**Reporting Requirements for Annual Financial Reports of State Agencies and Universities**

Resources

# Agency Year-End USAS Adjustments and AFR Checklist

Step 8 – Notes to the Financial Statements

## Note 7 – Derivative Instruments (**Submitted through the** DRNSS web application)

- Note 7 is required if the agency has investment and/or hedging derivative instruments.
- All derivative instruments on the summary of derivative 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.
- The summary of derivative activity table must include the following aggregated by type:
- Notional amount
- Changes in fair value during the reporting period and the classification on the financial statements where those changes in fair value are reported
- Fair values as of the end of the fiscal year and the classification on the financial statements where those fair values are reported
- Fair values of derivative instruments reclassified from a hedging derivative instrument to an investment derivative instrument

- For business-type activities and fiduciary funds, verify the total fair value in the summary of derivative activity table ties to USAS:
- Hedging derivative assets tie to the following GL accounts:
- 0170 – CA Hedging Derivative Instrument Assets
- 0481 – NC Hedging Derivative Instrument Assets

- Hedging derivative liabilities tie to the following GL accounts:
- 1143 – CA Hedging Derivative Instrument Liabilities
- 1471 – NC Hedging Derivative Instrument Liabilities

- Investment derivative instruments tie to the following GL accounts:
- 0059 – CA ST Inv – Derivative Instruments
- 0105 – NC Inv – Derivative Instruments

- Hedging derivative assets tie to the following GL accounts:
- For governmental activities, verify the total fair value in the summary of derivative activity table ties to USAS:
- Hedging derivative assets tie to the following GL accounts:
- 0570 – BC CA Hedging Derivative Instrument Assets
- 0781 – BC NC Hedging Derivative Instrument Assets

- Hedging derivative liabilities tie to the following GL accounts:
- 1543 – BC CA Hedging Derivative Instrument Liabilities
- 1971 – BC NC Hedging Derivative Instrument Liabilities

- Investment derivative instruments tie to the following GL accounts:
- 0559 – BC CA Inv – Derivative Instruments
- 0705 – BC NC Inv – Derivative Instruments

- Hedging derivative assets tie to the following GL accounts:
- Verify the ineffective hedging derivatives that were reclassified to investment derivatives in the DINSS web application are marked as such.
- Verify the disclosures for the deferral amount reported within the investment revenue for the reclassification of investment derivatives. Disclosures are also required for the following:
- Fair Value Measurement
- Market Approach
- Cost Approach
- Income Approach

- Fair Value Hierarchy
- Level 1
- Level 2
- Level 3

- Fair Value Measurement
- Submit a copy of the agency’s Note 7 from its published AFR. The required format is a Microsoft Word document with the header information (agency name/number and Note number/name) sent as an attachment to frs@cpa.texas.gov.