mark to market losses and financial markets
TRANSCRIPT
IMPACT ON FINANCIAL MARKETS
Mark to Market• Mark-to-Market accounting refers to the
Accounting Standards of assigning a value to a position held in Financial Instrument based on the current fair Market Price for the instrument
Difference in MTM Perspective,Global vs. Domestic• US - The problem is in valuation illiquid
assets and that is not as per fair value accounting or MTM rules per se (IAS1 – 21)– Mortgage Based Securities
• India - In the case of Indian companies the problem is with forward contract related MTM losses (AS2 – 11)– Due to exchange rate movements– Hybrid instruments– Bonds– Valuation of acquired assets
1 International Accounting Standards2 Accounting Standards
• AS - 11– Accounting Standard (AS) 11 - Accounting for
the Effects of Changes in Foreign Exchange Rates
– AS 11 demands all foreign currency monetary transactions of companies to be reported at the end of accounting period
• Impact / Bone of Contention– Companies had to book notional losses– Share prices - plummeted by ‘notional foreign
exchange losses’ over the last three quarters
Companies not making MTM provision
Companies making MTM provision
Qtr. July-Sep. 2008
Is there a way out?• Schedule VI of the
Companies Act– This allows
capitalization of fixed assets acquired through foreign currency in case of fluctuations
• Govt. has Amended AS-11 based on National Advisory Committee on Accounting Standards
MTM Effect in Various Financial Instruments
• Forex Transactions• FCCBs
MTM in Forex Transactions
• Outline a high-level financial plan that defines your financial model and pricing assumptions.– This plan should include expected annual
sales and profits for the next three years.– Use several slides to cover this material
appropriately.