Buckling to pressure from India Inc and postponing the implementation of Accounting Standards-11 will send wrong signals to foreign investors, say observers.
Such a move will enable companies to cloak their actual book position and will fly in the face of the Government's commitment to align with international best practices, they say.
With the rupee having depreciated by 18.28 per cent against the dollar between August 1 and November 23, companies that have taken a foreign currency loan are facing the burden of inflated liabilities.
But they are unwilling to record the same in their profit and loss accounts and have approached the Ministry of Corporate Affairs to postpone the implementation of AS-11 by another year. Under the norms, it is mandatory for companies to record the differences in currencies.
The last time the Government allowed companies to not record liabilities was during the slowdown induced by the financial meltdown 2008. Industry lobbied hard and got it further postponed till March 2012. The matter is set to come up at the next meeting of the National Advisory Committee on Accounting Standards (NACAS).
“Let NACAS take a call and then we will see,” a senior MCA official told Business Line , indicating that the Ministry was likely to defer the implementation of AS-11 beyond March 2012.
“Today's rate of rupee is also artificial and the sudden downfall is not real. As it is the impact of something else, it would be alright to exempt companies from reflecting these fluctuations in their books. Otherwise, a 1,000 companies' bottomline would be hit,” said Mr Pavan Kumar Vijay, Managing Director of Delhi-based consultancy, Corporate Professionals.
However, Mr Jamil Khatri, Head of Accounting Advisory Services, KPMG, India, differs. Reflecting the differences in currency is a global practice and when India introduced it under AS-11, it did so with the aim of aligning with the international practice, he said.
“These ad hoc changes will only create uncertainty in the minds of the international community. There is no merit in postponing it again and again just because some companies are lobbying for it,” he said.
“From a public or shareholder's perspective, complete disclosures should be made and the mark-to-market value made visible,” said Mr Virendra Jain, President, Midas Touch Investors Association.
Mr Khatri said investors and shareholders were being misled for the past three-four quarters.
Handling forex under AS-11
Under AS-11, foreign exchange fluctuations have to be booked in the P&L account.
In 2009, MCA made an exception to the rule and relaxed the mandate for recording the fluctuations in currency in the P&L account till April 2011, the day International Financial Reporting Standards was to be implemented.
When the industry made a hue and cry about this, the March 2011 date was postponed to March 2012.