Inconsistencies galore!!!!

A peep into the treatment of exchange fluctuations have been treated in books of account by the company.

1. Reliance Industries:

The Company has continued to adjust the foreign currency exchange differences on amounts borrowed for acquisition of fixed assets, to the carrying cost of fixed assets in compliance with Schedule VI to the Companies Act, 1956 as per legal advice received, which is at variance to the treatment prescribed in Accounting Standard (AS 11) on “Effects of Changes in Foreign Exchange Rates” notified in the Companies (Accounting Standards) Rules 2006. Had the treatment as per the AS 11 been followed, the net profit after tax for the nine months period ended 31st December 2008 would have been lower by Rs. 1,177 crore (US$ 242 million). This is a matter of reference in the limited review report of the statutory auditors. The net profit after tax for the seven quarters from 1st April 2007 to 31st December 2008 would have been lower by Rs. 1,147 crore (US$ 235 million) on account of cumulative effect of the above treatment.

2. Bharat Forge:

In order to recognize the impact of fluctuation in foreign currency rates arising out of instruments acquired to hedge highly probable transactions, in appropriate accounting periods, the company has from this year decided to apply the principles of recognition set out in the International Accounting standards as suggested by the Technical Directorate of the Institute of Chartered Accountants of India, as reflected in the Accounting Standard-30- Financial Instruments- Recognition and Measurement. As a result, the impact of unrealised losses (net) consequent to foreign currency fluctuation in respect of effective hedging instruments outstanding as at 31st December 2008, to hedge future exports, aggregating Rs. 2,981 lacs are carried as a Hedging Reserve to be ultimately settled when the underlying transaction arises, in the profit and loss account as against the practice of recognizing the same in the profit and loss account, on valuation at the end of each period. Hence previous period/ year figures are not strictly comparable.

The Company has not entered into any exotic derivative hedging instruments.
Other Foreign currency Financial Assets , liabilities, receivables etc. that do not qualify for hedge accounting have been revalued at the end of period rates and the resultant net loss of Rs.2,821 lacs for the quarter and Rs.18,506 lacs year to date has been debited to profit and loss account and treated as exceptional item in above results on account of the wide fluctuation in foreign exchange rates witnessed during the quarter/ Period. Out of this loss, Rs.2,568 lacs for the quarter and Rs.15,607 lacs year to date is in respect of FCCB's, which if not converted are repayable from April 2010 to April 2013.The balance loss of Rs. 253 lacs for the quarter and Rs.2,899 lacs for year to date is in respect of other loans etc..

3. Bajaj Auto:

In order to recognise the impact of fluctuation in foreign currency rates arising out of instruments acquired to hedge highly probable forecast transactions in appropriate accounting periods, the company has from this year decided to apply the principles set out in the IAS as suggested by ICAI reflected in AS 30.

As a result of impact of unrealised loss (net) consequent to foreign currency fluctuations, in respect of effective hedging instruments, to hedge future exports, aggregating Rs.9771 lakhs are carried in Hedging reserve as against the practice of recognising the same in profit and loss account.

4. TVS Motors:

Restatement of ECBs outstanding will be reckoned as of year end.

5. Bharti:

As reported in the last quarter, the Company has followed the accounting policy to adjust foreign exchange fluctuation on loans/liability for fixed assets till June 30, 2008, as per the requirement of Schedule VI of the Companies Act, 1956 based on legal advice. During the nine months period, effective April 1, 2008, the Company has adopted the treatment prescribed in Accounting Standard (AS-11) "Effect of Changes in Foreign exchange Rates" notified in the Companies (Accounting Standard) Rules 2006 dated December 7, 2006. Instead of capitalizing / decapitalizing such fluctuation, as per policy hitherto followed, the Company has charged/credited such fluctuations directly to the Profit & Loss Account. Had the Company continued with its earlier policy, net profit after tax would have been higher by Rs. 245.09 crore and Rs. 900.12 crore for the quarter and nine months ended December 31, 2008, respectively, for the Company and the net profit after tax would have been higher by Rs. 248.42 crore and Rs. 929.94 crore for the quarter and nine months ended December 31, 2008, respectively, for the Group.

6. Infy, TCS, Wipro,ITC:

Blissfully silent.

7. Ranbaxy:

(A) Pursuant to ICAI Announcement “Accounting for Derivatives” on the early adoption of Accounting Standard AS 30 - Financial Instruments: Recognition and Measurement", the Company has early adopted the said Standard with effect from Oct 1, 2008, to the extent that the adoption does not conflict with existing mandatory accounting standards and other authoritative pronouncements, company law and other regulatory requirements. Pursuant to the adoption:-

(i) Transitional loss mainly representing the loss on fair valuation of foreign currency options, determined to be ineffective cash flow hedges on the date of adoption, amounting to Rs 11,788 Million (net of tax) has been adjusted against the opening balance of revenue reserves as of Jan 1, 2008.

( ii) Loss on fair valuation of forward covers, which qualify as effective cash flow hedges amounting to Rs. 723 Million ( net of tax), on the date of adoption, has been recognized in the hedging reserve account.

(B) For the quarter, foreign exchange loss arising on account of change in fair value of foreign currency options determined to be ineffective cash flow hedge, amounted to Rs.7,843 Million before tax and has been recognised under 'Exceptional items'. Net of tax the loss is Rs 5,177 Million.

Many companies are yet publish their results and are bound to come out with their own methods for treating exchange differences . Is the ICAI/MCA watching all this? Post Satyam the trust in the Chartertered accountants and the institute is at an all time low. Before its too late the MCA/ICAI need to standardise the treatment to some extent if not fully. The numbers involved are so huge that a change in treatment, say reckoning the differences in Profit and Loss account instead of capitalising/reckoning in Hedge reserve might wipe off the entire profits of the company!!!!!!.