Book Derivative Losses As Marked-To-Market:ICAI

March 31st, 2008 by deepakshenoy · 1 Comment · Tag(s): No Tags

The Institute of Chartered Accountants of India (ICAI) has announced that companies holding derivative contracts must provide for losses on them on a mark-to-market basis. Prior to this announcement, the standard for derivatives (AS 30) was to be applicable only from April 2011. (”Recommended” from 2009).

AS 30 is still not mandatory, but ICAI maintains that if AS 30 is not followed, the losses must be mentioned separately by the company and failing that, by the auditors, from March 31, 2008 onwards. It will be interesting to see the auditors statements on public financial results this year.

I fully expect companies to dress up their results for this quarter. So it will be very interesting to see which companies have audit notes for non-compliance to AS 30. And where AS 30 has been used, to find out the extent of MTM losses.

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1 response so far ↓

1 Vivek // Apr 1, 2008 at 9:54 pm

I think this is quite a significant event for us as investors. I just noticed in BSE announcements that many corporates have started deferring their Q4 07-08 results. Surely there must be many who have been bitten by the bug. A lawyer I know who works for Media and entertainment clients has got an assignment from one client who has supposedly encountered 4 cr. losses in USD/JPY contracts already, which may mount further if the various contracts set at different USD/JPY levels get triggered going forward.
For everyone wanting to make hay while the sun was shining (the eclipse ab0ut to come not visible to most), Banks have been aggressive and greedy to sell these contracts and corporates have greedily lapped it up. This news was definitely not the best of things to happen to corporate India in the current face of global equities meltdown and slowdown which corporate India is likely to face in year 2008.

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