By Himanshu V. Kishnadwala, Chartered Accountant
New Page 1
WIPRO LTD. —
(31-3-2008) (consolidated)
From Accounting Policies :
Foreign currency transactions :
The Company is exposed to currency fluctuations on foreign
currency transactions. Foreign currency transactions are accounted in the books
of accounts at the average rate for the month.
Transaction :
The difference between the rate at which foreign currency
transactions are accounted and the rate at which they are realised is recognised
in the profit and loss account.
Translation :
Monetary foreign currency assets and liabilities at
period-end are translated at the closing rate. The difference arising from the
translation is recognised in the profit and loss account.
Derivative instruments and Hedge accounting :
The Company is exposed to foreign currency fluctuations on
foreign currency assets and forecasted cash flows denominated in foreign
currency. The Company limits the effects of foreign exchange rate fluctuations
by following established risk management policies including the use of
derivatives. The Company enters into forward exchange and option contracts,
where the counterparty is a bank. Since March 2004, based on the principles set
out in International Accounting Standard (IAS 39) on Financial Instruments’ the
Company has designated forward contracts and options to hedge highly probable
forecasted transactions as cash flow hedges. The exchange differences relating
to these forward contracts and gains/losses on such options were being
recognised in the period in which the forecasted transactions were expected to
occur. The exchange differences relating to forward contracts/options, other
than designated forward contracts/ options, were recognised in the profit and
loss account as they arose.
Effective April 1, 2007, based on the recognition and
measurement principles set out in the Accounting Standard (AS) 30 on Financial
Instruments: Recognition and Measurement, the changes in the fair values of
forward contracts and options designated as cash flow hedges are recognised
directly in shareholders’ funds and are reclassified into the profit and loss
account upon the occurrence of the hedged transaction. The gains/losses on
forward contracts and options designated as cash flow hedges are included along
with the underlying hedged forecasted transactions. The changes in fair value
relating to the ineffective portion of the cash flow hedges and forward
contracts/options not designated as cash flow hedges are recognised in the
profit and loss account as they arise. The Company has also designated forward
contracts and options as hedges of net investment in non-integral foreign
operation. The portion of the changes in fair value of forward contracts and
options that is determined to be an effective hedge is recognised in
shareholders’ fund and would be recognised in profit and loss account on the
disposal of foreign operation. The portion of the changes in fair value of
forward contracts and options that is determined to be an ineffective hedge is
recognised in the profit and loss account.
The Institute of Chartered Accountants of India (ICAI) has
recently issued an announcement ‘Accounting for Derivatives’ on accounting for
derivatives and early adoption of AS 30. The Company has already been applying
the principles of AS 30 in accounting for derivative instruments and the
announcement did not have any impact on the Company.
Integral operations :
In respect of integral operations, monetary assets and
liabilities are translated at the exchange rate prevailing at the date of the
balance sheet. Non-monetary items are translated at the historical rate. The
items in the profit and loss account are translated at the average exchange rate
during the period. The differences arising out of the translation are recognised
in the profit and loss account.
Non-integral operations :
In respect of non-integral operations, assets and liabilities
are translated at the exchange rate prevailing at the date of the balance sheet.
The items in the profit and loss account are translated at the average exchange
rate during the period. The differences arising out of the translation are
transferred to translation reserve.
From Notes to Accounts :
The Company designated forward contracts and options to hedge
highly probable forecasted transactions based on the principles set out in
International Accounting Standard (IAS 39) on Financial Instruments :
Recognition and Measurement. Until March 31, 2007, the exchange differences on
the forward contracts and gain/loss on such options were recognised in the
profit and loss account in the periods in which the forecasted transactions were
expected to occur.
Effective April 1, 2007, based on the recognition and
measurement principles set out in the Accounting Standard (AS) 30 on Financial
Instruments : Recognition and Measurement, the changes in the derivative fair
values relating to forward contracts and options that are designated as
effective cash flow hedges are recognised directly in shareholders’ funds until
the hedged transactions occur. Upon occurrence of the hedged transactions the
amounts recognised in the shareholders’ funds would be reclassified into the
profit and loss account along with the underlying hedged forecasted
transactions. During the year ended March 31, 2008 the Company has reclassified
net exchange gains of Rs.951 Million along with the underlying hedged forecasted
transaction. In addition, the Company also designates forward contracts as
hedges of the net investment in non-integral foreign operations. The changes in
the derivative fair values relating to forward contracts and options that are
designated as net investments in non-integral foreign operations have been
recognised directly in shareholders’ funds within translation reserve. The
gains/losses in shareholders’ funds would be transferred to profit and loss
account upon the disposal of non-integral foreign operations.
