In 1994, a report from the U.S. Government Accountability Office warned about the rapid growth and increasing complexity of financial derivatives—an area then new to financial economists but unknown in the accounting field. The warning aroused the curiosity of A. Rashad Abdel-khalik, Vernon K. Zimmerman Professor of International Accountancy, and led him to explore and develop the subject further; he began teaching a course on accounting for risk in 2002 on an experimental basis. (The course is now a requirement for Master of Accountancy Science students.)
Three years later, Abdel-khalik realized that all students would be better equipped for professional success if they were to acquire knowledge of the special accounting treatment for hedging. As a necessary background, he thought, students must possess a reasonable grasp of risk-related concepts and types of financial derivative instruments. But these topics were missing from the traditional accounting curriculum and Abdel-khalik seized the opportunity to develop the course and to write a book.
In October 2013, his book, Accounting for Risk, Hedging and Complex Contracts, was published by Routledge. It covers a wide range of topics. The first half covers concepts of risk appetite, types and measurement, and basic financial derivative instruments—moving beyond definitions to demonstrate methods of valuation. The second half focuses on hedge accounting treatments, required criteria for qualification, cash flow hedge, fair value hedge and disclosure of financial derivatives and concentration, credit, and liquidity risks.
The book contains examples and illustrations supported by numerous figures and flow charts that serve to help readers grasp the concepts Abdel-khalik presents. These illustrations include excerpts from recent financial reports and Form 10-K filings with the Securities and Exchange Commission, demonstrating how various enterprises report on risk, derivatives, and hedging.
Accounting for Risk, Hedging and Complex Contracts has garnered positive reviews. Professor Joshua Ronen at the Stern School of Business, NYU, states, “A tour de force…I highly recommend this book to students who wish to make sense of the accounting for the 21st century’s complex risk transactions.” Likewise, Professor Hans Stoll at the Owen Graduate School of Management, Vanderbilt, states, “This book helps enormously…important for accountants but also for broader audiences wishing to understand the use of derivatives.”
By explaining the basics of risk and accounting for financial derivatives clearly, concisely, and transparently to help ensure students’ professional success, Abdel-khalik is betting on a sure thing.