While CPAs wait for the controversial new rule on accounting for derivatives, which was delayed by the Financial Accounting Standards Board and will be issued in March, a new survey shows that most companies do not use derivatives.

An overwhelming majority of companies report they still resist using derivatives because they view them as too risky, not in line with corporate objectives, or because the company lacks the necessary expertise, according to a survey by the Controllers Council of the Institute of Management Accountants.

Among the very small number employing derivatives--nine percent--the majority report limited use with only "average" results. Most use derivatives as a hedge against exchange rate risk, and surprisingly, only half have established a clear derivative risk management policy.

The survey also found that the majority of executives would not use derivatives for their own investments either.

Detailed Findings

Nine percent of the companies surveyed use financial derivatives, and of those, the majority--71%--says their use is limited while 29% report moderate use. Eighty-eight percent do not use derivatives, while three percent say they are considering using them.

The most frequent reason given for derivative use is to hedge exchange rate risk (57%), followed by hedging interest rate risk (33%); minimizing business risk (19%); hedging risk of raw materials cost (14%); and managing cash flow volatility (five percent).

Among the 88% not using derivatives, most (52%) said their use is inconsistent with objectives. Others pointed to staff's lack of technical expertise (28%); too much risk (20%); burdensome reporting requirements (seven percent); or inadequate internal controls (five percent). Surprisingly, 19% reported there are "no obstacles" to their use of derivatives; they simply don't use them.

Results from Derivative Use

Among the nine percent using derivatives, companies rated their derivatives program in four areas:

* For cash flow growth, 21% said it was excellent and 79% said average.

* For risk management, 32% said excellent; 63% said average; and five percent said poor.

* Internal control objectives were rated as excellent by 40%; average by 55%; and poor by five percent.

Regarding staff expertise, 79% said staff has significant training; five percent said they do not; and 16% said they are not sure.

A majority of the companies surveyed (44%) have annual sales ranging from $11 to $100 million annually, 17% have sales between $1 and $10 million, 21% have sales between $101 and $500 million, seven percent are between $501 million to $1 billion, six percent range from $1 to $5 billion, one percent are between $5 and $10 billion, and one percent have more than $10 billion in annual sales. Three percent have sales under $1 million.

The Controllers Council of the Institute of Management Accountants is made up of approximately 2,000 senior financial managers for companies ranging in size from one million dollars to $10 billion in annual sales or revenue.