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Reporting Requirements for Annual Financial Reports of State Agencies and Universities

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Reporting Requirements for Annual Financial Reports of State Agencies and Universities

Resources

Agency Fiscal Year-End USAS Adjustments and AFR Checklist
Step 8 – Notes to the Financial Statements

Note 7 – Derivative Instruments (Submitted through the ONDSS web application)

  1. Note 7 is required if the agency has investment and/or hedging derivative instruments.

    Disclosures about derivative instrument activities should be organized by:

    1. Governmental activities
    2. Business-type activities
    3. Fiduciary funds

    Additionally, the information within those activities is divided into the following categories:

    1. Hedging derivative instruments (distinguishing between fair value hedges and cash flow hedges)
    2. Investment derivative instruments
    3. Other Derivative Instruments (does not meet the definition of an investment derivative instrument or the effectiveness criteria of a hedging derivative instrument)

    Within each category, derivative instruments should be aggregated by type (for example, receive-fixed swaps, pay-fixed swaps, swaptions, rate caps, basis swaps and futures contracts).

  2. All derivative instruments on the Summary of Derivative Instruments activity table must be aggregated by type (for example, receive-fixed or pay-fixed interest rate swaps, basis swaps, futures contracts) within each of the two categories, hedging and investment derivative instruments.
  3. The Summary of Derivative Instruments activity table must include the following aggregated by type:
    1. The notional amount
    2. Changes in fair value during the reporting period and the classification on the financial statements where those changes in fair value are reported
    3. Fair values as of the end of the fiscal year and the classification on the financial statements where those fair values are reported
    4. Fair values of derivative instruments reclassified from a hedging derivative instrument to an investment derivative instrument
    5. If a hedge termination event occurred: The balance of the deferred outflow (or inflow) of resources is reported separately from the investment revenue classification and captioned increase (decrease) upon hedge termination.
  4. For business-type activities and fiduciary funds, verify that the total fair value in the Summary of Derivative Instruments activity table ties to USAS:
    1. Hedging derivative instrument assets tie to the following GL accounts:
      • 0170 – CA Hedging Derivative Instrument Assets
      • 0481 – NC Hedging Derivative Instrument Assets
    2. Hedging derivative instrument liabilities tie to the following GL accounts:
      • 1143 – CL Hedging Derivative Instrument Liabilities
      • 1471 – NC Hedging Derivative Instrument Liabilities
    3. Investment derivative instruments tie to the following GL accounts:
      • 0059 – CA ST Inv – Derivative Instruments
      • 0105 – NC Inv – Derivative Instruments
    4. Other derivative instrument assets tie to the following GL accounts:
      • 0186 – CA Other Derivative Instrument Assets
      • 0486 – NC Other Derivative Instrument Assets
    5. Other derivative instrument liabilities tie to the following GL accounts:
      • 1148 – CL Other Derivative Instrument Liabilities
      • 1378 – NC Other Derivative Instrument Liabilities
  5. For governmental activities, verify that the total fair value in the Summary of Derivative Instruments activity table ties to USAS:
    1. Hedging derivative instrument assets tie to the following GL accounts:
      • 0570 – BC CA Hedging Derivative Instrument Assets
      • 0781 – BC NC Hedging Derivative Instrument Assets
    2. Hedging derivative instrument liabilities tie to the following GL accounts:
      • 1543 – BC CL Hedging Derivative Instrument Liabilities
      • 1971 – BC NC Hedging Derivative Instrument Liabilities
    3. Investment derivative instruments tie to the following GL accounts:
      • 0559 – BC CA Inv – Derivative Instrument Assets
      • 0705 – BC NC Inv – Derivative Instrument Assets
    4. Other derivative instrument assets tie to the following GL accounts:
      • 0586 – BC CA Other Derivative Instrument Assets
      • 0786 – BC NC Other Derivative Instrument Assets
    5. Other derivative instrument liabilities tie to the following GL accounts:
      • 1548 – BC CL Other Derivative Instrument Liabilities
      • 1978 – BC NC Other Derivative Instrument Liabilities
  6. If a hedge termination event occurred, verify that the balance of the deferred outflow (or inflow) of resources in the Summary of Derivative Instruments activity table ties to USAS:
    • 4845 – Increase / (Decrease) Upon Hedge Termination
  7. Verify that the ineffective hedging derivative instruments that were reclassified to investment derivative instruments in the DINSS web application are marked as such.
  8. Verify that the disclosures for the deferral amount reported within the investment revenue for the reclassification of investment derivative instruments. Disclosures are also required for the following:
    1. Fair Value Measurement:
      • Market Approach
      • Cost Approach
      • Income Approach
    2. Fair Value Hierarchy:
      • Level 1
      • Level 2
      • Level 3
  9. Submit a copy of the agency’s Note 7 from its published AFR through the ONDSS web application. The required format is a Microsoft Word document (latest version: docx) with header information that includes: agency name/number and note number/name. If Note 7 contains a table, include the table in the Word document — rather than as a separate Excel document or other database application file. If Note 7 does not apply, do NOT submit a note to indicate “not applicable.”