India’s commitment towards global
accounting rules has been questioned following the government
suspension of a foreign exchange standard that is largely in line
with IFRS.
The suspension will likely benefit the balance
sheets of larger companies and has been opposed by the Institute of
Chartered Accountants in India, the nation’s accounting
regulator.
India is desperate to be seen as embracing
global best practices in the wake of its largest corporate fraud in
January. This makes the suspension of AS11 all the more peculiar,
according to one academic.
R Narayanaswamy, a professor of finance and
control at the Indian Institute of Management, said the move raised
doubts about whether convergence will happen, and if it does, what
shape India’s IFRS could take.
“You have a European IFRS, so we will probably
have an Indian IFRS. This is the Indianisation of international
standards,” Narayanaswamy said.
“I don’t think that at this rate they will
ever accept international accounting standards in the spirit in
which they have to be accepted. They will accept them on paper and
make these periodical changes.”
AS 11 almost fully conforms to international
standard IAS 21, The Effects of Changes in Foreign Exchange
Rates.
But under the changes, companies will be
allowed to capitalise foreign exchange losses on capital assets
instead of charging to revenue. They will also be permitted to
create a special reserve to park mark-to-market foreign exchange
losses and amortise up until 31 March 2011, which is the day before
the scheduled convergence with IFRS.
Narayanaswamy suggested the government made
the change due to pressure from the private sector. A lot of large
companies stand to benefit from the relaxation of AS 11, he
said.
AS 11 came into effect in 2006 and in the
following two years the Indian rupee appreciated. This meant
foreign currency borrowings were diminishing in Indian rupee terms,
so affected companies were recording gains.
“This is somewhat like this mark-to-market
complaints by banks,” Narayanaswamy said. “When they were all
showing gains they were happy with the mark-to-market, but when
there are losses they are not.”
According to the Ministry of Corporate
Affairs, the changes were recommended by the National Advisory
Committee on Accounting Standard.
Narayanaswamy said he was surprised by the
move. He thought the government would be afraid to ease accounting
rules in the wake of the accounting fraud revealed this year at
Satyam Computer Services.
“This now looks like Satyam has not had any
effect on these people at all, it does not have a sobering effect
on them,” he said.
He added that these changes have a detrimental
effect on the post-Satyam appearance of accountancy and
transparency in India.
“There is a lot of foreign investment in
Indian companies and nobody will believe us when we say we want to
follow globally acceptable standards,” he said.
