Accounting for Hedge Transactions
Nims, Jennifer E.
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For my capstone project, I have studied the financial act of hedging and the accounting problems related to this topic. Hedging is a fairly new topic and I begin my thesis with background information on the act of hedging. After I explain hedging, I move on to the accounting problems related to hedging. Very little relevant authoritative literature exists that covers this complicated topic. FASB Statement No. 52 covers foreign exchange contracts and FASB Statement No. 80 covers futures contracts (excluding foreign exchange futures contracts). The profession is currently moving toward a new policy to govern hedge transactions. There are two methods of accounting which are currently being implemented in practice: the deferral method and the mark-to-market method. Neither of these methods has been officially adopted by the FASB, but either would be a step in the right direction. The Financial Accounting Standards Board began a Financial Instruments Project in 1986 to deal with the two main issues in hedge accounting: disclosure and valuation. Although the Project has not yet resulted in any authoritative literature, some is expected in the near future.