Accounting For Derivative Financial Instruments

Derivative financial instruments have increased rapidly in the international financial market since 1970s. The derivative financial instruments are widely used, which deeply impacts on financial market and corporate finance, as well as gives a challenge to traditional accounting theory. Proceeds and risks led by using the derivative financial instruments should be reflected objectively and truthfully in new accounting theory and rules.In this paper, mainly from three aspects: recognition, measurement and information disclosure, some accounting problems about the derivative financial instruments are discussed. Firstly, the derivative financial instruments should be included in the financial reporting system through redefining asset and liability, which is put forth on the basis of consulting the main points in IASC and FASB. As a result, the problems existing in recognition of the derivative financial instruments are solved. Secondly, " process-based-view" should be embodied in accounting recognition of the derivative financial instruments and "Fair value" is the only way in measure of the derivative financial instruments. Thirdly, off-sheet disclosure of the derivative financial instruments is discussed. The off-sheet disclosure should include policy information, fair value information, value information, profit/loss information, risk information and so on. Finally, the financial instruments accounting standards issued by the Ministry of Finance in 2006 in China are discussed. The deep impaction of the financial instruments accounting standards on corporate is analyzed and some suggestions on how to effectively execute the financial instruments accounting standards are put forward.