The Problem With Derivatives In Valuing Securities

Abstract

 

This paper concludes that we have auditors who, in general, do not understand derivatives but who are stipulating to the accuracy of the financial reports of companies that make extensive use of derivatives. We have financial analysts, many of which do not have an in depth understanding of derivatives, or accounting standards that govern them or their effect on company valuation. Even if the security analysts are knowledgeable about Derivatives it is doubtful that they have enough, or the correct, information to do a thorough analysis. We have many government regulators, most of whom even in the securities industry, generally have little or no knowledge relating to derivatives. And we have the general public, many of whom invest in the securities of these companies, but are not able to assess the effect of derivatives usage on their prospective investments.