The FASB issued Final FASB Staff Position (FSP) FAS No. 133-1 and FIN 45-4, Disclosures about Credit Derivatives and Certain Guarantees: An Amendment of FASB Statement No. 133 and FASB Interpretation No. 45; and Clarification of the Effective Date of FASB Statement No. 161, on September 12, 2008.

The FSP requires more detailed disclosures about credit derivatives, including the potential adverse effects of changes in credit risk on the financial position, financial performance, and cash flows of the sellers of the instruments.

The guidance also amends Statement of Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative Instruments and Hedging Activities, to require increased disclosures by sellers of credit derivatives, including credit derivatives embedded in hybrid instruments. The provisions of the FSP that amend SFAS No. 133 and FASB Interpretation (FIN) No. 45, Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness to Others, are effective for annual or interim reporting periods ending after November 15, 2008.

The guidance marks an effort to provide investors and other financial statement users with more transparency about the potential exposures faced by the sellers of the credit-default swaps. Its issuance addresses a concern raised by many investors that the disclosure requirements in SFAS No. 133 do not provide enough information about the effect upon a swap seller of a deterioration in the financial condition of the issuer of the underlying instrument.

The FSP also amends FIN No. 45 to require an additional disclosure about the current status of the payment/performance risk of a guarantee. The requirement standardizes the disclosures required for instruments with similar risks. The FSP also states that the requirements of SFAS No.161, Disclosures about Derivative Instruments and Hedging Activities?an amendment of FASB Statement No. 133, should be met for any reporting period that begins after November 15, 2008.