Proceedings

etween the listing of accounting units on foreign markets and the degree of
disclosure and use of multinational standards as the basis for financial reporting.
In 2002, the European Union Commission adopted Regulation 1606/2002 which
established an obligation for companies being listed on European stock exchanges to
prepare their consolidated financial statements under IFRS, no later than 2005.
Whittington (2005) emphasizes the fact that previous to this decision, each EU
country required a different national reporting approach for listed companies. Among
the benefits of having a single set of financial reporting standards applied by
companies we must mention: easier access to foreign capital markets, increased
confidence of foreign companies in domestic capital markets, worldwide
comparability of accounting information, increased transparency, increased clarity
through the "common accounting language", simplifying the regulation process of
capital markets and lower susceptibility of accounting standards by political pressures.
Of course that all these benefits are first derived at a theoretical level and have also
already been tested within research accounting literature with what we might call
mixed results. The application of international financial reporting standards within
emerging economies has also raised the interest of accounting research. Concerns
being raised mainly relate to the lack of qualified accountants and auditors and to the
low markets’ efficiency (Eccher and Healy, 2000; Sucher and Alexander, 2002). It is
these circumstances that also led to some of the Czech companies to apply IFRSs,
while others still applying national accounting regulations, therefore creating an
interesting setting to be analyzed.
One of the problems being raised by companies in terms of risk management is
related to hedge activities actually being hindered through the requirements of hedge
accounting, which are mostly found to be far from the economic truth. Therefore it
becomes difficult for entities engaging in hedging activities to qualify for hedge
accounting even though as Trombley (2003) underlines entities want to apply hedge
accounting.
Numerous studies in our professional practice have dealt with the bond between the
economic and the accounting concept of hedging. Melumad et al. (1999), for instance,
indicates that the application of hedge accounting in compliance with the US standard
SFAS 133 leads to deviations from optimum hedging in the economic sense.
However, Barnes (2001) draws attention to the fact that these deviations from
economic hedging are the very consequence of the set hedge accounting model,
pointing out that hedge accounting may motivate poorly performing companies to
speculate and influence their economic results on a short-term basis.
Several studies have dealt with the information and control effects of hedge
accounting (e.g. Jorgensen, 1997; Hughes et al., 2002). The most interesting finding
lies in the fact that the voluntary application of hedge accounting leads to a deviation
from the optimum hedging strategy (as opposed to the exclusive application of
economic hedging without the application of the principles of hedge accounting).
Beyond hedging activities, our analysis extends to the use of derivatives. A series of
other studies in accounting research literature analyze derivatives trading and
derivatives markets role within emerging economies. The development of capital
markets has the ability to enhance economic development through its influence on
efficiency, solvability and competition within the financial sector, by mobilizing
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