Practice versus Prescription in the Disclosure and Recognition of Derivatives

Abstract

The contentious issue of the recognition and measurement of derivative instruments is again high on the Australian standard‐setting agenda, following pronouncements by the International Accounting Standards Committee (USC) and Financial Accounting Standards Board (FASB). This study investigates firms' disclosure of derivative accounting policies and measurement practices pursuant to the introduction of AASB 1033. A lack of clarity and completeness in the disclosures suggests that supplementary requirements are necessary. A preference for using hedge accounting is also apparent. Should an Australian standard disallow or impose conditions on hedge accounting, fims will need to alter their current accounting practices and risk management strategies and they will probably reassess their use of derivatives.