A Study On Accounting Issues Of Hedge

The rapidly development of international trade, along with the management of financial risk in theory and practice, accelerates the innovation of financial instruments greatly. In order to avoid operational risks, such as price and credit risks,, enterprises make use of various derivatives to hedge against the risks more and more. So this paper applies normative method to analyzing the mechanics on the establishment of hedge accounting for in China, and explores the issues existed both in hedge accounting and its application in practice, and then puts forward some advices on the issues in previous section.The introduction section mainly expatiates on the significance, the background, and the current positions of researches on hedge accounting at home and abroad. And then the paper turns on to its approaches and some possible innovations based on the achievements and limitations in studies at home and abroad. The second illuminates the basic theory related of hedge accounting, including the definition of hedge transactions, the reason of hedge accounting, and relative current standards of hedge accounting treatment. The first two sections are considered as the foundation of latter research.The third section is regarded as the focus. Firstly, the paper proves the rationality of hedge accounting in China based on the analysis of the impact of fair value recording pattern on hedge accounting and the basic principle of hedge accounting as well as the specific environment of money market in China due to the fact that, in a form of Questions and Answers document, in December, 2000, IASC issued an exposure draft"Standards draft and conclusion--- accounting for financial instruments and likelihood items"drafted by JWC. It advocated that financial instrument should be measured at fair values, and the mixed measurements should be abolished, which resulted in the absence of hedge accounting. However, the subsequent resumption of mixed measurements for financial instruments by IASC had proved the judgment by this paper on the rationality of hedge accounting. Secondly, the paper further researched on the issued existed in hedge accounting so as to improve and promote the hedge accounting in China. Finally, the paper reveals the problems existing in hedge accounting practice based on the data from 14 listed bank and 11 non-financial listed companies in some specific industries, they include banking, oil, metal and agriculture sectors that involve in application of hedge transactions in China.The fourth gives some advices on the issues concerned in the third section, covers the improvement on the determination for hedge accounting, the enhancement and of the consensus about hedge accounting and its accounting treatment, the preparation supporting information for hedge accounting, and the establishment of supervisions for the better implementation of hedge accounting.The final section concludes achievements and limitations of this paper.