ICAI to make accounting system more transparent

Font Size

Print

Feedback

Email

Discuss

Save & Share Article

What’s this?

Digg	My Yahoo	Fark
del.icio.us	Newsvine	Reddit

Rate This Article

Rating:  10

In a move that will bring about greater transparencies in the disclosures relating to financial instruments such as derivatives, the Institute Of Chartered Accountants Of India (ICAI) has come up with a even more detailed Accounting Standard – AS-32.

Last December, ICAI had come up with detailed accounting standards — AS-30 and AS-31 — in order to establish principles for measuring and recognising financial assets & liabilities and contracts to deal in non-financial assets.

ICAI president Ved Jain said, “AS-30 and AS-31 were only the measurement and recognition of the financial statements. Whereas, AS-32 is an accounting standard that would lead to a proper disclosure of the financial statements.”

The objective of AS-32 accounting standard, is to bind financial entities to provide disclosures in their financial statements so that users can evaluate the important information in the statements. It will help client assess the significance of financial instruments for the entity’s financial position and performance. Moreover, it would also help disclose the nature and extent of risks arising from financial instruments to which the entity is exposed during the period and at the end of the reporting period, and how the entity manages those risks.

ICAI is confident that there would not be any financial scam in the derivatives exposure of Indian companies, as the domestic accounting standards were quite rigorous.

Earlier, Jain told FE that there was no escape route for companies. They would need to account for losses immediately as the existing Accounting Standards (AS-1) mandates them to do so. The auditors have to make suitable disclosures otherwise, he said.

“Unless you violate the directions and instructions of the regulators, I see no reason why any scam or anything wrong can take place,” Jain said. “All issues possibly arising on financial instruments are properly addressed. I don't see any scope (for creative accounting),” he said.

Like AS-30 and AS 31, the council proposes to make AS-32 recommendatory from April 1, 2009 and mandatory from the April 1, 2011. ICAI secretary Ashok Haldia told FE that “AS-30, AS–31 and AS-32 are the three standards taken together to cover the whole gamut of financial instruments”.