The implementation date for Financial Accounting Standard 133 was pushed back so many times that corporate treasurers and accountants alike began hoping the elephant in the living room would just go away. But now that it's finally a reality, they're scrambling to apply the complex rules to flesh-and-blood accounting reports.

In spite of the long delays, a surprisingly small number of vendors offer products that can even charitably be considered FAS 133 compliant.

All of which is good news for Reval.com, an application service provider trying to bridge the chasm in FAS 133-compliant treasury management systems. Reval bills itself as the only Internet-based treasury management system that addresses FAS 133 in any kind of comprehensive way.

"I think it's a misnomer for any software company, including Reval, to say that it's FAS 133 compliant,” says Jiro Okochi, CEO and co-founder of Reval. "The company, not the vendor, needs to be compliant and it's our job to simplify and clarify this task. Some vendors may be misleading the end-user into thinking that purchasing their software automatically solves all of the company's FAS 133/138 issues—and that is wrong.”

The company's ultimate goal is to help corporate treasurers at Fortune 1000 and middle-market companies centralize their disparate patchwork of treasury management systems, and avoid the manually intensive processing associated with these trades by warehousing financial data on the Internet. At the moment, high-functionality treasury systems are quite pricey, while cheaper systems cover only the generic vanilla structures. Reval hopes to fill this gap by offering an affordable web-based solution that covers a broad range of asset classes including derivatives.

Of course, product coverage isn't the only problem facing treasury systems trying to deal with 133. Even if a package accommodated every financial product known to man, the Big Five accounting firms each have their own interpretation of the standard and these views may contradict each other. Moreover, since the Financial Accounting Standards Board is still dealing with Derivatives Implementation Group issues, FAS 133 accounting remains a moving target. By offering an Internet-based solution instead of a standalone system, Reval can adapt to evolutionary changes as decisions are made.

Simple web-based systems, with their common interfaces and unlimited scalability, are clearly the wave of the future, if not the present. But true derivatives functionality is still rare in treasury ASPs, and therein lies Reval's opportunity. "For the bigger companies,” says Okochi, "we're not going to be immediately accepted as a stand-alone systems alternative. We're going to have to prove ourselves to them. We'll do this by starting with a derivatives and FAS 133/138 specialization. As people gain awareness and comfort with Reval's accomplishments in delivering these sophisticated tasks via an ASP model, they'll subscribe to more of our treasury functions across the board.”

Under the new standards, all derivatives are marked-to-market on the balance sheet. The main challenge for treasurers is to find an underlying hedged item that can also be marked-to-market into earnings to offset the derivative's change in market value. Any changes in value that don't match are deemed ineffective, and are reflected in a company's earnings. As a rule of thumb, no one wants variability in derivatives positions to affect earnings. As an alternative, however, a company can try to prove that a derivative hedges a variable cash flow, in which case it can be recorded as other comprehensive income ("OCI”) directly on the balance sheet, with no earnings impact.

What does this mean for treasury systems? In the good old days, a company that issued debt could rely on a simple system that monitored the debt portfolio with an entirely separate derivatives accounting function handling the accompanying swap. Some bigger companies, of course, boasted systems that could monitor price and risk-manage the derivative portfolio, but such functionality was rare. Now, because hedges must be priced and tied to the underlying hedged items at inception, integrated derivatives accounting is more critical than ever.

To address this, Reval plans to provide full mark-to-market services, including pricing models and independent third-party market data. "You can have the best and brightest stars write all the C++ algorithms you want,” says Okochi, "but unless you have good market data going into the models, you won't generate a very good price.” Reval will also match hedges with underlying hedged items and track them throughout their lives, as FAS 133 requires.