RBI to introduce IAS-39 standard for derivatives risks

Mumbai, Jan 31 | Updated: Feb 1 2006, 05:30am hrs
With derivatives trading activities in India are increasing at a brisk pace, the Reserve Bank of India (RBI) is planning to introduce the IAS-39 standards of accounting, in a joint effort with the Institute of Chartered Analysts of India (ICAI), RBI deputy governor V Leeladhar said on Tuesday. He, however, added that no time frame was fixed for introducing this.

The IAS-39 deals with accounting and measuring financial instruments, and is one of the most complex and resource-consuming standards for large companies to apply. It brings visibility in the use of derivative instruments for investors and other financial statements users.

The implementation of IAS- 39 requires firms to incur additional investment in technical capacity building including acquisition of asset and liability management systems, systems of evaluation adapted to the types of financial instruments in use and proper training of staff for the necessary skills to handle these systems. It also requires more informative disclosure in the financial statements. Further, lAS-39 requires alerting top management to decide upon the financial information most relevant for decision-making. Despite added constraints and costs to firms, the implementation of IAS-39 brings in the financial statements (balance sheet and income statement) the disclosure of market and credit risks resulting from the use of derivative instruments, which previously were either not disclosed or were inappropriately disclosed as off balance sheet items.