Financial Reporting of Derivatives: An Analysis of the Issues, Evaluation of Proposals, and a Suggested Solution
J. OF FINANCIAL ENGINEERING, Vol. 4 No. 3, September 1995
Posted: 13 Jul 1998
The current financial accounting rules for derivatives are internally inconsistent, not uniform across various types of derivatives, and incomplete. A survey of derivatives users and our analysis of financial statements indicates that these rules have significantly constrained firms from using derivatives optimally. This research leads us to conclude that the rule changes considered by Financial Accounting Standard Board (FASB) would exacerbate this situation. We propose an alternative that is consistent with the long held "matching" concept of accounting, wherein losses and gains on derivatives are reported in the same periods as gains and losses on the associated assets and liabilities.
JEL Classification: M49
Suggested Citation: Suggested Citation