AS-11 dilution

We reported this last week on the day when the NACAS meeting took place, it’s the national committee that sets accounting standards and its setup under the provisions under the company law and reports to the ministry of corporate affairs. NACAS at that time had informally taken a decision to amend AS-11 but that informal decision had to be endorsed by the ministry and the ministry has accepted apparently those recommendations made by NACAS. This is still source based and that notification still has to be made public because I am told it was issued yesterday, this is very good news for corporate India.

I am sure we are familiar with the kind of currency volatility India Inc has seen in the last 18 months from almost Rs 45 to a dollar to Rs 38 or so and then back again to Rs 50-52 have played on corporate balance sheets and profitability. It’s been very difficult for corporate India to be able to face this, they have been dobbing for this and this is their lucky day.

There are two very key amendments, exactly the same that we reported as recommended by NACAS this last week and they are that companies will be allowed to capitalize forex losses on capital assets instead of charging them to revenue and thereby an immediate impact on the P&L and companies can create a special reserve for a transitory account to park MTM forex losses and amortize them upto 2011 March 31^st and the day after that we converge with IFRS and so it has to be that day as the last day.

This will come as very good news for all Indian companies many of whom were facing very severe losses on account of forex volatility and it comes just in time just before the earnings seasons start. So, all companies can account for these amendments when they put their balance sheets and their financial earnings together. Everyone in corporate India will be happy but one constituency is going to be very unhappy that is the Institute of Chartered Accountants of India (ICAI), you will recall last week we pointed out that the president of the ICAI has opposed to any dilution of AS-11, and this is what he told us right after that meeting last week.