CFM11000 - Derivative contracts

Derivative contracts guidance

This is in three parts.

You can also see an overview of the legislation applying to derivative contracts at CFM1400, and a summary of the changes brought about by FA 2002 at CFM2400.

Understanding derivatives

Large groups of companies are more likely to use derivative contracts than small companies, in order to manage financial and other risks. This part gives some background on what derivatives are, and how they work, and demystifies some of the financial jargon that surrounds them. You may also find the glossary ( CFM800) useful.

Accounting for derivatives

There is at present no accounting standard that deals with the accounts treatment of derivatives.  FRS13 sets out how companies should disclose their use of derivatives, but it does not apply to all companies.  This part gives guidance on FRS13, and on what you might expect to see in the accounts of companies that use derivative contracts.

Taxing derivatives

The tax treatment of gains and losses from derivative contracts broadly follows the accounting treatment of the debits and credits arising from those contracts. The gains and losses are taxed and relieved in a very similar way to loan relationship debits and credits, although the rules are set out in separate legislation. This part of the guidance covers

• the basic rules ( CFM13000), and
• the circumstances when special rules are needed ( CFM13600).