Latest / PwC's accounting podcast / Reporting reset – Derivatives and hedging

Transcript

Reporting reset – Derivatives and hedging · PwC's accounting podcast

• 0:00
  SPEAKER_03: Thought leadership from PWC's National Office.
• 0:07
  SPEAKER_00: Hello, and welcome to PWC's Accounting Podcast.
• 0:10
  SPEAKER_00: I'm Heather Horn and I'll be your host today.
• 0:12
  SPEAKER_00: In today's episode, we're continuing our series on financial statement presentation and disclosure, focusing on derivatives and hedging.
• 0:23
  SPEAKER_00: To help us navigate this topic, I'm happy to be joined again by Brett Julie, Deputy Chief Accountant in PWC's national office.
• 0:30
  SPEAKER_00: Brett has extensive experience advising on financial instruments and is here to help us break down how derivatives are presented on the balance sheet, income statement, and cash flow statement, as well as to hit on a few key disclosure requirements.
• 0:43
  SPEAKER_00: And he's going to manage all of this without sounding like he's reading from ASC 815.
• 0:47
  SPEAKER_00: So Brett, I can't wait to see how you're going to handle it.
• 0:50
  SPEAKER_00: Thanks for joining me.
• 0:51
  SPEAKER_02: Thanks for having me, Allah.
• 0:52
  SPEAKER_00: All right.
• 0:53
  SPEAKER_00: So, Brett, before we get into some of the details, let's take a big step back.
• 0:57
  SPEAKER_00: Uh, derivatives are obviously widely used for risk management, and we've covered that in other podcasts, but they also can really add some complexity to the financial statements.
• 1:07
  SPEAKER_00: So I'll be interested to see how you manage this.
• 1:10
  SPEAKER_00: Can you give us a refresher on what derivatives are and then why companies use them?
• 1:15
  SPEAKER_02: Aaron Powell So cover derivatives in two minutes or less.
• 1:18
  SPEAKER_00: Exactly.
• 1:18
  SPEAKER_00: 30 seconds, actually.
• 1:19
  SPEAKER_00: Trevor Burrus, Jr.
• 1:19
  SPEAKER_02: So I mean, simply like uh I'd say derivatives are financial instruments where the value is derived from the performance of one or more underlyings, like an asset, an index, or an interest rate.
• 1:32
  SPEAKER_02: You know, when you look at derivatives, interest rate swaps, you know, equity um options come to mind as the easiest examples.
• 1:42
  SPEAKER_02: Um these these instruments can be used for a variety of purposes.
• 1:46
  SPEAKER_02: Um you mentioned hedging risks, they're most common.
• 1:50
  SPEAKER_02: Um they can also be used for speculating on future price movements.
• 1:54
  SPEAKER_02: I want to own, have exposure to a certain stock, but I don't want to buy the stock.
• 1:58
  SPEAKER_02: So I can uh have a derivative.
• 2:00
  SPEAKER_02: And sometimes they're used just to gain access to markets that otherwise might be inaccessible to that entity.
• 2:07
  SPEAKER_02: Um you step back from this, a company might use derivatives to hedge against fluctuations in foreign exchange rates, interest rates, commodity prices, uh, you know well, and state try to stabilize their cash flow or earnings.
• 2:21
  SPEAKER_02: You mentioned ASC 815 that covers the accounting for these instruments.
• 2:26
  SPEAKER_02: We're not going to read from it today.
• 2:28
  SPEAKER_02: I um, you know, I don't read 815 on a regular basis anyway.
• 2:35
  SPEAKER_02: Um but that provides guidance for how derivative and hedging activities should be recognized and disclosed in financial statements.
• 2:41
  SPEAKER_02: Importantly, I think it includes uh the definition of a derivative.
• 2:44
  SPEAKER_02: We've given some easy examples, but but you know that definition can be um complex.
• 2:49
  SPEAKER_02: And then it walks through a lot of specialized hedge accounting, fair value hedges, cash flow hedges, net investment hedges.
• 2:56
  SPEAKER_02: And so for the purpose of this conversation, we're going to assume that you know that you have a fair value hedge or you know you have a cash flow hedge, but obviously that's the topic of many, many podcasts that we've done in the past.
• 3:06
  SPEAKER_00: Yes, that's right.
• 3:07
  SPEAKER_00: And an entire guide, the derivatives and hedging guide, if you want to know more on that.
• 3:10
  SPEAKER_00: And I do think, Brett, when I was listening to you, one thing that really stands out is I think just on a broad basis, people might think of derivatives as causing fluctuations and you know, that there's risk associated with them.
• 3:24
  SPEAKER_00: But in fact, as you said, derivatives actually are often used to manage risk.
• 3:28
  SPEAKER_00: And I think when we get into the disclosures, we're gonna start to see some of that discussion of how that those are used.
• 3:34
  SPEAKER_00: But before we get into disclosure, let's talk about presentation, starting with the balance sheet.
• 3:39
  SPEAKER_02: The balance sheet is of what we're gonna talk about may be one of the most simple because derivatives are recognized on the balance sheet always as an asset or liability at fair value.
• 3:48
  SPEAKER_02: One of the core principles of derivative accounting is that they should always be recognized at fair value.
• 3:54
  SPEAKER_02: And sometimes derivatives are entered into to hedge against certain risks that are otherwise not present on the balance sheet.
• 4:01
  SPEAKER_02: Uh, it's important to note that they can't be combined with cash instruments on the balance sheet to create what we call synthetic instrument accounting.
• 4:09
  SPEAKER_02: Uh, you can't just take a derivative and put it together with something on the balance sheet uh and think you've created something different.
• 4:16
  SPEAKER_02: Um another important consideration when you're thinking about derivatives on the balance sheet is um is whether we know they're going to be at fair value, but whether the company will elect to offset derivative assets and liabilities and cash collateral.
• 4:30
  SPEAKER_02: This is an important issue, especially for financial institutions that have a lot of these instruments.
• 4:36
  SPEAKER_02: And the the relevant guidance is in ASC 210.
• 4:40
  SPEAKER_02: It gives the overall criteria for qualifying for balance sheet offsetting when I can elect to present assets and liabilities at a net amount.
• 4:48
  SPEAKER_02: And there's specific criteria there that have to be met in order to qualify for offsetting in general.
• 4:54
  SPEAKER_02: That's where you've got two parties that owe each other determinable amounts, you've got a legal right of offset that's enforceable, and that the parties intend to actually set off the amounts.
• 5:06
  SPEAKER_02: So when you I when I go to derivative instruments, the derivative literature tweaks that requirement slightly and states that even if the reporting entity doesn't intend to set off the derivative asset and liability, balance sheet offsetting is still allowed if the assets and liabilities are with the same counterparty and you have a legally enforceable the master net agreement with that counterparty.
• 5:28
  SPEAKER_02: And so when you meet those criteria, um you still have an accounting policy election to make as to whether it chooses to present the derivatives on a net basis or not.
• 5:38
  SPEAKER_02: And that policy should be applied consistently across all derivatives.
• 5:42
  SPEAKER_02: In other words, you can't pick and choose to net for one counterparty and present gross for another.
• 5:48
  SPEAKER_02: And also, if you do elect an accounting policy to offset qualifying derivative assets and liabilities, you must also offset the cash collateral amounts relating to those derivatives and assets and liabilities that are being presented net.
• 6:02
  SPEAKER_02: I walked through all of that.
• 6:03
  SPEAKER_02: When I look at corporate clients, a lot of them don't bother to present and go through these netting requirements.
• 6:11
  SPEAKER_02: It's very common for financial institutions that have large derivative portfolios, much less common in, I think in for corporates.
• 6:18
  SPEAKER_00: Maybe if they have a lot of commodities, they might, but yes, otherwise it makes sense.
• 6:23
  SPEAKER_00: And I always you anticipated my question because I was about to ask you if it was frequent for companies to offset or not.
• 6:30
  SPEAKER_00: So I think it's helpful context.
• 6:32
  SPEAKER_00: And then Brett, you know, if you are a company with a classified balance sheet, then how do you determine whether your derivative assets and liabilities should be current or non-current?
• 6:41
  SPEAKER_02: Yeah.
• 6:42
  SPEAKER_02: You know, that classification is trying to provide some insight as to the timing of cash flow related to the derivatives.
• 6:48
  SPEAKER_02: And I'd say at a very high level, current derivatives expected to be settled within one year, while non-current derivatives have cash flows extending beyond one year, you know, same as the general framework for other assets and liabilities.
• 7:02
  SPEAKER_02: But due to the nature of derivative instruments, I think the classification between current and non-current can actually be quite complex.
• 7:09
  SPEAKER_02: Because think of a derivative instrument as just a series of cash flows that can occur over a period of time.
• 7:15
  SPEAKER_02: Like start with an interest rate swap.
• 7:17
  SPEAKER_02: These contracts often extend over many years and will have cash flows that contractually must be made within the next 12 months and cash flows that are made after the next 12 months.
• 7:28
  SPEAKER_02: And if you think of like an interest rate swap that's going to be paying floating according to the curve, there may be periods where you expect to pay cash, and then other periods where you expect to receive cash based on the current interest rate projections.
• 7:45
  SPEAKER_02: So in many cases, a derivative, a derivative's fair value needs to be disaggregated based on the timing of those specific cash flows, and the portion of that derivative may need to be classified as current, and a portion of the derivative fair value is classified as non-current.
• 8:00
  SPEAKER_02: In addition, I'd say as a general rule, a derivative that has a maturity of less than 12 months should be classified as current.
• 8:07
  SPEAKER_02: A derivative in a liability position that allows the counterparty to terminate the derivative of fair value at any time should also be classified as current liability because it's akin to any liability is just due on demand because of that uh termination feature.
• 8:21
  SPEAKER_02: And we also believe that as a practical expedient, companies may choose to present a derivative whose fair value is a liability as a current liability in its totality.
• 8:31
  SPEAKER_02: And a derivative asset whose fair value is an asset position can always be presented as a non-current asset in its entirety, as long as that current portion is non-libility.
• 8:42
  SPEAKER_02: So for companies that want to take a more simple approach and just look at the asset or liability position in totality, we think you could do that as a practical expedient.
• 8:52
  SPEAKER_00: All right, that's helpful.
• 8:53
  SPEAKER_00: Although obviously that's something that takes a lot of monitoring.
• 8:56
  SPEAKER_00: And each period you may have to be making changes depending on what position you're in.
• 9:01
  SPEAKER_00: So something to think about.
• 9:02
  SPEAKER_00: So then if, Brett, we shift to the income statement, then how are gains and losses from derivatives presented?
• 9:10
  SPEAKER_00: Big picture in general.
• 9:11
  SPEAKER_02: Sure.
• 9:12
  SPEAKER_02: I know I think here we'll try to stay the big picture, but it's still important to separate out derivatives that are in a qualifying hedge relationship from those that aren't.
• 9:21
  SPEAKER_02: And I think there's two issues in general when we think about the income statement.
• 9:25
  SPEAKER_02: One is geography, and the second is timing.
• 9:28
  SPEAKER_02: So for derivatives that are in a hedge relationship, uh, the guidance requires that gains and losses be presented in the same income statement line item as that hedged item.
• 9:38
  SPEAKER_02: That alignment ensures that financial statements reflect the economic relationship between the derivative and the and the hedged item.
• 9:44
  SPEAKER_02: And the timing of income recognition uh for the derivative is going to vary based on the type of hedge.
• 9:51
  SPEAKER_02: So for fair value hedges, that income is recognized immediately in the income statement as the hedges offset changes in the fair value of that hedged item, which are also recorded uh through income as a basis to the hedged item.
• 10:04
  SPEAKER_02: And as you know, for cash flow and net investment hedges, we have a different model where gains and losses uh on the derivatives are recognized in other comprehensive income in OCI until that forecasted transaction impacts earnings or the net investment is disposed of.
• 10:20
  SPEAKER_02: So again, this approach aligns the recognition of gains and losses with the timing of the hedge items impact on the on the on earnings.
• 10:27
  SPEAKER_02: Aaron Powell Right.
• 10:27
  SPEAKER_00: And then that I think that's really then showing that's the risk management purpose, right?
• 10:32
  SPEAKER_00: It makes sense that, of course, you would want them to be recognized at the same time, if that if that's the point.
• 10:37
  SPEAKER_00: However, what about derivatives that are not in a hedge relationship?
• 10:41
  SPEAKER_02: Aaron Powell So when you have a derivative not in a hedge relationship, there's a lot less specific guidance on presentation on the income statement.
• 10:48
  SPEAKER_02: Um when a I think when a derivative is considered to be an economic hedge, uh where it's not in a qualifying hedge relationship, but it was still entered into for risk management purposes.
• 10:58
  SPEAKER_02: We believe that entities have options where to uh present gains and losses.
• 11:03
  SPEAKER_02: They could choose to present them in the same line item as that economically hedged item, uh, or in a separate reasonable income statement line item where all derivative gains and losses would be presented.
• 11:13
  SPEAKER_02: The one rule to be observant of here is that splitting gains and losses into multiple line items is generally not appropriate when the derivative is not in a hedging relationship.
• 11:24
  SPEAKER_02: For example, um putting the unrealized gains and losses on a derivative in one income statement line item and the realized gains and losses in another would generally not be allowed.
• 11:35
  SPEAKER_02: And so, and in part of this, that that chosen income statement presentation should be applied consistently over time.
• 11:41
  SPEAKER_00: Aaron Powell All right, very helpful.
• 11:42
  SPEAKER_00: And then logical flow, let's move on to the cash flow statement.
• 11:46
  SPEAKER_02: Aaron Powell We always want to cover the cash flow statement.
• 11:48
  SPEAKER_02: Exactly.
• 11:48
  SPEAKER_02: Um in the cash flows, um, again, a few rules of thumb here.
• 11:53
  SPEAKER_02: Derivatives can be always be classified according to their nature, which is typically as an investing activity.
• 11:59
  SPEAKER_02: But entities can choose an accounting policy to classify cash flows from designated hedge relationships in the same category as a hedged item, which tends to be the more common presentation, similar to what we just talked about on the income statement, right?
• 12:13
  SPEAKER_02: So think of an example with an interest rate swap.
• 12:16
  SPEAKER_02: Interest rate swap is used as a cash flow hedge to hedge variability and interest payments on outstanding variable rate debt.
• 12:24
  SPEAKER_02: In that case, the cash flows from the derivative could be classified as operating cash flows, since that hedged item is the interest payments, uh, which is an operating cash flow.
• 12:34
  SPEAKER_02: And while this guidance is specific to derivatives in hedge relationships, we believe that this presentation election can also be extended to derivatives in economic hedges as well.
• 12:43
  SPEAKER_00: And Brett, I think we've used that term a couple of times.
• 12:46
  SPEAKER_00: Maybe we should explain when we say economic hedge, what do we mean when we say that?
• 12:50
  SPEAKER_02: Yeah.
• 12:51
  SPEAKER_02: As you know, like there's there's a long list of hedge requirements that need to be met in order to qualify for hedge accounting and be in a qualifying hedge relationship.
• 13:02
  SPEAKER_02: There are many cases where you enter into a derivative for risk management purposes.
• 13:07
  SPEAKER_02: You have a you have an objective in mind, it's not pure speculation, but you for whatever reason can't qualify or chose not to go through all of the hoops that you've got to go through in order to get to get um hedge accounting.
• 13:21
  SPEAKER_02: And so those those are what we call economic hedges.
• 13:25
  SPEAKER_02: You're just gonna let the derivative be marked to market through earnings, no special accounting considerations, but it was entered into for a risk management purpose.
• 13:34
  SPEAKER_00: All right.
• 13:35
  SPEAKER_00: So that's an economic hedge.
• 13:36
  SPEAKER_00: And then any other specific nuances you'd highlight related to cash flow statement and derivatives?
• 13:42
  SPEAKER_02: Yeah, I would also highlight um situations where you have a derivative that contains an other than insignificant financing element.
• 13:50
  SPEAKER_02: Um because if you have that, you are required to put all cash flows from that derivative as financing activities.
• 13:57
  SPEAKER_02: And that sounds like a fancy term.
• 13:59
  SPEAKER_02: What's an other than insignificant financing element?
• 14:02
  SPEAKER_02: Um, but it's generally when you have a derivative that's established with off-market terms, resulting in a cash payment made at inception.
• 14:10
  SPEAKER_02: So think of an interest rate swap, for example, uh, where I'm going to pay a fixed rate over time and receive a floating rate.
• 14:19
  SPEAKER_02: That fixed rate will be determined by the current, by a current market estimate.
• 14:23
  SPEAKER_02: I could enter into that interest rate swap with no cash payment up front, but I could also structure that to be paid a million dollars up front.
• 14:31
  SPEAKER_02: And then over time, I'm going to take that fixed rate and bump it up to essentially repay the million dollars over time.
• 14:38
  SPEAKER_02: That's an example where that may have a financing element to it.
• 14:41
  SPEAKER_02: In that trade, I just borrowed money.
• 14:44
  SPEAKER_02: Um and in that case, I would need to put all cash flows as a financing element or as a financing cash flow.
• 14:51
  SPEAKER_02: I think the purpose here is to make sure companies aren't hiding borrowings that are embedded in derivative instruments and still show the appropriate cash flow treatment uh for those types of arrangements.
• 15:02
  SPEAKER_02: We often don't see this a lot where cash uh where you're ending in this contract up front, but it sometimes happens when derivatives are are exchanged or or modified, extinguished, and and you rolling over into a new instrument.
• 15:16
  SPEAKER_00: All right.
• 15:16
  SPEAKER_00: Very helpful and definitely a few things to think about.
• 15:19
  SPEAKER_00: So now that we've covered uh presentation, let's move on to disclosures.
• 15:24
  SPEAKER_00: So from a high level, what are some of the key disclosure requirements that you would highlight related to derivatives and hedging?
• 15:30
  SPEAKER_02: I I think there are three objectives when you step back from it all.
• 15:34
  SPEAKER_02: The first is how and why a reporting entity uses derivatives in the first place.
• 15:39
  SPEAKER_02: The second is how derivatives and those related hedge items are accounted for.
• 15:44
  SPEAKER_02: And then the third is how those derivatives and related hedge items affect your financial position, uh, your performance, and then your cash flows over time.
• 15:54
  SPEAKER_00: So, Brett, with those three objectives in mind, I know we have both qualitative and quantitative disclosures that companies need to make about derivatives.
• 16:02
  SPEAKER_00: Maybe we can start with qualitative, sort of how you think about those.
• 16:06
  SPEAKER_02: Yeah, I think there's a number of qualitative disclosures around the entity's objectives and strategies.
• 16:11
  SPEAKER_02: Um, and it's important to describe those in the context of your overall risk exposures and how they're used to manage that risk.
• 16:18
  SPEAKER_02: We talked about these being having a these derivatives having a risk management purpose and laying that out and explaining that, I think is is important.
• 16:27
  SPEAKER_00: And I guess equally, if they are not for risk management and it's more speculative purpose, you would need to disclose that as well.
• 16:33
  SPEAKER_00: Trevor Burrus, Jr.
• 16:33
  SPEAKER_02: Still about your strategy with using those derivatives.
• 16:36
  SPEAKER_02: Exactly.
• 16:37
  SPEAKER_02: Good point.
• 16:37
  SPEAKER_00: And then how about if we start to then move on and start to think about accounting policies and otherwise?
• 16:43
  SPEAKER_02: Yeah.
• 16:43
  SPEAKER_02: So we we talked about a couple uh policy elections to either offset or not offset.
• 16:48
  SPEAKER_02: Um that should be disclosed of material.
• 16:51
  SPEAKER_02: And then we went, we walk through the the income statement presentation.
• 16:54
  SPEAKER_02: There's some policy elections there, you know, showing uh and describing the uh policy for drive as not in a hedging relationship and what what you do uh on the statement of cash flows as well.
• 17:06
  SPEAKER_02: And then there's a number of required tabular disclosures that are required by the literature.
• 17:12
  SPEAKER_02: This is where if you can visualize a table and multiple tables, uh it's helpful.
• 17:17
  SPEAKER_02: But all of these tabular disclosures are designed to convey all of the balance sheet complexity, whether it's netting or collateral, and the income statement variety that we discussed.
• 17:28
  SPEAKER_02: They're intended to show the location, the fair value of the amounts of the derivative instruments reported on the balance sheet, and then the location of the amounts and gains and losses of the derivative instruments reported on the income statement.
• 17:42
  SPEAKER_02: For example, the total amount of every income and expense line item presented on the income statement that's impacted by the results of fair value or cash flow hedges.
• 17:53
  SPEAKER_02: And all of those should be shown on a gross basis, regardless of whether you've chosen uh to offset amounts for balance sheet presentation or not.
• 18:01
  SPEAKER_02: A lot of this is included in the accounting literature directly in ASC 815, but public companies should also be looking at SX for those requirements as well.
• 18:10
  SPEAKER_02: Aaron Powell All right.
• 18:11
  SPEAKER_00: You make it sound so easy.
• 18:12
  SPEAKER_00: It's not quite as easy as you make it sound, but it is quite logical, which is consistent with the way you laid this out.
• 18:19
  SPEAKER_00: But Brett, there's already a lot for derivatives.
• 18:22
  SPEAKER_00: There's some incremental disclosures required for hedges or derivatives in hedging relationships.
• 18:28
  SPEAKER_00: So what can you describe about those?
• 18:30
  SPEAKER_02: Maybe we we just step through the three different buckets, starting with fair value hedges.
• 18:34
  SPEAKER_02: Um you've got to disclose the carrying amount of the hedged assets and liabilities that are recognized on the balance sheet, uh, the cumulative amount of fair value hedging adjustments that have been made to those assets, obviously also included on the balance sheet, um, the cumulative amount of fair value hedging adjustments that are remain for any hedged item, for any hedged assets and liabilities where you've discontinued hedge accounting.
• 18:58
  SPEAKER_02: So you're not adding to those changes, but but they're going to be amortized over time.
• 19:02
  SPEAKER_02: Uh and then there's specific disclosure requirements for certain types of uh what we call portfolio layer hedges, uh, where assets have been hedged as a portfolio that would include like the amortized cost basis of the portfolio of assets being hedged, the amount being hedged, and the basis adjustment made.
• 19:23
  SPEAKER_02: For cash flow hedges, you know, totally different hedge accounting models, so different set of disclosure requirements.
• 19:29
  SPEAKER_02: Um cash flow hedges, you're putting the change in value of that derivative in an OCI, and it's gonna be reclassified to earnings when those hedged items affect earnings.
• 19:42
  SPEAKER_02: So you need to provide a description of the transactions or other events that are gonna result in the reclassification of earnings from AOCI into the P ⁇ L.
• 19:52
  SPEAKER_02: The amount of existing gains or losses that are reported in AOCI expect to be reclassified in the next 12 months.
• 19:59
  SPEAKER_02: So giving the user a picture of what's coming or what's likely to come over the next year.
• 20:05
  SPEAKER_02: And then also disclosures around the maximum length of time that you're hedging exposures due to the variability of future cash flows for forecasted transactions, except for forecasted transactions that are related to the payment of existing debt or variable interest on an existing financial instrument.
• 20:25
  SPEAKER_02: And then the third bucket for net investment hedges, um, just two things to think about gains and losses that are recorded in CTA, and then the amount of CTA that's been reclassified in earnings.
• 20:37
  SPEAKER_02: When you step back from all those, it's getting back to those core principles of what is the impact on the balance sheet, what's the core impact on the income statement, and then in some cases, like a little preview of what may be coming in the income statement in the future.
• 20:51
  SPEAKER_00: All right.
• 20:51
  SPEAKER_00: This is very helpful, Brett.
• 20:53
  SPEAKER_00: So maybe taking a step back from all of this, is there an area here, like from a more practical point of view, where we tend to get more questions, or would you say there's more judgment involved in dealing with either the presentation or disclosure aspects?
• 21:08
  SPEAKER_02: Um You know, I'd say the income statement geography is a is a uh question that comes up a lot.
• 21:14
  SPEAKER_02: A lot of times um because derivatives derivative instruments can be viewed as quote, noise in the P ⁇ L.
• 21:23
  SPEAKER_02: This question about can I, can I have different income statement classifications for the same instrument over time, that question comes up a lot.
• 21:31
  SPEAKER_02: Um I think you know, a lot of the things we we talked about are are just tabular information and there's not a lot of judgment in the actual disclosure.
• 21:40
  SPEAKER_02: Um I think, I think what we often get questions about or have conversations with clients about is how do you pull all of this together in a coherent manner that that is clear to the reader, um, especially where you have a lot of derivative instruments or a lot of different hedging strategies being used.
• 21:57
  SPEAKER_00: All right.
• 21:57
  SPEAKER_00: That's actually great.
• 21:58
  SPEAKER_00: Lead in then to my final question, which is then what advice do you have for companies that are dealing with derivatives and needing to prepare uh these disclosures?
• 22:08
  SPEAKER_02: Yeah.
• 22:08
  SPEAKER_02: I I'd have two pieces, and you're gonna tell me they're contradictory.
• 22:11
  SPEAKER_02: One is to focus on the details.
• 22:13
  SPEAKER_02: Like there's we went through very quickly some tabular disclosures, netting requirements, and things like that.
• 22:19
  SPEAKER_02: You've really got to dig into what you have and what the disclosure requirements are on a line-by-line basis.
• 22:25
  SPEAKER_02: The second piece is once you've done all that, take a cold read and take a step back and ask yourself have I just regurgitated a bunch of required tables, or have I helped the user understand why I'm using derivatives and what the impact is?
• 22:43
  SPEAKER_02: Because that's the goal of all these disclosures.
• 22:45
  SPEAKER_02: And sometimes, you know, putting all of those details together in a cohesive package requires a few extra words or a you know a thoughtful explanation.
• 22:56
  SPEAKER_02: But I think tying that all together in a way that satisfies those objectives is important.
• 23:01
  SPEAKER_00: All right.
• 23:01
  SPEAKER_00: So I and I I don't think that's too contradictory because you're saying get the details right, but make sure they're actually saying something.
• 23:07
  SPEAKER_00: So all right.
• 23:08
  SPEAKER_00: Well, Brett, as always, such a pleasure to talk to you, and thanks so much for joining me today.
• 23:13
  SPEAKER_02: Thanks, Heather.
• 23:14
  SPEAKER_01: That's our show for today.
• 23:16
  SPEAKER_01: Tune in next week for more fresh episodes so that you never miss any of our audio content.
• 23:22
  SPEAKER_01: Follow the PwC Accounting Podcast wherever you listen to your podcasts.
• 23:27
  SPEAKER_01: And to stay up to date on all our latest accounting and reporting news, sign up for our newsletter at viewpoint.pwc.com.
• 23:36
  SPEAKER_01: From Thought Leadership at PwC, I'm Heather Horn.
• 23:41
  SPEAKER_01: Thanks for tuning in.
• 23:48
  SPEAKER_03: This podcast is brought to you by PwC, All Rights Reserved.
• 23:52
  SPEAKER_03: PwC refers to the U.S.
• 23:54
  SPEAKER_03: member firm or one of its subsidiaries or affiliates, and they sometimes refer to the PWC network.
• 24:00
  SPEAKER_03: Each member firm is a separate legal entity.
• 24:03
  SPEAKER_03: Please see www.pwc.com slash structure for further details.
• 24:09
  SPEAKER_03: This podcast is for general information purposes only and should not be used as a substitute for consultation with professional advisors, including accountants and lawyers.