Finally, we have an accounting standard that will disclose derivative losses made by companies. The Institute of Chartered Accountants of India on Friday approved a new accounting standard, to be known as AS-32, that will allow shareholders to evaluate the degree of financial risk a company has taken on with financial instruments like derivatives.
AS-32 follows the two standards the institute prescribed last December, AS-30 and
AS-31, which established the principles for recognising such instruments. The institute asked companies to provide for mark-to-market losses and profits made in derivative transactions from April 2009. Companies often invest their foreign exchange earnings in the futures market to earn profits from the movement of currencies. But when the bets go wrong, as in March this year, the companies make losses. AS-30 to 32 provide a means to put those losses or porfits in the balance sheets and guide the investors.
ICAI president Ved Jain told Financial Express: ?AS-30 and AS-31 were only standards for measurement and recognition of the financial statements. AS-32 is an accounting standard that would be lead to a proper disclosure of the financial statements.?
However, now these standards will be followed on a voluntary basis. AS-32 will become mandatory from April 1, 2011.
AS?32 ?requires entities to provide disclosures in their financial statements to enable users to evaluate information about the financial statements.? It would help assess the significance of financial instruments for the entity?s financial position and performance. Dr Ashok Haldia, secretary, ICAI, told Financial Express that ?AS-30, AS-31 and AS-32 are the three standards taken together to cover the whole gamut of financial instruments.?
