ICAI to make accounting system more transparent

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New Delhi, May 16: case an entity does not opt either for AS-30 and is not accordance with AS-1, then the auditors need to make a suitable disclosure,” he said.

Jain's comments are significant as a large number of Indian companies are battling over the issue of how to write in huge losses on the face of exposure to forex derivatives, when their currency bets went wrong. The ICAI standards mean the companies have a choice between either taking the losses in their balance sheets right now, as per AS-1 standards, or offset them against profits made in the same exposure, when their bets went right, as per AS-30. In both cases they have to provision the exposures as per current market values—mark to market, instead of treating them on a historical book value.

Jain had initially said that even those companies that have sued the banks would have to account for their losses. “I think probably now everything will come in the next one month when the audited results get out. From 10 April onwards, when results start pouring in, you can work out (the losses).”

Analysts note the total mark-to-market losses of Indian companies’ exposure in the forex derivatives could be in the region of $5 billion. Company auditors would need to disclose in case it does not follow any of the accounting standards. Forex exchange derivatives are used as a risk management and mitigation tool by companies having large forex exposure. A derivative is an instrument whose value is a function of an underlying commodity, bond, stock, or currency. As on December 31 2007, banks operating in India had a derivatives exposure of Rs 127.86 trillion, as per data compiled by the government.