Derivative Financial Instruments, The Accounting Problems

Since the 70s, 80s of the 20C, risk and fluctuation in financial market sharply increased. Because of the desegregation of Bretton Wood Monetary System, exchange rate system replaces fixed exchange rate system, oil crisis and the others. So financial departments, enterprises and individuals urgently need creationary ways to elude risk or reduce the cost of capital. Under this circumstance, financial derivative instrument emerged as the time required.The dynamic nature of international financial markets has resulted in the widespread use of a variety of financial instruments ranging from traditional primary instruments, such as bonds, to various forms of derivative instruments, such as interest rate swaps. The essential character of financial instruments is a contract. The uncertainty of a financial instrument is a crush to the traditional accounting theory. It can't be recognized as an asset or a liability. Either it can't be measured by a certain amount. People can just disclose it outside the financial reports. So the use of derivative instruments has coursed a lot of financial risks and losses and coursed a revolution of financial accounting.The purpose of this revolution is to found a new accounting system to disclose and present the message of derivative instruments that is useful to decision makers. FASB and IASB did a lot of research on derivative instruments and published several accounting standards to form the market of derivative instruments. China has published the new Accounting Standards recently and made the regulation of the recognition, measurement, disclosure and presentation of derivative instruments.The article starts with introducing the definition, classification and the character of derivative instruments. The article analyzes the crush that derivative instruments bring to traditional accounting theory and finds out that we should use other accounting standards to deal with derivative instruments. Then, the article analyzes how to regulate the derivative instruments by accounting standards in recognizing, measuring, disclosing and presenting. The article introduces the standard about derivative instruments of the new Enterprise Accounting Standards and compares them to the IASs. At last, the article concludes the influences in China and gives some suggestions.