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Embedded derivatives in hybrid contracts: Accounting and reporting

2022
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Advisor: Prof. Dr. Yakup Selvi

Abstract (EN)

Companies are faced with many types of risks while continuing their operations, and traditional derivative financial instruments are widely used to manage these risks. Contracts consisting of a combination of traditional derivative financial instruments and a non-derivative financial instrument or contract are called hybrid financial instruments or contracts. Traditional derivatives embedded in a hybrid financial instrument are called embedded derivatives. However, the separation, accounting and reporting of embedded derivatives in hybrid financial instruments or contracts is a detailed and complex process. Provisions regarding embedded derivatives are described in IFRS 9 Financial Instruments and US GAAP - ASC 815. The aim of this dissertation; an explanation of whether the embedded derivatives in hybrid contracts will be separated, how the seperated parts will be recognized within the framework of IFRS 9 and US GAAP - ASC 815, whether they will be valued as of the valuation day, if they are to be valued, how to calculate and report the gains or losses that will arise as a result of the valuation, and to present them comparatively according to both standards. is revealed. In this direction; the sales contracts, lease contracts, and accounting and reporting of embedded derivatives in financial instruments are explained with examples. The 2018, 2019 and 2020 annual reports of Landsvirkjun AŞ, which was chosen as an example, were examined in detail and the effect of embedded derivatives on the financial statements was analyzed. As a result of the study, it has been determined that whether the embedded derivatives in hybrid contracts are separated or not significantly affect the assets, liabilities, cost of sales, profit or loss figures in the financial statements of the enterprises.

Author

Dr. Zeliha Kaldırım

How to Cite

Zeliha Kaldırım (Doctorate thesis). Embedded derivatives in hybrid contracts: Accounting and reporting, 2022, İstanbul University.

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