Two days after the National Advisory Committee on Accounting Standards (NACAS) suggested two-year breather for companies from the Accounting Standard-11 norms, the ministry of corporate affairs(MCA) will now be issuing a notification to the same within the next two days.
According to MCA, this is the transitional period and an option should be given to companies that they may follow AS-11 or schedule VI of the Companies Act- 1956.
Schedule VI of the Companies Act, 1956, allows foreign exchange fluctuations to be adjusted in the cost of fixed assets, for which foreign currency loans were raised. Accounting Standard-11 (AS- 11) requires companies to make mark-to-market provisions in their profit & loss accounts on account of fluctuations in foreign exchange rate. The value of rupee with reference to major currencies like dollar, Euro has gone down by 20-25% in the last one year.
The industry had been clamouring for the deferring of the accounting standards especially in the backdrop of over 25% Rupee depreciation, which would have then translated into huge losses for India Inc.
Industry behemoths such as Reliance Industries, which do not comply with the AS-11 norms and rather comply with schedule VI provisions based on legal advice had been voicing concerns to the BSE stating that the company?s profits for nine month ended Dec 31, 2008, would have to been down by 7% if they follow AS-11.
Bharti Airtel, which on the other hand follows AS-11 has stated that had the company not adhered to the new standard, its net profit after tax would have been higher by Rs 245.09 crore and Rs 900.12 crore for the quarter and nine months respectively ended December 31, 2008, respectively.
Anil Saxena, group chief financial officer (CFO), Religare Enterprises Ltd told FE ,? This move that is going to be taken by the government is a great support because these are extraordinary times and that?s why it requires extra-ordinary support from the side of the government.
In a way losses might represent a wrong picture of the company to the long term investors. ?Saxena further said that when the tough times are over, then the companies will come back to AS-11.
On the other hand, Vinod Aggarwal, CFO, Eicher Motors said, ? I don?t think that it is an appropriate decision because when the rupee was appreciating then all the companies had taken benefit and now when the times are different, the companies are having problems in taking the losses to the P&L account.?
Almost all associations and the apex chambers were seeking relief from provisions of AS-11 considering the extra-ordinary circumstances. But the ICAI said the accounting standards are framed for proper disclosure and they are not made on the basis of circumstances.
Uttam Prakash Agarwal, president, ICAI, which had been opposing the move until now said, ?I am not opposing but instead I am only suggesting what should be done. We are policy makers and are still discussing on this AS 11 issue but the ultimate decision is to be taken by the NACAS and the government.?