The Journal of Derivatives Accounting (JDA) is an international quarterly publication which provides authoritative accounting and finance literature on issues of financial innovations such as derivatives and their implications to accounting, finance, tax, standards setting, and corporate practices. This refereed journal disseminates research results and serves as a means of communication among academics, standard setters, practitioners, and market participants.
Derivatives accounting is currently one of the most challenging topics to market professionals and academics. The breath of the derivatives markets, the increasing complexity of derivatives products and the globalization of derivatives markets have led many regulatory bodies to introduce radical rules for derivatives accounting and disclosures.
This trend began in January 1997 when the US Securities and Exchange Commission (SEC) released guidelines that required SEC registrants to make expanded disclosures about derivatives and other financial instruments in their financial statements and other reports. The aim was to inform shareholders, creditors and other financial statements users about how derivatives and other financial instruments could affect a registrant’s financial position and operations and about the registrant’s exposure to market risks. In June 1998, the Financial Accounting Standards Board (FASB) issued Statement No. 133 Accounting for Derivative Instruments and Hedging Activities.
Statement 133 also commonly known as FAS 133 provides a comprehensive and consistent standard for the recognition and measurement of derivatives and hedging activities. SFAS 133 requires all derivatives to be marked-to-market and recorded on entities’ balance sheets as separate assets or liabilities at fair value (SFAS No. 157). Under these statements, specific disclosure and documentation steps are required when derivatives are used and specific rules apply for example to each type of hedge relationship. The Statement resolved the inconsistencies that existed with respect to accounting for derivatives, and dramatically changes the way many derivatives transactions and hedged items are reported.
Where the SEC leads, other regulatory organizations or standards bodies around the world tend to follow. In 2000, the European Commission presented a formal proposal requiring all listed EU companies to prepare their consolidated accounts in accordance with one single set of accounting standards, namely International Accounting Standards (IAS). This requirement entered into effect in 2005. It has dramatically enhanced the comparability of financial statements across Europe and convergence between US and European standards.
Meanwhile, in Singapore, Australia, South Africa and also Japan, national accounting regulators are also fostering convergence with International and US standards. In countries where there are no comprehensive national standards for corporate disclosure practices and regulatory frameworks for derivatives accounting, the practice is often to refer to IAS for the principles and SFAS 133 for application.
But derivatives accounting and reporting have been described as moving targets because as issues are addressed new ones emerge often on the back of new and complex financial instruments or in the wake of corporate scandals. Such events suggest that derivatives accounting is emerging as a dynamic interdisciplinary field which is leading to high demand for information, market data and empirical research.
The issues raised by these developments are not addressed in main stream authoritative research literature. The Journal of Derivatives Accounting fills this gap by supporting and disseminating research to further the understanding of derivatives risk, hedging activities, regulatory disclosure requirements, corporate disclosure practices and taxation. It is an interface and a means of communication between academic teaching and research, professional teaching and learning and between regulators and markets participants.