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Using firm‐specific SEC currency risk disclosures, this paper aims to provide insight into the puzzling absence of significant returns‐based foreign exchange exposure (FXE). Such a hand gathered disclosure data identify the bilateral exchange rate to which the firm is most vulnerable (BRV) and the firm's FX hedge techniques.

The BRV‐based estimates of FXE are compared to the FXE estimates using the broad trade‐weighted index (TWI) data that are prevalent in prior research. Multivariate regression and sample partitioning by level of value and size premiums are used to analyze these alternative FXE estimates.

The univariate results reveal a higher percentage of firms with significant BRV‐estimated FXE compared to TWI‐estimated FXE. Multivariate tests indicate a negative relation between firm‐specific financial hedging and BRV‐estimated FXE (but not TWI‐estimated FXE), controlling for firm‐specific non‐financial/operational hedging, size and industry effects. Moreover, firms in the first and fifth quintiles for measures of value/growth and size have higher levels of FXE.

Using SEC currency risk disclosures improves the analysis of firm‐specific FXE, allowing investors to better estimate risk and cost of capital.

The paper helps resolve the FX exposure puzzle using a unique dataset of firm‐specific currency risk disclosures. The improved estimates of FXE provide a more detailed risk profile of multinational firms.

This study aims to measure the extent of mandatory and voluntary risk reporting and investigate the impact of competition, corporate governance and ownership structure on risk reporting practices in annual reports of Egyptian companies.

A number of theoretical perspectives including proprietary cost, agency theory, stakeholder theory, political cost, signalling theory and legitimacy theory are used to derive research hypotheses and identify the potential determinants of risk reporting practices in the annual reports of Egyptian companies. The annual reports of 105 listed companies for 2007 were examined to measure the extent of risk reporting and examine potential determinants of risk reporting. An unweighted disclosure index, based on Egyptian Accounting Standards (EAS) 25, has been used to measure the level of mandatory risk reporting while content analysis – sentence approach – is used in coding voluntary risk reporting. Multiple regression analysis is used in evaluating the relationships between competition, corporate governance, ownership structure and risk reporting.

The results indicate a low level of compliance with mandatory risk reporting requirements. A low extent of voluntary risk reporting with a tendency to report more backward-looking and qualitative risk disclosure compared to forward-looking and quantitative risk disclosure is indicated. Agency theory and proprietary cost provide explanations for the variation of risk reporting in corporate annual reports. It is suggested that competition, role duality, board size, ownership concentration and auditor type are key determinants of risk reporting practices in Egypt.

The scoring and classification process suffers from inherent judgment limitations and subjectivity, which cannot be entirely eradicated. The study applies a cross-sectional approach and examines risk reporting practice and its determinants at one point in time. However, longitudinal research may provide a better understanding of risk reporting practices of Egyptian companies. The use of only one proxy of competition is one of the limitations of this study.

The findings regarding mandatory disclosure level and nature of voluntary risk disclosure should be on concern to regulatory authorities and standard-setters.

The study aims to contribute to risk reporting research through addressing not only mandatory but also voluntary risk reporting in emerging economies in general and Egypt in particular. In addition, examining the impact of competition on risk reporting is a main contribution of this study.

In 1997, the Securities and Exchange Commission (SEC) issued new disclosure rules in an amendment to Regulation S‐X. This release requires the disclosure of both qualitative and quantitative information about market risk by all companies registered with the SEC for annual periods ending after 15 June 1998. Larger companies, with market capitalizations in excess of $2.5 billion, banks, and thrifts were required to apply the regulation’s provisions for annual periods after 15 June 1997. This paper presents results of an analysis of the market risk disclosures by the Dow 30 companies for 1997. The provisions of the amendment requiring the disclosure of qualitative information about market risk by were generally followed by all of the companies contained in the DOW 30. Compliance with the other aspects of the amendment was mixed. These failures might be attributed to confusion over the provisions of the amendment. The results of this study indicate that further evidence is needed on the ability of companies to follow the provisions of the amendment.

The purpose of this paper is to investigate the market risk disclosure practices among Malaysian listed firms. Specifically, it aims to examine the level of compliance with FRS132: Financial Instruments – Disclosure and Presentation for financial periods beginning or after 2006.

The approach taken is content analysis and coding procedure.

Although a large number of companies have shown compliance with FRS132 in relation to disclosing the financial risk management policy, there are systematic differences across companies in terms of level of details (i.e. qualitative and quantitative) disclosure. Interest rate disclosure was the most mentioned category and the credit risk was the least mentioned category of market risk. There is telling evidence that most Malaysian firms did not engage in hedging any type of market risk over the reporting period of 2006‐2007.

There is a need for some standardized risk reporting format to achieve greater financial transparency to make investors aware of the market risks.

This is believed to be the first study to provide survey findings on the use of derivatives instruments by listed firms in Malaysia.

Auditors nowadays must be aggressive and involved in risk assessment and analysis. This paper identifies, analyzes, and recommends a solution to a current problem in accounting for foreign‐currency hedges. This is accomplished by an examination of the Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standards (SFAS) No. 133, Accounting for Derivatives Instruments and Hedging Activities, as issued in June 1998. Multi‐currency accounting is recommended as an alternative to functional‐currency accounting. The information generated by the multi‐currency versus the functional currency (as advocated in the SFAS 133) accounting methods for using options as hedging instruments is illustrated. Multi‐currency accounting excels in its transparency. It more clearly provides information on the respective exposure positions of the hedged items and the hedging instruments as well as the notional amounts. Auditors’ risk assessment and analysis can now be effectively performed under this system.

This extensive extract from the proposed rules on how to disclose financial instruments and similar items in the income statement of banks and other financial institutions develops the thinking of the joint working group set up to prepare global standards in this field. The extract covers the critical issue of disclosure in the income statements of such organisations. As such it is the most comprehensive summation of the arguments involved yet produced.

Drawing upon underinvestment theory and clientele effect hypothesis, this paper aims to examine the effects of foreign currency (forex) exposure and Shari’ah-compliant status on firms’ financial hedging strategy.

Based on data of 250 nonfinancial firms listed on Bursa Malaysia from 2010 to 2018 (2,250 firm-year observations), the authors test the impact of forex exposure based on a vector of foreign-denominated cash flows (FCF) indicators and firms’ Sharīʿah-compliant status on two proxies of financial hedging decisions, namely, the ratio of the notional value of currency derivatives to total assets and a binomial measure of hedging status. The hedging decision models are estimated using panel logistic regression and system generalized method of moments.

The results indicate significant positive effects of the forex exposure indicators on firms’ propensity to hedge. However, the impact of forex exposure is most prevalent via total FCF. The results also reveal significant positive effects of Sharīʿah-compliant status on firms’ propensity to hedge but its negative impacts on the value of currency derivatives they use. The results suggest that Sharīʿah-compliant firms refrain from engaging in currency derivatives to avoid riba’ and subsequently subdue the clientele effect. However, when the forex exposure reaches higher levels, engagement in currency derivatives becomes a matter of tentative necessity (dharurat).

This study relies exclusively on the disclosure of foreign currency risk and management data in the annual reports of listed companies. Consequently, this limits the sample size to only those nonfinancial listed companies with complete data for the study period. Also, since none of the companies reports using Sharīʿah-compliant derivatives, the authors thus assume that they use derivative instruments that tolerate “riba.”

Given the significance of forex exposure on hedging decisions, the accounting profession must strictly adopt FRS 7 and FRS 139 for all listed firms to avoid market scrutiny and sustain their clientele. The results also call for the Islamic market regulators to include mandatory disclosure of conventional currency derivatives in screening firms for clearly prohibited activities to help enhance the credibility of its Islamic financial market.

Due to difficulty accessing relevant cash flow data, the study is among the few studies that measure forex exposure using FCF and test more proxy indicators. This study is perhaps the first to examine the Shari’ah perspective on currency derivatives in corporate forex risk management.

The national objectives of forward exchange controls are to restrain speculation in foreign exchange, to limit international capital flows and to affect the forward exchange rates. Restrictions on forward transactions are economic welfare costs for enterprises and banks, which are analysed in terms of risk‐return and supply‐demand theory. Empirical answers to whether forward exchange control is really necessary await collection and disclosure of company currency exposure, which itself may contribute to the national objectives implicit in forward exchange controls.

This paper aims to examine the state of risk management practices among Malaysian listed firms and evaluates the value‐relevance of the notional amount of foreign‐exchange and interest‐rate derivatives (FCDs) used by listed firms over the period 2003‐2007.

Application of linear regression framework.

It is found that a few Malaysian firms hedge market risks. Firms in the plantation, industrial product, trading services, and consumer products manufacturing sectors are the main users of the FCDs in Malaysia. There is a significant positive correlation between total earnings and the use of derivatives. The findings seem to suggest that although disclosed notional amount of the derivatives have value‐relevance but its contribution to a firm's valuation is very minimal in Malaysia compared to other countries.

The findings imply that those investors who have investment in those firms who use derivatives to hedge against foreign currency and interest risks benefit, albeit marginally. At present, most of the Malaysian firms are either cautious or unsure about the use of derivative instruments. There is a need to inform managers about usefulness of the derivatives and market risk reporting that would contribute to greater financial transparency.

The author believes that this is the first study to provide survey findings on the use of derivatives instruments and their value‐relevance in Malaysia.

This paper provides a review of research on financial derivatives, with an emphasis on and comprehensive coverage of research published in 15 top accounting journals from 1996 to 2017. We begin with some brief institutional details about derivatives and then summarize studies explaining when and why firms use derivatives. We then discuss the evolution of the accounting rules related to derivatives (and associated disclosure requirements) and studies that examine changes in these requirements over the years. Next, we review the literature that examines the consequences of firms’ derivative use to various capital market participants (i.e., managers, analysts, investors, boards of directors, etc.), with an emphasis on the role that the accounting and disclosure rules play in such consequences. Finally, we discuss the importance of industry affiliation on firms’ derivative use and the role that industry affiliation plays in derivatives research. Overall, our review suggests that, perhaps due to their inherent complexity and data limitations, derivatives are relatively understudied in accounting, and we highlight several areas where future research is needed.