National Advisory Committee on Accounting Standards (NACAS) may have favoured suspension of mark-to-market accounting norms on foreign exchange transactions for corporate sector for two years, but Institute of Chartered Accountants of India (ICAI) is in no mood to suspend the accounting standards (AS) 11 provision. ICAI president Uttam Prakash said here that he was not in favour of suspending the provision of AS 11 for the benefit of a few companies.
Agrawal told TOI that big companies failed to implement crisis management that could have saved them from current problems related to foreign exchange rate fluctuations. Several big companies and industrial associations have approached ICAI to suspend the AS 11 provision that requires recognising foreign exchange losses in the profit and loss (P&L) accounts every year.
Firms involved in foreign transactions have to translate transactions involving foreign currency into Indian rupees while finalising P&L and balance sheets. Many of the Indian firms involved in foreign transactions are facing losses as the value of Indian rupee has gone down against dollar in the last six months. The firms, however, don’t want to show the losses in P&L account this year.
“It is the mistake of the companies who couldn’t foresee the crisis. They should have made sufficient arrangements to avoid losses in foreign transactions, ” Agrawal said.
“We will not change or suspend the AS 11 just to benefit a few companies. It won’t be a right thing to do. ICAI cannot change its rules like this. If some other crisis comes up tomorrow, the companies might ask to change some other set of rules,” he said.
The NACAS, however, has favoured suspension of accounting provisions after Confederation of Indian Industries (CII) contended that such provisions were made for normal market conditions and the current market conditions are not normal.
Already, reeling under recession, a majority of the firms are reluctant to show the losses originating from rupee-dollar rate fluctuations in their balance sheets as it will further damage their credibility. “The firms are facing decreased profits and financial crunch hence they don’t want to show forex losses in their accounts. But accounting standards cannot be changed according to market conditions,” said Sanjeev Shah, CA and former chairman of ICAI Baroda branch.
The Standard of the ICAI is right and the standards once issued should normally be altered unless the situation is very grave and financial statements would not give a true and fair view by following the same. The ICAI shold prevail on the NACAS, which again consists of icai members- past president etc, not to change the standards to avoid confusion