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CII seeks review of accounting norms

NEW DELHI: The Confederation of Indian Industry (CII) has sought a review of the current accounting norms under which all foreign currency monetary assets and liabilities are to be revalued at the exchange rate prevailing at the period end date and the consequent exchange rate gain or loss recognised in the profit and loss account.

In a statement here on Saturday, the chamber has proposed that the norms be reviewed to allow accounting of foreign exchange revaluation gains/losses over the remaining tenor of the underlying items of borrowings or receivables. Aptly, the recommendation has come at a time when there is unprecedented volatility in the foreign exchange rates of the rupee against foreign currencies which has affected corporate reporting.

Commenting on the issue, CII Director General Chandrajit Banerjee said: “The present market conditions are extremely unusual, not likely to be witnessed in an average lifetime, and call for unusual and immediate regulatory intervention. This is more so because the accounting framework and the standards are designed to address normal conditions, and what we are facing are clearly not normal times.”

The current Accounting Standards (AS 11) require revaluation of monetary assets and liabilities in foreign currency at each reporting date — quarterly and annually —- irrespective of maturity dates or tenure of these assets and liabilities. In the background of substantial increase in foreign currency borrowings, this accounting treatment prescribed for exchange rate has severely distorted the reported earnings of many companies as the unrealised forex restatement of gains or losses are not reflective of the operating performance of these companies during the period, the chamber said.

The CII has recommended that as an emerging economy with an increased foreign currency exposure, India should act quickly to prevent a downward spiral. Otherwise, if negative perceptions are allowed to continue, then any delayed corrective action would be ineffective, it said.

The chamber is of the view that while the Government is taking a number of proactive steps in the monetary and fiscal framework, the modification in accounting norms would add to investor confidence and perception through realistic reporting requirements. Adoption of this recommendation along with transparent disclosures about the accounting policies, it said, would go a long way in addressing and preventing burgeoning negative perception about the performance of India Inc and halt the erosion of confidence in the marketplace.

Earlier, the CII had requested for transition time for industry to follow accounting treatment as provided under Accounting Standard (AS 30) in respect of all outstanding derivative contracts as on March 31, 2008, by marking them to market mandated by the Institute of Chartered Accountants of India (ICAI) in its announcement dated March 29. Various issues and questions on the partial adoption of AS 30, process of law for notification of accounting standards, absence of guidance, and clarification on accounting for embedded derivatives, differential accounting treatment and change in accounting policy had been raised by the chamber to highlight the industry’s concerns on the issue.

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