Questions On Historical Views Of Derivatives Essay

881 Words Oct 17th, 2016 4 Pages
Derivatives tend to be an intricate topic in accounting. So to begin, a basic understanding of derivatives is that they are a binding contract between two or more parties. The contract is for a future transaction of some underlying financial asset. The purpose for companies to implement derivatives are to aide them in managing risk by using a type of financial forwards, futures, options, or swaps. For example, a forward contract is when Company A believes Company B’s stock price will substantially increase over the next year. However, Company A does not have the resources to purchase the stock today. Therefore, Company A and B enter a contract for delivery of 10,000 shares of Company B in one year at an agreed upon price. Furthermore, this discussion will examine scholarly articles to provide insight on historical views of derivatives, why derivatives tend to be a more complicated accounting topic, and lastly, how FASB is making attempts to simplify derivatives. One of the major, overlying complications for derivatives is concerned with simply the accounting for derivatives. An article by Liubomyr Pylypenko, depicts the problems with the methodology and procedures as we account for derivatives. He states that the problems tend to deal with the “appropriateness and reasonableness of the balance sheet recognition or derivatives, the determination of their original cost, the choice of approaches and methods or recognition of derivatives’ revolution results, the results of…

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