India Inc may get 2-year relief over forex losses

THE National Advisory Committee on Accounting Standards (Nacas), which is the final word on accounting policies followed by the Indian industry, has favoured suspending for two years a key rule that requires firms to mark-to-market foreign exchange assets and liabilities, a decision which comes as a victory for corporate India, as it sits down to draw yearly financial results.
    The demand to suspend this rule, known in accounting circles as AS-11, was made by the Confederation of Indian Industry (CII) on grounds that it could severely distort the earnings of many companies. It was contended that this accounting standard, designed to address normal conditions, should be suspended for the time being, as the present market conditions were not normal.
    India Inc may post better results if Nacas' recommendations are accepted, as it would spare several companies from taking a hit to reflect the 27% depreciation of the rupee against the dollar in the past one year. Higher profits would mean higher tax collections for the government.
    A similar debate is now raging in the US on whether the capital market regulator, Securities and Exchange Commission, should suspend mark-to-market accounting rule that has forced banks to report billions of dollars in asset writedowns. Nacas' recommendations are usually accepted by the government. Nacas chairman YH Malegam declined to comment on whether the body, which was constituted by the ministry of corporate affairs, had asked for the suspension of AS-11 until April 2011.
    The ministry of corporate affairs, which gives statutory force to Nacas' suggestions through notifications, also declined to comment. Nacas consists of representatives from the ministry of corporate affairs, the Reserve Bank of India (RBI), Comptroller and Auditor General of India (CAG) and various chambers of commerce.
    The decision to hold off implementing AS-11, which would have forced companies to mandatorily account their foreign exchange losses, was taken at a Nacas meeting held in Mumbai on Tuesday.
SAVING ACCOUNTS
What is AS-11?
Accounting Standard-11 mandates MTM provisioning in the P&L a/cs for forex-related gains and losses. It moots forex assets & liabilities be recorded at a fair value on the date of preparation of balance sheet
Why are cos against it?
CII wants suspension of this norm on grounds that it has distorted the earnings of many cos. It contended that this accounting standard, designed to address normal conditions, should be deferred as the present market conditions were not normal ICAI objects to Nacas plan
THE decision was strongly opposed by the accounting regulator, the Institute of Chartered Accountants of India (ICAI), said one official who attended the meeting.
    ICAI, whose objections were overruled by the Nacas board, said it continued to maintain its opposition to suspend implementing AS-11. "We believe that an accounting standard should not be changed because of any change in circumstances. We are not interested in going for any changes in the regulation because we want consistency and prudence," said ICAI president Uttam Prakash Agarwal, who was also present at Tuesday's meeting. ICAI further said that with India's accounting norms set to converge with the International Financial Reporting Standards (IFRS) by April 2011, the decision to suspend AS-11 will not be a prudent step.