India Inc may not get accounting relief on forex losses, despite the significant downslide of the rupee.
Corporate India has been pitching for accounting rule relaxation on losses arising on short-term foreign currency loans similar to what is available for long-term foreign currency debt.
But the country’s top accounting standards body — the National Advisory Committee on Accounting Standards (NACAS) — has decided against any relaxation to the accounting rule that requires companies to adjust their loan exposure to the rates prevailing at the end of every quarter.
India Inc claims that if an accounting relief were to be given, a less distorted picture of the balance-sheet would be available for investors. In the absence of any relief, forex losses from short-term loans would have to be taken to the profit and loss account.
The accounting rule relaxation that was allowed for long-term foreign currency debt in December last year was dubbed as a New-Year gift to India Inc. The Corporate Affairs Ministry had then issued two notifications to provide relief for corporates that had sizeable long-term foreign currency loan exposure in their balance-sheets.
This had come as a huge respite for large corporate houses such as the Reliance group and the Tatas as also public sector biggies including Indian Oil Corporation and GAIL. It meant they would not be required to expense the foreign exchange losses, if any, on their long-term debt in the profit and loss account every quarter/year.
As regards short-term loans, a top NACAS official said, “It will not be appropriate to extend the relief granted to long-term debt for short-term debt. The accounting principles are different.”
There is no merit in demanding protection/accounting relief when corporates have been advised to hedge their foreign currency exposures, it was pointed out.
The final decision will, however, rest with the Corporate Affairs Ministry.