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AICPA Survey: Business Executives Say Complex Financial Instruments Continue to Pose Risk

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Jul 02, 2019

On July 2, 2019, the Amer­i­can In­sti­tute of CPA’s (AICPA) released the results of a recent survey which indicates that financial instruments are a growing presence on company balance sheets, and business executives say more market awareness is needed to prevent another financial crisis.

When asked about their company financial statements, 59 percent of the CPAs surveyed reported having complex financial instruments such as mortgage-backed securities, interest rate swaps or other derivatives on their company balance sheets. 

Of those respondents with complex financial instruments on their books:

  • 69 percent expect financial instruments to become more complex (57 percent slightly more complex, 12 percent substantially more complex) over the next one to three years, compared with 1 percent who expect them to decrease in complexity.
  • 53 percent believe there is not enough market awareness of complex financial instruments to prevent a financial crisis, compared with only 22 percent who believe there is adequate awareness.
  • 55 percent said they are concerned about the valuation of derivatives with 6 percent reporting significant concern and 49 percent reporting slight or moderate concern.
  • 56 percent said it would be easier to determine the value of complex financial instruments if they were measured and reported on a consistent and transparent basis.

Complex financial instruments historically have been difficult to value. That difficulty is seen as a major cause of the financial crisis that lead to the recession of 2008. The derivatives market exceeded $594 trillion in 2018. More than a quarter (28 percent) of respondents said they expect financial instruments to take a larger percentage of their balance sheets over the next one to three years, while only 15 percent see that decreasing.

For more in­for­ma­tion, see the press release on the AICPA’s Web site.

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