ABSTRACT
An alleged difficulty in regulating the reporting of novel financial instruments is that their legal form precludes their treatment as assets or liabilities; eg, the contingent, executory nature of option contracts. We argue that, at bottom, all financial instruments consist of a rebundling of basic, well understood economic transactions and so yield to much the same type of analysis. The Gordian Knot of accounting for financial instruments can be cut by having firms account for the economic substance of their transactions. The Bell Group/Adelaide Steamship one-.on-one option agreements of 1985 and 1986 illustrate our point.
