When regulators in 2004 went after Fannie Mae for failing to adhere to requirements of FAS 133, much of Corporate America considered itself on the spot as well: Five years after the adoption of the accounting standard that determines how U.S. companies report hedging activities, here was a high-profile derivative user being nailed for what had become a relatively common interpretation of the rule. How many others would be tripped up by 133? In fact, another 230 companies or so–including high-profile names such as Ford Motor Co. and Bank of America Corp.–have faced similar challenges. All of this made companies pause, and even backtrack a bit. But it was not until January when behemoth General Electric Co., with its best-practices treasury, fell victim to 133 that the potential scale of Corporate America's problems was brought home. "For a lot of people, it was a case of, if a company as savvy and sophisticated as GE–the originator of Six Sigma–is getting this wrong, then is everyone below GE also getting it wrong?" suggests Jiro Okochi, CEO of derivatives risk management software firm Reval.com Inc. "I think it was a bit of an eye-opener."

GE was forced to restate five years worth of reported earnings, starting with its 2001 financials, resulting in a reduction of $343 million. The company's transgression? When using interest rate swaps to fix the rates on its vast commercial paper (CP) program, GE had failed to specify which swaps applied to which CP issues.

The so-called "specificity requirement" on which GE ran aground, is just one of 133′s many provisions. (The rules themselves, along with subsequently issued guidance, run to well over 1,000 pages.) But it's hardly the most controversial. That honor undoubtedly belongs to the shortcut rule, which provides users of interest rate swaps with a quicker way to comply with the standard. Misinterpretation of the shortcut's qualifying criteria was the downfall for Fannie Mae and many others. The question is: Why are so many U.S. companies still getting it wrong on FAS 133 after so many years and after so much attention has been paid to the standard?

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