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Treasury Island

Dhanani, Alpa Virji, Helliar, Christine, Fifield, Suzanne and Stevenson, Lorna 2004. Treasury Island. Financial Management , pp. 34-35.

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Abstract

Risk management practice may change with the arrival of IAS39, the international accounting standard for derivatives that takes effect on 1 January for all EU firms. The topic of hedge accounting and the treatment of fair values may have a significant impact on many companies’ reported profits, and earnings volatility is likely to increase. Our research suggests that there’s a lot of discomfort with IAS39, and that treasurers may change the way they work as a result of its implementation. All respondents are clear that the standard may have far-reaching consequences for the use of derivatives. In particular, the use of options and exchangetraded products is likely to diminish as companies try to meet IAS39’s onerous hedge accounting and “effectiveness” rules. The findings have a number of policy implications for the government and regulators. Surprise decisions by the Bank of England’s monetary policy committee could cause companies to scale down or even shelve their investment plans, drastically limiting job creation opportunities. Many UK firms have large operations overseas, and the funding for these activities is often conducted in the currencies of the countries where they are located. Any unexpected moves by monetary authorities in these countries may cause hardship and force those companies to abandon planned investments there.

Item Type: Article
Date Type: Publication
Status: Published
Schools: Business (Including Economics)
Subjects: H Social Sciences > HD Industries. Land use. Labor > HD61 Risk Management
H Social Sciences > HG Finance
Publisher: Chartered Institute of Management Accountants
ISSN: 1471-9185
Related URLs:
Last Modified: 04 Jun 2017 04:40
URI: http://orca-mwe.cf.ac.uk/id/eprint/42664

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