The Union governments move to suspend Accounting Standards 11, allowing companies to show foreign currency liabilities as assets, has come under the Bombay high courts scanner. The petition filed by an organisation of city-based legal experts, Just Society, has claimed that this permits firms that might otherwise be sick to paint a rosy picture .
The governments decision is akin to institutionalising doctoring of balance sheets, said advocate Abhay Nevagi, counsel for the petitioners. The government had introduced AS 11 in 2006, which required companies to record foreign currency monetary assets and liabilities at the exchange rate on the balance sheet date. Last year, in the midst of the global recession and swings in the exchange rate, the Confederation of Indian Industry and the Associated Chambers of Commerce and Industry of India made representations to the government, according to the petitioner. Subsequently, National Advisory Committee on Accounting Standard (NACAS), a government-appointed body, suspended the implementation of AS 11.
This meant that a company, which had borrowed money from abroad and created assets in India, was not required to show the amount as liability in the balance sheet, till the year of repayment . This could instead be shown as assets.
This is nothing but inflating the balance sheet and misguiding investors, claimed advocate Nevagi. The government’s decision would allow even companies that are sick to show profits. The advocate said that AS 11 was in conformity with international standards. In its affidavit, the Union government defended its decision and said it was empowered to do so.
A division bench of Justice F I Rebello and Justice J H Bhatia on Tuesday said that the case required consideration and scheduled it for hearing on January 27.
