New Delhi: The Centre will take a call on whether to suspend accounting standards AS-11— which deals with foreign exchange earnings of companies—for two years after it receives the opinion of a statutory body that looks into the issue.
The Economic Times and the Business Standard reported on Thursday that the National Advisory Committee on Accounting Standards, or Nacas, is in favour of suspending the rule that requires firms to state their foreign exchange assets and liabilities at prevailing market rates in their profit-and-loss accounts. “The ministry has not yet got the views of Nacas. Once they come, the ministry will take a call on whether to notify deferring of AS-11 till 2011,” said a senior official at the ministry of corporate affairs, or MCA, who didn’t wish to be identified.
Industry lobbies such as the Confederation of Indian Industry and the Federation of Indian Chambers of Commerce and Industry have been demanding the suspension of AS-11 because several companies with foreign exchange earnings will have to take a hit on their profits because the rupee has depreciated by over 25% in the past one year.
Nacas has representation from the Reserve Bank of India, the Comptroller and Auditors General of India, the Securities and Exchange Board of India, different chambers of commerce and MCA.
Officials at the Institute of Chartered Accountants of India, or Icai, however, are not in favour of deferring AS-11.
“The issue is still being considered by Icai. Various questions—such as whether this will require amendment to the Companies Act 1956, whether this is a deviation from India’s attempt to converge with International Financial Reporting Standards, why companies did not hedge for foreign exchange fluctuations, whether this is an extraordinary situation and whether it is a tinkering of accounting standards—have cropped up,” said Uttam Prakash Agarwal, Icai president.
Agarwal also said he objected to the decision because the issue is still being evaluated by the Accounting Standards Board, a committee of Icai. “It’s not that the standard has been implemented now. AS-11 has been there since 2004 and the companies got advantage of an appreciating rupee...why can’t they take a hit now?” said a senior official at Icai who didn’t want to be named.
Nacas chairman Y.H. Malegam could not be reached for comment. Ashok Haldea, former secretary of Icai, said, “Nacas may have thought it appropriate that AS-11 be deferred looking at the global meltdown and industry expectations although technicalities of accounting standards may suggest otherwise.”