New accounting norms to be introduced for overseas biz operations

Subscribe to enjoy similar stories. New Delhi: The audit regulator has proposed changes to accounting norms to ensure financial statements of businesses are more transparent and accurate about investments and transactions in foreign currencies for which the exchange rate is not readily available or is unreliable.

The National Financial Reporting Authority (NFRA) at its last board meeting held in February decided to recommend to the ministry of corporate affairs that it notify amendments to accounting standard Ind AS 21 dealing with ‘effects of changes in foreign exchange rates,’ two persons informed of the development said. This means businesses will have to make more disclosures about their accounting policies for transactions and foreign operations in such currencies, they said.

The idea is to make it clearer to investors and other stakeholders about how such foreign transactions are translated while preparing financial statements. Currencies could have problems with their long-term exchangeability due to extreme economic conditions like hyper-inflation, government controls or official exchange rates not reflecting market realities.

Since companies have to translate foreign assets, liabilities and operations at the end of every accounting period in their financial statements, and exchange rate fluctuations impact their profit and loss statements, the exchange rate used becomes a crucial factor in accounting. Read more: The auditor’s new assignment: Unmasking company loans used to divert funds “The amendments proposed to IndAS21 seek to address this.