Key accounting principles in the guidance note?

What are the key accounting principles mentioned in this guidance note?

  1. All derivatives should be accounted for at the inception and measured at fair value too at the inception as well as at every reporting period.
  2. If hedge accounting is not applied, then the derivatives should be measured at fair value. Fair value changes should be recognised in P&L.
  3. If hedge accounting is applied, then the risk management objective and the risk that is hedged should be identified and documented. Also, the entity should satisfy how the risk management objective is being met by the respective derivative contract. This should be done at the inception of the hedging relationship as well as on an on-going basis.
  4. An entity may apply hedge account for certain contracts and for certain other contracts it may not apply hedge accounting. In other words, hedge accounting for the derivative contracts is purely optional and not mandatory. However, if hedge accounting is not applied then the derivative contract should be measured at fair value and accounted for at the inception as well as at every reporting period as mentioned in (1) above.
  5. An entity should make appropriate disclosures in its financial statements, including its accounting policies, risk management objectives and the hedging activities that the entity has undertaken.

Current standards for financial instruments as per AS?

Current standards for financial instruments as per AS? What are the current accounting standards for financial instruments as per AS? Currently there are no accounting standards that specifically address financial instruments except for certain forward foreign exchange contracts covered by AS 11. The Accounting Standards relating to financial instruments, viz, AS 30, …
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Need for the guidance note on accounting for derivatives

Need for the guidance note on accounting for derivatives What is the need for the guidance note on accounting for derivatives? Currently, none of the notified accounting standards prescribe the proper accounting treatment for derivative contracts. Foreign exchange forward contracts, which are speculative in nature, ie, which do not hedge the …
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Entities that are required to follow the guidance note

Entities that are required to follow the guidance note What are the entities that are required to follow the guidance note? Banking, non-banking finance companies (NBFCs), housing finance companies and insurance entities follow derivative accounting promulgated by the respective regulatory authorities, viz, Reserve Bank of India (RBI), National Housing Bank (NHB), Insurance …
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Transactions within the scope of this guidance note

Transactions within the scope of this guidance note What type of transactions are within the scope of this guidance note and which are outside the scope? All transactions covered by AS 11, accounting for embedded derivative contracts and accounting for non-derivative financial assets/liabilities designated as hedging instruments are outside the scope of …
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Fair value hedge on discontinuation of hedge accounting

Fair value hedge on discontinuation of hedge accounting What happens to a fair value hedge on discontinuation of hedge accounting? Fair value hedge accounting as per the approach mentioned in the guidance note is significantly different from the fair value hedge accounting as per Ind AS 109. The fundamental difference arises on …
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