The disruption in export logistics and currency volatility introduces a set of accounting challenges that are both technical and judgment-intensive for textile companies. Given the sector’s reliance on exports and time-bound shipments, several of these issues become particularly critical around the reporting date.
Set out below are the key accounting areas that require focused attention, followed by additional aspects that should form part of the closing checklist.
Revenue Cut-off and Transfer of Control (Ind AS 115)
One of the most significant challenges relates to revenue recognition for export shipments that have been dispatched but may be delayed, rerouted, or subject to uncertainty in delivery.
Under Ind AS 115 (Revenue from Contracts with Customers), revenue is recognised when control of goods transfers to the customer. This assessment is typically aligned with contractual shipping terms such as FOB or CIF.
Where shipments are affected by constraints in insurance availability or routing, it is necessary to evaluate whether the risks and rewards of ownership have genuinely transferred. In cases where delivery remains uncertain, or risk continues to reside with the seller, it may be difficult to conclude that control has passed to the buyer, even if goods have physically left the seller’s premises.
This makes cut-off testing particularly sensitive for shipments made close to the balance sheet date.
Foreign Currency Receivables and MTM Adjustments (Ind AS 21)
With the Indian rupee weakening, foreign currency-denominated receivables require remeasurement at the closing exchange rate in accordance with Ind AS 21 (The Effects of Changes in Foreign Exchange Rates), based on RBI reference rates.
While translation gains may arise, there is also a need to assess collectability in light of potential delays in settlement, particularly for customers in affected regions. Where credit risk has increased, expected credit loss provisioning under Ind AS 109 may need to be revisited.
Inventory Valuation and NRV Assessment (Ind AS 2)
Disruption in shipping and uncertainty in delivery timelines may have implications for inventory valuation, particularly for finished goods that are time-sensitive or linked to specific customer orders.
Ind AS 2 (Inventories) requires inventories to be carried at the lower of cost and net realisable value (NRV). Where goods remain in transit for extended periods or face potential order cancellations, the estimated selling price may need to be reassessed.
In cases where goods are customised or have limited alternative markets, NRV may fall below cost, necessitating write-downs. This assessment should be performed on a product-by-product basis, supported by current market evidence and customer communication.
Onerous Contracts and Order Cancellations (Ind AS 37)
In such an environment, delays in shipment and uncertainty in delivery timelines may increase the risk of order cancellations or contractual penalties.
Where the cost of fulfilling a contract exceeds the expected economic benefits, or where cancellation penalties become unavoidable, the contract may be considered onerous under Ind AS 37 (Provisions, Contingent Liabilities and Contingent Assets). A provision should be recognised for the expected loss, measured based on the cost of fulfilment or the penalty payable.
Companies should review open export orders and assess whether provisioning is required for cancellation risk or contractual exposure.
Other Aspects to Consider
In addition to the above, finance teams and auditors should also consider the following:
• Expected credit loss assessment (Ind AS 109): Reassessment of credit risk for overseas customers where delays in collection may arise.
• Freight and logistics cost accruals: Recognition of incremental freight, rerouting, and demurrage costs associated with extended transit times.
• Contract modifications: Renegotiation of delivery timelines or pricing with customers may require evaluation under Ind AS 115.
• Going concern and liquidity: Export-dependent entities with extended working capital cycles may need to revisit cash flow forecasts.
• SEBI LODR disclosures: For listed entities, material financial or operational impacts must be disclosed in accordance with Regulations 30 and 33.
Closing Observation
For textile companies, the financial close in this period requires careful interpretation of how established accounting principles apply in a disrupted trade environment. Revenue cut-off, inventory valuation, and receivable recoverability are directly affected by conditions that may remain uncertain at the reporting date.
In this context, early identification of issues and clear documentation of judgments will be essential. It would be useful to understand how others in the sector are approaching these assessments in practice.
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