Mark-to-mkt recognition optional till March 2020

In a new year gift for companies troubled by a weakening rupee, the Ministry of Corporate Affairs (MCA) has again diluted the mark-to-market requirement for foreign currency assets and liabilities by keeping it optional till 2020. Mark-to-market loss or fair-value accounting refers to a system of registering the notional value of an asset or liability on the basis of its current market value. “Companies will now have the choice of deferring the recognition of such losses by spreading it systematically till 2020,” said C V Sajan, partner, chartered accountancy firm Bhudladia & Co.

An MCA notification has stated that companies, which were facing a March 2012 deadline to fully comply with Accounting Standard 11 (AS11), which pertains to “the effect of changes in foreign exchange rates”, can now exercise this option up to March 31, 2020. “This is in stark departure from the International Financial Reporting Standards and also AS 11, issued by the Institute of Chartered Accountants of India. According to AS 11 norms, all foreign currency assets and liabilities needed to be restated at the rate on the reporting date. As a result, companies with foreign currency borrowings had to report huge losses whenever the Indian currency depreciated,” said Sajan.