Study on Compliance of Financial Reporting Requirements

Study on Compliance of Financial Reporting

Requirements (Compiled from the records of Financial Reporting

Review Board)

Volume-III

The Institute of Chartered Accountants of India

(Set up by an Act of Parliament) New Delhi

© The Institute of Chartered Accountants of India All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form, or by any means, electronic mechanical, photocopying, recording, or otherwise, without prior permission, in writing, from the publisher. (This Third volume contains observations finalised between March, 2011 and January, 2017. The observations finalised upto February, 2011 are contained in Volume 1 and Volume 2.)

Published in : February, 2018

Committee/Department : Financial Reporting Review Board

E-mail : [email protected]

Website : www.icai.org

Price : ` 650 /-

ISBN : 978-81-8441-914-6

Published by : The Publication Department on behalf of The Institute of Chartered Accountants of India, ICAI Bhawan, Post Box No. 7100, Indraprastha Marg, New Delhi - 110 002.

Printed by : Sahitya Bhawan Publications, Hospital

Road, Agra - 282 003. January/2018/P2213 (New)

Foreword

I am delighted to note that Financial Reporting Review Board (FRRB) has come up with the Third Volume of ‘Study on Compliances of Financial Reporting Requirements’. The publication contains various instances of non-compliances with the reporting requirements that have been noticed by the Board during the course of review of the general purpose financial statements of enterprises.

ICAI, as a regulator of the accounting and auditing profession in the country, is dedicated towards promotion of best financial reporting practices in the country. Accordingly, towards its objective to ensure sound financial reporting practices and transparency in the financial statements safeguarding the interest of the stakeholders, Institute has formed the Financial Reporting Review Board in the year 2002. FRRB conducts the review of general purpose financial statements of certain enterprises with the view to find non-compliances with reporting requirements of Accounting and Auditing Standards, CARO, Companies Act and other relevant statutes governing the concerned entity. An advisory is issued to the concerned members for any non-compliance noticed by the Board in the financial statement audited by him to enable him to exercise greater care in performing his professional assignments. If, however, the Board feels that the non-compliances observed is serious and grave in nature, it refers the same to the relevant regulator(s).

I believe this publication would be of great help to the members in performing their professional duties. I compliment CA. Babu Abraham Kallivayalil, Chairman FRRB, CA. Anil Satyanarayan Bhandari, Vice Chairman FRRB, and all members of the Board for their efforts in bringing out the publication.

Date: February 1, 2018 CA. Nilesh S. Vikamsey

Place: New Delhi President, ICAI

Preface

In the current socio-economic environment, information is one of the most powerful tools for the success of not only an individual but also large organizations. Financial statement of an entity is the prime source of the information on its financial health. The users of financial statements which include shareholders, creditors, suppliers of funds and Government authorities dependent on the information depicted in the financial statement of the enterprises.

To maintain reliability and credibility, emphasis should be on accuracy, transparency and adherence to accounting and reporting standards. Care should be taken to ensure relevant regulations are met with in the preparation and presentation of the financial statements. Being the premier accounting body and regulator of auditing profession in the country, the Institute of Chartered Accountants of India (ICAI) has been working towards ensuring the best practices and transparency in the reporting of financial statement of the enterprises.

The Financial Reporting Review Board (FRRB) of the ICAI was formed in the year 2002, as an ombudsman to the financial reporting. The Board undertakes the review of financial statements and auditor’s report thereon of selected enterprises with the view to identify the non-compliances with the reporting requirements of Accounting Standards, Standards on Auditing, CARO, Schedule II & III to the Companies Act, 2013 and other reporting requirements under the relevant statute governing the enterprise. The Board, also informs the concerned auditor about non-compliances, if any, noticed during the review of financial statement audited by him in order to enable him to exercise greater caution while discharging his professional duties. The Board has also been actively involved in updating the members on topics related to financial reporting by bringing the publication as well as organising the awareness programmes.

In past, the Board had brought out the two volumes of its publications ‘A Study on Compliances of Financial Reporting Requirements’ with the objectives to educate the members on various reporting requirements. This is the third volume of the publication in form of compilation of observations on various non-compliances with applicable statues, ASs, SAs, CARO, Companies Act etc. that have been noticed by the Board in the recent reviews carried out by the Board.

We are of the firm belief that this publication will further enhance the knowledge and skills of the auditors as well as others who prepare financial

vi

statements. It will not only educate the members about the principles as well as disclosure requirements but also equip them with the required skills for greater compliances of various regulatory statues, rules and regulations and also enabled them in delivering quality services.

I take this opportunity to thank CA. Nilesh S. Vikamsey, President ICAI and CA. Naveen N. D. Gupta, Vice-president ICAI for their support and guidance.

I, also, wish to place on record my sincere thanks to present and past members of the FRRB for their valuable inputs on which we laid the foundation of this publication.

I am thankful to my Council colleagues who are the strong pillars of the Board during the year - CA. Anil S. Bhandari, Vice-chairman, FRRB, CA. Dhinal A. Shah, CA. Shyam Lal Agarwal, Shri. Vijay Jhalani (Government nominee), CA. Vijay Kumar Gupta, CA. M. P. Vijaykumar, CA. Sanjay Vasudeva, CA. Ranjeet Kumar Agarwal, CA. Kemisha Soni and CA. Nandkishore C. Hegde.

I also want to thank members of various Financial Reporting Review Groups (FRRGs) as well as Technical Reviewers (TRs) for their huge contribution and unparalleled support.

I also like to place on record my sincere thanks to CA. Sankar Datta, Chennai and CA. Nalin Shah, Mumbai who has prepared the basic draft of the publication based on the content provided by the Board and for sparing time out of their pressing preoccupations. Without their support this publication would not have been possible.

I would also wish to express my gratitude to CA. Aakanksha Kapoor, Secretary, FRRB, CA. Ankita Mangla, CA. Chetna Gupta, CA. Rohit Ahuja, CA. Ashish Tiwari and the team at FRRB Secretariat for their efforts in bringing out the publication.

Date: February 1, 2018 CA. Babu Abraham Kallivayalil Place: New Delhi Chairman

Financial Reporting Review Board

Deficiencies Observed: At a Glance

Gra

phic

al P

rese

ntat

ion

of A

ccou

ntin

g St

anda

rds


viii

AS 1: Disclosure of Accounting Policies


ix

AS 2 : Valuation of Inventories


x

AS 3:Cash Flow Statements


xi

AS 5: Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting Policies


xii

AS 7: Construction Contracts


xiii

AS 9: Revenue Recognition


xiv

AS 10: Accounting for Fixed Assets


xv

AS 11: The Effects of Changes in Foreign Exchange Rates

Documents

Study on Compliance of Financial Reporting Requirements