In a move that would hike India Incs’ profits by as much as 25%, the ministry of corporate affairs (MCA) on Tuesday issued the notification of ?relief from provisions of Accounting Standard 11 (AS-11)? ensuring that companies are able to make necessary changes in the financial statements ending March 31, 2009.
This means that Indian companies have got relief from showing the foreign exchange losses suffered during the year, something which the industry had been clamouring for a long time. According to the ministry?s estimates given the fact that the Indian Rupee depreciated by almost 25% in the current financial year, the measure is going to increase the net profits by as much as 27% from what it would have otherwise been.
A MCA official told FE , ?The relief from provisions of AS-11 has been notified. The ministry?s objective is to resolve the AS-11 controversy and provide a transitional arrangement to enable a smooth transition to international financial reporting standards (IFRS) from April 1, 2011?. The MCA has said that this was the transitional period and companies must be given an option of whether to follow
AS-11 or schedule VI of the Companies Act, 1956.
While 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,
AS-11 requires companies to make mark-to-market provisions in their profit and loss accounts on account of fluctuations in foreign exchange rate.
Welcoming the move, Prabal Banerjee, CFO, Hinduja Group told FE , ?India Inc will be very happy and I am sure that if they have to choose between AS-11 and schedule VI of the Companies Act 1956, they will definitely go in for schedule VI. I don?t think that the accounting standards should be changed depending on whether it?s a good time or bad time but AS-11 was not a rational approach at all?.
Anil Saxena, group chief financial officer, Religare Enterprises Ltd had earlier told FE ,? This is a great support because these are extraordinary times hence require extra-ordinary support from the government. In a way such losses might communicate a wrong picture of the company to long-term investors?.However, there are some discordant voices as well. Vinod Aggarwal, CFO, Eicher Motors said, ? I don?t think that it is an appropriate decision because while the rupee was appreciating all the companies preferred AS-11 and now when times are tough, companies are taking refuge under Schedule VI?.
The CII had earlier this month urged the government seeking relief from AS-11 standards but the accounting regulator, Institute of Chartered Accountants of India vehemently opposed the proposal stating that accounting standards were framed for proper disclosure and they shouldn?t be moulded according to circumstances.