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RELIANCE Communications would have reported a loss of Rs 2,255 crore for the fiscal year that ended in March had it accounted for foreign exchange differences in accordance with Accounting Standard 11, a section of India's accounting rules that deals with the impact of changes in foreign exchange rates. Instead, the telecom firm used a section of the Companies Act resulting in a profit of Rs 5,908 crore, according to a report prepared by the company's auditors, BSR & Co.
In the review report, which has been sent to RCOM's board and to the exchanges, BSR said that had the company accounted for the relevant foreign exchange differences in accordance with AS 11, the profit for the quarter would be lower by Rs 809 crore and profit for the year would change to a loss of Rs 2,255 crore.
BSR is the Indian affiliate of the global accounting firm KPMG.
When contacted, an RCOM spokesman said: "The statement of accounts are in full compliance with the applicable provisions of the Companies Act of 1956. The same has already been detailed in the notes to the accounts, while declaring the annual results over a month ago, on April 30, 2009. "
RCOM figures among a host of Indian companies which have benefited from a liberalisation of AS 11 by the government. In its original version, AS 11 stipulated that the gain or loss arising out of changes in the exchange rate had to be recognised as income and should be part of the profit and loss (P&L) account. Because of the depreciation of the rupee for much of the previous fiscal, particularly in October-December 2008 and January-March 2009 Indian companies were faced with the prospect of incurring substantial losses which would have reflected in their P&L account.
The relaxation allowed by the government permitted companies to capitalise or amortise forex losses which in plain language means that the losses could be subtracted from the value of fixed assets thus taking it out of the balance sheet. This relaxation was allowed for two years.
RCOM, however, has not used AS 11 at all. Instead it has capitalised the forex differences on amounts of liabilities and borrowings related to acquisition of fixed assets acquired abroad, in accordance with a section of Companies Act.
In its report, BSR also said: "Nothing has come to our attention that causes us to believe that the accompanying statement of unaudited financial results, prepared in accordance with accounting standards, has not disclosed the information required to be disclosed." RCOM said it's currently pursuing "aggressive capex plans which include significant expansion of nationwide wireless network. The company has funded these initiatives primarily by long-term borrowings in foreign currency and foreign currency convertible bonds."
RCOM also said that "in compliance with the Schedule VI of the Companies Act, 1956, and on basis of legal advice received by the company, changes to the amount of liability and borrowings related to the acquisition of fixed assets consequent upon short-term fluctuations in foreign exchange rates up to March 30, 2009, are adjusted in the carrying cost of fixed assets."
In the review report, which has been sent to RCOM's board and to the exchanges, BSR said that had the company accounted for the relevant foreign exchange differences in accordance with AS 11, the profit for the quarter would be lower by Rs 809 crore and profit for the year would change to a loss of Rs 2,255 crore.
BSR is the Indian affiliate of the global accounting firm KPMG.
When contacted, an RCOM spokesman said: "The statement of accounts are in full compliance with the applicable provisions of the Companies Act of 1956. The same has already been detailed in the notes to the accounts, while declaring the annual results over a month ago, on April 30, 2009. "
RCOM figures among a host of Indian companies which have benefited from a liberalisation of AS 11 by the government. In its original version, AS 11 stipulated that the gain or loss arising out of changes in the exchange rate had to be recognised as income and should be part of the profit and loss (P&L) account. Because of the depreciation of the rupee for much of the previous fiscal, particularly in October-December 2008 and January-March 2009 Indian companies were faced with the prospect of incurring substantial losses which would have reflected in their P&L account.
The relaxation allowed by the government permitted companies to capitalise or amortise forex losses which in plain language means that the losses could be subtracted from the value of fixed assets thus taking it out of the balance sheet. This relaxation was allowed for two years.
RCOM, however, has not used AS 11 at all. Instead it has capitalised the forex differences on amounts of liabilities and borrowings related to acquisition of fixed assets acquired abroad, in accordance with a section of Companies Act.
In its report, BSR also said: "Nothing has come to our attention that causes us to believe that the accompanying statement of unaudited financial results, prepared in accordance with accounting standards, has not disclosed the information required to be disclosed." RCOM said it's currently pursuing "aggressive capex plans which include significant expansion of nationwide wireless network. The company has funded these initiatives primarily by long-term borrowings in foreign currency and foreign currency convertible bonds."
RCOM also said that "in compliance with the Schedule VI of the Companies Act, 1956, and on basis of legal advice received by the company, changes to the amount of liability and borrowings related to the acquisition of fixed assets consequent upon short-term fluctuations in foreign exchange rates up to March 30, 2009, are adjusted in the carrying cost of fixed assets."
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