The Impact of IAS on the Management and Disclosure of Financial Market Risks
19 Pages Posted: 25 Apr 2006
Date Written: December 2004
2005 will be remembered as the year of revolution in Corporate Financial Risk Management (CFRM), due to three extraordinary phenomena: 1) the adoption of new international accounting standards (IAS) across Europe; 2) the growing awareness of the need for new corporate governance rules; and, finally, 3) the approaching adoption of Basel 2 regulations. Among the main consequences have been an unprecedented visibility of the use of derivatives by corporates and a new emphasis on risk disclosure, both mandatory and voluntary. Moreover, both the board and external analysts are by now beginning to assess the process of CFRM more deeply. The board's aim is to drive and control the process, while analysts have to incorporate risk exposure into the price of corporate securities. The challenging question arising in this new scenario is: does good accounting necessarily lead to good corporate governance and good pricing of securities? This paper suggests that voluntary disclosure will grow in importance to adequately satisfy new information requirements.
The paper is composed of five paragraphs. Following a short introduction, paragraphs 2 and 3 describe the new context of CFRM. Paragraphs 4 and 5 introduce an innovative language that may be particularly useful to the board and external analysts and may act as a guideline for voluntary disclosure.
Keywords: IAS compliance, risk management,, risk disclosure, financial risks
JEL Classification: G3, G32, G34
Suggested Citation: Suggested Citation