Companies reeling under the impact of a rapidly depreciating rupee may get some breather. The Institute of Chartered Accountants of India (ICAI) has proposed that companies be allowed to reflect their forex losses in their balance sheets against their profit and loss accounts. As per accounting standard 11 under the Indian GAAP, companies were required to start reflecting their mark-to-market gains or losses on loans in the profit and loss (P&L) account by March 31, 2012. In a meeting on Friday, the accounting regulator has recommended that the government lift the deadline and give India Inc some relief.
The proposal is, however, pending the approval of the National Advisory Committee on Accounting Standards (NACAS), after which it would be sent to the ministry of corporate affairs for the final nod. ?Companies are under pressure owing to the depreciating rupee. We want the deadline to be extended so that the companies can have a breather,? ICAI president G Ramaswamy said. He said that the companies be allowed to delay the requirement till the time the entire loan amount has been paid.
Over the last one year rupee has depreciated by nearly 20% causing panic across a swathe of companies. While importing companies are likely to take the maximum hit since they would be required to shell out more rupees for the same quantity of goods, other firms that have borrowed from overseas markets and have outstanding loans on their balance sheets would also be impacted. Though any loss arising out of forex volatility would only be notional under the AS 11 of the Indian GAAP companies would be required to reflect them on their P&L accounting causing their profit margins to shrink considerably. On Friday the rupee stood at 52.7 to a dollar.
?If finally accepted by the government it would be a relief for companies since it makes very little sense why they should show a loss or profit which is only notional in nature in the P&L account,? a CA with a manufacturing company said. Though the Centre may give companies a breather, they would be required to follow the provision under the IndAS. ?The ICAI is working with the IASB along with other Asian countries to allow amortisation/capitalisation of exchange differences in the IFRS standards. This is a step in the right direction,? said head accounting practice Ernst & Young Dolphy D? Sousa.