1. INVESTMENTS IN EQUITY SHARES
It was observed from the note to the financial statements on Non-Current Investments that the value of investments in equity shares of a company was same as at the end of reporting year and previous year.
It was viewed that such investment increased in terms of number of shares as well as in face value without any change in value of investments and no explanatory note was provided for the same.
The requirements of Ind AS 1 have not been complied with.
2. DISCLOSURE OF CATEGORIES OF FINANCIAL INSTRUMENTS
It was noted that the total of Financial Assets given under the notes was less than the amount of total financial assets shown under disclosure of Categories of Financial Instruments.
This difference was due to double counting of the amount of Unquoted Equity Shares in the total of financial assets included under disclosure of Categories of Financial Instruments.
Accordingly, it will give incorrect picture to the readers of the financial statements.
3. INVESTMENTS IN SUBSIDIARIES, ASSOCIATES AND JOINT VENTURES
It was noted that the investments in Subsidiaries, Associates and Joint ventures have been disclosed separately from other than financial assets.
However, as per the above stated para of Guidance Note, it was viewed that such investment may be shown under the head of financial assets as a separate line item on the face of the Balance Sheet.
As per the requirements of paragraph 11 of Ind AS 32, it was viewed that interest accrued is in the nature of financial asset and hence should be disclosed under the head of non- financial assets.
Further, prepaid expenses and balances with revenue authorities are in the nature of non-financial assets and hence it should be shown under the head of non- financial assets.
4. INVESTMENT IN SHARES OF OTHER COMPANIES
It was viewed that investment in shares of other companies are in nature of financial assets and hence they should be shown under the head Financial Assets‟ and should have been accounted for accordingly.
It was viewed that due to incorrect disclosure of investment in shares, inventories have been overstated and investments have been understated which does not give true picture of financial position of the company.
5. JOINT OPERATION WITH ANOTHER COMPANY
It was noted from the footnote under note to the financial statements on Non- Current Financial Assets that the company had entered into a joint operation with another company and has disclosed the details of arrangements and share of assets.
However, the company did not recognize the obligation for liabilities, expenses and did not account for revenue pertaining to its joint operations.
6. FINANCIAL ASSETS (LOANS)
It was noted from the note to the financial statements on Financial Assets (Loans) that the loans were not classified as per the above stated requirement specifying whether these loans were secured, unsecured or doubtful.
Accordingly, it was viewed that the above stated requirements of General Instructions for preparation of Balance Sheet of Division II – Ind AS Schedule III to the Companies Act, 2013 have not been complied with.
7. TOLL COLLECTION RECEIVABLE
Toll Collection Receivable and Receivable from Authority is in respect of the amount due on account of services rendered in the normal course of business and the company had an unconditional right to these amounts of consideration.
Receivable from Authority and Toll collection receivable were in the nature of trade receivables and should have been classified as ‘Financial Assets -Trade Receivables instead of Financial Asset – Others.
8. RECEIVABLE FROM REDEEMABLE PREFERENCE SHARES
Receivable from redeemable preference share pertains to an enterprise controlled by the company and it is a related party.
However, under note to the financial statements on Non-Current Loans, Receivable from redeemable preference shares were not classified as from related party, which is not in line with the requirement of paragraph 8.1.10 of Guidance Note on Division II- Ind AS Schedule III to the Companies Act, 2013.
9. INTEREST ON INVESTMENTS
Interest received on investments valued at amortized cost has not been shown separately, which is not in line with the requirement of paragraph 20 of Ind AS 107.
Requirements of Guidance Note on Division II – Ind AS Schedule III to the Companies Act, 2013 as well as Ind AS 107 have not been complied with.
10. BALANCES CONFIRMATION
Balances pertaining to trade receivable, loan and advances, trade payable and other liabilities were disclosed as subject to confirmation and reconciliation.
It was viewed that information disclosed as above, is ambiguous. If such balance confirmations/ reconciliations are not material and does not affect the true and fair view of the financial statements of the company, then such information shall not be disclosed in the financial statement as disclosure of such facts may create doubts in the mind of readers of the financial statements.
SA 505, External Confirmation, the auditor shall maintain control over external confirmation requests, and in case management refuses the auditor to send a confirmation request, the auditor shall, inter-alia, perform alternative audit procedures designed to obtain relevant and reliable audit evidence.
11. RELATED PARTY TRANSACTIONS
In the notes to the financial statements on Other Non- Current Financial Assets, interest receivable from related party was disclosed. Similarly, in the notes to the financial statements on Other Current Assets, advances to related party were disclosed.
It was viewed that for the ease of understanding of the users and better presentation of the financial statement the cross referencing of the items of assets and liabilities should be made with the relevant note for the related party disclosures
It was noted from note to the financial statements on Other Financial Assets that dues from related parties were not classified into secured, unsecured and doubtful as per the above stated requirement of General Instructions for preparation of Balance Sheet of Division II, Schedule III to the Companies Act, 2013.
12. INVENTORY VALUATION
Net realizable value of inventory refers to the net amount (estimated selling price less estimated cost of completion and estimated cost of sale) that an entity expects to realize from the sale of inventory in the ordinary course of business whereas the fair value reflects the price at which an orderly transaction to sell the same inventory in the principal (or most advantageous) market for that inventory would take place between market participants at the measurement date.
The inventories ought to be valued at lower of the cost or net realizable value and not the fair value.
13. OTHER BANK BALANCES
It was noted that other bank balances were disclosed under the head of Balance with Banks. However, the nature of these bank balances had not been specified as per the above stated requirements.
Further, it was also noted that the amount was material; therefore, the nature should have been disclosed appropriately for the understanding of the users of the financial statements.
Accordingly, it was viewed that the above stated requirements of General Instructions for preparation of Balance Sheet of Division II – Ind AS Schedule III to the Companies Act, 2013 have not been complied with
Disclaimer: The information contained in this article is based on knowledge obtained from ICAI. It is provided for general guidance to the intended user. I recommend that professional advice is necessary before taking any action on the basis of the article provided.
Also Read: Common Non-Compliances of Financial Reporting (Part – 1)