ITS A MIXED BAG

IFRS Norms May be Diluted Before Rollout

Watered-Down Rules Likely To Help India Inc, But Global Investors May Turn Sceptical

WITH less than six months to go before the nation moves towards a globally-recognised accounting system, the government plans to dilute some key provisions relating to foreign exchange differences and overseas borrowings that will make global investors suspect Indian accounting, say three people closely associated with the development.
In the case of accounting for foreign exchange differences that rise because of currency derivatives taken by firms, the government is looking at an option where companies need not provide for any loss in the profit & loss statement but rather just carry forward the value as at the end of March 2011,according to a ministry of corporate affairs official, who declined to be named as he is not authorised to talk with the media.
Also,the National Advisory Committee on Accounting Standards (NACAS), an advisory body for the corporate affairs ministry, is in favour of allowing companies not to provide for mark-to-market (MTM) losses on their foreign currency convertible bonds (FCCBs), says a member of the advisory board.
MTM is an accounting principle where the value of the contract is marked at the current exchange rate for currency derivatives and current bond price for FCCBs.
Both dilutions will be major departures from what the International Financial Reporting Standards (IFRS) prescribe. It has huge upside for India Inc in the short term by helping it avoid reporting such MTM losses prescribed by IFRS. But it may work to its detriment in the long term by making companies unattractive to global investors.

Economic Times, New Delhi, 27-10-2010.