Accounting for derivatives As In Financial Instruments
| Order ID |
53563633773 |
| Type |
Essay |
| Writer Level |
Masters |
| Style |
APA |
| Sources/References |
4 |
| Perfect Number of Pages to Order |
5-10 Pages |
Description/Paper Instructions
Accounting for derivatives As In Financial Instruments
Accounting for derivatives involves the recognition, measurement, and disclosure of these financial instruments in a company’s financial statements. Derivatives are financial contracts whose value is derived from an underlying asset or benchmark, such as stocks, bonds, commodities, or interest rates. They are widely used by companies to hedge risks or speculate on future price movements.
Recognition of Derivatives:
Under accounting standards, derivatives are classified as either hedging instruments or non-hedging instruments. Hedging instruments are used to manage specific risks, while non-hedging instruments are held for speculative purposes.
For hedging instruments, accounting rules allow for hedge accounting, which aligns the recognition of gains or losses on the derivative with the recognition of gains or losses on the hedged item. This is done to reflect the economic substance of the hedging relationship.
Measurement of Derivatives:
The measurement of derivatives depends on their classification and the accounting treatment chosen by the company. There are two primary methods of measuring derivatives: fair value and historical cost.
Fair Value Measurement: Most derivatives are measured at fair value, which represents the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. Fair value is determined using observable market prices or valuation techniques.
Historical Cost Measurement: Some derivatives, especially those used for hedging, may qualify for hedge accounting under specific criteria. In such cases, they can be measured at historical cost, which is the initial fair value of the derivative at the inception of the hedge.
Disclosure of Derivatives:
Companies are required to provide detailed disclosures about their derivative instruments in the footnotes to the financial statements. These disclosures typically include:
Nature and Purpose: Explanation of the company’s use of derivatives and the objectives they serve, such as hedging specific risks or speculation.
Risk Management Strategy: Description of the company’s risk management policies, including the types of derivatives used and the associated risks.
Fair Value Information: Disclosure of the fair value of derivatives, either individually or by category. This information helps users of the financial statements assess the potential impact of market fluctuations.
Sensitivity Analysis: Presentation of sensitivity analysis to show the potential effect of changes in market variables, such as interest rates or commodity prices, on the fair value of derivatives.
Hedging Relationships: Explanation of hedging relationships, including the nature of the hedged items, the risk being hedged, and how the effectiveness of the hedge is assessed.
Counterparty Credit Risk: Disclosure of any credit risk arising from the company’s derivative transactions, including the creditworthiness of counterparties and any collateral or risk mitigation arrangements in place.
Conclusion:
Accounting for derivatives involves recognizing, measuring, and disclosing these financial instruments in a company’s financial statements. The recognition depends on whether the derivatives are used for hedging or speculative purposes. Measurement can be based on fair value or historical cost, depending on the accounting treatment chosen. Disclosures provide users of financial statements with information about the nature, fair value, risk management strategies, and hedging relationships associated with derivatives. These accounting practices enhance transparency and allow stakeholders to make informed decisions regarding a company’s risk exposure and financial performance.
Accounting for derivatives As In Financial Instruments
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POOR / UNSATISFACTORY |
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EXCELLENT |
| Content (worth a maximum of 50% of the total points) |
Zero points: Student failed to submit the final paper. |
20 points out of 50: The essay illustrates poor understanding of the relevant material by failing to address or incorrectly addressing the relevant content; failing to identify or inaccurately explaining/defining key concepts/ideas; ignoring or incorrectly explaining key points/claims and the reasoning behind them; and/or incorrectly or inappropriately using terminology; and elements of the response are lacking. |
30 points out of 50: The essay illustrates a rudimentary understanding of the relevant material by mentioning but not full explaining the relevant content; identifying some of the key concepts/ideas though failing to fully or accurately explain many of them; using terminology, though sometimes inaccurately or inappropriately; and/or incorporating some key claims/points but failing to explain the reasoning behind them or doing so inaccurately. Elements of the required response may also be lacking. |
40 points out of 50: The essay illustrates solid understanding of the relevant material by correctly addressing most of the relevant content; identifying and explaining most of the key concepts/ideas; using correct terminology; explaining the reasoning behind most of the key points/claims; and/or where necessary or useful, substantiating some points with accurate examples. The answer is complete. |
50 points: The essay illustrates exemplary understanding of the relevant material by thoroughly and correctly addressing the relevant content; identifying and explaining all of the key concepts/ideas; using correct terminology explaining the reasoning behind key points/claims and substantiating, as necessary/useful, points with several accurate and illuminating examples. No aspects of the required answer are missing. |
| Use of Sources (worth a maximum of 20% of the total points). |
Zero points: Student failed to include citations and/or references. Or the student failed to submit a final paper. |
5 out 20 points: Sources are seldom cited to support statements and/or format of citations are not recognizable as APA 6th Edition format. There are major errors in the formation of the references and citations. And/or there is a major reliance on highly questionable. The Student fails to provide an adequate synthesis of research collected for the paper. |
10 out 20 points: References to scholarly sources are occasionally given; many statements seem unsubstantiated. Frequent errors in APA 6th Edition format, leaving the reader confused about the source of the information. There are significant errors of the formation in the references and citations. And/or there is a significant use of highly questionable sources. |
15 out 20 points: Credible Scholarly sources are used effectively support claims and are, for the most part, clear and fairly represented. APA 6th Edition is used with only a few minor errors. There are minor errors in reference and/or citations. And/or there is some use of questionable sources. |
20 points: Credible scholarly sources are used to give compelling evidence to support claims and are clearly and fairly represented. APA 6th Edition format is used accurately and consistently. The student uses above the maximum required references in the development of the assignment. |
| Grammar (worth maximum of 20% of total points) |
Zero points: Student failed to submit the final paper. |
5 points out of 20: The paper does not communicate ideas/points clearly due to inappropriate use of terminology and vague language; thoughts and sentences are disjointed or incomprehensible; organization lacking; and/or numerous grammatical, spelling/punctuation errors |
10 points out 20: The paper is often unclear and difficult to follow due to some inappropriate terminology and/or vague language; ideas may be fragmented, wandering and/or repetitive; poor organization; and/or some grammatical, spelling, punctuation errors |
15 points out of 20: The paper is mostly clear as a result of appropriate use of terminology and minimal vagueness; no tangents and no repetition; fairly good organization; almost perfect grammar, spelling, punctuation, and word usage. |
20 points: The paper is clear, concise, and a pleasure to read as a result of appropriate and precise use of terminology; total coherence of thoughts and presentation and logical organization; and the essay is error free. |
| Structure of the Paper (worth 10% of total points) |
Zero points: Student failed to submit the final paper. |
3 points out of 10: Student needs to develop better formatting skills. The paper omits significant structural elements required for and APA 6th edition paper. Formatting of the paper has major flaws. The paper does not conform to APA 6th edition requirements whatsoever. |
5 points out of 10: Appearance of final paper demonstrates the student’s limited ability to format the paper. There are significant errors in formatting and/or the total omission of major components of an APA 6th edition paper. They can include the omission of the cover page, abstract, and page numbers. Additionally the page has major formatting issues with spacing or paragraph formation. Font size might not conform to size requirements. The student also significantly writes too large or too short of and paper |
7 points out of 10: Research paper presents an above-average use of formatting skills. The paper has slight errors within the paper. This can include small errors or omissions with the cover page, abstract, page number, and headers. There could be also slight formatting issues with the document spacing or the font Additionally the paper might slightly exceed or undershoot the specific number of required written pages for the assignment. |
10 points: Student provides a high-caliber, formatted paper. This includes an APA 6th edition cover page, abstract, page number, headers and is double spaced in 12’ Times Roman Font. Additionally, the paper conforms to the specific number of required written pages and neither goes over or under the specified length of the paper. |
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