Financial Reporting Review Board (FRRB) reviews the General-Purpose Financial Statements (GPFS) of enterprises with the view to identify the non-compliances with Accounting Standards/ Ind AS and Standards of Auditing, CARO, Companies Act, and other applicable statutory requirements. One of the non-compliance observed by the board is provided below:
Case:
An abstract of Auditor’s Report under CARO read as below:
“viii) In our opinion and according to the information and explanations given to us company has not defaulted in repayment of dues to a financial Institution or bank. During the year under consideration, the bank has charged the company on account of deduction of interest on prematurity of FDRs, which stands included under interest expense. The company has not issued debentures.”
Observation to the above case:
It was noted from the CARO report of the company that deduction of interest on pre-maturity of fixed deposits was included in the finance cost. It was viewed that the deduction of interest income on prematurity of fixed deposits should not have been accounted as finance cost, rather the interest income should not be recognized to the extent of the deduction. It was viewed that interest income on fixed deposits should have been shown under other income or other operating income based on the related facts of the entity.
As per paragraph 9.1.8 of Guidance Note on Division II – IND AS Schedule III to the Companies Act, 2013 “The term “other operating revenue” is not defined. This would include Revenue arising from a company’s operating activities, i.e., either its principal or ancillary revenue-generating activities, but which is not revenue arising from sale of products or rendering of services. Whether a particular income constitutes “other operating revenue” or “other income” is to be decided based on the facts of each case and detailed understanding of the company’s activities.”
Conclusion:
Accordingly, it was viewed that the above stated requirements of Guidance Note on Division II – Ind AS Schedule III to the Companies Act, 2013 have not been complied with in preparation and presentation of the financial statements.
