paperbook with coverpage

ers

9 Code of Ethics, 2019

on / Provisions of ICAI Announcement dated
(9) of 18.5.2017 of bar on Advertisement of

Coaching / teaching activities incorporated

nt on
aching

Educational videos may be uploaded by
members;

However, no reference should be made to the
CA Firm wherein he may be a partner /
proprietor.

Member’s / firm’s name allowed in TV/Movie 96
Credits, provided not mentioned differently
from other persons

Ananta - Udaipur

Guidance on other matte

Particulars Code of Ethics, 2009

Authorship of Firm name not permitted •
Books while authoring a book
•
•

Advertisement Silent C
of celebration r
o
P
b

Sharing firm Sharing of Firm details during •
details in an interview not to result in
interview
publicity •

49th RRC at The

ers

Code of Ethics, 2019

Articles and presentations also included in along
with books
Professional attainments prohibited
However use of prefix of “CA” or name of Firm
permitted

Considering the need of interpersonal socialization /
relationship of members through such get together
occasions, advertisement for Silver, Golden, Diamond,
Platinum or Centenary celebrations of CA Firms may
be published in newspaper

Sharing of Firm details during interview not to
result in publicity
Any detail to be given only on a specific question,
and of factual nature only

Ananta - Udaipur 97

Guidance on other matte

Size / Illumination of Sign board Under

• 2009 Code: • Mem
• With regard to the size of sign board for his agre
may
office that a member can put up, it is a matter Acco
in which the members should exercise their
own discretion and good taste. Use of glow • Spec
signs or neon lights on large-sized boards as is rele
used by traders or shop-keepers would not be give
proper.
• Firm
• Added in 2019 Code: claim
• ………while keeping in mind the appropriate
• Wha
visibility and illumination of the sign Board his f
topi

49th RRC at The

ers

Internet added to TV / Films

r commentary to Clause (7)

mbers may appear on television, films and Internet and
ee to broadcast in the Radio or give lectures at forums and
y give their names and describe themselves as Chartered
ountants.

cial qualifications or specialised knowledge directly
evant to the subject matter of the programme may also be
en.

m name may also be mentioned, however, any exaggerated
m or any kind of comparison is not permissible.

at he may say or write must not be promotional of him or
firm but must be an objective professional view of the
ic under consideration.

Ananta - Udaipur 98

Guidance on other matte

Particulars Code of Code of Ethic
Ethics,
Premises are 2009 Communication received
locked Incoming Auditor with “O
Silent Locked” written on the A
Due column shall be deem

Firm not found Silent If Communication sent by
at the given “No such office exists at t
Registered address is registered wit
address deemed to be delivered,

unless the retiring audito
was not really served and
responsible for such non-

49th RRC at The

ers 99

cs, 2019

d back by the
Office found
Acknowledgment
med as delivered

y with remarks
this address”, and
th Institute -

or proves that it
d that he was not
-service.

Ananta - Udaipur

HUF vis-à-vis member in

Guidance on a member in practice being member /
Karta in a HUF doing business incorporated

Must result from inheritance/ succession/
partition of the family business
Only after specific and prior approval of the
Council
Karta cannot have active role
Attest functions not permitted

Clarification incorporated that a member engaged as Karta of a HU

Council if he makes investments from the funds pertaining to HUF

the said business. 49th RRC at The

practice

HUF doing family business, will be within the limit prescribed by
F only, provided, he is not actively engaged in the management of

Ananta - Udaipur 100

Generally Accepted Audit

Commentary in Clause 9 of Part - I of Secon

Requirement of Peer
Review in case of Audit of
Listed Companies

Mandatory Firm
registration Nu
Membership No

49th RRC at The

t Procedure

nd Schedule - Changes in the Revised Code

Requirement of UDIN with effect
from 1st July, 2019 on all
Corporate / Non- Corporate Audit,
Attest and Assurance Functions.

m
umber /
o.

Ananta - Udaipur 101

Ceiling of Fees – Self regu

Code of Ethics, 2009

• Existing chapter in Self Regulatory Measures recommende
limit on Fees from one or more clients under the same ma

• Exemptions from this chapter to :-
o less than two lakhs annual fees ;
o Audit of government companies;
o public undertakings
o Nationalized banks
o public financial institutions ;
o where appointments are made by Government

Code of Ethics, 2019 (modified version of IESBA Code)

• prescribes that more than 15% Fees from a client consecu
would require disclosure to those charged with governanc

• Exceptions same as in Self Regulatory measures. Except fo

exempted upto Rs. 5 lakhs 49th RRC at The

ulatory measures 2009

ed by Council has 40%
anagement.

utively for two years, 102
ce.
or Annual Fees which is

Ananta - Udaipur

Recent Decisions/Announceme

A CA Firm may register itself on Udyog
Aadhar, a web portal of Ministry Micro, Small
and Medium Enterprises.

It is not permissible for a member to use
WhatsApp to send messages to make people
aware about his practice, and mention the
services provided therein.

A Chartered Accou
Authorized Repr
Company, provided
said Company.

49th RRC at The

ents of Ethical Standards Board (1/5)

There is no prohibition for internal auditor
of a company to acquire/purchase shares of
the said Company.

A Chartered Accountant in practice being
Director Simplicitor in a Company cannot sign
ROC Forms of the Company as it is a direct
conflict of role.

untant in practice can act as 103
resentative of a Foreign
d he is not the auditor of the

Ananta - Udaipur

Recent Decisions/Announcem

A chartered accountant in practice can provide
services through kiosk only if the services
provided are professional activities of a
practicing chartered accountant, permitted
under the Act.
A Chartered accountant can hold the credit card
of a bank when he is also the auditor of the
bank, provided the outstanding balance on the
said card does not exceed Rs. 10000 beyond the
prescribed credit period limit on credit card given
to him.

In case where Charte
a non-executive dir
Firm in which he is
the appointment as
Company which is a
Company, as it would

49th RRC at The

ments of Ethical Standards Board (2/5)

A Chartered Accountant in practice is not
permitted to accept audit assignment of a
bank in case he has taken loan against a
Fixed Deposit held by him in that bank.

A Chartered Accountant in service is allowed
to take e-return registration if it does not
conflict with employment obligation. However,
he cannot certify the return.

ered Accountant in practice is 104
rector in a company, he or a
a partner, should not accept
s a statutory auditor of a
a joint venture of the original
d impact independence

Ananta - Udaipur

Recent Decisions/Announcem

A Chartered Accountant in practice may be an
equity research adviser, but he cannot
publish retail report, as it would amount to
other business or occupation.

A Chartered Accountant in practice may
engage himself as Registration Authority
(RA) for obtaining digital signatures for
clients.

A chartered accou
become Financial
/ commission fro
such as Mutual Fu
NBFCs etc.

49th RRC at The

ments of Ethical Standards Board (3/5)

A Chartered Accountant, who is a member of a
Trust, cannot be the auditor of the said
trust.

A Chartered Accountant in practice can act as
mediator in Court, since acting as a
“mediator” would be deemed to be covered
within the meaning of “arbitrator’

untant in practice cannot 105
Advisors and receive fees
om Financial Institutions
unds, Insurance Companies,

Ananta - Udaipur

Recent Decisions/Announceme

A Chartered Accountant cannot exercise lien
over the client documents/records for non-
payment of his fees

It is not permissible for chartered
accountants in practice to take agencies of
UTI, GIC or NSDL.

A Chartered accoun
as tax representa
on behalf of his e
of other employees

49th RRC at The

ents of Ethical Standards Board (4/5)

It is not permissible for CA Firm to print its
vision and values behind the visiting cards,
as it would result in solicitation.

It is permissible for a member in practice to
be a settlor of a trust.

ntant in service may appear 106
ative before tax authorities
employer, but not on behalf

of the employer.

Ananta - Udaipur

Recent Decisions/Announcem

A chartered accountant who is the statutory
auditor of a bank cannot for the same
financial year accept stock audit of the same
branch of the bank or any of the branches of
the same bank or sister concern of the bank,
for the same financial year.
A concurrent auditor of a bank ‘X’ cannot be
appointed as statutory auditor of bank ‘Y’,
which is sponsored by ‘X’

A chartered accou
permissible to hol
under section 146 o

49th RRC at The

ments of Ethical Standards Board (5/5)

A CA Firm which has been appointed as the
internal auditor of a PF Trust by a
Government Company cannot be appointed as
its Statutory Auditor.
A CA/CA Firm can act as the internal auditor
of a company and statutory auditor of its
employees PF Fund under the Companies Act,
2013.

untant in practice is not 107
ld Customs Broker License
of the Customs Act, 1962.

Ananta - Udaipur

Recent Decisions of Ethical S

It is permissible for two or more Chartered
Accountants in practice collectively to have
joint training session for their clients on
GST, and share the fees collected from the
clients thereof.
A member can send presentation on GST
/write-up on GST only to existing clients,
and to a proposed client if an enquiry was
received from the proposed client with regard
to the same.

A member can
mentioning himsel
name, provided th
to providing updat
is not allowed.

49th RRC at The

Standards Board (related to GST)

GST training can be provided to the existing
clients. In case of non-clients, training can be
provided only if the member is invited to
provide such training.

Its is not permissible for a member to
mention himself as GST Consultant.

n share GST updates, 108
lf as “CA” with individual
he communication is limited
tes. Mention of Firm name

Ananta - Udaipur

Frequently Asked Questio

Can an Auditor write the books of • No, clause 4 of Part I of
accounts of the auditee? Further section 144 of th
the company to directly
keeping services of the
company

Whether a member in Practice can • Yes, a member in practic
be a Director Simplicitor of a Simplicitor provided he i
Company? the Board Meetings of the
except for attending such

Whether a member in Practice can • No, a member can not be
be a partner or designated partner which is not doing profess
in a LLP which is not doing
professional work but is in the
commercial activities

49th RRC at The

ons

the Second Schedule to the CA Act, 1949.
he Companies Act, 2013 bars the auditor of

or indirectly render accounting and book
said company, its holding or subsidiary
ce is permitted generally to be a Director
is not MD or WTD and is required only in
e Company and not paid any remuneration
meetings
e a partner or designated partner in a LLP
sional work

Ananta - Udaipur 109

Frequently Asked Questio

Can a member in Practice provide • No, the definition of Ma
Portfolio Management Services? Services expressly ba
underwriting and Por
permissible.

Whether the Internal Auditor of an • There is no restriction
entity/Bank can undertake undertaken by a memb
consultancy work of the same bank? Internal Audit.

Whether a member in Practice can • Yes, printing of QR code i
print QR (Quick Response) code on does not contain informa
his visiting cards, facilitating easy permissible to be printed
access to information?

49th RRC at The

ons 110

anagement Consultancy and other
ars the activities of broking,
rtfolio Management. Hence, not
for the consultancy work if it is
ber along with the assignment of
is permissible provided that it
ation that it is not otherwise
d on a visiting card.

Ananta - Udaipur

Frequently Asked Questio

Whether a member in practice • No, it is not permissible to
can print their photograph on the
visiting card?

Whether members of the Institute • Yes, the common CA logo w
can use common CA logo? of the members can be use

Can a member in practice list • No, not permitted to be on
themselves and their services service provider aggregato
with online application based
service provider aggregators?

49th RRC at The

ons

o print the photo on visiting cards
which seeks to enhance the identity
ed by the members in practice or not
n the online application based
ors

Ananta - Udaipur 111

Ethical Standards Board - Pu

• Code of Ethics, 2019 - Volume I
• Code of Ethics, 2020 - Volume II
• Code of Ethics, 2020 - Volume III

• Code of Ethics, 2009 (Existing)

• Guidance note on Independence
Auditors, 2005

• FAQ on Ethical Issues, 2018

49th RRC at The

ublications (Follow the given link)

Ananta - Udaipur 112

Ethical Standards Board - An

• Clarification on fees from a single client
• Communication with the Retiring Auditor through
• Advisory on mentioning fees in advertisement issu
• FAQs on professional ethics of members pertaining
• Announcement on Internal Auditor not to undertak
• FAQs on ethical issues relating to GST

Announcement on advertising by members in prac
• Announcement on KYC Norms
• ICAI Code of conduct for elected, nominated or co-o
• Amendment in ICAI website guidelines
• Use of designation other than the designation CA
• Prohibition to undertake the auditing and accounti
• Ranking of CA firms
• Amendment in Council General Guidelines, 2008
• Definition of Relative in Chapter IV of CGG, 200849th RRC at The

nnouncements (Follow the given link)

Email
ued by members
g to Bank assignments
ke GST Audit simultaneously

ctice engaged in teaching institute

opted representatives

ing work together

Ananta - Udaipur 113

Ethical Standards Board – Cla

• Member in practice being a Karta of HUF
• Queries on elected representatives of ICAI and ge
• Prohibition on undertaking concurrent audit and

simultaneously
• Tax Audit assignments
• Acting as recovery consultant in banking sector
• Insurance financial advisory services
• Sharing of fees with Government
• Independent Directors and E-Intermediary
• Direct Selling Agent
• Transfer of Goodwill of CA firm
• Whether Auditor of subsidiary company can be a

49th RRC at The

arifications (Follow the given link)

eneral members of ICAI
d quarterly review of the same bank

a director of holding company? 114

Ananta - Udaipur

Ethical Standards Board – Gu

• Corporate form for practice guidelines
• Conversion of CA firms into LLP
• CA / CA Firm website
• Council General Guidelines, 2008
• Advertisement Guidelines
• Use of designation, manner of printing letter head
• Resolution under Regulation 190A
• Know your Ethics
• CA Logo Guidelines

49th RRC at The

uidelines (Follow the given link)

ds and visiting cards 115

Ananta - Udaipur

49th RRC at The

Ananta - Udaipur 116

Input Tax Credit under GST 

- CA. Keshav Maloo 

 

1. M/s Topspin Ltd. had constructed a shopping mall in the city centre having 6 floors. The 
floors were connected through escalators and elevators. Such escalators and elevators 
were capitalized as plant and machinery in the books of M/s Topspin Ltd.  

 
The company availed credit of goods and services related to escalators and elevators 
in view of the exception given under Section 17(5)(d) of the CGST Act, 2017. However, 
Revenue alleged that such credit is ineligible and required to be reversed as such plant 
and machinery is an integral part of building which is an immovable property.  

M/s Topspin Ltd. seeks your opinion regarding eligibility of input tax credit availed on 
escalators and elevators. 

 

 

 

 

 

2. M/s Honest Steel Co. is a manufacturer of steel items and procures various inputs and 
input  services  for  manufacturing  such  items.  It  has  suppliers  all  over  India  who  are 
regular in filing returns. However, during the preceding financial year 2020‐2021, one 
of  its  suppliers  M/s  Erratic  Dealers  failed  to  file  the  returns  as  mentioned  in  below 
scenarios. As a result, Revenue alleged credit amounting to Rs. 25,00,000/‐ is ineligible 
to  M/s  Honest  Steel  Co.  and  accordingly  issued  show  cause  notice  for  recovering  the 
same together with interest and penalty. 

 
M/s Honest Steel Co. seeks your opinion as to whether it is legally required to reverse 
such credit or not in the following scenarios: 

 
i. Neither GSTR‐1 nor GSTR‐3B have been filed. 
ii. Relevant GSTR‐1 was not filed but applicable GST was paid in GSTR‐3B. 
iii. GSTR‐1  was  filed  and  applicable  GST  was  paid  in  GSTR‐3B.  However,  such 
supplies were shown as B to C supplies. 

 

 

 

 

49th RRC at The Ananta - Udaipur 117

3. M/s Bigshow Marketing is a company engaged in doing marketing activities for various 
corporates. It has a practice of investing the surplus funds in securities in stock market. 
During  the  year  2020‐21,  it  had  earned  profit  on  sale  of  securities  which  has  been 
accounted for as ‘Other income’ in the books of the company. Whether the company is 
required  to  make  any  reversal  of  ITC  under  Rule  42/43  of  CGST  Rules,  2017 
corresponding to sale of securities in light of judgment of Hon’ble CESTAT Bangalore in 
the case of Ace Creative Learning Pvt. Ltd.  

 

 

 

 

 

4. M/s  CRPL  is  engaged  in  manufacture  of  textile  articles  and  faces  an  inverted  duty 
structure.  In  terms  of  notification  no.  20/2018‐CT(Rate)  dated  26.07.2018,  the 
accumulated input tax credit lying unutilised in balance on such goods, after payment 
of tax for and upto the month of July, 2018, on the inward supplies received up to the 
31st day of July 2018, was required to be lapsed.  
 

M/s CRPL did not make any entry for lapse of credit since in their opinion, it was their 
vested right which cannot be taken away by the above notification as well as Board 
Circular.  

i. Discuss the view taken by M/s CRPL in light of judgment of Shabnam Petrofils 
Pvt. Ltd.  

 

ii. After a year, M/s CRPL had to reverse the credit on account of such provision 
because its refund was rejected by the Department. Whether 
any interest is payable on such reversal/ payment of lapsed credit which was 
done without utilization of credit in the intervening period. 

 
 
 
 
 
 
 
5. M/s UMCL Ltd. is in the process of setting up a new plant for manufacturing pesticides 
and  chemicals.  For  the  said  purpose,  it  has  imported  a  shed  from  China  and  paid 
applicable  Custom  duty  as  well  as  IGST.  It  has  also  procured  services  of  erection, 
commissioning and installation from a local vendor who has installed the said shed in 

49th RRC at The Ananta - Udaipur 118

the factory premises. The shed is not embedded/ grouted to Earth but is attached to 
Earth by nut and bolts.  
 

M/s UMCL Ltd. wishes to know eligibility of ITC on shed and its corresponding services. 

 
 
 
 
 
 
 
6. M/s XYZ Ltd. is operating a plant which generates oxygen for industrial as well as non‐

industrial  purposes.  During  the  second  wave  of  Covid‐19  pandemic,  this  plant  was 
acquired  by  the  government  to  meet  the  increased  demand  of  oxygen  in  hospitals. 
Accordingly, oxygen was produced and filled in cylinders bearing name of M/s XYZ Ltd. 
which were supplied free of cost to various hospitals by M/s XYZ Ltd. The company had 
booked such expenditure under the head CSR in its books of accounts. 
 

M/s XYZ Ltd. seeks your opinion as to whether it is eligible to avail credit of goods and 
services used in supplying free of cost oxygen to hospitals as CSR expenses. 

 

 

 

 

 

7. M/s  Forever  Cement  is  a  cement  manufacturing  company  which  has  a  factory  and 
adjoining  residential  colony  at  the  outskirts  of  Udaipur.  The  company  uses  its  own 
manufactured cement for construction of part of factory building within factory.  
 
Further, M/s Forever Cement has a residential colony adjoining factory. The company 
charges a nominal amount of Rs. 2000/‐ per month from employees who use the 
residential colony for themselves and family. Further, such cement is also being used 
for various repair and maintenance work of flats and houses.  
 
M/s Forever Cement wishes to seek your advice on the following: 
 
i. Whether  the  company  can  avail  ITC  of  goods  and  services  used  to  produce 
cement  which  is  used  for  self‐consumption  for  construction  of  factory 
building? 
  

49th RRC at The Ananta - Udaipur 119

ii. Whether it is eligible to avail ITC of goods and services used to produce cement 
which is used for self‐consumption in repair and maintenance services of flats 
and houses specially looking to the fact that consideration charged for renting 
of residential property for use as residence is exempt from any GST liability?  

 
 
 
 
 
 
8. M/s  KPR  Ltd.  had  to  export  a  goods  parcel  to  Sri  Lanka  for  which  it  availed  courier 
services from M/s Golden Route Ltd. The supplier charged IGST on such courier services. 
 

M/s KPR Ltd. is of the view that the said transaction does not attract any GST on it 
since the place of supply is outside India. 

 

i. M/s  KPR  Ltd.  wishes  to  know  whether  GST  is  applicable  on  the  above 
transaction.  
 

ii. If yes, whether ITC of the tax paid is available to the company.   
 

 

 

 

 

 

9. M/s ABC Ltd. is a manufacturing company and wishes to launch a new product in the 
market.  Besides  giving  advertisements  in  newspapers,  it  had  also  planned  for  free 
distribution  of  T‐shirts,  shoes  and  bags  bearing  the  name  and  brand  of  M/s  ABC  Ltd. 
Similarly, it has also distributed calendars and wall clocks to its dealers bearing its name 
and brand. 

 

The company wishes to know whether it is eligible to avail ITC on above free 
distribution of goods. 

 

 

 

49th RRC at The Ananta - Udaipur 120

10. M/s Goodvibes Ltd. is engaged in manufacturing of FMCG products. For the purpose of 
advancement  of  business  or  for  sales  promotion,  various  types  of  sale  promotion 
schemes are announced by a company which are as under: 
 
a) A gold coin is given to the dealers for achieving the target sales. 
b) For dealers, lucky draw is conducted and a car is awarded to the lucky winner. 
c) Free foreign trip to the dealers accompanied by their family members. 
 

The company wishes to know eligibility of input tax credit on inward supply of goods 
and services used in above schemes. 

 

 

 

 

 

 

11. A is a registered person under GST. He has purchased a commercial property from a 
builder. He has also paid GST on the said purchase. Property is purchased with clear 
intention  to  let  out  on  rent.  Whether  he  can  get  ITC  of  GST  paid  on  purchase  of 
property against his output liability arising on let out of property. Further after let out 
of  the  property,  can  he  get  ITC  of  administrative  expenditure  like  payment  of 
professional fees for drafting of rent agreement, filing of tax returns, purchase of fixed 
assets for letting out the furnished property? 

49th RRC at The Ananta - Udaipur 121

Common Errors / Non‐Compliance with Reporting Obligations 
relating to Accounting Standards. 

- CA. Aniket Sunil Talati,  

CCM & Chairman FRRB 

Financial Statement of an enterprise is a prime tool for stakeholders to know about the 
financial health of the enterprise. The users of the financial statements are highly reliant on 
the information published therein about the state of affairs of the enterprises which makes it 
imperative for the information presented be truthful, reliable and in adherence to the 
regulatory requirements. Financial Reporting Review Board (hereinafter referred as FRRB or 
Board) reviews the General Purpose Financial Statements (GPFS) of enterprises with the view 
to identify the non‐compliances with Accounting and Auditing Standards, CARO, Companies 
Act, and other statutory requirements for preparation and presentation of the financial 
statements. The non‐compliances observed by the Board are compiled from time to time and 
published in volumes of its publication ‘’Study on Compliance with Financial Reporting 
Requirement’’ as well as in Journal with an objective to educate the preparers of financial 
statements, auditor and other members about the compliance with various financial 
reporting requirements thus paving the way for enhancing the quality of the financial 
statements as well as quality of services rendered by the members. 

Accounting Standard 1: Disclosure of Accounting Policies 

1. There  were  instances  where  the  enterprises  had  disclosed  the  accounting  policies  on 
recognition  and  measurement  of  items  in  the  financial  statement,  however,  the  policies 
disclosed  were  not  complete.  A  few  examples  of  such  incomplete  policies  are  stated  as 
below: 
(a) Policy  on  impairment  of  assets  stated  ‘impairment  losses,  if  any,  on  fixed  assets 
(including revalued assets) are recognized in accordance with the Accounting Standard 
28 and charged to Profit & Loss Account’, 
(b) Policy  on  intangible  assets  merely  stated  that  ‘intangible  assets  are  recognized  in 
accordance with the Accounting Standard 26’, 
(c) Policy on deferred taxes stated that ‘deferred tax assets / liabilities have been provided 
for in the books of accounts in accordance with AS 22’, 
(d) Policy  on  employee  benefits  for  gratuity  stated  that  ‘in  case  of  non‐member  of  the 
gratuity fund, the gratuity is provided as per the approval of Central Government and as 
per the payment of Gratuity Act, 1972, wherever applicable’. 

 

The Board, while reviewing such financial statements, observed that such policies only 
provide the means to understand the policy adopted by the companies rather than 
providing the accounting policies explicitly and unequivocally which is not in line with the 
requirements of Paragraph 11 of Accounting Standard – 1 as reproduced below: 

 

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“11. The accounting policies refer to the specific accounting principles and the methods of 
applying those principles adopted by the enterprise in the preparation and presentation 
of financial statements.” 

It was viewed that at the time of making disclosure about significant accounting policies, 
care should be taken that it clearly speaks about the accounting principles used for 
recognition and measurement of relevant item and methods as to how such principles 
have been applied at the time of preparation and presentation of the financial statement. 
It may be noted that mere reference to the relevant accounting standard cannot be 
considered as a complete accounting policy. Accordingly, in the instances mentioned 
above, it was viewed by the Board that the adopted policies are not in line with the 
requirements of AS 1. 

2. In  some  of  the  cases  either  no  accounting  policy  was  disclosed  by  the  enterprise  for 
significant  items  which  were  material  to  the  financial  statement  as  a  whole,  or  the 
disclosures made were not complete. Some of the instances observed by the Board during 
the course of the review are listed below: 
(a) An enterprise was primarily engaged in the business of setting‐up / operating industrial 
infrastructure in addition to this the enterprise was also involved in leasing and providing 
services  connected  with  computer  software  and  data  processing.  It  was  noted  that 
although  policy  for  recognition  of  revenue  from  leasing  activities  (secondary  business) 
has  been  disclosed  but  no  policy  has  been  disclosed  for  revenue  from  setting‐up  / 
operating industrial infrastructure (primary business). 
(b) In certain financial statements significant amount of MAT credit entitlement has been 
recognized with corresponding recognition of the related asset, which has been shown 
under ‘long‐term loans and advances’, yet no policy for recognition of such MAT credit 
has been disclosed. 
(c) From the annual report of certain enterprises, it was noted that no accounting policy has 
been disclosed, with regard to one or more of the items such as Fixed Assets, Inventories, 
Provisions  and  Contingent  Liabilities,  Impairment  of  Assets,  Accounting  for  Taxes  on 
Income, Revenue Recognition, Lease, Employee Benefits, Foreign Currency Transactions, 
Borrowing Costs, Intangible Assets, Interest, Commission and Royalty etc. 
 

The Board viewed that the disclosure of significant accounting policies adopted for 
preparation and presentation of financial statement is imperative for the proper 
understanding of financial statement and, therefore, should be disclosed, by way of notes 
to the accounts as per the requirement of paragraph 24 of Accounting Standard 1 which 
states: 

“24. All significant accounting policies adopted in the preparation and presentation of 
financial statements should be disclosed.” 

However, in line with the Accounting Standards, it was viewed that there cannot be 
provided a general list of the items in the financial statement that are considered 
significant and thus warrant the disclosure of accounting policies in all the circumstances. It 
was viewed that differing the circumstances in which an enterprise operates in situation of 

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diverse and complex economic activity, enterprise may choose alternative accounting 
principles and methods of applying those principles based on the considerable judgement 
of the management. However, the disclosure of such accounting principles and methods of 
applying them, otherwise known as accounting policies, is necessary and should be made 
for all the significant items which are material to the preparation and presentation of the 
financial statement. 

In the light of the above, it was viewed in the cases mentioned above the requirements of 
AS 1, regarding disclosure of significant accounting policies, have not been complied with. 

3. In some of the cases, it was noted that certain accounting policies have been disclosed by 
the  enterprises  under  the  heading  ‘Significant  Accounting  Policies’,  however,  accounting 
policies  pertaining  to  other  items  /  transaction  have  been  disclosed  by  way  of  notes  at 
various places in the financial statement.  
 

It was viewed that all the significant accounting policies should be disclosed at one place 
since it would be helpful to the reader of the financial statements rather than scattering 
them over several notes in the financial statement. Accordingly, disclosure of adopted 
policies at different places in the financial statement was considered to be not in line with 
the requirements of Paragraph 25 of AS 1, which provides as follows: 

“25. The disclosure of the significant accounting policies as such should form part of the 
financial statements and the significant accounting policies should normally be disclosed 
at one place.” 
 

AS 2 ‐ Inventories 

1.   Incorrect disclosure of valuation of Inventories 

It may be noted that paragraph 5 of AS 2, provides that: 

“5. Inventories should be valued at the lower of cost and net realisable value.” 

Further, paragraph 3.2 of AS 2 defines the term ‘Net Realisable Value’ as follows: 

“Net realisable value is the estimated selling price in the ordinary course of business, less 
the estimated costs of completion and the estimated costs necessary to make the sale.” 

It may be noted that paragraph 6 of AS 2, provides that: 

“6. The cost of inventories should comprise all costs of purchase, costs of conversion and 
other costs incurred in bringing the inventories to their present location and condition.” 

The accounting policies regarding valuation of inventories as disclosed in the Annual Report 
of several companies are listed below: 

 Stocks  of  Cards  are  valued  at  Cost  and  on  FIFO  basis  and  include  all  applicable 
overheads in bringing the inventories to their present location and condition. Work in 
progress is valued at Cost. 

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 Inventories are measured at cost. Cost is determined on weighted average basis. 
 Work  ‐  in  ‐  Progress  is  valued  at  direct  raw  material  cost  and  appropriate  cost  of 

completed process. 
 Raw materials are valued at average cost. Raw materials at bonded warehouse stores, 

spares, consumables, packing material, coal & fuel are valued at cost. 
 Work in Process is valued at raw material cost. 
 Cost of finished goods and work in progress are determined on estimated cost basis. 
 Inventories  are  valued  at  cost  or  net  realisable  value,  whichever  is  less.  Cost  is 

determined by using the first in first out formula. Cost comprises all. 
 Raw materials are valued at average cost. 
 

It was noted from the given accounting policies that inventories have been valued at cost or 
average cost. In other words ‘net realisable value’ has not been considered for the purpose 
of valuation of these inventories. Further, in some of these cases given above, it is not clear 
from the stated accounting policies whether all the applicable costs as per paragraph 6 of AS 
2 have been considered or not. 

Accordingly, it was viewed that the valuation of inventories in all these cases is not in line 
with the requirement of paragraph 5 of AS 2. 

2.   Non consideration of excise duty in valuation of Inventories 

It may be noted that paragraph 7 of AS 2, provides that: 

’7. The costs of purchase consist of the purchase price including duties and taxes (other 
than those subsequently recoverable by the enterprise from the taxing authorities), 
freight inwards and other expenditure directly attributable to the acquisition. Trade 
discounts, rebates, duty draw backs and other similar items are deducted in determining 
the costs of purchase.’ 

It may be further noted that as per paragraph 18 of the Institute’s ’Guidance Note on 
Accounting Treatment for Excise Duty,’ the liability for excise duty arises when the 
manufacture of the goods is completed; hence, it is necessary to create a provision for 
liability of unpaid excise duty on stocks lying at the factory or bonded warehouse. 

In the Annual Reports of few companies following notes have been given with regard to 
accounting treatment of excise duty in inventory valuation: 

 The liability for excise duty on finished goods lying in stock at the close of the year has 
not  been  provided  for  in  the  accounts  and  hence  not  included  in  the  valuation  of 
inventory of such products. However, the said liability, if accounted, would have no 
impact on profit for the year. 

 Raw material and finished goods are valued net of excise duty.  
 Liability for excise duty on finished goods is accounted as and when they are cleared 

from  the  factory  premises.  No  provision  is  made  in  the  account  for  goods 
manufactured and lying in factory premises. 
 

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