The Hindu Business Line : Forex accounting by blue chip cos under lens

New Delhi, Aug. 16 Blue chip companies’ accounting treatment of forex differences for their first quarter unaudited results is now under the lens of the Ministry for Corporate Affairs (MCA).

The accounting treatment adopted by some listed companies such as Reliance Industries, Reliance Communications, Bharti Airtel, Bhushan Steel and Jet Airways had resulted in their reporting substantially higher net profit than would have been the case had they adopted the prescribed accounting norms.

Their move to adjust exchange differences against fixed assets/reserves had stirred a controversy as they had taken refuge under Schedule VI of the Companies Act instead of following the Accounting Standards (AS) 11 notified by the Government.

AS-11 is the standard on forex transactions which requires exchange differences to be taken to the profit/loss account as income or expenses. Schedule VI prescribes the format in which balance sheet and profit/loss account must be prepared.

Conflict claim

“We have come across certain instances where apparently there is claim that there was some conflict between AS-11 and Schedule VI. The issue is being examined by the Ministry and after ascertaining the facts we will decide the future course of action,” Mr Prem Chand Gupta, Minster for Corporate Affairs told Business Line.

The issue has attracted the attention of the regulators as the quantum or the level of exchange losses adjusted as a proportion of the total net profit was significant, said industry sources. A senior MCA official said that as such there is ‘no’ conflict between AS-11 and Schedule VI. According to the Government notification, “accounting treatment of exchange differences contained in the standard is required to be followed irrespective of the relevant provisions of the Schedule VI of the Companies Act.”

The official also said that in case of any conflict, the views of the Law Ministry would be sought. If the companies are found deviating from the prescribed standards, severe action would be taken as it impinges on corporate governance.

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