Research On Accounting Information Disclosure Of Derivative Financial Instruments In China

As the transition phase after China joined WTO comes to a close, China's financial market become increasingly competitive. On the supply side, with the influx of foreign financial institutions, domestic banks have to enhance its product innovation to increase is competitiveness; on the demand side, with the deregulations of financial market, companies face more uncertainties with the increasing interest rate and exchange rate risks. As a result, there is a need for financial derivatives to hedge these risks.However, derivatives, while being used as risk management tool, bring new risks to companies due to the nature of these products, for example, they are extremely sensitive to price change. To regulate the derivative market, in 2006 the National Ministry of Finance issued four accounting standards relating to derivatives. Studying the adoption of these guidelines provides both theoretical and empirical insights into the financial accounting.The paper studies the derivative accounting information disclosure. It compares relevant domestic and foreign regulations by using analysis and case studies. This paper promotes the regulation of financial statement disclosure, the increase of the quality and transparency of derivative accounting information, and the control of derivative's risks.The paper consists of sever sections and is organized as follows:Section 1 introduces the purpose of this paper, literature review and study method.Section 2 is the introduction of derivative instruments. It describes the definition, feature, type and risks of derivative.Section 3 demonstrates the features of derivative accounting from the perspectives of accounting, statistics and disclosure. It also shows the differences between derivative and traditional accounting.Section 4 compares the derivative accounting information disclosure regulations among FASB, IASC, IASB and the National Ministry of Finance of China.Section 5 is a statistic study of derivative accounting information disclosure of 14 domestic banks' annual financial statements. It demonstrates that derivative information disclosure has problems.Section 6 is a case study of accounting statement and appendix. It discusses the approaches of standardizing the derivative information disclosure. It also provides some sample and comments.Section 7 makes suggestions on four areas to increase the quality of derivative information disclosure based on current status and potential problems with the adoption of new accounting standards.