Derivative Financial Instruments, Research, Risk And Accounting Regulators

Derivative Financial Instrument is one of the high-technology products which derivate from traditional financial instruments in 1970s. It has been widely used in the past three decades, and has become one of the primary investing instruments in the international financial market. From the beginning, it has been a two-edged weapon which on one hand help the investors preserve values, gain profits and safeguard against risks, and on the other hand make the investors exposed to great risks. So how to prevent from the risks brought about by the derivative financial instrument and enforce the regulation and management of it has been given more and more concern.Just like the electricity, the Derivative Financial Instrument can cause the huge harm when used wrong, but can provide great benefit and be advantageous to the financial market development when correctly used, therefore it is important to supervise and manage the Derivative Financial Instrument properly. Management decisions must base on real and reliable economic information, and seventy percent of economic information come from accounting system, so the custody of the Derivative Financial Instrument risk mainly depend on the support of accounting system. In a series of Basel Committee on Banking Supervision report, the inadequate disclosure of accounting information and its negative effect on the regulation was disclosed adequately since 1988, and required more on the development of risk management technique and the disclosure of accounting information. How to supervise the Derivative Financial Instrument efficiently is an important topic for accounting theory research.After our country joined the WTO, the domestic financial market will be certainly under great impact, the national finance industry and enterprises will certainly enlarge the demand of the financial tool. The Derivative Financial Instrument will certainly obtain a bigger development in our country, but now the research of the Derivative Financial Instrument is still in the preliminary stage at home, the accounting theory research level is also far behind the international standard. Therefore, it is very urgent and important to work over the accounting research on the derivative financial instrument.This article trims the existing writing based on the above present situation and on the foundation of widespread collected materials. The article divided into four parts: the first part summarized the definition of the Derivative Financial Instrument, described its developing course, analyze its characteristics and elaborated four types of the Derivative Financial Instrument. The second part analyzed types of the risk possibly produced by the Derivative Financial Instruments and how it happened, at the same time the contents were presented. The third part is the main body of the article, aimed at elaborating how to supervise and manage the risk of the Derivative Financial Instruments from the following five aspects: accounting theory, the COSO internal control frame, auditing, the real-time report, occupational ethics and the specialized level. Part four proposed several suggestions for the accounting custody of the Derivative Financial Instrument according to Chinese present accounting environment.