With the exponential growth in financial derivatives, accounting standards setters have had to keep pace and devise new ways of accounting for transactions involving these instruments, especially hedging activities. Accounting for Risk, Hedging and Complex Contracts addresses the essential elements of these developments, exploring accounting as related to today's most relevant topics - risk, hedging, insurance, reinsurance, and more.
The book begins by providing a basic foundation by discussing the concepts of risk, risk types and measurement, and risk management. It then introduces readers to the nature and valuation of free standing options, swaps, forward and futures as well as of embedded derivatives. Discussion and illustrations of the cash flow hedge and fair value hedge accounting treatments are offered in both single currency and multiple currency environments, including hedging net investment in foreign operations. The final chapter is devoted to the disclosure of financial instruments and hedging activities. The combination of these topics makes the book a must-have resource and reference in the field.
With discussions of the basic tools and instruments, examinations of the related accounting, and case studies to help students apply their knowledge, this book is an essential, self-contained source for upper-level undergraduate and masters accounting students looking develop an understanding of accounting for today’s financial realities.
"The accounting for derivatives and complex contracts has been and is a great challenge for executives, accountants, and auditors. The need for better explication and clarification of the labyrinthine derivative and hedge accounting rules has never been greater, and Professor Abdel-khalik has risen to this challenge in great splendor. This book is not only a tour de force in making a confusing maze of accounting treatments clear and transparent, but it also delves into basic explorations of the nature of risk and uncertainty, as well as an exposition of the many types of derivatives that accounting needs to describe and quantify. I highly recommend this book to students who wish to make sense of the accounting for the 21st century's complex risk transactions." - Joshua Ronen, Professor, Stern School of Business, New York University, USA
"Derivatives complicate the life of accountants enormously, for they make it possible to do one thing in many different ways. Sometimes the alternatives are clear, and at other times, they are not. Accountants can easily find themselves in a quagmire of partially offsetting positions, the risks of which are unclear. This book helps enormously. It puts accounting for derivatives in a broad context -- explaining first the nature of the risks facing individuals and firms, showing next how derivatives can be used to modify risks, and finally explaining accounting rules for disclosing derivatives positions. Professor Abdel-khalik writes clearly and provides many interesting examples of the use and abuse of derivatives. The book is important for accountants but also for broader audiences wishing to understand the use of derivatives in risk management." - Hans Stoll, Professor, Owen Graduate School of Management, Vanderbilt University, USA
"While existing books devote attention to how practically to report risks, relatively little attention has been given to the new accounting model (the accounting for risk), which the US and IFRS accounting standards "for risk" have helped create. Abdel-khalik’s much-needed new book covers this gap. What is impressive about this book is its ability not only to increase our knowledge of hedge accounting and accounting for financial instruments but also to provide a robust framework to understand financial instruments, contracts and related issues in order to better comprehend the logic and the use of accounting standards." - Saverio Bozzolan, Professor of Accounting, University of Padova, Italy
Preface Part 1: Foundation 1. Risk Definitions and Risk Appetite 2. Types of Risk 3. Measurement of Risk 4. Basics of Risk Management Part 2: Instruments 5. An Overview of Derivative Instruments Part 3: Accounting 6. Hedge Accounting Qualifications 7. Hedge Accounting I (Single Currency) 8. Hedge Accounting II (Single Currency) 9. Accounting for Embedded Derivatives 10. Currency and Hedging Transaction Risk 11. Hedging Currency Operating and Translation Risk 12. Disclosure