Just a month ahead of the next quarterly earnings season,corporate India has begun to lobby hard with the government and the accounting regulator to stop a new set of guidelines that will further deepen the red ink in company balance sheets.
The issue at stake is how to treat losses to a company in its foreign exchange exposure. The operative clause in the Institute of Chartered Accountants of India (ICAI) standards is known as AS 11. In the past six months the Indian rupee has slid by over 13%. Just a year before that it had gained almost 10%. Companies reckon that this level of change is impossible to forecast and difficult to provide for in the balance sheets.
The industry wants ICAI to keep in abeyance the implementation of the mandatory accounting standard (AS 11).
The Confederation of Indian Industry issued a release over the weekend,saying ICAI should review its mark-to-market norms. The chamber says AS 11,prescribed for foreign exchange fluctuations,has severely distorted the reported earnings of many companies. Chandrajit Banerjee,director-general of CII,said: The present market conditions are extremely unusual,not likely to be witnessed in an average lifetime and calls for unusual and immediate regulatory intervention.
Uttam Prakash Agarwal,president,ICAI,said accounting standards are framed for proper disclosure and are not made on the basis of circumstances. We cannot change the standards every year depending on what the circumstances are. If this is the case,then what is the need to have accounting standards?