The Chartered Accountant

first balance-sheet made out after the issue
of the said notification.
Explanation 2.-In this paragraph, unless
the context otherwise requires, the expressions
"rate of exchange", "foreign currency"
and "Indian currency" shall have the meanings
respectively assigned to them under subsection
(1) of section 43A of the Income-tax
Act, 1961 (43 of 1961), and Explanation 2
and Explanation 3 of the said sub-section
shall, as far as may be, apply in relation to the
said paragraph as they apply to the said subsection
(1)”
DECEMBER 2008 960 THE CHARTERED ACCOUNTANT
ACCOUNTING
ICAI has, considering the fact that there was a difference in the treatment/
recognition of exchange differences on imported fixed assets as provided in
Schedule VI and as provided in AS 11 (2003), stated that, pending amendment
to Schedule VI by the Central Government, any company adopting the
treatment as provided in Schedule VI will still be considered to be complying
with AS 11 (2003) for the purpose of section 211 of the Act. Accordingly,
the auditor of the company should not qualify his report in this regard under
section 227(2) of the Act. The Central Government has vide the Rules stated
that the accounting treatment for exchange difference in respect of imported
fixed assets contained in Schedule VI to the Act should not be followed.
Thus the said instruction states that any change, on
account of change in rate of exchange (herein after
referred to as “exchange difference”), in the liability
of the company for making payment towards the cost
of the fixed asset acquired from outside India (herein
after referred to as “imported fixed assets”) or for
repayment of moneys borrowed in any foreign currency
specifically for the purpose of acquiring such assets,
shall be added to or, as the case may be, deducted from
the cost of such fixed asset (herein after referred to
as “accounting treatment of exchange difference
in respect of imported fixed assets”).
The ICAI had provided for a similar accounting treatment
in AS 11- ‘The Effects of Changes in Foreign Exchange
Rates’ which was originally introduced in 1994
Subsequently, ICAI revised AS 11 in March 2003. The
revised AS 11 (2003), did not require the adjustment
of exchange differences in the carrying amount of the
fixed assets, in the situations envisaged in Schedule VI
referred to herein above. As per revised AS 11 (2003),
such exchange differences are required to be recognised
in the statement of profit and loss since it is felt
that this treatment is conceptually preferable to that
required in Schedule VI and is in consonance with the
international position in this regard.
However, ICAI had vide an Announcement published
in ‘The Chartered Accountant’, November 2003, page
497 stated as under:
“It may be mentioned that the Institute has decided to
take up this aspect with the Government to consider
the same in the revision of Schedule VI to the Companies
Act, 1956. It may be noted that where requirement
of an accounting standard is different from the
applicable law, the law prevails. Accordingly, a requirement
of an accounting standard is not applicable to
the extent it is in conflict with the requirement of the
relevant law. Thus, pending the amendment, if any, to
Schedule VI to the Companies Act, 1956, in respect
of the matter, a company adopting the treatment described
in paragraph 2 above will still be considered to
be complying with AS 11 for the purposes of section
211 of Act. Accordingly, the auditor of the company
should not assert non-compliance with AS 11 (2003)
under section 227 (3) (d) of the Act in such a case and
should not qualify his report in this regard on the true
and fair view of the state of the company's affairs and
profit or loss of the company under section 227(2) of
the Act.”
Thus the ICAI has, considering the fact that there was
a difference in the treatment/recognition of exchange
differences on imported fixed assets as provided in
Schedule VI and as provided in AS 11 (2003), stated
that, pending amendment to Schedule VI by the Central
Government, any company adopting the treatment
as provided in Schedule VI will still be considered to
be complying with AS 11 (2003) for the purpose of
section 211 of the Act. Accordingly, the auditor of the
company should not qualify his report in this regard
under section 227(2) of the Act.
Later, the Central Government notified Companies
(Accounting Standards) Rules, 2006 (herein after
referred to as “the Rules”) vide Notification dated
7th December, 2006 whereby the Central Govern-