What we have said (late on Saturday) is not a new accounting norm. We have only clarified the position as on date and spelt out the accounting principles that could be adopted. We had to do this as doubts were raised in view of the Accounting Standard (AS-30) issued by us becoming recommendatory from April 1, 2009 and mandatory from April 1, 2011, Mr Ved Jain, ICAI President, said in a press conference.

Mr Jain said that ICAI has no plans to bring forward to an earlier date the implementation of AS-30 in view of the currency derivative exposures of certain companies and the possibility of such exposures translating into heavy losses due to fluctuations in the foreign currency rates.

On the clarificatory announcement, Mr Jain said that certain issues were raised with regard to the foreign currency derivative exposures of various corporates that were not being fully accounted for.

As earlier adoption of standard is always encouraged, the ICAI council has now said that the entities could follow the AS-30, Financial Instruments: Recognition and Measurement, which contains accounting for derivatives.

The significance of AS-30 is that the standard is fair-value based and requires recognition of losses or gains arising from outstanding derivative contracts at balance sheet date on fair value basis, say experts.

However, if an entity does not opt for AS-30, Mr Jain said that it does not mean that one should not follow the already spelt out accounting standards. Therefore, we have said that if an entity does not opt for AS-30, it should keep in view the principle of prudence as enunciated in AS-1 Disclosure of accounting policies and provide for losses in respect of all outstanding derivative contracts at the balance sheet by making them to market, Mr Jain said.

Under the principle of prudence, unrealised gains are not recognised. But all losses have to be provided for.

In its clarificatory announcement, the ICAI has said that the entity needs to disclose the policy followed by it for accounting for derivatives in its financial statements.

In case AS-30 is followed by the entity, a disclosure of the amounts recognised in the financial statements should be made. In case AS-30 is not followed, the losses provided for should be separately disclosed by the entity.

The institute has also said that the auditors should consider making appropriate disclosures in their reports if the spelt out accounting treatment and disclosures are not made.

For forward contracts, the ICAI has said that the entity needs to fully comply with the requirement of AS-11 and the clarificatory announcement made on Saturday would not be applicable to such contracts.