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Accounting treatment of derivative financial instruments accounting derivatives

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					Accounting treatment of derivative financial instruments accounting derivative

  derivative financial instruments accounting
  20 since the '70s, the international financial market booming derivatives, innovative.
Its traditional accounting theory and things have had a huge impact, but so far has no
specific accounting treatment. However, the uncertainty of their income and huge
risks, but also makes accounting and supervision of their reflected become an
inevitable trend. Therefore, it is necessary depth study of the derivative transaction
and standardize the accounting treatment of derivative financial instruments.
  1, the meaning of derivative financial instruments and the characteristics of
  International Accounting Standards Committee (IASC) 1999 promulgated the
International Accounting Standards No. 39 "Financial Instruments: Recognition and
Measurement" (IAS-NO.39) in No. 32 criteria based on the definition of derivative
financial instruments as follows: derivative financial instruments refer to financial
instruments with the following characteristics:
  ① its value with a specific interest rates, securities prices, commodity prices,
foreign exchange rate prices, the exchange rate index credit rating and credit index or
similar variable and change;
  ② relative to market conditions and other similar types of contracts to reflect the
required initial net investment is less;
  ③ settlement at a future date . Trading of derivative financial instruments in
accordance with their own methods and features can be divided into four categories:
long-term contracts, financial futures, financial options, swaps. Engage in derivatives
trading business, will directly or indirectly involved in the main related asset or
liability. This is a traditional sense, with the assets and liabilities with different
characteristics "financial assets" and "financial liabilities." In general, derivative
financial instruments have the following characteristics:
  1. Leveraged.
  financial theory refers to the less leveraged cost of capital can obtain more
investment to improve the way the operation proceeds. Derivative financial
instruments is based on the price of the underlying instruments, transactions not paid
the full value of the underlying assets, as long as a certain percentage of deposit or
margin deposit can be on the management and operation of the relevant assets. Thus,
traders can take advantage of price differences in different markets, from low-cost
market to buy, sell and make a profit in the high-priced market. While the
international financial markets have the tendency of globalization, the market price
difference between the small, but because of the huge volume of derivative financial
instruments, Guer arbitrage and speculators are still profitable. The emergence of
speculators, both active derivatives market, but also to some extent disrupted the
international financial markets.
  2. The value of strong volatility.
  traditional assets, their value depends on how much the amount of socially necessary
labor, relatively stable, the price fluctuates around value, range is not great. Derivative
transactions in financial assets is completely different, the value of its strong volatility.
When a derivative financial instrument can significantly reduce the risk of a basic tool,
its value increased accordingly; the other hand, if a derivative financial instrument not
reduce the risk or bring any profits, it has no value. Further speaking, it can not bring
any profit, that may lead to large losses, the value is the corresponding "negative",
which is in the traditional sense of the assets and liabilities not available.
  3. High risk.
  derivative financial instruments is the direct cause of business requirements "to
avoid risk", risk and derivative financial instruments are inseparable. Derivative
financial instruments operating properly, can minimize the risk based tools.
Conversely, derivative financial instruments will be increased to maximize the
business risk. Vagaries of the market and traders of over-speculation, so many people
get huge profits, so many players suffered losses or even bankruptcy. According to the
joint report of the Basel Banking Committee, derivative financial instruments are the
main risks: market risk, credit risk, liquidity risk, operational risk, settlement risk,
legal risk.
  4. Virtual sex.
  virtual sex is independent of securities with the reality outside the capital, but will
give security holders to bring a certain income characteristics. Derivative financial
instruments to trading of virtual sex does not constitute the majority of the assets and
liabilities of financial institutions has become a balance-sheet business. Since the vast
majority of derivative financial instruments in the balance sheet are not shown,
especially in the accounting for derivative financial instruments transactions growing
share of financial business under the trend of large financial institutions by seeking to
improve the balance-sheet assets and liabilities of business structure and improve
return on assets, and thus to strengthen the bank's capital base and expand
profitability.
  second derivative of the current Financial Accounting Theory
  few years, the financial instrument recognition, measurement and reporting has been
plagued by accounting, derivative financial instruments have and this is exacerbated
by the rapid development of a situation, the traditional financial accounting in the
accounting treatment is facing new challenges.
  1. Basic concepts of financial accounting.
  on the current financial "assets", "liabilities" and the definition of basic concepts of
accounting for past transactions or events, the results, and is expected to occur in the
future transactions or events can not form their own assets or liabilities. Financial
instruments, particularly derivatives of the features of the contract embodied in the
transaction did not happen now, but will happen in the future. If the derivative
financial instruments as corporate assets, the traditional "assets" concept must be
changed. Similarly, if the derivative financial instruments classified as "liabilities", it
just may be contingent liabilities into current liabilities, or that such liability can never
be translated into current liabilities, in the traditional sense of "balance" is difficult to
summarized this point. "Financial assets" and "financial liabilities" from the contract
signed by both parties, and traditional assets, liabilities, with essentially different.
According to the traditional accounting model, signing a contract can not form
business assets or liabilities. The emergence of derivative financial instruments, on the
basic concept of the traditional financial accounting questioned.
  2. The principles of accrual and realization of the impact.
  confirmation of financial accounting standards are based on accrual basis and
recognized in income required to be realized. Accrual basis in accordance with the
enterprise is not received or paid in cash when the business record of economic
impact on businesses, but recorded in the period of business operations of enterprises.
To achieve the main principle is that companies have completed the process of
obtaining revenue, while receiving payments or already have the right to receive
payment, then the subject can confirm that income. Can be seen, whether accrual or
cash basis, both to the past transactions or events that have occurred based on which
future transactions and events occurred is not recognized. Derivatives indicate the
occurrence of a series of financial movements in the future, and these changes in
future financial reports on the traditional does not reflect the financial, financial
reporting accounting information provided by the incompleteness of certain or even
false, causing unpredictable risks.
  3. Principles of accounting measurement.
  traditional accounting measurement is based on the principle of historical cost basis.
But the historical cost principle and the only confirmed transactions receives data
from many financial Xinxi not reflected, which boosts the historical cost accounting
measurement Moshi-based asset pricing are totally unrealistic, the scientific theory of
traditional accounting and accounting information reliability will face severe
challenges. As the derivative transactions no longer did the traditional transaction can
be completed through a point in time, but over time, a process to complete, and that
this process not as traditional transactions were treated as two transactions (such as
traditional transactions Purchase of fixed assets and fixed assets in the final end of life
as the two transaction processing). Derivative financial instruments in its possession
any changes during the period, are internal connected and inseparable. A derivative
financial instrument to the low value from valuable to worthless even without the
existence of a separate transaction, but the result is a considerable objectivity. If you
want to reflect the authenticity of the main economic activities proceed, it should truly
reflect the company phased held the value of derivative financial instruments. This is
bound to break the existing financial accounting of the historical cost principle,
replaced by fair value. The emergence of fair value to historical cost principle can not
and should re-measure as the sole property of financial accounting, financial
accounting measurement attributes for future development trend should be e
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