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Essay / Research Paper Abstract
This 3 page paper examines the way that the international firm Kraft uses hedging and how it is dealt with in their annual accounts, considering the relevant accounting standards and the impact of the accounting method on the results in the annual accounts. The bibliography cites 5 sources.
Page Count:
3 pages (~225 words per page)
File: TS14_TEkrafthe.rtf
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Unformatted sample text from the term paper:
stakeholders and most importantly by their shareholders, who are the designated primary user of the annual reports (Elliott and Elliott, 2008). Kraft are a large company with diversified operations, shareholders
are not expected to understand all of the operations, but it is worth noting that when reading their report the results will reflect a number of influences, not only t
the performance, but also strategic choices that are made and accounting policies that have been adopted. One tool used by the firm with the aim of reducing the volatility
of the results achieved, to minimise risk, is that of hedging, this it s tools that has been used to hedge against price increases on the raw materials, Hedging in
this instance involves buying a contract in advance for materials that are needed at a set price (a forward or future), for delivery at a set time, this may be
a contract for the purchase, or a contract that gives the firm an option to make the purchase (an options). If the prices increase then the firm has benefited, but
if the prices do not increase and decrease then the firm may be stuck with a contract at a higher than spot price, or having paid for an option contract
that they will not use. Kraft notes that they do not hedge against all commodity prices, or from all currency fluctuation. In recent years, following the introduction of FSAS
133 many firms have reduced the level of hedging that takes place. Kraft appears to have reduced this, but not eliminated it. SFAS 133 "Accounting for Derivatives and Hedging Transactions"
had the aim of increasing clarity in the way in which derivatives and hedging transactions are accounted for. The aim was to increase uniformity and ease the interpretation of the
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