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India Inc. might have something to cheer about on the forex front

India Inc. might have something to cheer about on the forex front. The National Advisory Committee on Accounting Standards (NACAS), whose accounting policies are followed by the Indian industry, has favoured suspending for two years, the Accounting Standard 11 (AS-11) that requires firms to mark-to-market foreign exchange assets and liabilities. The last two years had seen very volatile movements in the foreign exchange rates which had severe repercussions on the profitability of companies. In the last year especially, the sharp depreciation of the rupee against the dollar compelled many companies to report losses in their profit and loss accounts, thereby denting net profits. The purpose of AS-11 was to account for forex gains or losses under normal business conditions, but because of the sharp fluctuations in currency movements and the unpredictability of the same, it has been contended to suspend this standard for the time being. Thus, corporates will be able to report higher profits, which also means that the government will be able to collect higher taxes. If this proposal does go through, those companies largely relying on exports and those with foreign loans on their books will stand to benefit immensely from the same.

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