Final answer:
Derivative instruments must be reported if they meet criteria defined by GASB 53, with an exception for some linked to normal purchases and sales, which have separate accounting and disclosure requirements.
Step-by-step explanation:
The correct answer to the question regarding an exception to GASB 53 in accounting financial reporting for derivative instruments is 2) Derivative instruments are only required to be reported if they meet certain criteria. According to GASB Statement No. 53, Accounting and Financial Reporting for Derivative Instruments, derivative instruments must be reported in the financial statements if they meet the criteria defined within the statement such as being an effective hedge or associated with items that can be specifically identified.
However, one exception is that certain derivative instruments that are linked to the normal purchases and normal sales (NPNS) of goods or services are not reported as derivative instruments but are given specific accounting and disclosure requirements separate from GASB Statement No. 53.
Therefore, while GASB 53 generally requires that derivative instruments be recognized in financial statements, there is an exception that allows for certain types of derivative instruments to not be reported if they are associated with normal purchases and normal sales.