This refers to the news on how the ICAI has decided to postpone a decision on whether or not to be flexible on AS 11 till such time that the general elections are over. This is surely strange as there is no real connection between the ICAI, AS 11 and the general elections. It shows the depths to which we have fallen, so much so that even routine decisions are now being held hostage to the electoral process. God forbid, if there should be an unstable coalition after the elections, this will mean more decisions will be put on the back burner.
What is not clear, however, is why the ICAI even wants to relax AS 11 which, in a nutshell, forces companies to declare the forex losses they have made. It is correct that, at times like this, mark-to-market losses make things look quite bad, especially in the case of banks and financial institutions since this also lowers their ability to lend money — mark-to-market losses mean the banks have to set aside more money for provisioning and so have less to lend.
But while this is obvious, what needs to be kept in mind is that mark-to-market also allows investors, regulators, and a whole lot of others, to know just what is happening inside a company/bank. If we didn’t have mark-to-market, the US crisis would have been hidden for a while longer, and probably got a lot worse before it was finally discovered.
In any case, if companies face losses due to mark-to-market at a time when the markets are down, they get equally large profits from marking-to-market when the market begins to look up. Mark-to-market is a good measure. When the measure itself is allowed to become flexible — to be used only when companies gain from it and to be discarded when companies lose from it — it defeats the very purpose of having a ruler.
Satish Jha, Mumbai
