From the current financial year, companies will have to clearly provide a separate line item in their balance sheet to reflect the impact of fluctuations in foreign exchange rates on their long-term foreign currency monetary items.
The Institute of Chartered Accountants of India (ICAI), the apex body responsible for accounting and auditing standards in the country, has directed companies to put this item on the ‘equity and liabilities’ side under the head ‘reserve and surplus’ from the current financial year.
“ICAI, at its council meeting, has decided that the debit or credit balance in foreign currency monetary item translation difference account (FCMITDA) should be shown on the ‘equity and liabilities’ side,” said SK Agrawal, president, ICAI.
Explaining the reasons for this action, Agrawal said: “ICAI’s view is based on the premise that, for instance, the debit balance in the said account represents foreign currency translation loss. But it does not meet the definition of asset issued by ICAI as it is neither a resource nor any future economic benefit would flow to the entity there from. Accordingly, we have issued an announcement regarding this decision.”
Convergence of Ind AS with IFRS: Since the Indian Accounting Standard (Ind AS) converged with the International Financial Reporting Standards (IFRS) could not be implemented from April 1, 2011, as per an earlier roadmap, ICAI has decided to recommend a new roadmap for companies to be implemented in three phases.
Companies whose net worth is more than Rs 1,000 crore will move to Ind AS from April 1, 2015. For those companies whose net worth is more than Rs 500 crore, the dates will be April 1, 2016. And for listed entities not covered in the above two phases, the deadline will be April 1, 2017, ICAI has told the corporate affairs ministry, which, in turn, has forwarded it to the National Advisory Committee on Accounting Standards (NACAS).
“The net-worth computations may be based on the balance sheet for FY13 or immediately thereafter,” Agrawal said, adding that the roadmap for banks, NBFCs and insurance companies will be decided in consultation with RBI and Irda.
ICAI writes to Finmin over bank advance limit: ICAI president Agrawal said they have written to the department of financial services under the finance ministry to retain the current advance limit of Rs 6 crore bank branches for purpose of independent audit. Late last year, a committee comprising officials from the Reserve Bank of India (RBI) and the Union finance ministry had recommended increasing the minimum advance limit for branches of PSU banks eligible for independent audit from Rs 6 crore to Rs 20 crore.
“Now, the limit has been raised to Rs 20 crore. But we feel, in doing so, a large number of bank branches will be out of purview of audit. We have given the finance ministry a solution in way of a roadmap on increasing this limit through a committee comprising members from CAG, ICAI, RBI and other bodies,” Agrawal said.
On Reebok matter: The ICAI president also said that the institute has sent a show-cause notice to the ex-CFO of Reebok Vishnu Bhagat regarding alleged fraud at the sportswear maker. “We are waiting for the response. He has 45 days to respond,” Agrawal said. According to him, the next course of action would be decided after getting the information from Bhagat. “From what information the (former) CFO gives, if we find there is a case against the auditor… then (we will take action),” Agrawal said.