Both the International Financial Reporting Standards (IFRS) and the codified accounting standards (ASC) for the US GAAP categorize hedging relationships as falling into several buckets. The two buckets of relevance in this paper are (i) hedging the volatility of fair values, and (ii) hedging the volatility of future cash flow. In this paper, I argue that at least three accounting treatments of derivatives and hedging lead to creating serious distortion of reporting actual transactions, to combining hard and plastic valuations, and to violating adherence to the principle of ‘faithful representation’. The three accounting treatments are as follows: (1) creating the fictional Hypothetical Derivatives Method; (2) allowing for the establishment of purely discretionary valuation adjustments for all over‐the‐counter derivative assets (Credit Valuation Adjustment) and liabilities (Debt Valuation Adjustment) without any guides or constraints; (3) requiring subjective metaphysical separation of embedded derivatives with the main guide being the management's own perception of the instrument's embodiment of unrelated value and risk generators. To remedy the resulting distortion in financial reporting, significant revisions of certain accounting standards are sorely needed.

中文翻译：

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财务报表的忠实陈述失败：报告金融工具的问题

国际财务报告准则 (IFRS) 和美国 GAAP 的编纂会计准则 (ASC) 都将套期关系分类为多个类别。本文中的两个相关部分是 (i) 对冲公允价值的波动性，以及 (ii) 对冲未来现金流量的波动性。在本文中，我认为衍生品和套期保值的至少三种会计处理会导致报告实际交易的严重失真，将硬估值和可塑估值结合起来，并违反对“忠实代表”原则的遵守。三种会计处理如下：（1）创建虚构的假设衍生方法；(2) 允许对所有场外衍生资产（Credit Valuation Adjustment）和负债（Debt Valuation Adjustment）进行纯自由裁量的估值调整，没有任何指导或约束；(3) 要求对嵌入式衍生工具进行主观形而上学的分离，主要指导原则是管理层自己对工具的不相关价值和风险产生者的体现的感知。为了纠正由此导致的财务报告失真，迫切需要对某些会计准则进行重大修订。s 不相关的价值和风险产生者的体现。为了纠正由此导致的财务报告失真，迫切需要对某些会计准则进行重大修订。s 不相关的价值和风险产生者的体现。为了纠正由此导致的财务报告失真，迫切需要对某些会计准则进行重大修订。