Creative accounting helps cos cover up forex losses

January 27, 2009
1 min read

Companies are getting creative in using the Company Act and Accounting Standards to avoid the impact of foreign currency loan on their profit & loss statement owing to currency fluctuations. Companies with foreign currency borrowings have now adopted various accounting tactics to ensure that their quarterly performance remains intact in the event of losses arising out of such transactions.

While some companies have taken shelter in the AS30, a newly-introduced accounting standard, others have opted for using the existing A11 standard in more ways than one. The conventional practice has suggested that some of the companies like Reliance Communications, Bharti Airtel and Reliance Industries have been following Schedule VI to the Companies Act.

This clearly allows companies to bring in the loss/gain arising out of their foreign currency liability to their balance sheets instead of their profit and loss (P&L) statements. This practice is in contrast to the AS11 (accounting standard 11). Here is where, many accounting experts feel that AS11 is a more prudent way of representing changes in liability arising out of exchange rate fluctuations.

The debate comes on the back of Indian companies that have been raising foreign currency funds for expansion in the form of foreign currency convertible bonds (FCCBs). These are usually denominated in dollars.

Last year, the appreciation of rupee against the dollar helped these companies to book profits while converting their loans in to rupees at the end of each quarter. That situation is quite the contrary now with the rupee not holding up against the dollar. Beginning with the current fiscal, companies have been scouting for ways to make sure their bottomlines are unaffected.

The companies, which have been following AS11, end up reporting extraordinary losses on account of FCCBs suffering when the rupee depreciates. There seems to be some hope, however, with the newly introduced accounting standard AS30 that allows companies to bring in such losses to their balance sheet.

This is subject to such foreign currency loans being used for acquiring a foreign operation which is non-integral in nature. “If both the liability and assets are in foreign currency, it provides a natural hedge and the impact of exchange rate fluctuations could be brought on to the balance sheet,

Previous Story

Exporters can get service tax refunds in a month

Next Story

MNC liaison offices may get tax breather

Latest from Blog

Income Tax deduction for procurements from MSMEs only upon actual payment

By Shaleen Shah | LinkedIn, assisted by Divyansh Jain Introduction This Note is relevant to computation of income under the head ‘Income from business and profession’. Section 43B of the Income Tax Act provides a list of expenses allowed as deduction, on cash basis irrespective of the year of accounting.

Foreign companies may be required to file Tax Returns in India

by Nexdigm Private Limited as published on Impact of increase in withholding tax on rates for Fees for Technical Services and Royalty As per Indian Tax laws1, payments made to Non-Residents/Foreign Companies for Fees for Technical Services (FTS) and Royalties were liable to tax at the effective tax rate of

How Cryptocurrencies Are Taxed In India

[Source:; Authors: Justin M Bharucha, Aashika Jain] Cryptocurrencies and non-fungible tokens (NFTs) are presently unregulated in India. While the Reserve Bank of India (RBI) had sought to ban cryptocurrencies in 2018, the Supreme Court quashed the attempted ban leaving cryptocurrencies in regulatory limbo – neither illegal nor, strictly speaking,

Higher rate of TDS in certain situations from 1st July 2021

[By Shaleen Shah (Partner), VNCA] Finance Act 2021, has introduced a new section 206AB effective from 1-Jul-2021 wherein a payer/buyer is responsible to deduct TDS at higher rate (i.e. twice the rate as specified under the relevant provision of the Income Tax Act or twice the rate/ rates in force;

Don't Miss

How Cryptocurrencies Are Taxed In India

[Source:; Authors: Justin M Bharucha, Aashika Jain] Cryptocurrencies and

Only 329 startups can claim tax holiday under Startup India

[Source:] Exactly five years since the launch of the