Study On Accounting Of Derivative Financial Instruments

Since the 1970's, with the continuous emerging of financial innovation, derivative financial instruments has been growing with each passing time. On the one hand, it can help investors hedge or speculate; on the other hand, the risk of it is great. If the option is inappropriate, the result will be a disastrous and may even impact the whole national economy. As a tool of managing economy, accounting is of importance to protect derivative financing products market. Currently our country's system of financial accounting blocks the development of it. For enhancing the abilities of financial custodies and keeping away financial risk, this article aims at studying financial accounting that adapts to our country.This thesis bases on correlative theories in accounting, management and futures. Several methods, such as comparison, normal accounting research and contact theories with fact! are used in the paper. By comparing abroad accounting standards and research results, the thesis studies accounting treatment and disclosure in our country. Through investigating the accounting practice in some banks, such as Agricultural Bank of Chinese, some shortages are found. And some suggestions are put forward to perfect that of our country.This thesis consists of three parts:In the first part, the thesis gives an account of the research of FASB, IASC and domestic scholar.The second part reconsiders each stage in financial accounting. Measurement attributes is the core of accounting, and it has several means which can be chosen to measure accounting elements. So this article at first discusses it, then studies recognition, measurement and reports in turn.In this part, by analyzing the target of accounting and qualitative characteristics of accounting information, it is proved that fair value is the best choice to measure derivative financial instruments. This (-one 1 us ion is the foundation of accounting of derivative financial instruments. During accounting, Financial Component Approach not Risk and Reward Approach should be used to recognize derivative financial instruments. The cost without transactional expenses measures derivative financial instruments initially. Transactional expenses is recorded in the profit and loss account. Hedging accounting should be cancelled. Profit or loss that comes from recognized unrealized derivative financial business is recorded as a part of comprehensive income. The statement of comprehensive income should be added as the fourth financial report and the amount of information in notes of financial statements should be augmented. In conclusion, the compound mode of listing fair value of derivative financial instruments in financial statements and disclosing correlative information can make financial reports relevant and reliable.In the third part, the risk of derivative financial instruments is divided into price risk, credit risk and liquidity risk. At the same time the author points out the importance of accounting of derivative financial instrument to control its risk. By analyzing the actualities of accounting of derivative financial instrument, some countermeasures are brought forward from researching theories, perfecting accounting system and establishing education mechanism.