The Influence and Related Solutions on Financial Accounting Theory from Derivative Instruments
As is well known that derivative instrument is an important factor which causes this financial crisis, thus derivative becomes a cause for concern. Derivative is a financial tool, as FASB states that “derivative instrument is a future, forward, swap, or option contract, or other financial instrument with similar characteristics” (FASB Statement No. 119). Unlike stocks and loans, “derivatives generally do not involve the transfer of a title or principle, and thus can be thought of as creating pure price exposure, by linking their value to a notional amount or principle of the underlying item” (“Primer Derivative Instruments”, 2004). In the international financial market, the most important functions of derivative are hedge and speculation. The derivative has grown rapidly in recent years, and so far there are more than a thousand types of derivatives in the world. Although derivative is a high-stake gamble with no guarantee of success, it is still used widely because it “create(s) leverage” (McCrary, 2004, p.91). Follow the development of society and economy, accounting needs to deal with a global，financially complex，knowledge-based economy. As a newer financial tool, its advent and development force the accounting industry to face significant challenges. Due to the different degrees of familiar of derivative’s concept, functions and applications, derivative instrument accounting, the new branch of financial accounting theory, brings a lot of new questions to traditional financial accounting theory. This paper will discuss the effects and related solutions of the derivative on financial accounting theory.
Derivative instrument has effect on accounting recognition, particularly on asset and debt element, and also aspect of revenue or expense. Recognition is a process of filtering economic information, as the authors’ statement in... [continues]
As is well known that derivative instrument is an important factor which causes this financial crisis, thus derivative becomes a cause for concern. Derivative is a financial tool, as FASB states that “derivative instrument is a future, forward, swap, or option contract, or other financial instrument with similar characteristics” (FASB Statement No. 119). Unlike stocks and loans, “derivatives generally do not involve the transfer of a title or principle, and thus can be thought of as creating pure price exposure, by linking their value to a notional amount or principle of the underlying item” (“Primer Derivative Instruments”, 2004). In the international financial market, the most important functions of derivative are hedge and speculation. The derivative has grown rapidly in recent years, and so far there are more than a thousand types of derivatives in the world. Although derivative is a high-stake gamble with no guarantee of success, it is still used widely because it “create(s) leverage” (McCrary, 2004, p.91). Follow the development of society and economy, accounting needs to deal with a global，financially complex，knowledge-based economy. As a newer financial tool, its advent and development force the accounting industry to face significant challenges. Due to the different degrees of familiar of derivative’s concept, functions and applications, derivative instrument accounting, the new branch of financial accounting theory, brings a lot of new questions to traditional financial accounting theory. This paper will discuss the effects and related solutions of the derivative on financial accounting theory.
Derivative instrument has effect on accounting recognition, particularly on asset and debt element, and also aspect of revenue or expense. Recognition is a process of filtering economic information, as the authors’ statement in... [continues]
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(2011, 03). The Influence and Related Solutions on Financial Accounting Theory from Derivative Instruments. StudyMode.com. Retrieved 03, 2011, from http://www.studymode.com/essays/The-Influence-And-Related-Solutions-On-616160.html
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"The Influence and Related Solutions on Financial Accounting Theory from Derivative Instruments." StudyMode.com. 03, 2011. Accessed 03, 2011. http://www.studymode.com/essays/The-Influence-And-Related-Solutions-On-616160.html.
