India Inc set to get relief on accounting of forex losses

K. R. Srivats New Delhi | Updated on December 23, 2011

The country's top accounting standards body is once again set to come to the rescue of India Inc to help it sail through the current difficult times in the light of significant rupee downslide against the US dollar in recent months.

The National Advisory Committee on Accounting Standards today decided to recommend to the Government that companies be given an option of taking their exchange losses, if any, to the balance sheet instead of the profit and loss account even for accounting periods beyond March 31, 2012.

This time round the flexibility is likely to be open-ended in the sense that it would be available till the tenure of the liability (foreign currency loans, bonds etc) and not merely for a specified period.

If this recommendation were to be accepted by the Government, companies would not be required to reflect their marked-to-market position of their foreign currency debt in their quarterly financial statements for the periods beyond March 31,2012.

“We have largely gone with the recommendation of the Institute of Chartered Accountants of India (ICAI) on this issue. Our decision will be forwarded to corporate affairs ministry in a day or two,” Mr M.M.Chitale, NACAS Chairman, told Business Line. The Corporate Affairs Ministry is expected to notify the relaxation early next week.

Earlier today, the ICAI President, Mr G. Ramaswamy, said that the CA Institute has recommended to NACAS that the current flexibility available on accounting of exchange differences should be extended beyond March 31,2012 and be available for the entire tenor of the loan instead of restricting it to a specified period.

For companies that did not avail the March 2009 option, the CA Institute has now suggested that they be allowed this flexible treatment for all transactions on or after April 1, 2011, Mr Ramaswamy said.

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.

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 and 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 was available only for accounting periods commencing December 7, 2006, till March 31, 2011, and later extended till March 2012.

Published on December 23, 2011

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