Forex deals of companies under ministry scanner

The ministry of corporate affairs (MCA) is looking into the accounts of big corporates with “huge turnovers” to assess whether these firms are reflecting correctly the losses or gains arising from transactions involving foreign currency in their account books.

The ministry has roped in the Institute of Chartered Accountants (ICAI) for the purpose and is trying to find out whether there is genuine confusion over the issue of recording exchange differences or companies are taking advantage of the confusion.

“MCA is looking into the matter. We will analyse all reports regarding the matter and will see if there is some genuine trend emerging or if there is any confusion. We will take strict actions if companies are found guilty of misdeed,” an official source said.

TRANSACTION TREMORS

Ministry of corporate affairs (MCA) has roped in the Institute of Chartered Accountants (ICAI) to look into the accounts of big companies with "huge turnovers"

This is to assess if losses or gains arising from transactions involving foreign currency are reflected accurately in their account books

According to industry sources, certain companies in the telecom and aviation sectors manipulated their accounts to show higher profits

Sources added that one doesn’t know the number of companies which are following such practices. The number may be in hundreds.

“So the ministry is trying to sort out the situation and the work is on in collaboration with ICAI,” the source added.

When contacted, ICAI President Ved Jain said the Financial Reporting Review Board (FRRB) is looking into the matter. It is a regular practice with FRRB to review the accounts of companies and report anomalies or mistakes to the institute, he added.

According to industry sources, certain corporates in the telecom and aviation sectors artificially increased their profits by not strictly following the accounting standard AS 11 prescribed by the ICAI for recording foreign exchange transactions.

AS 11 deals with the effects of changes in foreign exchange rates for enterprises, which may carry activities like foreign currency transactions or may have foreign operations.

The standard requires companies to treat the exchange difference in the profit and loss account of the financial statements. However, the companies allegedly showed them as assets or liabilities as per the Schedule VI of the Companies Act, which led to substantial increase in their profitability.

According to a government notification, accounting treatment of exchange differences contained in the standard is required to be followed irrespective of the relevant provisions of the Schedule VI of the Companies Act.