Foreign Exchange Risk and Profit Improvement in the Comprehensive Opportunity and Lost Opportunity Control Model

  • Akira Nishimura


This chapter examines the influence of foreign exchange risks on manufacturing activities and the function of derivatives as a countermeasure against such risk from the viewpoint of management accounting. From this perspective, the chapter examines the Comprehensive Profit Opportunity and Lost Opportunity Control (COLC) model, discussed in the previous chapter, from the viewpoint of financial risk and further its practical development and application. To this end, this chapter first clarifies the actual situations of major Japanese manufacturing companies in terms of foreign exchange fluctuation earnings and derivative instruments (including hedge accounting). Then, after investigation of the prior research on the interrelation between risk management and management accounting, it theoretically analyzes the relations between risks, derivatives, and hedge accounting from the synthetic viewpoint of profit opportunity, risk, and opportunity cost. As a result, this analysis can play an important role in outlining the landscape in which business strategy and enterprise risk management align, both proactively and reflectively, with contemporary management accounting.


Derivatives Foreign exchange risk Hedge accounting Internalized improvement 


  1. Bhimani, A. (2009). Risk Management, Corporate Governance and Management Accounting: Emergence Interdependences. Management Accounting Research, 20(1), 2–5. Scholar
  2. Buffet, W. (2002). Warren Buffett’s Letters to Berkshire Shareholders. Omaha: Berkshire Hathaway, Inc. Scholar
  3. Cowell, F. (2006, November). Risk Management for Derivatives. Derivatives Use, Trading & Regulation, 12(3), 228–243.CrossRefGoogle Scholar
  4. Frestad, D., & Beisland, L. A. (2015). Hedge Effectiveness Testing as a Screening Mechanism for Hedge Accounting: Does it Work? Journal of Accounting, Auditing & Finance, 30(1), 35–56.CrossRefGoogle Scholar
  5. Fujita, K. (2003). Effectiveness and Limitation of Hedging Accounting. Ritsumeikan Keieigaku, 42(2), 1–18.Google Scholar
  6. Gibson, M. S. (2007). Credit Derivatives and Risk Management, Economic Review, Fourth Quarter, pp. 25–40.Google Scholar
  7. Hino Motors Ltd. (2015). Annual Securities Report.
  8. Hitachi Ltd. (2015). Annual Securities Report. (2014). EDINET.
  9. IASB (International Accounting Standard Board). (2014, July). IFRS 9 Financial Instruments.
  10. Imai, N. (2010). Proposal of Dual Mode Management Accounting Model: With a View to Dissolve “Accounting Lag”. Meijo Journal, 10(4), 61–87.Google Scholar
  11. Imai, N. (2014). Concept of Proactive Slack: A Study on Essence on Toyota’s Performance Accounting. Journal of Japan Management Diagnosis Association, 14, 41–46.Google Scholar
  12. Ito, T., Koibuch, S., Sato, K., & Shimizu, J. (2013, April). Exchange Rate Exposure and Exchange Rate Risk Management: The Case of Japanese Exporting Firms, The Research Institute of Economy, Trade, and Industry, Discussion Paper Series, 13-E-025.
  13. Johnson, L. T., Bullen, H. G., & Kern, V. W. (1994, January). Hedge Accounting: Is Deferral the Only Option? Journal Accountancy, 177(1), 53–58.Google Scholar
  14. Kawaller, I. G. (2002, September/October). Hedge Effectiveness Testing: Using Regression Analysis, AFP Exchange, 22(5), 62–68.Google Scholar
  15. Kawaller, I. G. (2004, May/June). Ways to Test Hedge Effectiveness: Reconsidering Regression Analysis, AFP Exchange, 24(3), 62–63.Google Scholar
  16. Kawaller, I. G., & Koch, P. D. (2013). Hedge Effectiveness Testing Revisited. Journal of Derivatives, 21(1, Fall), 83–94.CrossRefGoogle Scholar
  17. Kim, S., & Collier, R. (2013). Risk and Risk Management in Management Accounting and Control. Management Accounting Research, 24(2), 82–87. Scholar
  18. Lombardi, L. J. (2010). Monitoring Changes in Capital and Hedge Effectiveness Under Fair Value Accounting Principles. North American Actuarial Journal, 14(1), 1–15.CrossRefGoogle Scholar
  19. McCarrol, J., & Khatri, G. R. (2014, April). Aligning Hedge Accounting with Risk Management. Accounting Ireland, 46(2), 36–38.Google Scholar
  20. Mercy, S. (2006). Failures Continue Evaluating Hedge Effectiveness, SEC Official Says. Accounting Policy & Practice Report, 2(25), 1–2.Google Scholar
  21. Metzger, L. (2009). Measuring Hedging Effectiveness for Derivatives. The Journal of Government Financial Management, 58(4, Winter), 48–53.Google Scholar
  22. Mizuho ISD. (2014). How Do We Consider Weak Yen’ s Influences? Mizuho Short Industry Focus, Oct. 120, Industrial Survey Division (ISD) of Mizuho Corporate Bank, 1–5.
  23. Nishimura, A. (2011). Uncertainty and Management Accounting: Opportunity, Profit Opportunity and Profit. Asia-Pacific Management Accounting Journal, 6(1), 81–101. Public Knowledge Project (Open Journal System). Scholar
  24. Nishimura, A. (2014). Transforming Cost Design Into Environmentally Conscious Cost Design in Japan: Likelihood and Problems for Further Development. Journal of Management Control, 25(1), 55–75. Scholar
  25. Nishimura, A. (2015a). Comprehensive Opportunity and Lost Opportunity Control Model and Enterprise Risk Management. International Journal of Business and Management, 10(8), 73–87. Scholar
  26. Nishimura, A. (2015b). Strategic Management Accounting and Feed-forward Management: With Reference to the Unified Management of Profit Opportunity and Risk, Global Management, 3 & 4 (combined), 1–19Google Scholar
  27. Panasonic Corporation. (2015). Annual Securities Report.
  28. Phillips, S. M. (1995). Derivatives and Risk Management: Challenges and Opportunities. Northwestern Journal of International Law & Business, 15(2), 239–247.Google Scholar
  29. Rasid, S. Z., Isa, C. R., & Ismail, W. K. W. (2014). Management Accounting Systems, Enterprise Risk Management and Organizational Performance in Financial Institutions. Asian Review of Accounting, 22(2), 128–144. Scholar
  30. Russell-Jones, M. (2014, March). Financial Risk Management: Derivatives. Governance Directions, 66(2), 81–84.Google Scholar
  31. Seal, W. (2006). Management Accounting and Corporate Governance: An Institutional Interpretation of the Agency Theory. Management Accounting Research, 17(4), 389–408.CrossRefGoogle Scholar
  32. Shank, J. K., & Miguel, J. G. (2009, January/February). Merging Financial and Managerial Accounting, Strategic Cost Management and Enterprise Risk Assessment Under SOX, The Journal of Corporate Accounting & Finance, 20, 83–99.CrossRefGoogle Scholar
  33. Sipko, J. (2011). Derivatives and the Real Economy. Creative and Knowledge Society/Industrial Specific Journal, 1(1), 33–43. Scholar
  34. Smistad, R., & Pustylnick, J. (2012). Hedging, Hedge Accounting and Speculation: Evidence from Canadian Oil and gas Companies. Global Journal of Business Research, 6(3), 49–62.Google Scholar
  35. Tanaka, M. (Ed.). (2015). Cost Design and the Development Strategy of Purchasing. Tokyo: Chuokeizai Publisher.Google Scholar
  36. Toyota Motor Corporation. (2015). Annual Securities Report.
  37. Ueno, T., & Aoyama, S. (2011). Influences of Strong Yen on Enterprise Management: Findings of Questionnaire Research by Nissay Co. in January, NLI Research Institute Report, April, 16–21.Google Scholar
  38. Woods, M. (2008). Linking Risk Management to Strategic Controls: A Case Study of Tesco plc. International Journal of Risk Assessment & Management, 7(8), 1074–1088.CrossRefGoogle Scholar
  39. Yamaha Motor Co. Ltd. (2015). Annual Securities Report.

Copyright information

© The Author(s) 2019

Authors and Affiliations

  • Akira Nishimura
    • 1
  1. 1.Beppu UniversityBeppu-cityJapan

Personalised recommendations