Research On Hedge Accounting Reform And Its Effects On Risk Management

In the1970s, the collapse of the Bretton Woods system, together with the oil crisis and stagflation, set off a wave of financial innovation and liberalization. The suddenly highlighted importance of risk management gave birth to hedging. Thus the International Accounting Standards Committee (IASC) and the U.S. Financial Accounting Standards Board (FASB) respectively issued IAS39and FAS133to regulate accounting treatment of hedging activities. The basic logic of hedge accounting is to match, thus offset changes in the value of two opposite positions in a hedging relationship in time, thereby reducing profit volatility. In the2008financial crisis, the use of hedge accounting is limited due to excessive restrictions, thus cannot fully reflect the effort and effect of risk management. This has been widely criticized. Therefore, FASB and International Accounting Standards Board (IASB) both took positive actions to make a comprehensive reform of the current hedge accounting standards system.In order to make more accurate judgment, and to better comply with the trend of hedge accounting reform, it is necessary to get an overall grasp of the evolution of the hedge accounting system and the effect brought about by that change, especially the impact on enterprise risk management. This research is based from this angle, hoping to make some suggestions to Chinese enterprises to successfully deal with and exploit changes in hedge accounting.This paper first introduced hedging activities from the perspective of risk management. After summation of past research on the relationship between hedge accounting and risk management, I analyze the positive and negative impacts of the current hedge accounting on risk management. Then I reviewed the path of hedge accounting reform, and the effects of reform measures on enterprise risk management are analyzed theoretically. Furthermore three specific cases are compared to analyze impacts of different approaches on financial statements as well as risk management strategies. Then, through the study of41listed companies,1dug into the problem of application of hedge accounting in China, and predicted its future environment. Finally, I made four specific suggestions for Chinese enterprises to cope with hedge accounting reform,.