India Inc is lobbying hard for a change in accounting rules, so that it would not have to reflect the marked-to-market position of its foreign currency debts in the quarterly statement of accounts.
The spectre of huge ‘notional foreign exchange losses' is staring India Inc in the face, with the rupee depreciating against the US dollar by nearly 18 per cent over the last three months to Rs 52.70 levels.
Companies have now started knocking the doors of the apex audit body, the Institute of Chartered Accountants of India (ICAI), seeking an extension of an existing flexible accounting treatment, to accounting periods beyond March 2012.
The Corporate Affairs Ministry had in March 2009 eased accounting treatment on foreign exchange differences to help companies tide over the global financial crisis in 2008-09.
The special dispensation allowed in end March 2009 provided respite to companies battered by the vagaries of currency fluctuations. The rupee had then depreciated from a low of 39.50 in January 2008 to 51.95 in March 2009.
India Inc was given an option to refrain from complying with AS-11 (Effects of changes in foreign exchange rates), which stipulated that all exchange differences on foreign currency borrowings should be recognised only in the profit loss account.
This flexibility allowed corporates to take the losses arising from exchange rate differences to the balance sheet and adjust them against the depreciable capital asset for whose acquisition the borrowings were made in foreign currency. This flexibility was available only for accounting periods commencing December 7, 2006 till March 31, 2011 and later extended till March 2012.
When contacted, the ICAI President, Mr G. Ramaswamy, confirmed that the accounting body has started getting requests for extending the flexible accounting treatment on exchange differences even beyond March 2012.
“We are receiving a number of requests for extension beyond March 2012. This matter is now under consideration. We will consult NACAS and the Corporate Affairs Ministry before taking a stance on the request,” Mr Ramaswamy told Business Line .
The central council of ICAI had recently authorised its president to take a decision on the matter, sources said.
The AS-11 requires entities to recognise exchange differences on all liabilities or borrowings taken to acquire fixed assets as income or expense in the period in which they arise.
Another interesting aspect is that even companies that had not opted for the flexibility given in March 2009 are now approaching the accounting regulator for reprieve.
Companies that did not opt for the March 2009 relaxation could see their profits plummet due to ‘notional foreign exchange losses'.
Even as the ICAI may be inclined to support the call for easing the accounting treatment on exchange differences beyond March 2012, critics have voiced concern against any such move.
Critics argue that corporates happily took the gains to profit and loss account when the foreign currency movement went in their favour and the rupee appreciated to say Rs 37 levels.
But when the situation gets changed and the corporates see losses, they do not want to recognise the losses in profit and loss account, it was pointed out.