A Research On The Disclosure Of Derivative Financial Instruments Trading Information

Derivatives have been growing by leaps and bounds in recent years, so much so that they have virtually become indispensable to financial institutions and all business concerns in their financial management (moneymaking) and hedging efforts. Where derivatives are characterized by high financial leverage, any fluctuations in the international finance and derivative markets, either major or minor, will have a substantial impact upon the results of overall business management. To financial statement users, therefore, derivative-related financial update becomes increasingly relevant and important. Nevertheless, under conventional accounting principles, the characteristics of the off-balance-sheet won't enable financial statements to adequately reflect the real-term information of the economy. To rectify this phenomenon, the Financial Accounting Standards Board (FASB) of the United States promulgated Gazettes 105, 107, 119 and 133. Meanwhile, the International Accounting Standard Committee (IASC) promulgated Gazettes 32 and 39 as well as the very guidelines to recognition, measuring and disclosure of derivatives. In Taiwan, the Financial & Accounting Principle Committee promulgated Gazettes 27, 34 in 1997 and 2003, providing the guidelines about recognition, measuring and disclosure of derivatives through the financial statements. All these efforts are intended to safeguard financial information users by means of full-disclosure of the information.The present study aims at the top 50 electronic giants as TSE/GTSM Listed Companies in an effort to collect their 2003 financial statements using widespread surveys to see whether or not they have lived up to the spirit and norms set forth in the Accounting Principle Gazettes in Taiwan and othernations of the world. The surveys adopted in the present study focus on the disclosure of the accounting principles of derivatives, disclosure involved in the derivative operation related risks and the risk control mechanism, as well as the quantitative information of activities in participating in derivatives. The findings yielded through the hands-on survey in the study indicate-'1. The disclosure of the transaction related information is in a quality significantly below satisfaction in most cases. Very often it contains lots of unspecified, worthless reports. Overall, disclosure leaves room for improvement.2. In Taiwan, Gazette 27 contains quite a big share aiming at values. Thesurvey findings indicate that the methods and hypotheses in assessing fair value leave significantly more room for improvement. Besides, in the quantitative disclosure of the fair value, there is significant inadequacy in the required information.3. The disclosure of risk control quality is found to be too rough and sketchy. The disclosure of quantitative tool risk value (known as VaR) in risk control also indicates that in businesses in Taiwan, the risk related attitude and management are still in the budding phase.4. There is an irrationally low ratio of disclosure of spontaneous information. Though non-mandatory in nature, such extra information will further enable one to better look into the substantial picture of derivatives employed by enterprises.