Companies use derivatives to hedge inflation and other risks,and they can employ hedge accounting to reduce the volatility thoseinstruments may cause in their financial statements by matchinghedging instruments against the items being hedged. However,accounting standard setters' efforts to facilitate the reporting offinancial instruments now appear headed in different directions,potentially creating a new set of complications.

U.S. and global standard setters started a joint project wellbefore the financial crisis to give investors more timely andclearer depictions of companies' use of instruments such asderivatives, and reduce reporting complexity. The crisis increasedpressure on the Financial Accounting Standards Board (FASB) and theInternational Accounting Standards Board (IASB) to come up with acommon reporting model for financial instruments.

Instead, the two are headed on different paths. Clark Maxwell,director of accounting policy and global accounting services atChatham Financial, says FASB's and IASB's existing hedge accountingstandards have differences but fundamentally are on the same page.FASB, however, is amending its existing framework, while the IASBis largely building a new one, potentially resulting in verydifferent reporting approaches.