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