Research On Application Of Hedge Accounting Based On Company A

The fuel cost of aircrafts accounts for nearly 40% of its operating cost, therefore the price fluctuation on aviation fuel traps airline companies into huge business risk. The hedging activities of aviation fuel held by various countries in the world can be traced to the 1980s. In 2006, China’s ministry of finance issued the Accounting Standards for Enterprise No.24-Hedging, coming with related documents for guide and explanation, which made a good job on closing China’s accounting standards to those of international and created a rare opportunity for applying and practicing enterprises hedge accounting. Under such application of hedge accounting, its business activities certainly will be developed by the domestic enterprises using reasonable financial derivatives.In this context, the combination methods of theories and practice will be used in this paper to study the application of hedge accounting in China. Basing on elaborating the fundamental theory of hedge accounting, its application in Company A also will be analyzed. However, as the difficult issues in application, the evaluation methodology measuring the effectiveness of hedging in company A will be played much attention on. Taking the business practice of company A into consideration, the main problems found during applying hedge accounting will be summarized here, and some strategies and suggestion will be put forward against those existing problems. Finally, on the prospect of hedge accounting, it draws the conclusions as below:There is limitation on fair value measurement and fair value option, tha’s why hedge accounting still in use.Hedge accounting can solve the confirmation and measurement issues of hedging activities, and explain its economic result on accounting, which good for evaluating the hedging business performance objectively.With the restriction of application cost and technology in practice, many things need to be improved for the extension and implement of hedge accounting.