UPDATE 3-Vale may change accounting to curb forex impact on profit

Thu Aug 8, 2013 4:24pm EDT
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* Possible accounting change follows 2nd qtr currency hit

* Company sees iron ore price, volume recovering

* Vale director "doesn't lose sleep" on China demand

* Shares rise on cost cutting, China growth outlook

RIO DE JANEIRO, Aug 8 (Reuters) - Brazilian miner Vale SA may adopt so called "hedge-accounting" rules to smooth out the impact of currency fluctuations like those that slammed its second-quarter earnings, Chief Executive Murilo Ferreira said on Thursday.

Under hedge accounting, companies set aside some dollar-denominated export proceeds to compensate for the impact of exchange-rate moves on the local-currency value of debt, spreading currency gains and losses over several years. The practice is allowed under the International Financial Reporting Standards of the IFRS Foundation, the accounting rule-book used by Vale and other Brazilian companies.

As Brazil's currency, the real, has weakened, companies have seen the local currency value of dollar debts soar and the cost of servicing the debt rise. State-run oil company Petroleo Brasileiro SA, Brazil's largest company by revenue, last month said it had begun to use hedge accounting in May.

"We had a strong financial performance in a challenging environment," Ferreira said on a conference call with analysts and journalists. "The financial impact of forex does not reflect our true operations."

If studies show the change to be beneficial it could be implemented in 2014, Chief Financial Officer Luciano Siani said on the call.   Continued...