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Thread: 11 Accounting Standard 11 - The Effects of changes in foreign exchange rates - AS 11

  1. #21
    Accounting Standards
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    Default Announcement of Accounting Standard 11 - The Effects of changes in foreign exchange rates - AS 11

    Announcement of Accounting Standard 11 - The Effects of changes in foreign exchange rates - AS 11


    Applicability of AS 11 (revised 2003), The Effects of Changes in Foreign Exchange Rates, in respect of exchange differences arising on a forward exchange contract entered into to hedge the foreign currency risk of a firm commitment or a higly probable forecast transaction


    1. The revised Accounting Standard (AS) 11, The Effects of Changes in Foreign Exchange Rates, was published in the March 2003 issue of the Institute's Journal, 'The Chartered Accountant', (pp. 916 to 922). AS 11 (revised 2003) has come into effect in respect of accounting periods commencing on or after 1-4-2004 and is mandatory in nature from that date.


    2. AS 11 (revised 2003) deals, inter alia, with forward exchange contracts. Paragraphs 36 and 37 of AS 11 (revised 2003) deal with accounting for a forward exchange contract or any other financial instrument that is in substance a forward exchange contract, which is not intended for trading or speculation purposes, i.e., it is for hedging purposes. Paragraphs 38 and 39 of AS 11 (revised 2003) deal with forward exchange contracts intended for trading or speculation purposes


    3. An issue has been raised regarding the applicability of AS 11 (revised 2003) to the exchange difference arising on a forward exchange contract or any other financial instrument that is in substance a forward exchange contract (hereinafter the term 'forward exchange contract' is used to include such other financial instruments also), entered into by an enterprise to hedge the foreign currency risk of a firm commitment or a highly probable forecast transaction .1


    4. In this regard, it may be noted that paragraphs 36 and 37 of AS 11 (revised 2003) are not intended to deal with forward exchange contracts which are entered into to hedge the foreign currency risk of a firm commitment or a highly probable forecast transaction. Further, paragraphs 38 and 39 are also not applicable in respect of such forward exchange contracts since these contracts are not for trading or speculation purposes. Accordingly, it is clarified that AS 11 (revised 2003) does not deal with the accounting of exchange difference arising on a forward exchange contract entered into to hedge the foreign currency risk of a firm commitment or a highly probable forecast transaction.


    5. It may be noted that the hedge accounting, in its entirety, including hedge of a firm commitment or a highly probable forecast transaction, is proposed to be dealt with in the accounting standard on Financial Instruments: Recognition and Measurement, which is presently under formulation.

    1 A forecast transaction is an uncommitted but anticipated future transaction.

  2. #22
    Accounting Standards
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    Default Clarification on Applicability of AS 11 to Forward Exchange Contracts of Accounting Standard 11 - foreign exchange rates - AS 11

    Clarification on Applicability of AS 11 to Forward Exchange Contracts


    The Institute of Chartered Accountants of India (ICAI) recently issued an Announcement on Applicability of Accounting Standard (AS) 11 (revised 2003), The Effects of Changes in Foreign Exchange Rates, in respect of exchange differences arising on a forward exchange contract entered into to hedge the foreign currency risk of a firm commitment or a highly probable forecast transaction.


    Some persons have expressed a view that the Announcement amounts to withdrawal of AS 11 with regard to forward exchange contracts. It is hereby clarified that AS 11 continues to be applicable to exchange differences in respect of all forward exchange contracts other than those entered into, to hedge the foreign currency risk of a firm commitment or a highly probable forecast transaction

  3. #23
    Accounting Standards
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    Default Announcements on 'Accounting for exchange differences arising on a forward exchange contract entered into hedge the foreign currency risk of a firm

    Announcements on 'Accounting for exchange differences arising on a forward exchange contract entered into hedge the foreign currency risk of a firm


    Announcements on 'Accounting for exchange differences arising on a forward exchange contract entered into to hedge the foreign currency risk of a firm commitment or a highly probable forecast transaction' withdrawn.


    1.The Institute of Chartered Accountants of India (ICAI), in January 2006, issued an Announcement on 'Accounting for exchange differences arising on a forward exchange contract entered into to hedge the foreign currency risk of a firm commitment or a highly probable forecast transaction'. Pending the issuance of the proposed Accounting Standard on 'Financial Instruments: Recognition and Measurement', which was under formulation, the said Announcement prescribed the accounting treatment which should be followed in respect of the exchange differences arising on the forward exchange contracts entered into to hedge the foreign currency risks of a firm commitment or a highly probable forecast transaction. An Announcement prescribing the applicability date of this Announcement was issued in February 2006.


    2. Subsequently, an Announcement was issued in June 2006, deferring the applicability of the Announcement issued in January 2006, to the accounting period(s) commencing on or after April 1, 2007. The Council, at its 269th meeting, held on July 18, 2007, decided to further defer the applicability of the Announcement issued in January 2006, to accounting period(s) commencing on or after April 1, 2008.


    3. The Council, at its 277th meeting, held on March 27 to 29, 2008, noted that Accounting Standard (AS) 30, 'Financial Instruments: Recognition and Measurement', has already been issued. Accordingly, it has decided to withdraw all the Announcements mentioned in the above paragraphs

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