There has been some lack of guidance on the accounting for
derivative contracts and hedging activities. In order to bring uniformity of
practice in accounting for derivative contracts by various entities in India,
on 12 May 2015, the ICAI issued a guidance note of accounting for derivative
contracts (guidance note).
This guidance note provides guidance on recognition, measurement,
presentation and disclosure for derivative contracts. The guidance note does
not deal with macro-hedging and accounting for non-derivative financial
assets/liabilities which are designated as hedging instruments since its
objective is to provide guidance on accounting for derivative contracts only
and not hedge accounting in its entirety.
The guidance note is an interim measure (till Ind AS 109, Financial
Instruments is applicable) to provide recommendatory guidance on accounting
for derivative contracts and hedging activities considering the lack of
mandatory guidance in this regard with a view to bring about uniformity of
practice in accounting for derivative contracts by various entities. For certain
entities that do not require to move to Ind AS, this guidance note may have an
enduring impact.
The guidance note also provides illustrative examples for
application of the guidance note. It becomes applicable for accounting periods
beginning on or after 1 April 2016. Early voluntary adoption is encouraged.
This issue of First Notes highlights the key aspects of the
guidance note issued by the ICAI. For the text of the guidance note issued by
the ICAI, please click here.
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