In a major relief for India Inc, the National Advisory Committee on Accounting Standard (NACAS), a government-appointed body, has postponed the implementation of Accounting Standard 11 (AS 11) to 2011.
This accounting standard deals with mark-to-market provisioning in corporate profit and loss accounts for foreign exchange-related gains and losses.
The NACAS decision means domestic firms have the option not to provide for foreign exchange losses or gains till 2011.
Indian companies, which were hit by both the rapid appreciation and depreciation of foreign currencies, had been lobbying for the implementation of AS 11 to be postponed, saying it would adversely affect them at a time when they were coping with the global financial crisis.
The decision was being eagerly awaited by most Indian companies, since many of them would have had to book further mark-to-market losses, with the rupee touching 52 against the US dollar. Most of them raised debt when the Indian currency was at sub-Rs 42 levels against the dollar.
“The government seems to have given in to industry’s demands,” said a senior ICAI member. “In the name of helping industry, it has suspended AS 11, which has been working very well till now. Companies were reporting forex fluctuations when there were making profits, but now that they are making losses, they don’t want to report,” he added.
ICAI President Uttam Prakash Agarwal could not be reached for comment. In an earlier interview to Business Standard, he had opposed a relaxation of AS 11 provisions. “There were two views on this issue and a consensus could not be reached in the ICAI council meeting,” he said at that time.
NACAS is the final authority on implementing accounting standards in India. The decision comes after the Council of The Institute of Chartered Accountants of India (ICAI), the statutory body that governs the profession in India, was unable to arrive at a decision on the issue.
Before the council meeting, the Accounting Standards Board (ASB) of ICAI referred the issue to a sub-committee, which recommended that companies book the losses over a period of time. Sources said ASB referred the issue to the ICAI council without giving a verdict.
Based on legal opinion, several large companies do not follow AS 11, but comply instead with Schedule VI of the Companies Act which stipulates that as a result of exchange rate fluctuation, any change in the repayment needed to be added or deducted from the cost of fixed assets. Schedule VI allows such losses to be capitalised.