ICAI makes changes in norms for reporting forex gains, losses
Accounting regulator ICAI has made it mandatory for companies to report foreign currency gains and losses separately in their financial statements, a move that will make it difficult for firms to dress up numbers.
Companies will now have to separately state the impact of foreign exchange fluctuations in their balance sheets.
An accounting expert said the move will ensure that forex related losses would be recorded only in the Balance Sheet and not in the Profit & Loss Account of a company.
“This (change) will help a reader of the financial statement understand as to how much impact the foreign currency has had on the company,” Institute of Chartered Accountants of India (ICAI) President Subodh Kumar Agrawal said here Tuesday.
The move will help avoid divergence in accounting and bring more transparency in reporting of numbers.
From now on, companies should show the Foreign Currency Monetary Item Translation Difference Account (FCMITDA) separately, under which they have to show foreign currency fluctuations “under the ‘Equity and Liabilities’ side of the balance sheet under the head ‘Reserve and Surplus’.
According to accounting watchdog ICAI, the move is based on the premise that foreign currency translation loss is neither a resource nor any future economic benefit would flow to the entity from there.
The changes have been approved at ICAI’s recent council meeting.
Further, ICAI has suggested changes in reporting of gains or losses with regard to hedging instruments related to long term foreign currency items.
ICAI has said that “exchange difference related to the hedging instrument obtained to cover the exchange risk” on long term foreign currency monetary item should also be separately shown in the balance sheet.
The suggestion is being sent to the National Advisory Committee on Accounting Standards (NACAS).