The firm has succeeded in maintaining control of its economic risk on a Fair Value basis. By utilizing the differing treatments of assets, debt and derivatives, the firm has been able to stabilize the accounting measures as well. Somewhat surprisingly, the firm does not need to match the assets and liabilities falling into each bucket; in some cases it may be impossible to do so. For example, loans which create the FAS-91 amortization can not be used to hedge the risk they create without taking on a greater degree of mark-to-market risk.

While the market is waiting for the accounting bodies to face the reality that the current accounting framework creates misleading financial statements and encourages firms to act against their economic interest, firms can use these methods to even out their accounting exposures, without compromising economic management of their assets and liabilities.

Disclaimer: Nothing in this piece should be construed as accounting advice. Each firm must utilize the approaches and methods allowed by its advisors.