For decades now, companies, especiallythose that are in the commodities business or depend heavily oncommodities, have been hedging. Until recently, it was hard forinvestors and analysts to understand how companies used contracts.But in 2008, the Financial Accounting Standards Board's Rule 161required public companies to classify derivatives in their publicfilings as either hedging vehicles or non-hedgederivatives.

A team of academic accountants recently examined the filings of87 oil and gas companies and found a remarkable amount of thecompanies' hedging was actually economic, or speculative, innature. According to their paper, “More than six out of every ten firms studied actuallyuse the instruments for purposes other than managing risks.”

Swaminathan Sridharan, one of the study's authors and aprofessor of accounting at Northwestern University's KelloggSchool, was surprised at the finding. “Some 62% of hedges in theoil and gas industry don't qualify for hedge accounting.”