Government to take decision soon on AS 11

The government is likely to take a final decision on Accounting Standard 11 (AS 11) within a couple of days, according to a senior official of the Ministry of Corporate Affairs (MCA).

The National Advisory Committee on Accounting Standards (NACAS), in a meeting held last Tuesday, recommended deferring AS 11, which deals with mark-to-market provisioning in the account for foreign exchange-related gains and losses, to 2011.

The advisory body took this decision despite the fact that no consensus was reached on this issue among its members. Also, the Institute of Chartered Accountants of India (ICAI), which brings out accounting standards, was strongly opposing it.

Some experts, including a member of the advisory committee, say NACAS has the power to take suo motu decisions.

According to B Ravi, a company law expert, NACAS is a specialised body formed by the government and the ICAI standards have to be cleared by NACAS before these get implemented. NACAS is a final authority and even if ICAI has reservations on some issues, NACAS can ignore it, he added.

“NACAS has taken its decision and now the government would take a final call on this,” added the MCA official. The government would have to notify the deferment decision.

The government had referred the AS 11 issue to NACAS to resolve certain issues, including the controversy over Schedule VI and AS 11. Also, since the rupee had depreciated by over 20 per cent over the past few months, companies had been booking losses for the past few quarters and had sought relaxation in the mark-to-market (MTM) provision to book the losses till the loans matured, the official said.

Many companies have been following Schedule VI of the Companies Act, which says that as a result of exchange rate fluctuation, any change in the repayment needs to be added or deducted from the cost of fixed assets. Schedule VI allows the capitalisation of such losses. The MCA wanted the ICAI to review the role of auditors, who had allowed companies to use the provisions of Schedule VI.

On the other hand, the ICAI president has objected to NACAS’ decision. “I strongly object to it. When the ICAI council was having discussions on this, NACAS went ahead and took its own call,” said Uttam Prakash Agarwal, president of ICAI.

The ICAI council has a number of observations on the entire issue. It wonders whether it would bring a contradiction between Schedule VI and AS 11 in case of extraordinary circumstances. Also, would such a decision require an amendment to the Companies Act? The council also wants to know if this amounts to deviation from the International Financial Reporting Standards (IFRS), the international accounting norms. The country plans to converge with IFRS by 2011. Also, the council asks whether enforcement of this decision can be done in the face of the model code of conduct, as elections are round the corner.