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Date Submitted: 11/17/2012 09:18 PM

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Forex Transactions — Accountant’s Role as an Accountant and a Planner


n India, Accounting Standard (AS) 11 titled “The Effects of Changes in Foreign Exchange Rates” was originally issued in 1989 by ICAI, which was revised in 1994. It has been again revised in 2003 and is mandatory in respect of accounting periods commencing on or after 01.04.2004. With the increasing exposure of Indian entrepreneurs in foreign trade vis-a-vis guidelines on transfer pricing

the transactions”. The requirement of para 9, apparently simple, gives rise to several interesting and complicated dimensions. An incorrect interpretation or adoption of date/rate may lead to qualification from auditors as well as may have several taxation angles. For application of Para 9 two facts viz. (i) date of the transaction and (ii) exchange rate between the two currencies should be very clear.

Sanjay K. Agarwal

(The author is a member of the Institute and Head-Taxation IndoGulf Fertilisers Limited. He can be reached at

Foreign Exchange has always been regarded as an esoteric subject as it involves dealing with multiple currencies and countries coupled with different legal systems and trade practices. It covers a wide range of issues such as international finance, economics of exchange rate, risk management and of course Accounting Standards that regulate accounting of such transactions. Each of these topics is in itself a field of specialization. for taxation purposes, understanding and implementation of AS in full compliance of its technicalities has become more important. The principal issues in accounting for foreign currency transactions and foreign operations are to decide which exchange rate to use and how to recognize in the financial statements the financial effects of changes in exchange rate. As per para 9 of AS-11 “A foreign currency transaction should be recorded, on initial recognition in the reporting currency, by applying to the foreign...