Research On Application Of Hedge Accounting

The rapid development of international trade and the improvement of the idea and practice of risk management promote dramatically the development of hedging operation. In order to avoid price risk, enterprises have paid more and more attention to hedging by using various derivative instruments, and commodity futures market has progressed with it. The financial crisis of 2008 has proved that the importance of carrying out hedging operations to control the risk and enhance the corporate value. However, because of the strict defining of hedging accounting principles to the application conditions of hedging accounting method, and the lack of relevant systems, hedging accounting method has received great restriction in accounting practice. Hubei S Cotton Limited Liability Company, during the process of preparing for the listing, divided with the CPA on the application of hedging accounting. The thesis, on the basis of practical case, discusses the hedging accounting issue of commodity futures for derivative financial tools; it aims at analyzing the issues existing in the application of hedging accounting method in China’s accounting practice and puts forward suggestions for the perfection of the application conditions of hedging accounting method in China.The introduction mainly illustrates the research background, significance of hedging accounting and relevant theories at home and abroad and presents the research thought combining the achievements and deficiencies domestically and abroad. Chapter one explains the basic theories. Based on chapter one, according to the relevant theories and the research to 16 listed banks and 15 non-listed company, the thesis get the conclusion that the business of hedging of the listed company is small and the company that apply the hedging accounting plays a small percentage. There are four reasons: Firstly, the costs of applying of hedge accounting are too high; Secondly, There’s likely to be a great discrepancy between the restrictions of accounting standards and practice; thirdly, the CPA tend to avoid risks; Fourth, accounting lack of relevant professional knowledge. Then, the thesis analyze the application of hedging accounting method for Hubei S Cotton Limited Liability Company with the case and analyzes the applicability of accounting method for the company associating the application requirements of hedging accounting, especially the requirement of “high performance”. It concludes that the company in the case complies in principle with the application conditions of hedging accounting.Lastly, the thesis puts forward the advice of revising China’s hedging accounting principles referring to the global improvement trends of hedging accounting. For the perfection of principles, the thesis raises four suggestions. Firstly, simplifying the implementing regulations of hedging accounting and emphasizing the risk management orientation; secondly, the regulations should turn to agree with hedging practice further; thirdly, providing more explicit guidance for practice and improving the operability of hedging accounting method; lastly, the accounting subject should have fewer choice.