The ministry of corporate affairs (MCA) is likely to allow Indian companies to minimise the losses they may have to incur on account of unfavourable fluctuations in foreign currency exchange rates by allowing them to keep such losses or gains out of the profit and loss accounts for the time being.
The ministry’s technical advisory committee, the National Advisory Committee on Accounting Standards (NACAS), is known to have taken this view in the wake of heavy foreign currency fluctuation in the international market. MCA is expected to take a final view on the matter next week.
It should be noted that the rupee has depreciated 20 per cent against the dollar since August and 18 per cent during the calendar year so far.
The move, meant to be a face-saving measure for companies with huge foreign currency borrowings, will allow them to report better financial results in the coming quarters.
“The implementation of the Accounting Standard 11 (AS-11), which deals with differences in foreign exchange rates, may be deferred till further notice,” an official said.
In 2009, MCA had given an exemption to companies from adopting AS-11 until March 2011. In the absence of further notification, companies were facing the grim prospect of following AS-11 system while preparing their 2011-12 financial results.
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Once the AS-11 implementation gets extended, companies will have the option of adjusting such exchange differences to the cost of the asset, and showing those separately in the balance sheet. The exemption, however, will be subject to conditions.
The Institute of Chartered Accountants of India, the apex body regulating the profession of chartered accountancy in India, is known to have favoured the extension.