Comments on the regulatory proposal should be received by the SEC on or before May 7, 1996. Certain private sector entities, including AIMR, have identified problems with the disclosures about market risk sensitive instruments. In reviewing registrants' annual reports during 1995, SEC staff observed that FASB initiatives in this area have had a positive effect on the quality of disclosures about derivative financial instruments. Nevertheless, SEC staff found a need to improve disclosures about market risk sensitive instruments. Thus, it often is difficult to determine the impact of derivatives on registrants' statements of financial position, cash flows, and results of operations.
Disclosures often focus on derivatives and other financial instruments in isolation.
Thus, it may be difficult to assess whether these instruments increase or decrease the net market risk exposure of a registrant. Thus, without disclosures about the effects of derivatives, information about the reported items may be incomplete or perhaps misleading. These recommendations relate to the disclosure of credit risk, liquidity risk, legal risk, and operational risk inherent in such instruments. In the current proposal, the SEC notes that existing generally accepted accounting principles and SEC rules already require some disclosures relating to these risks. At this time, the SEC is not proposing additional disclosure requirements relating to these other risks inherent in market risk sensitive instruments.