Study On Application Of Derivative Financial Instruments In China

In the early 1980s, there raised a storm of financial liberalization and innovation globally after the collapse of Bretton-Woods System. With the booming of financial market, violent fluctuation happened to the fields of securities prices, interest rates and exchange rates. In order to satisfy the requirements of financing, enterprises deal with various derivative financial instruments more and more. But Accounting Standards can't keep up with the progress of financial derivatives, which lead to confusion in practice and lack of relevance and comparability in financial reports. However, the reason for continual performing as nonstandard operation treating approach is that derivative financial instruments fall short of accounting principles in the long-term contracts signed in deals. This shortage influences the approaches of affirm, measure and reporting of derivative financial instruments. How to set up the supervision & management systems for accounting practices including financial derivatives is international focus.The financial derivative accounting is one of the ten accounting difficult problems in the 21st century。From International Accounting Standards Commission (IASC) to the authorities for accounting principles in each nation to the academy ,they are doing their best to identify ,to measure ,to report financial derivatives, fortunately with never-ending new approaches being contributed to the frame of accounting principles. On December 17, 2003, International Accounting Standards Board(IASB) amended IAS39, furthermore to make sure the model of fair-value measurement for financial derivatives is generally implemented .This thesis consists of five sections: Section One :gives a brief introduction to derivative financial instruments and its impingement on traditional accounting theory. It also makes a literature review on the previous research, and gives author's opinion on further research to lay foundation for following research. Section Two:the recognition measurement of derivative . Recognition chiefly resolves the problem when some items really go into the accounting system .It plays as the most important part in this thesis, I argue that we should be away the"past tradition or issue",and focus on the"actual future economic payoff". Section Three: the measurement of derivative . Measurement chiefly resolves the problem how much some items go into the accounting system . According to the traditional accounting theory, there are five measurement attributes: historical cost/historical income,current cost,current value,net realizable value and discounted present value for future gross cash flow etc. The fair value is the exchange amount existing in the current fair deal that everyone familiarizes the situation and is willing to exchange asset and settle obligation. This paper thinks that the fair value is a dynamic concept, it shows 3 tenses: the elapse, the present and the future. The relationship between the fair value and the current accounting measurement attributes is not parallel, the following accounting attributes :historical cost/historical income,current cost, current value,net realizable value and discounted present value for future gross cash flow, all can be defined as the fair value in peculiar tense. Whereas, by the viewpoint of accounting measurement attributes, in order to embody itself, the fair value must be by means of some accounting measurement attributes or other. The measurement of the financial derivative includes initial measurement and subsequent measurement, this paper expounds that the fair value is the only accounting measurement attribute of the financial derivative. Section Four: the disclosure of the financial derivative. Disclosure is the interpretation and the expressing to the financial report .Section Five: analyzes the application barriers of derivative financial instruments accounting principles in China, and advances suggestions on how to put it into practice.China's research in accounting practice for financial derivatives started in the early 90s, but it mainly focused on introductions of the trends of international accounting principles, as a consequence with little creative systematic research results .Based on IASC and IASB's accounting measurements ,this thesis focuses on the study of how to absorb derivative financial instruments into accounting reports and puts forward suggestions on how to develop Chinese accounting based on derivative financial instruments according to the development of derivative tools in China. It's with the author's wish that this thesis presents reference value for the development of Chinese derivative financial instruments market and related accounting theory.