Rapid developments in derivatives and financial markets have led to a gap between company exposure to risk and how it is reported, according to accounting experts in Hong Kong. Despite attempts by them to introduce standards 'the accounting bodies have not kept pace with products', said Mervyn Jacob, audit partner at Price Waterhouse. In 1995, the Hong Kong Society of Accountants (HKSA) introduced proposals to increase disclosures on derivatives, including requirements to show notional balances, interest rate and foreign exchange contracts, positions at the balance sheet date and the value of these positions. The proposals, in the form of an exposure draft, received a mixed response at the time as several commentators felt they were unduly onerous for private firms. Babak Nikzae, risk management partner at KPMG Peat Marwick, believes 'the more disclosure the better subject to being reasonable about it'. He added that derivatives needed to be looked at in the context of the whole company and how significant they were compared with other account balances and risks. Mr Nikzae said the proposals would not only affect financial institutions but corporates that traded in or held derivatives. Roger Knight, audit partner at Coopers & Lybrand, also recognised the disclosure problems some companies faced and added 'the fact that there is not yet a SSAP (accounting standard) presumably reflects the difficulties preparers of accounts have complying with the disclosures proposed'. Price Waterhouse broadly supported the current proposals and did not see the need for small or private companies to be exempt. 'It is not so much the size of the company but the types of activity it is undertaking that is important . . . there is still the obligation to report the risk to shareholders,' Mr Jacob said. There was broad consensus that shareholders needed better information on derivatives and that Hong Kong would follow international developments in this area. The HKSA exposure draft on disclosure already followed International Accounting Standard (IAS) 32. However, both Mr Jacob and Mr Knight needed to be convinced this was the right approach.