ICAI issues Guidance Note on Accounting for Derivative Contracts
ICAI has formulated a ‘Guidance Note on Accounting for Derivative Contracts’ for uniform accounting principles for accounting of derivative contracts. The Guidance Note provides guidance on accounting for financial and commodity derivative contracts consistent with the extant international practices.
Under Accounting Standards (AS), the relevant guidance with regard to hedge accounting is prescribed under the Guidance Note on Accounting for Derivative Contracts issued by the ICAI in year 2015. Accordingly, the Guidance Note has been revised to provide necessary exceptions to the hedge accounting.
A derivative has been defined to be a financial instrument or other contract with all three of the following characteristics:
The objective of this Guidance Note is to provide guidance on recognition, measurement, presentation and disclosure for derivative contracts so as to bring uniformity in their accounting and presentation in the financial statements.
This Guidance Note also provides accounting treatment for such derivatives where the hedged item is covered under notified Accounting Standards, e.g., a commodity, an investment, etc., because except AS 11, no other notified Accounting Standard prescribes any accounting treatment for derivative accounting. This Guidance Note, however, does not cover foreign exchange forward contracts which are within the scope of AS 11.
This Guidance Note covers all derivative contracts that are not covered by an existing notified Accounting Standard.
This Guidance Note is an interim measure 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.
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