To manage various kinds of risks, for instance those related to foreign currency, interest rates, credit, commodity prices and others, many entities, such as banks and other financial institutions use derivative financial instruments to reduce income volatility and economically hedge against these risks. Accounting for derivative financial instruments is governed by Ind AS 109, Financial Instruments which requires all derivative contracts to be classified and measured at Fair Value Through Profit or Loss (FVTPL). In this edition of Accounting and Auditing Update (AAU), we have included an article which illustrates the accounting for a forward contract used to hedge foreign currency risk arising from a loan taken by a Non-Banking Financial Company (NBFC). Additionally, the article also highlights the qualifying criteria for hedge accounting as prescribed in Ind AS 109.
Recently, the Expert Advisory Committee of Institute of Chartered Accountants of India (ICAI) has considered an issue to discuss a scenario where a company receives a loan from its shareholder and later restructures the interest element into an interest free loan. The article on this topic explains the considerations that have to be taken into account while accounting for the restructured loan as per the principles of Ind AS.
This edition of AAU carries an article which summarises accounting and financial reporting developments that potentially affect public companies following US GAAP, in the near term. The new developments include the new leases standard (ASC 842), new hedge accounting standard, and requirement of reporting of critical audit matters in audit reports.
Our publication also carries a regular synopsis of some recent regulatory updates.