hard to understand, difficult to follow and lacked uniformity. It was concluded that it would take a great deal of effort for even a reasonably informed reader of the financial statements to gather and analyze the information relating to a company's use of derivatives, and as a result the desired level of financial transparency on the use of derivative financial instruments is not being achieved. It is recommended that a more uniform reporting format be developed and used.