Experts on Monday were of the view that the new accounting norms announced by the Institute of Chartered Accountants of India (ICAI) were welcome, but stressed the need to generate more data in this regard. The ICAI had asked companies to follow norms that would require them to disclose and provide for losses in foreign currency derivatives for the current fiscal.
Arvind Sonmale, managing director & CEO of Global Trade Finance Ltd, sees this as a welcome step. ?This clause was absolutely necessary,? says he. ?The balance sheet of various banks and companies always portrayed a wrong picture and as a result, the losses could not be made out. But now, the balance sheet will reflect a true and fair picture of their business.? Adding that these days, a number of companies are booking losses under the derivative portfolio, Sonmale said that the annual results will depict a true and fair picture of losses now. ?The real quantum of losses of the corporate sector in derivatives will now be evident in a transparent manner,? he said.
Chiragra Chakravarty, principal consultant at PricewaterhouseCoopers, said, ?We are yet to receive data on the quantum of losses incurred by every corporate on this portfolio. As this is a very dynamic product, the data on the mark-to-market losses is still not readily available. We will need to watch out on the quantum of losses of corporates in derivatives. But this is definitely a good step taken by ICAI,?
Earlier this month, engineering and construction major had said that L&T International FZE, its Sharjah (UAE)-based subsidiary, was likely to incur a Rs 200 crore loss on its bets against a decline in the prices of zinc and other metals. However, when contacted in the light of the ICAI announcement, company officials were not available for comments, saying it would do so only when it had a clearer picture of the new norms.
According to Abdul Majeed, who leads the auto practice at PWC, ?This is a very good step. Considering the turmoil in global markets, this would bring transparency in the system. It may so happen that Sebi may also come up with a similar guideline in order to strengthen the derivatives market in India.?
Sheshadri Bharatan, director Stock Brooking, Dawn Day AV Financial services however, said ? The change in the norms by the ICAI to provide for the mark to market loses for the derivatives exposure of the companie right from the current fiscal is taken negatively by the market participants as they are expecting it to reflect immediately on their balance sheets. Indian companies are sitting on huge losses on account of the forex derivatives transactions they undertook during the year and it is expected to be substantial which is going to hamper the Q4 results?.
Nikhil Johri, MD, ABN Amro AMC said that it will not directly impact the mutual fund industry. But the balance sheets of corporates may be affected. The new norms will bring transparency which will help fund houses to take an informed decision as the MFs invest in these companies. However, Vikrant Gughanani, CEO, Reliance Mutual Fund was cautious in taking a stand on the issue. The AMC is at present going through the new guidelines, so it will be difficult to say now how AMCs would be impacted by the new norms, he said.