By Raman Jokhakar, Tarunkumar Singhal, Chartered Accountants
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63 Top companies ignore ICAI rule
on forex loss treatment.
First-quarter results of several big companies such
as Reliance Industries, Reliance Communications, Bharti Airtel and Jet Airways
would have been a lot worse had they followed the Accounting Standards (AS) 11
rules prescribed by the Institute of Chartered Accountants of India (ICAI).
Most of these companies, however, chose to comply
with Schedule 6 of the Companies Act, which is at variance with the treatment
prescribed in AS-11 for the exchange loss incurred on foreign
currency-denominated liabilities for acquiring fixed assets.
For example, if the forex loss on this account were
taken to the profit and loss (P&L) account as required under AS-11, the net
profits of Reliance Industries for the quarter-ended June would have been 23%
lower than reported. Similarly, Reliance Communications’ net profits would have
shrunk 70% if it had taken the forex loss on the P&L account.
“The effect of changes in foreign exchange rates
has to be charged to the profit and loss account. The standard has been notified
by the Government and is part of the rules. Any violation has to be dealt with
by the Government,” said ICAI President Ved Jain.
The problem is that the Companies Act has not gone
through a consequential amendment.
“The three agencies (Sebi, ICAI and the Ministry of
Company Affairs) need to work in tandem so that there’s no ambiguity,” said
Sanjay Aggarwal, Head, Financial Services, KPMG.
(With inputs from Business Standard Research
Bureau)
(Source : Business Standard, 6-8-2008)
