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ICAI to seek chambers views on MTM norms
March, 12th 2009

Accounting and auditing rule-maker Institute of Chartered Accountants of India (ICAI) will meet industry leaders soon to decide whether companies should be exempted this year from the accounting requirement of showing losses on their foreign exchange contracts due to the fluctuations in their market price.

The accounting regulator decided to seek industry views after it faced divergent opinions at its decision making council. ICAI will meet representatives from industry bodies such as the Confederation of Indian Industries, Federation of Indian Chambers of Commerce and Industry and Assocham to take a final call if it should suspend mark-to-market norms at least for the time being.

On the basis of representations, a group was constituted to look into the accounting aspects of changes in foreign exchange rates. As there are divergent views within the group, an open meeting will be held with the chambers to look into the issue, ICAI president Uttam Prakash Agarwal said.

The chambers had objected to ICAIs announcement in April 2008 asking companies having derivative exposure to account for or disclose their losses incurred on foreign exchange transactions. Their representation claimed that corporate houses having forex exposure will be put into a disadvantage with their balance sheet showing figures that are uncompetitive in comparison to their global competitors.

Accounting experts who have raised their voice against introducing MTM accounting in India immediately, have also said that globally companies are being exempted from these stringent accounting norms, which are typically driven by fair value (current market price as against cost of purchase). MTM is an accounting requirement of assigning a value to a position held in a financial instrument based on the current market price of the instrument.

A senior chartered accountant who has been lobbying in favour of suspension of the mark-to-market accounting norms, on conditions of anonymity, said, MTM accounting pre-supposes that there is an open, fair and knowledgeable market. The markets in the present conditions is not normal, it is artificially distorted across the world and the values represented today are not representative values.

The ICAI in March last year had suggested that companies should either adopt the derivative accounting format under Accounting Standard (AS) 30 on financial instruments recognition and measurement, or mark-to-market all outstanding derivative contracts on the balance sheet date.

Adopting AS-30, which was made recommendatory from April 1, 2009, was difficult for corporate houses as this standard requires a lot of changes in the regulatory regime including the Companies Act.

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