It is unfortunate that the National Advisory Committee on Accounting Standards has postponed the implementation of AS 11 accounting standards to 2011. This has been done under pressure from top Indian companies who would have had to report large forex losses in the current year had these accounting standards not been postponed. This is especially unfortunate since these very companies were booking and showing profits when they were making profits on forex hedging deals. How can the standards be different at different parts of the forex, or for that matter, any commodity or business cycle?
Why doesn’t the National Advisory Committee on Accounting Standards now come up with a ruling on ‘seasonally adjusted’ profit? Given that these are exceptionally tough times, it is unfair to judge companies on the vagaries of the market, so let’s do what economists do with economic data — remove the seasonal fluctuations. In this case, remove the global recessionary impact! Another suggestion: Given how depressed the global economy is, and how companies have only bad news to report, why not suspend the quarterly reporting of corporate data?
Let’s get real. Every serious investor knows forex losses/gains do not really affect the real worth of the company if the company’s forex business is a small part of the total. So, while there is a short-term problem that is real, the company is measured by its intrinsic strength. If, however, the forex business forms a substantial part of the company’s operations, then investors will certainly take these factors into account. But if the forex losses are kept out of the purview of the investing public, how is it to know what is going on?
If we are going to change the rule one way when the going is good and flip it around when the going is bad, who is going to trust our accounts? This is the point made by Kaushik Dutta in the debate on AS 11 last week (‘Do the AS 11 norms need to be relaxed?’, March 18).
Srinivas V, New Delhi
