ISBN : 978-93-48313-17-1
ICAI
STUDY ON COMPLIANCE OF
FINANCIAL REPORTING REQUIREMENTS 
(Ind AS FRAMEWORK)
VOLUME III
STUDY ON COMPLIANCE OF FINANCIAL REPORTING REQUIREMENTS 
(Ind AS FRAMEWORK) 
VOLUME III
Financial Reporting Review Board
Study on Compliance of 
Financial Reporting Requirements 
(Ind AS Framework) 
(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. 
Basic draft of this publication was prepared by CA. Ankita Mangla and 
CA. Deepak Khetan 
Edition / Year of Publication : January, 2025 
Committee/Department : Financial Reporting Review Board 
E-mail : <PRESIDIO_ANONYMIZED_EMAIL_ADDRESS> 
Website : www.icai.org 
Price : ₹ 500/- 
ISBN No : 978-93-48313-17-1 
Published by : The Publication & CDS Directorate on 
behalf of the Institute of Chartered 
Accountants of India, ICAI Bhawan, Post 
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 February | 2025
Foreword 
The adoption of robust financial reporting frameworks is pivotal for India’s 
seamless integration into the global economy. In order to align the financial 
statements of Indian enterprises with global standards, an increasing number 
of Indian companies are reporting in accordance with Indian Accounting 
Standards (Ind AS). I am happy to inform that Financial Reporting Review 
Board (FRRB) of ICAI is reviewing Ind AS based Financial Statements to 
identify deviations from applicable accounting standards and disclosures 
prescribed by statutes and has come out with its new publication on ‘Study 
on Compliance of Financial Reporting Requirements (Ind AS Framework) – 
Volume III’. 
This publication by FRRB incorporates the instances of non-compliances 
identified in Ind AS based Financial Statements, along with the detailed 
explanations for each observation. The observation featured here serves as 
both a guide and a reference point for gaining a deeper understanding of 
best financial reporting practices. This publication covers non-compliances 
observed relating to Ind AS, Schedule III of the Companies Act, 2013, 
Standards on Auditing and Companies Auditors Report Order (CARO). 
I extend my heartfelt congratulations to CA. Vishal Doshi, Chairman, CA. 
Dayaniwas Sharma, Vice-Chairman, and all other members of the Financial 
Reporting Review Board for their dedicated efforts in bringing out this 
valuable publication. 
I am confident that this publication will prove to be immensely beneficial for 
the members of the Institute and other stakeholders alike. 
21st January 2025
New Delhi 
CA. <PRESIDIO_ANONYMIZED_PERSON>
President, ICAI
iv
Preface 
To build trust with stakeholders, financial statements must provide a truthful 
and fair representation of the entity's financial position. In this context, 
reviewing general purpose financial statements is an essential tool to ensure 
that organizations meet the utmost reporting standards. Since its 
establishment in 2002, the Financial Reporting Review Board (FRRB) has 
been dedicated to a single, core objective: enhancing and strengthening 
financial reporting practices across the country. In addition to review generalpurpose financial statements, to assess compliance with financial reporting 
standards, rules and regulations set by relevant regulatory authorities, the 
Board also strives to raise awareness among its members and other 
stakeholders on key issues in financial reporting. 
I am delighted to present Volume III of FRRB’s publication ‘Study on 
Compliance of Financial Reporting Requirements (Ind AS Framework)’. This 
publication aims to disseminate common non-compliances observed during 
reviews and to overcome the challenges in maintaining a strong financial 
ecosystem. For easy reference, the observations have been classified 
elements of financial statements wise viz, Observations related to ‘Assets’, 
‘Equity‘, ‘Liabilities‘, ‘Components of Profit and Loss‘, ‘Statement of Cash 
Flows‘, ‘Other Disclosures‘, ‘Auditor’s Report‘ and ‘CARO‘ which should be 
complied with while preparing the financial statements or expressing opinion 
thereupon. A pie chart titled "Deficiency Observed: Elements of Financial 
Statements" is also included, which highlights the percentage of noncompliances observed in each part of the financial statements. The 
publication also contains graphical presentation on ‘Deficiencies Observed: 
At a Glance’, which exhibits level/ percentage of non-compliances observed 
in all the Indian Accounting Standards (Ind AS). I am confident that the 
insights presented in this publication will play a pivotal role in helping us 
achieve our professional goal of excellence in financial reporting. 
My sincere thanks to CA. <PRESIDIO_ANONYMIZED_PERSON>, President of ICAI, CA. 
Charanjot Singh Nanda, Vice-President of ICAI for their guidance and 
support in various endeavours of the Board. I would also like to express my 
gratitude to the Council colleagues and special invitees on the Board for their 
unwavering support during the year, CA. Dayaniwas Sharma, Vice Chairman, 
vi
CA. Pramod Jain, CA. (Dr.) Sanjeev Kumar Singhal, CA. Durgesh Kumar 
Kabra, CA. Purushottamlal Khandelwal, CA. Kemisha Soni, CA. Hans Raj 
Chugh, Advocate Vijay Kumar Jhalani- Government Nominee, Shri Deepak 
Kapoor – Government Nominee (C&AG), Shri Sanjay Kumar & Shri Inder 
Deep Singh Dhariwal - Government Nominee (MCA) and the special invitees 
Shri Ajay Kumar Kripashankar from C&AG, Ms. Devangi Swarnkar from 
CBDT, Ms. Sheetal Shrivastava from NABARD, CA. Kanishk Jain from Niti 
Aayog. 
I would like to place on record my sincere thanks to CA. <PRESIDIO_ANONYMIZED_PERSON> 
for assisting in preparation of the publication based on the content provided 
by the Board. My special thanks to CA. <PRESIDIO_ANONYMIZED_PERSON>, CA. Samip Shah and 
CA. Shripal Shah for reviewing this publication and providing valuable 
technical insights. I would also like to thank our Technical Reviewers (TRs) 
and Financial Reporting Review Groups (FRRGs) for their consistent support 
to the Board. 
I would also like to appreciate the technical contribution and administrative 
support provided by CA. Ankita Mangla, Secretary - FRRB, CA. Deepak 
Khetan, Project Associate, Ms. Kinjal Goyal, Management Trainee and the 
entire team of FRRB for their efforts in finalising this publication. 
Date: January 17, 2025 CA. Vishal Doshi 
Place: New Delhi Chairman, FRRB
Deficiencies Observed: At a Glance 
17.27%
2.52%
14.03%
3.60%
0.36%
5.04%
3.60%
7.19%
0.36%
1.08%
7.55%
0.36%
2.52%
1.80%
0.72%
1.80%
1.80%
1.44%
2.16%
2.16%
0.72%
0.72%
5.40%
2.52%
3.24%
0.36%
2.16%
6.83%
0.72%
Ind AS 1
Ind AS 2
Ind AS 7
Ind AS 8
Ind AS 10
Ind AS 12
Ind AS 16
Ind AS 19
Ind AS 21
Ind AS 23
Ind AS 24
Ind AS 27
Ind AS 32
Ind AS 33
Ind AS 36
Ind AS 37
Ind AS 38
Ind AS 40
Ind AS 101
Ind AS 102
Ind AS 103
Ind AS 105
Ind AS 107
Ind AS 108
Ind AS 109
Ind AS 111
Ind AS 113
Ind AS 115
Ind AS 116 Summary of Non Complainces: IND AS wise 
viii
Deficiency Observed : Elements of 
Financial Statements 
Contents
Foreword ....................................................................................................iii
Preface....................................................................................................... v
Deficiencies Observed: At a Glance ...........................................................vii
S.No. Chapter Page No.
1. Observations related to Assets ............................................................. 1
2. Observations related to Equity ............................................................ 54
3. Observations related to Liabilities ....................................................... 63
4. Observations related to the Statement of Profit and Loss .................... 82
5. Observations related to Statement of Cash Flows ............................. 142
6. Observations related to Other Disclosure .......................................... 157
7. Observations related to Auditor’s Report........................................... 250
8. Observations related to CARO.......................................................... 292

Summary of Non-Compliances: Elements of Financial Statement Wise 
Chapter No Chapter Topic Addressed Observation No Reference Page No 
1 Assets Property, Plant and 
Equipment 
1-9 Ind AS 16
Ind AS 1
Schedule III
Ind AS 23
1 
1 Assets Investment Property 10-12 Ind AS 40 12 
1 Assets Goodwill 13 Ind AS 38
Ind AS 103
Ind AS 36
17 
1 Assets Intangible Assets 14-17 Ind AS 38 18 
1 Assets Investments 18 Ind AS 109 24 
1 Assets Trade Receivables 19 Ind AS 1 26 
1 Assets Investments 20-22 Ind AS 27
Schedule III
Ind AS 32
27 
1 Assets Loans 23 Ind AS 109 31 
1 Assets Deferred Tax 24-25 Ind AS 1
Schedule III
32 
xii
Chapter No Chapter Topic Addressed Observation No Reference Page No 
1 Assets Financial Assets 26-31 Ind AS 32
Schedule III
Ind AS 109
Ind AS 36
34 
1 Assets Inventories 32-36 Ind AS 2 40 
1 Assets Assets Held for Sale 37-38 Ind AS 105
Ind AS 33
46 
1 Assets Contingent Assets 39 Ind AS 37 50 
1 Assets First Time adoption of 
Indian Accounting 
Standards 
40 Ind AS 101 51 
2 Equity Statement of changes in 
Equity 
1 Ind AS 1 
Companies Act, 2013
54 
2 Equity Other Equity 2-4 Ind AS 1
Schedule III
Companies Act, 2013
56 
3 Liabilities Non-Current Borrowings 1 Ind AS 1 63 
3 Liabilities Borrowings 2 Schedule III 64 
3 Liabilities Financial Liabilities 3-6 Ind AS 32 65 
xiii 
Chapter No Chapter Topic Addressed Observation No Reference Page No 
Schedule III
Ind AS 109
3 Liabilities Interest Accrued 7 Schedule III 71 
3 Liabilities Current Tax Liabilities 8 Schedule III 72 
3 Liabilities Trade Payables 9-10 Schedule III 73 
3 Liabilities Provisions 11-12 Ind AS 37 76 
3 Liabilities Employee Benefits 13-15 Ind AS 19 77 
4 Components of 
Statement of Profit 
and Loss 
Revenue 1-5 Ind AS 115
Ind AS 1
82 
4 Components of 
Statement of Profit 
and Loss 
Interest Income 6 Ind AS 107
Schedule III
89 
4 Components of 
Statement of Profit 
and Loss 
Royalty Income 7 Ind AS 115 91 
4 Components of 
Statement of Profit 
and Loss 
Insurance Claim 8 Ind AS 16
Ind AS 37
92 
4 Components of Employee Benefits 9-18 Ind AS 19 94 
xiv
Chapter No Chapter Topic Addressed Observation No Reference Page No 
Statement of Profit 
and Loss 
Ind AS 1
4 Components of 
Statement of Profit 
and Loss 
Borrowing Cost 19 Ind AS 23 115 
4 Components of 
Statement of Profit 
and Loss 
CSR Expenditure 20 Schedule III 117 
4 Components of 
Statement of Profit 
and Loss 
Prior Period Items 21 Ind AS 8 119 
4 Components of 
Statement of Profit 
and Loss 
Contract Liability 22 Ind AS 115 121 
4 Components of 
Statement of Profit 
and Loss 
Tax Expense 23 Schedule III 122 
4 Components of 
Statement of Profit 
and Loss 
Other Comprehensive 
Income and Tax Effect 
24-26 Ind AS 12
Schedule III
Ind AS 109
Ind AS 1
124 
xv 
Chapter No Chapter Topic Addressed Observation No Reference Page No 
4 Components of 
Statement of Profit 
and Loss 
Share Based Payments 27-28 Ind AS 102
Ind AS 1
128 
4 Components of 
Statement of Profit 
and Loss 
Earnings Per Share 29-32 Ind AS 33
Ind AS 1
Schedule III
131 
4 Components of 
Statement of Profit 
and Loss 
First time adoption of 
Ind AS 115 
33-34 Ind AS 115
Ind AS 8
137 
5 Statement of Cash 
Flows 
Leases 1 Ind AS 116 142 
5 Statement of Cash 
Flows 
Disclosure of Cash 
Flows on Gross Basis 
2-3 Ind AS 7 143 
5 Statement of Cash 
Flows 
Disclosure of Changes 
in Liabilities arising from 
Financing Activities 
4 Ind AS 7 147 
5 Statement of Cash 
Flows 
Non-Cash Adjustment 5 Ind AS 7 147 
5 Statement of Cash 
Flows 
Adjustment for Remeasurement of Defined 
Benefit Plan 
6 Ind AS 7 149 
xvi
Chapter No Chapter Topic Addressed Observation No Reference Page No 
5 Statement of Cash 
Flows 
Finance Cost 7 Ind AS 7 151 
5 Statement of Cash 
Flows 
Adjustment of Income 
and Expenses 
8 Ind AS 7 152 
5 Statement of Cash 
Flows 
Increase in Receivables 9 Ind AS 7 153 
5 Statement of Cash 
Flows 
Income Tax Paid 10 Ind AS 7 156 
6 Other disclosures Approval of Financial 
Statements 
1 Ind AS 10 157 
6 Other disclosures Basis of Preparation of 
Financial Statements 
2-3 Ind AS 1 158 
6 Other disclosures First time adoption of 
Indian Accounting 
Standards 
4-6 Ind AS 101 160 
6 Other disclosures Reclassification of Items 
in Financial Statement 
7 Ind AS 1 163 
6 Other disclosures Presentation of 
Financial Statements 
8-9 Ind AS 1 165 
6 Other disclosures Ind AS issued but not 10-11 Ind AS 8 167 
xvii 
Chapter No Chapter Topic Addressed Observation No Reference Page No 
yet effective
6 Other disclosures Going Concern 12-13 Ind AS 1 169 
6 Other disclosures Rounding off Figures 14 Schedule III 172 
6 Other disclosures Comparative Amounts 15 Schedule III 
Ind AS 1
174 
6 Other disclosures Non-Disclosure of 
Accounting Policy 
16-18 Ind AS 1 175 
6 Other disclosures Statement of changes in 
Equity 
19 Ind AS 1
Companies Act, 2013
179 
6 Other disclosures Revenue 20 Ind AS 115 181 
6 Other disclosures Contract Assets 21 Ind AS 115 183 
6 Other disclosures Employee Benefits 22 Ind AS 19 184 
6 Other disclosures Fair Value Measurement 23-25 Ind AS 113 185 
6 Other disclosures Financial Instruments 26-33 Ind AS 107
Ind AS 113
Ind AS 1
192 
6 Other disclosures Financial Risk 
Management 
34 Ind AS 107 205 
6 Other disclosures Capital Management 35 Ind AS 1 206 
xviii
Chapter No Chapter Topic Addressed Observation No Reference Page No 
6 Other disclosures Impairment of Assets 36 Ind AS 36 207 
6 Other disclosures Deferred Tax 37-43 Ind AS 12 208 
6 Other disclosures Segment Reporting 44-46 Ind AS 108 219 
6 Other disclosures Related Party 
Disclosures 
47-61 Ind AS 24 226 
6 Other disclosures Contingent Liabilities 62 Schedule III 248 
7 Auditor’s Report Format of Auditor’s 
Report 
1 SA 700(Revised)
SA 701(Revised)
SA 720(Revised)
250 
7 Auditor’s Report Auditor’s Report on the 
First Standalone Ind AS 
Financial Statements 
2 Implementation Guide 
on Auditor’s Report 
under IND AS for 
transition phase
254 
7 Auditor’s Report Addressee 3-4 SA 700(Revised) 258 
7 Auditor’s Report Opinion 5 SA 700(Revised) 260 
7 Auditor’s Report Unmodified Opinion 6 SA 705(Revised)
SA 700(Revised)
261 
7 Auditor’s Report Modified Opinion 7 SA 705(Revised) 263 
7 Auditor’s Report Going Concern 8-9 SA 570(Revised) 264 
xix 
Chapter No Chapter Topic Addressed Observation No Reference Page No 
SA 701
Ind AS 1
7 Auditor’s Report Communicating Key 
Audit Matters in the 
Auditor’s Report 
10 SA 701 268 
7 Auditor’s Report Key Audit Matter 
Section 
11 SA 701
SA 700(Revised)
269 
7 Auditor’s Report Other Information 12-14 SA 720(Revised) 271 
7 Auditor’s Report Responsibilities of 
Management and Those 
Charged with 
Governance 
15 SA 700(Revised) 277 
7 Auditor’s Report Auditor’s 
Responsibilities for the 
Audit 
16 SA 700(Revised) 278 
7 Auditor’s Report Emphasis of Matter 17 SA 706(Revised) 279 
7 Auditor’s Report Other Matters - 
Accounts of Branches 
18 SA 700(Revised) 280 
7 Auditor’s Report Report on Other Legal 
and Regulatory 
19-20 SA 700(Revised) 282 
xx
Chapter No Chapter Topic Addressed Observation No Reference Page No 
Requirements
7 Auditor’s Report Date of the Auditor’s 
Report 
21 SA 700(Revised) 285 
7 Auditor’s Report Signing of Audit Report 22 SA 700(Revised) 286 
7 Auditor’s Report Balance Confirmation 23 SA 505
SA 705(Revised)
SA 706(Revised)
287 
7 Auditor’s Report Related Parties 24 SA 550 289 
8 CARO Property, Plant and 
Equipment 
1 CARO 292 
8 CARO Physical Verification of 
Inventory 
2 CARO 293 
8 CARO Loans and Advances 3 CARO 294 
8 CARO Loans, Investments, 
Guarantees and 
Security 
4-5 CARO
Companies Act, 2013
295 
8 CARO Undisputed Statutory 
Dues 
6 CARO 297 
8 CARO Statutory Dues 7 CARO 298 
xxi 
Chapter No Chapter Topic Addressed Observation No Reference Page No 
8 CARO Disputed Statutory Dues 8 CARO 300 
8 CARO Borrowings 9 CARO 301 
8 CARO Term Loans 10 CARO 303 
8 CARO Fraud of Company 11 CARO 304 
8 CARO Related Party 
Transaction 
12 CARO 305 

1
Chapter-1 
Observations related to Assets 
1. Property, Plant and Equipment 
Matter contained in Financial Statements 
The relevant abstract of Balance sheet & Note on Property, Plant and 
Equipment given in the Annual Report of a company, reads as follows: 
“Balance Sheet as at March 31, 2020 
(Rs. In million) 
Particulars Note 
No. 
As at March 
31, 2020 
As at March 
31, 2019 
I. Assets 
Non-current Assets 
Property Plant & Equipment 2 -- --
Capital Work-in-Progress XX YY
………… --- --- ---"
 “Property, Plant and Equipment (Note 2) 
Particulars Office 
Buildi
ng 
Plant 
& 
Machi
nery 
Furnitu
re and 
Fixture
Cable
s 
Office
Equip
ment 
Com
puter
s 
Electri
cal 
fittings
Total
Gross Block 
(At Cost) 
 
……….. --- --- --- --- --- --- --- ---
Accumulated
Depreciation
and 
Impairment 
 
……….. --- --- --- --- --- --- --- ---
Net Block 
……….. --- --- --- --- --- --- --- ---
Observations related to Assets
2
Principle: Ind AS 16 - Property, Plant and Equipment 
Paragraph 73 
“The financial statements shall disclose, for each class of property, plant 
and equipment: 
… 
(e) a reconciliation of the carrying amount at the beginning and end of the 
period showing: 
(i) additions; 
… 
(v) impairment losses recognized in profit or loss in accordance with 
Indian Accounting Standard 36; 
(vi) impairment losses reversed in profit or loss in accordance with 
Indian Accounting Standard 36; 
… 
(ix) other changes.” 
Paragraph 74 
“The financial statements shall also disclose: 
(a) … 
(b) the amount of expenditures recognized in the carrying amount of an 
item of property, plant and equipment in the course of its 
construction.”
Observation 
It was noted from the Balance Sheet of the company that capital work-inprogress worth Rs. XX million (PY Rs. YY million) have been disclosed 
thereat. It was further noted from the notes to the accounts that, while the 
Company has provided details of various items of property, plant and 
equipment in Note 2, there is no disclosure regarding the movement in 
capital work-in-progress. Since Capital-work in-progress is considered as 
part of property, plant and equipment, the requirements of Ind AS 16 apply to 
it. Therefore, it was viewed that reconciliation of the carrying amount at the 
beginning and end of the period as well as the amount of expenditures 
recognized in the carrying amount of an item of property, plant and 
Study on Compliance of Financial Reporting Requirements 
3 
equipment in the course of its construction should have been disclosed by 
the company in line with the requirement of paragraph 73 (e) and 74(b) of Ind 
AS 16. 
It may be noted that the same view, as to capital-work-in-progress be treated 
as property, plant and equipment, was taken by the Ind AS Transition and 
Facilitation Group (ITFG) of ICAI and can be referred from issue number 33 
of Compendium of ITFG Clarification Bulletins, December 2018 edition. The 
relevant extract of the issue number 33 of the compendium is reproduced 
below: 
“…Capital work in progress is in the nature of property, plant and equipment 
under construction, and accordingly, provisions of Ind AS 16, Property, Plant 
and Equipment apply to it.” 
Accordingly, it was viewed that requirements of Indian Accounting Standard 
16 have not been complied with in preparation and presentation of the 
financial statements. 
2. Property, Plant and Equipment 
Matter contained in Financial Statements 
The relevant abstract of accounting policy on Property, Plant and Equipment 
given in the Annual Report of a company, reads as follows: 
“Significant Accounting Policies 
Property, plant and equipment 
Depreciation
The estimated useful lives of items of property, plant and equipment for the 
current and comparative periods are as follows: 
Asset Management estimate 
of useful life 
Useful life as per 
Schedule II 
Office equipment 5 years 5years 
Furniture and fixtures 10 years 10 years 
Computer equipment 3 years 3 years 
Depreciation method, useful lives and residual values are reviewed at each 
financial year-end and adjusted if appropriate. Based on technical evaluation 
Observations related to Assets
4
and consequent advice, the management believes that its estimates of useful 
lives as given above best represent the period over which management 
expects to use these assets. 
Depreciation on additions (disposals) is provided on a pro-rata basis i.e., 
from (up to) the date on which asset is ready for use (disposed of).” 
Principle: Ind AS 16 - Property, Plant and Equipment & Schedule II to 
the Companies Act, 2013 
Paragraph 73 of Ind AS 16 
"The financial statements shall disclose, for each class of property, plant 
and equipment: 
… 
(b) the depreciation methods used" 
Part C of Schedule II to the Companies Act, 2013 
"… 
3. The following information shall also be disclosed in the accounts, 
namely: 
(i) depreciation methods used; and 
…"
Observation 
It was noted from the accounting policy on depreciation that the company 
has not disclosed the method of depreciation as required by Indian 
Accounting Standard 16 as well as Schedule II of the Companies Act, 2013. 
Accordingly, it was viewed that the requirements of Indian Accounting 
Standard 16 and Schedule II of the Companies Act, 2013 have not been 
complied with in preparation and presentation of the financial statements. 
3. Property, Plant and Equipment 
Matter contained in Financial Statements 
The relevant abstract of Note on Property, Plant and Equipment & Note on 
Borrowings given in the Annual Report of a company, reads as below: 
“Property, Plant and Equipment 
Property, Plant and Equipment consists of the following for the year ended 
March 31, 20XX: 
Study on Compliance of Financial Reporting Requirements 
5 
Particulars Land Building Office 
Equipment
Computer 
Equipment
Furniture Vehicle Total
…… --- --- --- --- --- --- ---" 
 “Non-current Financial Liabilities – Borrowings 
Particulars 31 March, 20XX 31 March, 20YY 
 Secured Loans 
- ICICI Bank Loan -- ---
- HDFC Bank Loan -- ---
 Total --- ---"
Principle: Ind AS 16 - Property, Plant and Equipment and Division II 
Schedule III to the Companies Act, 2013 
Paragraph 74 of Ind AS 16 
“The Financial statements shall also disclose: 
(a) The existence and amounts of restrictions on title, and property, plant 
and equipment pledged as security for liabilities.” 
Note 6E of General Instructions for Preparation of Balance Sheet 
E. Non-Current Liabilities 
I. Borrowings 
… 
(ii) borrowings shall further be sub-classified as secured and unsecured. 
Nature of security shall be specified separately in each case.
Observation 
It was noted from the notes to accounts that the company has availed 
secured bank loans. It was further noted from the database of Ministry of 
Corporate Affairs that the company has created a charge on its property, 
plant and equipment (PPE) as collateral for borrowings from HDFC Bank. 
However, no disclosure has been given in the financial statements with 
respect to charge created on Property, Plant and Equipment for the secured 
loans. 
Observations related to Assets
6
Accordingly, it was viewed that requirements of Indian Accounting Standard 
16 and Division II, Schedule III of the Companies Act 2013 have not been 
complied with in preparation and presentation of the financial statements. 
4. Property, Plant and Equipment 
Matter contained in Financial Statements 
An abstract of accounting policy on Property, Plant & Equipment and 
Depreciation as given in the Annual Report of a company, reads as follows: 
"Property, Plant and Equipment and Depreciation 
(a) … 
(b) … 
(c) … 
(d) The Company depreciates property, plant and equipment over their 
useful lives as prescribed by schedule II of the Act. In case the cost of a 
part of a property, plant and equipment is significant to the total cost of 
the asset, and useful life of the part is different from the remaining useful 
life of the asset, depreciation is provided on straight line method based 
on internal assessment and independent technical evaluation carried out 
by external valuers. The management believes that the useful lives of 
the components best represent the period over which the management 
expects to use those components." 
Principle: Ind AS 16 - Property, Plant and Equipment 
Paragraph 73 
"The financial statements shall disclose, for each class of property, plant 
and equipment: 
(a) … 
(b) … 
(c) the useful lives or the depreciation rates used; 
(d) … 
Observation 
It was noted from the given accounting policy that the company depreciates 
its Property, Plant and Equipment (PPE) over their useful lives as prescribed 
by Schedule II of the Companies Act and in certain cases on Straight Line 
Study on Compliance of Financial Reporting Requirements 
7 
Basis. However, it was observed that the estimated useful lives or 
depreciation rates to compute the amount of depreciation has not been 
disclosed in the financial statements, as required by paragraph 73 (c) of 
Indian Accounting Standard 16. 
Accordingly, it was viewed that the requirements of Indian Accounting 
Standard 16 have not been complied with in preparation and presentation of 
financial statements.
5. Property, Plant and Equipment 
Matter contained in Financial Statements 
An abstract of Balance Sheet and the accounting policy on Property, Plant & 
Equipment given in the Annual Report of a company, read as follows: 
Balance Sheet As at March 31, 20XX 
(Rs. in Millions) 
 Note As at March 
31, 20XX 
As at March 
31, 20YY 
Assets 
Non-Current Assets 
(a) Property, Plant and 
Equipment 
 
(b) Capital Work-inProgress 
 XXX XXX
 “Property, Plant and Equipment 
… 
The cost of Property, Plant and Equipment not available for use as at each 
reporting date is disclosed under capital work in progress.” 
Principle: Ind AS 16 - Property, Plant and Equipment 
Paragraph 74 
“The financial statements shall also disclose: 
(a) … 
(b) the amount of expenditures recognised in the carrying amount of an 
item of property, plant and equipment in the course of its construction;"
Observations related to Assets
8
Observation 
It was noted from the stated accounting policy that the amount incurred 
during the construction period was recognised as Capital Work in Progress. 
However, it was observed that the company has not disclosed the amount of 
expenditure recognised in the carrying amount of capital work in progress as 
required by paragraph 74 (b) of Ind AS 16. 
Accordingly, it was viewed that the requirement of Indian Accounting 
Standard 16 has not been complied with in the preparation and presentation 
of financial statements.
6. Property, Plant and Equipment 
Matter contained in Financial Statements 
The relevant abstract of Note on Tangible Assets, read as follows: 
Note on Tangible Assets (Amt in Rs.) 
Particulars
Gross Block Depreciation 
As at 
01.04.2018 
As at 
31.03.2019 
As at 
01.04.2018 
Upto 
31.03.2019 
Total 76,35,91,767 - 56,77,65,679 - 
31.03.2018 - 76,50,59,981 - 56,91,69,236 
Observation 
From the Note on Tangible Assets, it was observed that the carrying value of 
the gross block at the beginning of the current year (Rs. 76,35,59,981) does 
not align with the figure reported for the gross block at the end of the 
previous year (Rs. 76,50,59,981). Additionally, there are inconsistencies in 
the carrying values of accumulated depreciation at the beginning of the 
current year when compared to their closing balances at the end of the 
previous year. Such discrepancies raise concerns about the accuracy of the 
figures presented in the financial statements.
Additionally, it was viewed that the word “Property, Plant and Equipment” 
should have been used instead of ‘Tangible Assets’.
Accordingly, it was viewed that such apparent inconsistencies should be 
avoided.
Study on Compliance of Financial Reporting Requirements 
9 
7. Property, Plant and Equipment 
Matter contained in Financial Statements 
The relevant abstract of accounting policy on Borrowing Costs and Note on 
Property, Plant and Equipment, read as follows: 
“Borrowing Cost: 
Borrowing costs that are directly attributable to the acquisition and 
construction of qualifying assets are capitalized.” 
“Note on Property Plant and Equipment 
Particulars Capital Work In Progress 
Cost as at April 1, 20YY -- 
Additions -- 
Deletions -- 
Cost as at March 31, 20XX (A) -- 
 
Accumulated depreciation as at March 
31, 20XX (B) 
---- 
Net Carrying Amount as at March 31, 
20XX [(A) – (B)] 
-- ” 
 “Capital Work in Progress mainly comprises of assets under construction, 
unallocated expenditure and borrowing cost related to new projects under 
construction in the state of Goa and Maharashtra.” 
Principle: Ind AS 23: Borrowing Costs 
Paragraph 26 
"An entity shall disclose: 
(a) the amount of borrowing costs capitalized during the period; and 
(b) the capitalization rates used to determine the amount of borrowing 
costs eligible for the capitalization."
Observations related to Assets
10
Observation 
It was noted that borrowing cost related to qualifying assets were capitalized 
during the year. Additionally, a significant amount was added to the capital 
work in progress, and a reconciliation of capital work in progress has been 
disclosed. Further, it was noted that the company borrowed funds generally 
and not specifically for the purpose of obtaining a qualifying asset. However, 
the amount of borrowing cost capitalized during the year, along with the 
capitalization rate used to determine the amount eligible for capitalization, 
has not been disclosed, as required by paragraph 26 of Ind AS 23. 
Accordingly, it was viewed that requirements of Indian Accounting Standard 
23 have not been complied with in preparation and presentation of the 
financial statements.
8. Property, Plant and Equipment 
Matter contained in Financial Statements 
The accounting policy on Property, Plant and Equipment given in the Annual 
Report of a company, reads as below: 
“Property, plant and equipment 
Property, plant and equipment are stated at cost of acquisition or 
construction less accumulated depreciation less accumulated impairment, if 
any. Freehold land is measured at cost and is not depreciated. Interest cost 
incurred for constructed assets is capitalised up to the date the asset is 
ready for its intended use…” (Emphasis supplied)
Principle: Ind AS 23: Borrowing Costs 
Paragraph 8 
“An entity shall capitalise borrowing costs that are directly 
attributable to the acquisition, construction or production of a 
qualifying asset as part of the cost of that asset. An entity shall 
recognise other borrowing costs as an expense in the period in which 
it incurs them.” 
Observation 
It was noted from the stated accounting policy of the company that borrowing 
costs incurred for constructed assets were capitalised up to the date the 
asset is ready for its intended use. It was viewed that as per paragraph 8 of 
Study on Compliance of Financial Reporting Requirements 
11 
Ind AS 23, borrowing costs incurred on acquisition, construction or 
production of qualifying asset should be capitalised. As per Ind AS, qualifying 
asset means an asset which necessarily takes substantial period of time to 
get ready for its intended use or sale. Accordingly, it was viewed that every 
constructed asset may not be a qualifying asset, and therefore, borrowing 
cost incurred on every constructed asset may not be permitted to be 
capitalized unless it is a qualifying asset as per Ind AS 23. 
Accordingly, it was viewed that the accounting policy on Property, Plant and 
Equipment as adopted by the company with respect to capitalization of 
borrowing cost is not in accordance with Ind AS 23.
9. Property, Plant and Equipment 
Matter contained in Financial Statements 
The relevant abstract of the accounting policy on Property, Plant and 
Equipment as given in the Annual Report of a company, reads as follows: 
“Property, Plant and Equipment 
Recognition and initial measurement 
… 
Subsequent measurement (depreciation and useful lives) 
Depreciation on Property, Plant and Equipment is provided on written down 
value method based on the useful life of the asset as specified in Schedule II 
to the Companies Act, 2013. The management estimates the useful life of the 
assets as prescribed in Schedule II to the Companies Act, 2013 except in the 
case of steel shuttering and scaffolding, whose life is estimated as five years 
considering obsolescence. Cost of building constructed on land owned by 
third party under ‘Build Own Transfer’ agreement is amortized over the 
period of the agreement.” 
Principle: Ind AS 1: Presentation of Financial Statements 
Paragraph 7 
“ 
… 
Information is material if omitting, misstating or obscuring it could 
reasonably be expected to influence decisions that the primary users 
of general-purpose financial statements make on the basis of those 
Observations related to Assets
12
financial statements, which provide financial information about a 
specific reporting entity. 
… 
Notes contain information in addition to that presented in the balance 
sheet), statement of profit and loss, statement of changes in equity 
and statement of cash flows. Notes provide narrative descriptions or 
disaggregations of items presented in those statements and 
information about items that do not qualify for recognition in those 
statements.” 
Observation 
It was observed from the stated accounting policy that the cost of building 
constructed on land owned by third party under ‘Build Own Transfer’ 
agreement is amortized over the period of agreement. However, the 
agreement period has not been disclosed over which the building has been 
amortized. It was viewed that the company should have provided adequate 
disclosures for the assets constructed, for better understanding of financial 
statements. 
Accordingly, it was viewed that the requirements of Ind AS 1 have not been 
complied with in preparation and presentation of financial statements.
10. Investment Property 
Matter contained in Financial Statements 
The accounting policy of Investment Property and related Notes to Accounts, 
reads as below: 
“Significant Accounting Policies 
… 
Investment Property: 
Investment properties are measured initially at cost, including transaction 
costs. Subsequent to initial recognition, investment properties are measured 
at cost less accumulated depreciation and accumulated impairment losses, if 
any in accordance with Ind AS 16 Property, Plant and Equipment. An 
investment property is derecognized upon disposal or when the investment 
property is permanently withdrawn from use and no future economic benefits 
are expected from disposal. Any gain or loss arising on derecognition of the 
Study on Compliance of Financial Reporting Requirements 
13 
property (calculated as the difference between the net disposal proceeds and 
the carrying amount of the asset) is included in profit or loss in the period in 
which the property is derecognized.” 
“Useful life of Investment properties: 
Particulars Life 
… … 
Plant & Equipment 3 to 5 years 
Furniture and fixtures 5 years 
Office Equipment 5 years” 
“Details of Investment Property and its Fair value 
…. 
Particulars 31.03.20XX 31.03.20YY 
… … …
Plant & Machinery 
Furniture and fixtures -- --
Office Equipment -- --"
Principle: Ind AS 40: Investment Property 
Paragraph 5 
“Investment property is the property (land or a building, part of a 
building or both) held (by the owner or by the lessee as a right-of-use 
asset) to earn rentals or for capital appreciation or both, rather than 
(a) use in production or supply of goods or services or for 
administrative purposes; or 
(b) sale in the ordinary course of Business. 
Paragraph 75 
“An entity shall disclose: 
… 
(f) the amounts recognized in profit or loss for: 
Observations related to Assets
14
i. rental income from investment property; 
ii. direct operating expenses (including repairs and maintenance) 
arising from investment property that generated rental income 
during the period; and 
iii. direct operating expenses (including repairs and maintenance) 
arising from investment property that did not generate rental 
income during the period. “ 
Paragraph 79 
“In addition to the disclosures required by paragraph 75, an entity 
shall disclose: 
(a) the depreciation methods used; 
(b) the useful lives or the depreciation rates used;------" 
Observation 
It was observed from the accounting policy for Investment Property that 
furniture & fixtures, plant & equipment and office equipment have been 
included in it. Additionally, it was noted that, while disclosing the fair value of 
Investment Properties, the company also included the fair value of plant & 
machinery, furniture & fixtures and office equipment. However, these items 
do not qualify as investment properties under Indian Accounting Standard 
(Ind AS) 40. According to Ind AS 40, only land, buildings, or part of building 
or both that are held to earn rentals, capital appreciation or both, are 
qualified as Investment Property. 
It was further observed that other disclosures have also not been provided in 
the notes to financial statements, like amounts recognized in the Statement 
of Profit or Loss for rental income from investment property and depreciation 
method used for it, as required by paragraphs 75 and 79 of Ind AS 40. 
Accordingly, it was viewed that requirements of Indian Accounting Standard 
40 have not been complied with in preparation and presentation of financial 
statements. 
11. Investment Property 
Matter contained in Financial Statements 
The abstract of Note on Revenue from Operations given in the Annual Report 
of a company, reads as below: 
Study on Compliance of Financial Reporting Requirements 
15 
“Revenue from Operations 
Particulars 31-03-20XX 31-03-20YY 
… --- --- 
Rental Income --- ---” 
Principle: Ind AS 40: Investment Property 
Paragraph 75 
"An entity shall disclose: 
(a) its accounting policy for measurement of investment property." 
Paragraph 79 
"In addition to the disclosures required by paragraph 75, an entity 
shall disclose: 
(a) depreciation method used; 
(b) the useful lives or the depreciation rates used; 
(c) the gross carrying amount and the accumulated depreciation 
(aggregated with accumulated impairment losses) at the 
beginning and end of the period." 
Observation 
It was noted from the disclosure on Revenue from Operations that the 
company had earned significant rental income by letting out properties. It 
was viewed that Property held to earn rentals or for capital appreciation or 
both, qualifies as Investment Property as per Indian Accounting Standard 40. 
However, it was noted from the financial statements that the company has 
not classified the property as Investment property on the face of Balance 
Sheet and not provided disclosures such as accounting policy, depreciation 
method used, useful lives or depreciation rates used, gross carrying amount 
and accumulated depreciation, as required by paragraphs 75 and 79 of 
Indian Accounting Standard 40.
Accordingly, it was viewed that the requirements of Indian Accounting 
Standard 40 have not been complied with in preparation and presentation of 
the financial statements. 
Observations related to Assets
16
12. Investment Property 
Matter contained in Financial Statements 
The relevant abstract of the accounting policy as well as disclosure of 
Investment Property in the Annual Report of a company, reads as below: 
“Accounting Policy on Investment Property 
… 
The fair value of investment property is disclosed in the notes. Fair value is 
determined by an independent valuer who holds a recognized and relevant 
professional qualification and has recent experience in the location and 
category of the investment property being valued. Any gain or loss on 
disposal of an investment property is recognized in Statement of Profit and 
Loss.” 
“Investments Properties 
Particulars Gross Block Depreciation Net Block 
Building & Office Premises --- --- ---" 
Principle: Ind AS 40: Investment Property 
Paragraph 75 
"An entity shall disclose: 
… 
(e) the extent to which the fair value of investment property (as 
measured or disclosed in the financial statements) is based on a 
valuation by an independent valuer who holds a recognized and 
relevant professional qualification and has recent experience in 
the location and category of the investment property being 
valued. If there has been no such valuation, that fact shall be 
disclosed. 
Observation 
It was noted from the given accounting policy on Investment Property that the 
company measures the fair value of investment property using the services 
of independent valuer. It was also noted from the accounting policy that fair 
value of investment property is disclosed in the notes. However, the amount 
of its fair value has not been disclosed in the financial statements. 
Study on Compliance of Financial Reporting Requirements 
17 
Accordingly, it was viewed that the requirements of Indian Accounting 
Standard 40 have not been complied with in preparation and presentation of 
financial statements.
13. Goodwill 
Matter contained in Financial Statements 
The relevant abstract of the Balance Sheet given in the Annual Report of a 
company, reads as below: 
“BALANCE SHEET AS AT 31ST MARCH 20XX 
Particulars Notes As at 31 March 
20XX 
As at 31 March 
20YY 
I. ASSETS 
Non-Current Assets 
(a) … 
(b) Goodwill 3 --- ---
(c) …” 
Principle: Ind AS 38: Intangible Assets, Ind AS 103: Business 
Combinations and Ind AS 36: Impairment of Assets 
Paragraph 48 of Ind AS 38 
“Internally generated goodwill shall not be recognised as an asset.” 
Paragraph B67 of Ind AS 103 
“To meet the objective in paragraph 61, the acquirer shall disclose the 
following information for each material business combination or in the 
aggregate for individually immaterial business combinations that are 
material collectively: 
… 
(d) a reconciliation of the carrying amount of goodwill at the beginning and 
end of the reporting period showing separately: 
 … 
(v) impairment losses recognised during the reporting period in 
accordance with Ind AS 36. (Ind AS 36 requires disclosure of 
Observations related to Assets
18
information about the recoverable amount and impairment of 
goodwill in addition to this requirement.)” 
Paragraph 10 of Ind AS 36 
“Irrespective of whether there is any indication of impairment, an entity 
shall also: 
(a) …. 
(b) test goodwill acquired in a business combination for impairment 
annually in accordance with paragraphs 80–99.” 
Observation 
It was noted from the Balance Sheet that the company has a substantial 
amount of goodwill. However, adequate disclosure with respect to the source 
of goodwill has not been provided in the financial statements. It was viewed 
that if it is internally generated goodwill, then it should not be recognised as 
asset as per paragraph 48 of Ind AS 38, and in case, if the goodwill acquired 
in a Business Combination, then the fact as well as disclosures required by 
paragraph B 67 (d) (v) of Ind AS 103 should be given.
Further, it was noted that the accounting policy for goodwill and its 
impairment has not been provided in the financial statements. As per 
paragraph 10(b) of Ind AS 36, goodwill is required to be tested for 
impairment annually irrespective of any indication of impairment. However, 
the company has not disclosed any information in this regard. 
Accordingly, it was viewed that the requirements of Ind AS 36, Ind AS 38 and 
Ind AS 103 have not been complied with in preparation and presentation of 
financial statements.
14. Intangible Assets 
Matter contained in Financial Statements 
The accounting policy on Research and Development Costs given in the 
Annual Report of the company, reads as below: 
“Research and Development Costs 
Revenue expenditure incurred on research and development has been 
charged to the statement of profit and loss for the year in which it is incurred. 
Capital expenditure is included in respective heads under Property, plant and 
equipment”. 
Study on Compliance of Financial Reporting Requirements 
19 
Principle: Ind AS 38: Intangible assets 
Paragraph 54 
"No intangible asset arising from research (or from the research phase of 
an internal project) shall be recognised. Expenditure on research (or on the 
research phase of an internal project) shall be recognised as an expense 
when it is incurred". 
Paragraph 57 
"An intangible asset arising from development (or from the development 
phase of an internal project) shall be recognised if, and only if, an entity 
can demonstrate all of the following: 
(a) the technical feasibility of completing the intangible asset so that it will 
be available for use or sale. 
(b) its intention to complete the intangible asset and use or sell it. 
(c) its ability to use or sell the intangible asset. 
(d) how the intangible asset will generate probable future economic 
benefits. Among other things, the entity can demonstrate the existence 
of a market for the output of the intangible asset or the intangible asset 
itself or, if it is to be used internally, the usefulness of the intangible 
asset. 
(e) the availability of adequate technical, financial, and other resources to 
complete the development and to use or sell the intangible asset. 
(f) its ability to measure reliably the expenditure attributable to the 
intangible asset during its development." 
Observation 
It was noted from the given accounting policy that the expenditure on 
research and developments has not been classified between research phase 
and development phase. 
It was viewed that as per Ind AS 38, the expenditure on research and 
development should be classified into the expenditure incurred in research 
phase and development phase instead of classifying them into revenue and 
capital expenditure. The research expenses (revenue or capital expenses) 
should be recognised as expenses in line with the paragraph 54 of Indian 
Accounting Standard 38 and development costs (in the nature of revenue or 
capital expense) may be capitalised as intangible assets subject to fulfillment 
Observations related to Assets
20
of recognition criteria given under paragraph 57 of Ind AS 38 rather than 
recognising as property, plant and equipment.
Accordingly, it was viewed that the requirements of Indian Accounting 
Standard 38 have not been complied with in preparation and presentation of 
financial statements.
15. Intangible Assets 
Matter contained in Financial Statements 
The abstract of Balance Sheet as well as Note on Depreciation, Amortisation 
and Impairment expenses given in the Annual Report of a company, read as 
below: 
“Balance Sheet 
Particulars 20XX 20YY 
Intangible Assets under Development --- ---"
 “Depreciation, Amortization and Impairment expense 
Particulars 20XX 20YY 
(d) Impairment of property, plant & equipment 
and intangible under development 
--- ---
Principle: Ind AS 38: Intangible Assets 
Paragraph 118 
“An entity shall disclose the following for each class of intangible assets, 
distinguishing between internally generated intangible assets and other 
intangible assets: 
… 
(e) a reconciliation of the carrying amount at the beginning and end of the 
period showing: 
i. additions, indicating separately those from internal development, 
those acquired separately, and those acquired through business 
combinations; 
ii. assets classified as held for sale or included in a disposal group 
classified as held for sale in accordance with Ind AS 105 and other 
disposals; 
Study on Compliance of Financial Reporting Requirements 
21 
iii. increases or decreases during the period resulting from 
revaluations under paragraphs 75, 85 and 86 and from impairment 
losses recognised or reversed in other comprehensive income in 
accordance with Ind AS 36 (if any); 
iv. impairment losses recognised in profit or loss during the period in 
accordance with Ind AS 36 (if any); 
…. 
Observation 
It was noted from the Balance Sheet that the company has ‘Intangible Assets 
Under Development’ and there is a significant increase in its closing balance. 
However, the reconciliation of the carrying amount at the beginning and the 
end of the year has not been disclosed, as required by paragraph 118(e)(i) of 
Indian Accounting Standard 38. 
It was further noted that the company has disclosed impairment loss on 
Property, Plant and Equipment and Intangible assets under development, 
together in single line item. It was viewed that impairment loss pertaining to 
intangible assets should have been disclosed separately in line with the 
requirement of paragraph 118(e)(iv) of Indian Accounting Standard 38. 
Accordingly, it was viewed that the requirements of Indian Accounting 
Standard 38 have not been complied with in preparation and presentation of 
financial statements.
16. Intangible Assets 
Matter contained in Financial Statements 
The relevant abstract of Note on Property, Plant & Equipment and Intangible 
Assets and Accounting Policy regarding Intangible Assets, given in the 
Annual Report of a company, reads as below: 
“Property Plant & Equipment and Intangible Assets 
Particulars 
Gross 
Carrying Cost 
as at March 31 
20XX 
Depreciation / 
Amortization 
as at March 
31 20XX 
Net 
Carrying 
Cost as at 
March 31 
20XX 
…………… --- --- --- 
Observations related to Assets
22
(B) Intangible Assets 
Computer software --- --- --- 
Models, designs --- --- ---" 
Intangible Assets 
The Company has elected to continue with the carrying value of all of its 
intangible assets recognised as of 1 April, 20XX measured as per the 
previous GAAP as its deemed cost on the date of transition to Ind AS. 
Recognition and Measurement 
… 
Principle: Ind AS 38: Intangible Assets 
Paragraph 118 
"An entity shall disclose the following for each class of intangible assets, 
distinguishing between internally generated intangible assets and other 
intangible assets: 
…” 
Observation 
It was noted from the given note that the company has recognized ‘computer 
software’ and ‘model, designs’ as Intangible Assets. However, the company 
has not provided clear distinction of whether these intangible assets were 
internally generated or acquired, as required by paragraph 118 of Indian 
Accounting Standard 38.
Accordingly, it was viewed that the requirements of Indian Accounting 
Standard 38 have not been complied with in preparation and presentation of 
the financial statements. 
17. Intangible Assets 
Matter contained in Financial Statements 
The accounting policy on Intangible Assets and abstract of Note on Property, 
Plant and Equipment (PPE) and Intangible Assets, are given below: 
“Significant Accounting Policies 
… 
Study on Compliance of Financial Reporting Requirements 
23 
Intangible Assets 
Intangible Assets are stated at cost of acquisition net of recoverable taxes, 
trade discount and rebates less accumulated amortisation/ depletion and 
impairment loss, if any. Such cost includes purchase price, borrowing costs, 
and any cost directly attributable to bringing the asset to its working condition 
for the intended use. Subsequent costs are included in the asset’s carrying 
amount or recognised as a separate asset, as appropriate, only when it is 
probable that future economic benefits associated with the item will flow to 
the entity and the cost can be measured reliably. Intangible assets are 
amortised over their estimated useful life. 
“Note : Property, Plant and Equipment (PPE) and Intangible Assets 
Description … … … Intangible Asset 
Computer Software 
(acquired) 
… 
Balance as at 31 March 20XX ---” 
Principle: Ind AS 38: Intangible Assets 
Paragraph 118 
"An entity shall disclose the following for each class of intangible assets, 
distinguishing between internally generated intangible assets and other 
intangible assets: 
(a) whether the useful lives are indefinite or finite and, if finite, the useful 
lives or the amortisation rates used; 
(b) the amortisation methods used for intangible assets with finite useful 
lives;” 
Observation 
It was observed from the accounting policy and disclosures on Intangible 
Assets that the company has recognised computer software as an acquired 
Intangible Asset, which is amortized over its estimated useful life. However, 
the company has not disclosed the method of amortization and amortization 
rate/useful lives of the intangible assets, as required by paragraph 118 (a) & 
(b) of Indian Accounting Standard 38. 
Observations related to Assets
24
Accordingly, it was viewed that the requirement of Indian Accounting 
Standard 38 has not been complied with in preparation and presentation of 
financial statements.
18. Investments 
Matter contained in Financial Statements 
The relevant abstract of Note on Investments and Fair Value Measurement 
Hierarchy given in the Annual Report, reads as below: 
“Note XX: Investments 
Particulars As at March 
31, 20XX 
As at March 
31, 20YY 
Others (Measured at Cost, Refer Note 
No. XXX) 
 
(a) The ABC Commercial Co-Operative 
Bank Limited 
XXX (Previous Year: XXX) Equity 
Shares of Face Value Rs XX Each 
--- ---” 
 “Note XXX: Fair value measurement hierarchy: 
Particulars As at March 31, 20XX 
 Carrying 
amount 
Amortised 
Cost 
FVTOCI FVTPL Level of 
input 
used in 
1 2 3
Financial 
assets 
 
Investments* --- --- - - - - - 
*Excluding investment in subsidiaries and joint venture amounting to Rs. --- 
lakhs as it is carried at cost. 
Principle: Ind AS 109: Financial Instruments 
Paragraph 5.2.1 
“After initial recognition, an entity shall measure a financial asset in 
accordance with paragraphs 4.1.1–4.1.5 at: 
(a) amortised cost; 
Study on Compliance of Financial Reporting Requirements 
25 
(b) fair value through other comprehensive income; or 
(c) fair value through profit or loss.” 
Paragraph 5.7.5 
At initial recognition, an entity may make an irrevocable election to 
present in other comprehensive income subsequent changes in the 
fair value of an investment in an equity instrument within the scope of 
this Standard that is neither held for trading nor contingent 
consideration recognised by an acquirer in a business combination to 
which Ind AS 103 applies. (See paragraph B5.7.3 for guidance on 
foreign exchange gains or losses.) 
Paragraph B5.2.3 
All investments in equity instruments and contracts on those 
instruments must be measured at fair value. However, in limited 
circumstances, cost may be an appropriate estimate of fair value. 
That may be the case if insufficient more recent information is 
available to measure fair value, or if there is a wide range of possible 
fair value measurements and cost represents the best estimate of fair 
value within that range.
Observation 
It was noted from Note on Investments that the company has invested in 
equity shares of ABC Commercial Co-operative Bank and stated that it is 
measured ‘at cost’. However, under Note on Fair Value measurement 
Hierarchy, it has been stated to be valued at ‘amortized cost’. Hence, there is 
inconsistency with regard to valuation of equity investments. Further, it was 
viewed that investment in equity instruments (other than investment in group 
companies covered under Ind AS 27) should be measured at fair value 
through profit and loss or fair value through other comprehensive income 
(irrevocable option) in accordance with Ind AS 109.
Accordingly, it was viewed that the requirements of Indian Accounting 
Standard 109 have not been complied with in preparation and presentation of 
the financial statements. 
Observations related to Assets
26
19. Trade Receivables 
Matter contained in Financial Statements 
The relevant abstract of Note on Trade receivables and Note on Financial 
Risk Management - Credit Risk, as given in the Annual Report of a company, 
reads as follows: 
“Trade Receivables 
“Trade receivables Break up of security details.” 
 “Financial Risk Management 
… 
A. Credit risk 
Credit risk is the risk of financial loss to the Company if a customer or 
counterparty fails to meet its contractual obligations. 
Trade receivables 
Concentrations of credit risk with respect to trade receivables are limited, due 
to the customer base being large, diverse and across sectors. …. 
Financial Assets are considered to be of good quality and there is no 
significant increase in credit risk. 
Particulars As at March 
31, 20XX 
As at March 
31, 20YY 
Trade receivables considered goodsecured 
- - 
Trade receivables considered goodunsecured 
--- --- 
Trade receivables which have significant 
increase in credit risk 
--- --- 
Trade receivables-credit impaired - - 
Total --- --- 
Provision for expected credit loss (--) (--) 
Total trade receivables --- --- 
Study on Compliance of Financial Reporting Requirements 
27 
Principle: Ind AS 1: Presentation of Financial Statements 
Paragraph 17 
“In virtually all circumstances, presentation of a true and fair view is 
achieved by compliance with applicable Ind ASs. Presentation of a true 
and fair view also requires an entity: 
… 
(e) to present information, including accounting policies, in a manner that 
provides relevant, reliable, comparable and understandable 
information.” 
Observation 
Under the Note on Financial Risk Management, it has been stated that the 
company has not experienced a significant increase in credit risk. However, it 
was observed from the Note on Trade Receivables that there is a significant 
increase in the allowance for Expected credit loss, which indicates that there 
is significant increase in credit risk. 
Accordingly, it was viewed that contradictory information has been provided 
in the same set of financial statements and the requirements of Indian 
Accounting Standard 1 have not been appropriately complied with in 
preparation and presentation of financial statements.
20. Investments in Subsidiaries, Associates and 
Joint Ventures 
Matter contained in Financial Statements 
The relevant abstract of Note on Investments given in the Annual Report of a 
company, reads as below: 
“Investments 
Particulars As at March 31, 20XX As at March 31, 20YY 
No. of 
shares
Amount No. of 
Shares
Amount 
… --- --- --- ---
Total Investments in 
Subsidiaries
 --- --- 
Observations related to Assets
28
 --- --- --- --- 
Total Investments in 
Associates 
 --- --- 
… --- --- --- --- 
Total Preference 
Instrument 
Investments in 
Subsidiaries 
 --- --- 
… --- ---" 
Principle: Ind AS 27: Separate Financial Statements 
Paragraph 17
“ … The parent or investor shall also disclose in its separate financial 
statements: 
 … 
(b) a list of significant investments in subsidiaries, joint ventures and 
associates, including: 
(i) the name of those investees. 
(ii) the principal place of business (and country of incorporation, if 
different) of those investees. 
(iii) its proportion of the ownership interest (and its proportion of 
the voting rights, if different) held in those investees.” 
Observation 
It was noted from the Note on Investments that there are investments in 
subsidiaries, associates and joint ventures. However, place of incorporation 
and the proportion of ownership interest in respect of investments in 
subsidiaries, associates and joint ventures have not been disclosed 
anywhere in the notes to accounts as required by paragraph 17 of Ind AS 27. 
Accordingly, it was viewed that the requirements of Ind AS 27 have not been 
complied with in the preparation and presentation of financial statements. 
Study on Compliance of Financial Reporting Requirements 
29 
21. Investments 
Matter contained in Financial Statements 
The relevant abstract of Note on Current Investments given in the Annual 
Report of a company, reads as below: 
“Current Investments 
Particulars As at March 31, 
20XX 
As at March 31, 
20YY 
Mutual Funds XXX XXX
Principle: Guidance Note on Division II – IND AS Schedule III to the 
Companies Act, 2013 
Paragraph: Note 6A(VI)(ii) of General Instructions for preparation of 
Balance Sheet 
“Investments:
(i) Investments shall be classified as: 
 … 
(ii) The following shall also be disclosed; 
(a) Aggregate amount of quoted investments and market value thereof; 
(b) Aggregate amount of unquoted investments; and 
(c) Aggregate amount of impairment in value of investments.”
Observation 
It was noted from given note that the Company has invested in various 
mutual funds as Current Investments. 
It may be noted that Note 6 of General Instructions for preparation of 
Balance Sheet given under Divisions II, Schedule III of the Companies Act, 
2013 requires Investments to be sub classified into quoted, unquoted and 
impairment loss (if any) in the notes to financial statements. However, the 
company has not disclosed the same. 
Accordingly, it was viewed that given disclosures are imprecise and not in 
accordance with the requirements of Division II, Schedule III to Companies 
Act, 2013. 
Observations related to Assets
30
22. Investments 
Matter contained in Financial Statements 
The relevant abstract of the Balance Sheet given in the Annual Report of a 
company, reads as below: 
Particulars As at 31st March, 
20XX 
As at 31st March, 
20YY 
Non-current assets 
Property, Plant and Equipment XXX XXX 
Investments XXX XXX
Principle: Division II, Schedule III to the Companies Act, 2013 and Ind AS 
32, Financial Instruments: Presentation 
Abstract of Format of Balance sheet prescribed under Division II of 
Schedule III, Companies Act 2013 
“Balance Sheet 
(1) Assets 
 Non-current Assets 
 (h) Financial Assets 
 (i) Investments” 
Paragraph 11 of Ind AS 32 
“A financial asset is any asset that is: 
(a) cash; 
(b) an equity instrument of another entity; 
(c) a contractual right: 
(i) to receive cash or another financial asset from another 
entity; or 
(ii) to exchange financial assets or financial liabilities with 
another entity under conditions that are potentially 
favourable to the entity; or 
(d) a contract that will or may be settled in the entity’s own equity 
instruments and is :- (i) & (ii) …..” 
Study on Compliance of Financial Reporting Requirements 
31 
Observation 
It was noted from the Balance sheet that “Investments” have been shown 
under Non-Current Assets. It was viewed that investments are financial 
assets, as per paragraph 11 of Ind AS 32. Additionally, Schedule III to 
Companies Act, 2013 requires to classify “Investments” on face of Balance 
Sheet under the head “Financial Assets“. Hence, it was viewed that 
‘Investments’ should have been shown under the head ‘Financial Assets’ on 
the face of balance sheet, as sub-category of Non-Current Assets. 
Accordingly, it was viewed that the requirement of Division II, Schedule III to 
the Companies Act, 2013 and Ind AS 32 have not been complied with in the 
preparation and presentation of financial statements. 
23. Loans 
Matter contained in Financial Statements 
The relevant abstract of Note on Loans given in the Annual Report of a 
company, reads as follows: 
“Note: Loans (at amortized cost) 
Particulars As at 31 
March 20XX 
As at 31 
March 20YY 
Unsecured, Considered Doubtful 
Loans to others (Business Advance) --- ---" 
 
Principle: Ind AS 109: Financial Instruments 
Paragraph 5.5.1 
“An entity shall recognize a loss allowance for expected credit losses 
on a financial asset that is measured in accordance with paragraphs 
4.1.2 or 4.1.2A, a lease receivable, a contract asset or a loan 
commitment and a financial guarantee contract to which the 
impairment requirements apply in accordance with paragraphs 2.1(g), 
4.2.1(c) or 4.2.1(d).” 
Observation 
It was observed from the given note that the company has given unsecured 
business advance which has been considered ‘doubtful’. It was also 
Observations related to Assets
32
observed that all the loans were carried at amortised cost. However, despite 
of the fact that these advances were doubtful, the company has not 
recognized any allowance towards the expected credit loss as required by 
Indian Accounting Standard 109. It was viewed that non-recognition of 
allowance for expected credit loss on doubtful business advances, the profits 
as well as financial assets of the company have been overstated to that 
extent. 
Accordingly, it was viewed that the requirements of Indian Accounting 
Standard 109 have not been complied with in preparation and presentation of 
the financial statements. 
24. Deferred Tax 
Matter contained in Financial Statements 
The relevant abstract of the Accounting Policy on Taxes on Income as given 
in the Annual Report of a company, reads as follows: 
“Significant Accounting Policies 
Taxes on Income 
… 
Deferred Tax: 
… 
Deferred Tax Assets for previous year has been reversed in current year on 
conservative approach as non-foreseeability of its adjustment in future 
against profits.” 
Principle: Ind AS 1: Presentation of Financial Statements 
Paragraph 7 
“ 
… 
Information is material if omitting, misstating or obscuring it could 
reasonably be expected to influence decisions that the primary users 
of general-purpose financial statements make on the basis of those 
financial statements, which provide financial information about a 
specific reporting entity.” 
Study on Compliance of Financial Reporting Requirements 
33 
Observation 
It was noted from the stated accounting policy that the company has 
reversed the deferred tax assets in the current year considering the nonforeseeability of future taxable profits. However, it was observed from the 
note on deferred tax that the company does not have deferred tax assets in 
both the current year and previous year. It was viewed that the provided 
statement on reversal of deferred tax assets is irrelevant and confusing. 
Accordingly, it was viewed that the requirements of Indian Accounting 
Standard 1 have not been complied with in the preparation and presentation 
of financial statements. 
25. Deferred Tax-MAT Credit 
Matter contained in Financial Statements 
The relevant abstract of Note on MAT credit entitlement given in the Annual 
Report of a company, reads as below: 
“Note 5: Other Non-Current Assets 
(Unsecured, considered Good) 
Particulars As at 31.03.20XX As at 31.03.20YY 
MAT credit entitlement XXX XXX
Principle: Guidance Note on Division II Ind AS Schedule III to the 
Companies Act, 2013. 
Paragraph: 9.7.2. Deferred tax 
“Ind AS 12 has the concept of temporary differences as against AS 22 
which had a concept of timing differences. Moreover, deferred tax asset is 
defined in Ind AS 12 to include amounts of income taxes recoverable in 
future periods in respect of the carry forward of unused tax credits. MAT 
Credits are in the form of unused tax credits that are carried forward by the 
company for a specified period of time. Accordingly, MAT Credit 
Entitlement should be grouped with Deferred Tax Asset (net) in the 
Balance Sheet of an entity and a separate note should be provided 
specifying the nature and amount of MAT Credit included as a part of 
deferred tax.” (emphasis supplied)
Observations related to Assets
34
Observation 
It was observed from the given note that “MAT credit entitlement” was 
classified as “Other Non-current Assets”. In accordance with stated 
requirement of Guidance Note, MAT credit entitlement should be grouped 
with Deferred Tax Assets (Net) in the Balance Sheet with a separate note 
specifying the nature and amount of MAT Credit. 
Accordingly, it was viewed that 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 financial statements. 
26. Financial Assets 
Matter contained in Financial Statements 
The relevant abstract of Note on Other Current Assets given in the Annual 
Report of a company, reads as below: 
“Other Current Assets 
Particulars As at 31st 
March 20XX 
As at 31st March 
20YY 
Interest Accrued --- --- 
Principle: Ind AS 32: Financial Instruments: Presentation 
Paragraph 11 
"A Financial Asset is any asset that is: 
(a) cash; 
(b) an equity instrument of another entity; 
(c) a contractual right: 
(i) to receive cash or another financial asset from another entity; 
or 
(ii) to exchange financial assets or financial liabilities with 
another entity under conditions that are potentially favorable 
to the entity; or 
(d) …" 
Study on Compliance of Financial Reporting Requirements 
35 
Observation 
It was noted from the given note on other current assets that the same 
contains a line item as ‘interest accrued’. It was viewed that accrued interest 
is a “financial asset” since it gives the company a contractual right to receive 
cash from another entity. Further, it was viewed that interest accrued should 
be included in the underlying financial assets. 
Accordingly, it was viewed that the requirement of Ind AS 32 has not been 
complied with in the preparation and presentation of financial statements
27. Financial Assets 
Matter contained in Financial Statements 
In the annual report of a company, prepaid expenses have been disclosed 
under ‘Other Financial Assets’. 
Principle: Ind AS 32: Financial Instruments: Presentation and 
Guidance Note on Division II - Ind AS Schedule III to the Companies 
Act, 2013 
Paragraph 11 of Ind AS 32 
"A Financial Asset is any asset that is: 
a) cash; 
b) an equity instrument of another entity; 
c) a contractual right: 
(i) to receive cash or another financial asset from another entity; 
or 
(ii) to exchange financial assets or financial liabilities with another 
entity under conditions that are potentially favourable to the 
entity; or 
d) …" 
Paragraph 8.1.12 of Guidance Note on Division II - Ind AS Schedule III 
to the Companies Act, 2013 
"…Other advances include all other items in the nature of advances which 
do not meet the definition of a financial assets viz., Prepaid expenses, 
CENVAT credit receivable, VAT credit receivable, Service tax credit 
receivable, etc.," 
Observations related to Assets
36
Observation 
The Board viewed that prepaid expenses does not give a contractual right to 
receive cash or other financial assets, rather it is a right to receive services. 
Accordingly, the prepaid expenses are not financial assets in terms of Indian 
Accounting Standard 32 and should have been disclosed as ‘Other Current 
Assets’ as per the guidance provided under paragraph 8.1.12 of Guidance 
Note on Division II – Ind AS Schedule III to the Companies Act, 2013. 
Accordingly, it was viewed that the requirements of Ind AS 32 and 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. 
28. Financial Assets 
Matter contained in Financial Statements 
The relevant abstract of Note on Joint Venture and Accounting Policy on 
Impairment of Financial Assets as given in the Annual Report of XYZ Ltd, is 
reproduced below: 
“Note on Joint Venture 
ABC JV has a total exposure of Rs XXX in RRR Metro Rail Ltd. (RRR) which 
includes trade receivables of Rs XXX and unbilled receivables of Rs XXX. 
ABC JV has put a Rs XXX variations on RRR which are pending at different 
stages of arbitration. 
XYZ Limited has undertaken sub-contracting work of Rs XXX from ABC JV 
for RRR Metro Rail Ltd. and as at 31st March 20YY, total receivable due 
from ABC JV is Rs XXX. An amount of Rs XXX is pending towards 
subcontracting work and the balance Rs XXX is pending towards advances 
given to ABC JV. XYZ Limited is not the party to the arbitration/claims, and 
the recovery of this amount is dependent upon finalization of arbitration 
award and clearance /acceptance of claims by RRR.” 
Impairment of financial assets 
…The Company applies the expected credit loss model for recognising 
impairment loss on financial assets measured at amortised cost, lease 
receivables, trade receivables, other contractual rights to receive cash or 
other financial asset. 
Study on Compliance of Financial Reporting Requirements 
37 
For trade receivables, the Company measures the loss allowance at an 
amount equal to lifetime expected credit losses. … 
Principle: Ind AS 109: Financial Instruments 
Paragraph 5.5.1 
“An entity shall recognize a loss allowance for expected credit losses on a 
financial asset that is measured in accordance with paragraphs 4.1.2 or 
4.1.2A, a lease receivable, a contract asset or a loan commitment and a 
financial guarantee contract to which the impairment requirements apply in 
accordance with paragraphs 2.1(g), 4.2.1(c) or 4.2.1(d).” 
Observation 
It was noted from the notes to accounts that the company has a material 
amount of trade receivables (current assets) whose realization is based on 
arbitration outcome. It was viewed that as the realization of the outcome is 
not certain and being a financial asset, allowance for expected credit loss 
(ECL) should have been made as required by Indian Accounting Standard 
109. Non-provisioning for ECL led to overstatement of financial assets as 
well as overstatement of profits of the company. 
Accordingly, it was viewed that the requirements of Indian Accounting 
Standard 109 have not been complied with in the preparation and 
preparation of financial statements. 
29. Financial Assets 
Matter contained in Financial Statements 
The accounting policy on financial assets, valued at Fair Value through Other 
Comprehensive Income (FVOCI), reads as follows: 
“Financial Assets at Fair Value through Other Comprehensive Income 
(FVTOCI) 
A financial asset is subsequently measured at fair value through other 
comprehensive income if it is held within a business model whose objective 
is achieved by collecting contractual cash flows and the contractual terms of 
the financial asset give rise on specified dates to cash flows. Investments 
which are classified as financial asset, the subsequent changes in fair value 
are recognized through other comprehensive income (OCI).” 
Observations related to Assets
38
Principle: Ind AS 109: Financial Instruments 
Paragraph 4.1.2A 
“A financial asset shall be measured at fair value through other 
comprehensive income if both the following conditions are met: 
(a) the financial asset is held within a business model whose 
objective is achieved by both collecting contractual cash flows 
and selling financial assets. 
(b) the contractual terms of the financial asset give rise on specified 
dates to cash flows that are solely payments of principal and 
interest on the principal amount outstanding.” 
Observation 
It was noted from the given accounting policy that the financial assets are 
subsequently measured at fair value through other comprehensive income 
(FVTOCI), ‘if it is held within a business model whose objective is achieved 
by collecting contractual cash flows and the contractual terms of the financial 
asset give rise on specified dates to cash flows’. It was viewed that, as per 
Indian Accounting Standard 109 – a financial asset should be classified as 
FVTOCI when the financial assets are held within business model whose 
objective is both to ‘collect contractual cash flows’ and ‘selling of the financial 
assets’. It was viewed that another objective, i.e. selling of financial assets 
has not been considered while classifying financial assets as FVTOCI. 
Accordingly, it was viewed that either policy on financial assets at FVTOCI or 
classification of financial assets at FVTOCI is not in line with Indian 
Accounting Standard 109. 
Accordingly, it was viewed that the requirements of Indian Accounting 
Standard 109 have not been complied with in the preparation and 
presentation of financial statements. 
30. Financial Assets 
Matter contained in Financial Statements 
The relevant abstract of Note on Non-Current Investments given in the 
Annual Report of a company, reads as below: 
Study on Compliance of Financial Reporting Requirements 
39 
Non-Current Investments 
Particulars As at 
31 March 20XX 
As at 
31 March 20YY 
A. Investments in subsidiaries 
Unquoted equity instruments (fully 
paid-up) carried at cost less 
provision for other than temporary 
diminution in value 
 
… XXX XXX
Less: Provision for other than 
temporary diminution in value XXX XXX 
Principle: Ind AS 36, Impairment of Assets 
Paragraph 59 
If, and only if, the recoverable amount of an asset is less than its 
carrying amount, the carrying amount of the asset shall be reduced to 
its recoverable amount. That reduction is an impairment loss. 
Observation 
It was observed from the Note on ‘Non-Current Investments’ that the 
impairment loss on investment in subsidiary was termed as ‘provision for 
other than temporary diminution in value’, which is as per Accounting 
Standard 13: Accounting for Investments. This may lead to an impression 
that financial statements were prepared as per Indian GAAP (AS) 
Framework. It was viewed that since investment in subsidiary is carried at 
cost, impairment of investments should be dealt with the principles laid down 
under Ind AS 36: Impairment of Assets, and the term used for it under Ind AS 
36 is ‘Impairment loss.’ 
Accordingly, it was viewed that the requirement of Ind AS 36 has not been 
complied with in the preparation and presentation of financial statements. 
31. Financial Assets 
Matter contained in Financial Statements 
The relevant abstract of Note on Financial Assets given in the Annual Report 
of a company, reads as below: 
Observations related to Assets
40
Financial Assets 
Particulars As at 
31.03.20XX 
As at 
31.03.20YY 
Loans to related parties - 
Subsidiary Companies XXX XXX 
Loan to Others XXX XXX 
Principle: Division II, Schedule III to the Companies Act, 2013 
Note: 6B (V) of General Instructions for preparation of Balance Sheet’ 
(i) Loans shall be classified as: 
(a) [Omitted]; 
(b) Loans to related parties (giving details thereof); and 
(c) others (specify nature).
Observation 
It was observed from the notes given that the company has financial assets 
including loans and advances mentioning to ‘others’. However, it was viewed 
that the company should specify the nature of ‘others’ as per the 
requirements of Division II of Schedule III to the Companies Act, 2013. 
Accordingly, it was viewed that the requirements of Division II, Schedule III to 
the Companies Act, 2013 have not been complied in the preparation and 
presentation of financial statements. 
32. Inventories 
Matter contained in Financial Statements 
The relevant abstract of the accounting policy on Inventories given in the 
Annual Report of a company, reads as below:
“…. 
Determination of Inventories: 
Inventories are carried in the balance sheet as follows:
Study on Compliance of Financial Reporting Requirements 
41 
(i) Raw Material, Packing Material, 
Construction Materials, stores & 
Spares.
At weighted average cost basis
(ii) Work In Progress & Finished 
Goods – Manufacturing
At cost of material, plus 
appropriate production overheads
The cost of the inventories has been computed to include all cost of 
purchases, cost of conversion and other related costs incurred in bringing the 
inventories to their present location and condition.” 
Principle: Ind AS 2: Inventories 
Paragraph 9 
“Inventories shall be measured at the lower of cost and net realisable 
value”. 
Paragraph 6 
“Net realizable 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.” 
Observation 
It was noted from the given policy that inventories have been valued at Cost. 
In other words, Cost has not been compared to ‘net realisable value’ for the 
purpose of valuation of inventories. 
It was viewed that for the valuation of inventories ‘net realisable value’ 
should also be considered, which is estimated selling price in the ordinary 
course of business, less the estimated costs of completion and the estimated 
costs necessary to make the sale. 
Accordingly, it was viewed that the stated policy on valuation of inventories is 
not in line with the requirements of Ind AS 2. 
33. Inventories 
Matter contained in Financial Statements 
The relevant abstract of accounting policy on Inventories of a company, 
reads as follows:
Observations related to Assets
42
“Inventories: 
Finished goods covered under confirmed forward contract / orders are valued 
at net realizable value & others are valued at cost or market price whichever 
is lower.” 
Principle: Ind AS 2: Inventories 
Paragraph 9 
“Inventories shall be measured at the lower of cost and net realisable 
value”. 
Paragraph 25 
“The cost of inventories, other than those dealt with in paragraph 23, 
shall be assigned by using the first-in, first-out (FIFO) or weighted 
average cost formula. An entity shall use the same cost formula for 
all inventories having a similar nature and use to the entity. For 
inventories with a different nature or use, different cost formulas may 
be justified.” 
Paragraph 36 
“The financial statements shall disclose: 
(a) the accounting policies adopted in measuring inventories, 
including the cost formula used.” 
Observation 
It was noted that finished goods covered under confirmed forward contract / 
order, are valued at net realizable value and cost has not been considered 
for valuation of the same. 
Further, it was noted that other finished goods have been valued at lower of 
cost and market price instead of net realizable value. It appears that the 
estimated costs of completion and the estimated costs necessary to make 
the sale, have not been reduced from the estimated selling price for the 
purpose of valuation of inventories. Accordingly, it was viewed that finished 
goods have not been valued at lower of cost and net realizable value as 
required by Ind AS 2. 
Also, the cost formula (i.e., FIFO or weighted average cost) used in the 
valuation has not been disclosed by the company. 
Study on Compliance of Financial Reporting Requirements 
43 
Accordingly, it was viewed that the requirements of Ind AS 2 have not been 
complied with in preparation and presentation of the financial statements. 
34. Inventories 
Matter contained in Financial Statements 
The relevant abstract of Note on Other Expenses given in the Annual Report 
of a company, reads as follows: 
“Other Expenses 
Particulars 31.03.20XX 31.03.20YY 
… --- ---
Legal and professional charges --- ---
Listing Expenses & Demerger Expenses --- ---
Advertisement and business promotion 
expenses 
 
 --- ---
Less: Transferred to work-in-progress 
(inventory) 
--- (---)
Total --- ---“
Principle: Ind AS 2: Inventories 
Paragraph 15 
“Other costs are included in the cost of inventories only to the extent that 
they are incurred for bringing inventories to their present location and 
condition.” 
Paragraph 16 
“Examples of costs excluded from the cost of inventories and recognised 
as expenses in the period in which they are incurred. 
(a) abnormal amounts of wasted materials, labour or other production 
costs. 
(b) storage costs, unless those costs are necessary in the production 
process before a further production stage. 
Observations related to Assets
44
(c) administrative overheads that do not contribute to bringing inventories 
to their present location and condition; and 
(d) selling costs.”
Observation 
It was noted that ‘Other Expenses’ namely the ‘legal and professional 
charges’, ‘listing expenses & demerger expenses’ and ‘advertisement and 
business promotion expenses’ were transferred / capitalized to the work-inprogress (WIP). It was viewed that the above expenses will not form part of 
the cost of inventory as they were neither directly incurred on inventories nor 
were they necessary to be incurred for bringing the inventory into its present 
location. It was viewed that paragraph 15 clearly states that other costs 
which are necessary for bringing the inventory into its present location can 
be capitalized. It was, further, noted that paragraph 16 gives the examples of 
expenditures which cannot be capitalized into the cost of inventories. 
Accordingly, the Board viewed that legal expenses, demerger expenditures 
and advertisement expenditures are not in the nature of ‘other cost’ 
described in paragraph 15, and these expenditures are similar to those 
specified in paragraph 16, therefore, should not be included into the cost of 
inventory of WIP. 
Accordingly, it was viewed that the requirements of Ind AS 2 have not been 
complied with in preparation and presentation of financial statements. 
35. Inventories 
Matter contained in Financial Statements 
The relevant abstract of accounting policy on Inventories given in the Annual 
Report of a company, reads as below:
“Accounting Policy on Inventories 
Inventories including goods-in-transit are valued at lower of cost and 
estimated net realisable value. However, Raw materials and other items held 
for use in the production of inventories are not written down below cost, if the 
finished products in which it will be incorporated are expected to be sold at or 
above cost. “ 
Study on Compliance of Financial Reporting Requirements 
45 
Principle: Ind AS 2: Inventories 
Paragraph 36 
“The financial statements shall disclose: 
(a) the accounting policies adopted in measuring inventories, 
including the cost formula used;” 
Observation 
It was noted that although the accounting policy adopted for valuation of 
inventories have been disclosed, the cost formula used to determine the cost 
of inventories was not disclosed as required by paragraph 36 of Ind AS 2. 
Hence, it was viewed that the disclosure requirements of Ind AS 2 relating to 
cost formula has not been complied with in preparation and presentation of 
the financial statements. 
36. Inventories 
Matter contained in Financial Statements 
The relevant abstract of accounting policy on Inventories as given in the 
Annual Report of a company, reads as below: 
 “Inventories: 
a. Inventories comprise of: 
i) Finished Realty stock representing unsold premises in completed 
projects 
ii) Realty work in progress representing properties under construction / 
development and 
iii) Raw Material representing inventory yet to be consumed.
b. Inventories other than Raw Material above are valued at lower of cost 
and net realisable value. Raw Material are valued at weighted average 
method.” 
Principle: Ind AS 2: Inventories 
Paragraph 9 
“Inventories should be valued at the lower of cost and net realisable 
value.” 
Observations related to Assets
46
Paragraph 36 
“The financial statements shall disclose: 
(a) the accounting policies adopted in measuring inventories, 
including the cost formula used;”
Observation 
It was noted from the adopted policy that raw material has been valued at 
weighted average method. It was viewed that the weighted average method 
is cost formula and not the accounting policy for valuation of Raw Material. 
The raw material should also have been valued at lower of cost or net 
realisable value. 
Additionally, the company has not disclosed the cost formula used for 
inventories other than raw materials, as required by paragraph 36 of Ind AS 
2. 
Accordingly, it was viewed that the requirements of Ind AS 2 have not been 
complied with in preparation and presentation of financial statements. 
37. Assets Held for Sale 
Matter contained in Financial Statements 
The relevant abstract of Note on discontinued business and its Income & 
Expenditure account given in the Annual Report of a company, reads as 
below: 
“Note: X business 
… 
Further, due to disinvestment made by the Company, which is under 
process, the Board of Directors had approved, in principle, to hive off X 
business in the board meeting held on 10th July 20XX. 
Discounted Operations are excluded from the results of continuing 
operations and are presented as a single amount as ‘Profit or loss after tax 
from discontinued operations’. 
Income & Expenditure statement of X business is as under: 
Particulars 20XX
Income 
Revenue from Operation --
Other Income --
Study on Compliance of Financial Reporting Requirements 
47 
Total – (A) --
Expenses 
Project Operation Expenses --
Employees Benefits Expenses --
HO/NR Allocation --
Depreciation & Amortization Expenses --
Other Expenses --
Total – (B) --
Net Profit (A-B) (--)”
Principle: Ind AS 105: Non-current Assets Held for Sale and 
Discontinued Operations 
Paragraph 25 
“An entity shall not depreciate (or amortise) a non-current asset while it is 
classified as held for sale or while it is part of a disposal group classified as 
held for sale. Interest and other expenses attributable to the liabilities of a 
disposal group classified as held for sale shall continue to be recognized.” 
Paragraph 33 
An entity shall disclose: 
(a) a single amount in the statement of profit and loss comprising the total 
of:.. 
(b) an analysis of the single amount in (a) into: … 
(c) the net cash flows attributable to the operating, investing and financing 
activities of discontinued operations…. 
(d) the amount of income from continuing operations and from discontinued 
operations attributable to owners…” 
Paragraph 34 
“An entity shall re-present the disclosures in paragraph 33 for prior periods 
presented in the financial statements so that the disclosures relate to all 
operations that have been discontinued by the end of the reporting period 
for the latest period presented.” 
Observations related to Assets
48
Observation 
It was noted from the notes to financial statements that the Board of 
Directors approved the hiving off the X business during the current year. 
However, in the Income and Expenditure account, Depreciation & 
Amortisation expenses had been disclosed. It was viewed that hiving off a 
major line of business constitutes a discontinued operation as per Ind AS 
105. Accordingly, non- current asset that are part of the discontinued 
operation should not be depreciated or amortized, as per paragraph 25 of Ind 
AS 105. 
Further, it was noted that the disclosures required by paragraph 33 of Ind AS 
105 have also not been provided in the financial statements. 
Accordingly, it was viewed that the requirements of Ind AS 105 have not 
been complied with in preparation and presentation of the financial 
statements. 
38. Assets Held for Sale 
Matter contained in Financial Statements 
The relevant abstract of Director’s Report given in the Annual Report of a 
company, reads as below- 
“… 
The Company’s Working/State of affairs during the Financial Year under 
review 
… 
During the current financial year, the Board took necessary authorities, 
powers and consent from the Shareholders/ Members by passing a 
Special Resolution through the Postal Ballot process to dispose off the 
Company’s manufacturing units/undertakings namely…, …, ... in terms 
of compliance with the provisions of Sec.180 read with Sec.110 of the 
Companies Act, 2013, and other applicable rules of the said Act. 
Subsequently, the Company sold off one of its Plant to M/s. XX Steel 
Industries Pvt. Ltd. By way of slump sale on a going concern basis by 
executing a Business Transfer Agreement with the said Buyer Company on 
22.11.20XX. The said slump sale transaction was completed on 21.01.20YY 
and the resultant net profit on such sale (after adjustment of book value of 
the unit’s assets and liabilities as on 31.10.20XX) is included and reflected as 
other income in the Note No. XX of the annual financial statements.” 
Study on Compliance of Financial Reporting Requirements 
49 
Principle: Ind AS 105: Non-current Assets Held for Sale and 
Discontinued Operations and Ind AS 33: Earnings Per Share 
Paragraph 30 of Ind AS 105 
“An entity shall present and disclose information that enables users 
of the financial statements to evaluate the financial effects of 
discontinued operations and disposals of non-current assets (or 
disposal groups).” 
Paragraph 33 of Ind AS 105 
“An entity shall disclose: 
(a) a single amount in the statement of profit and loss comprising the total 
of: 
(i) the post-tax profit or loss of discontinued operations and 
(ii) the post-tax gain or loss recognised on the measurement to fair 
value less costs to sell or on the disposal of the assets or disposal 
group(s) constituting the discontinued operation. 
(b) an analysis of the single amount in (a) into: 
(i) the revenue, expenses and pre-tax profit or loss of discontinued 
operations; 
(ii) the related income tax expense as required by paragraph 81(h) of 
Ind AS 12. 
…” 
Paragraph 68 of Ind AS 33 
“An entity that reports a discontinued operation shall disclose the basic and 
diluted amounts per share for the discontinued operation either in the 
statement of profit and loss or in the notes.” 
Observations related to Assets
50
Observation 
It was noted from the Director’s Report that the Board of Directors have 
approved selling/disposing off certain manufacturing units/undertakings 
during the current financial year. However, the disclosures as required by 
paragraph 30 and 33 of Ind AS 105 and paragraph 68 of Ind AS 33 have not 
been provided in the financial statements. 
Accordingly, it was viewed that the requirements of Ind AS 105 and Ind AS 
33 have not been complied with in the preparation and presentation of 
financial statements. 
39. Contingent Assets 
Matter contained in Financial Statements 
The relevant abstract of accounting policy on Provisions, Contingent 
Liabilities and Contingent Assets given in the Annual Report of a company, 
reads as below: 
“…Contingent liabilities are disclosed in the Notes. Contingent assets are 
neither recognized nor disclosed in the financial statements.” 
Principle: Ind AS 37: Provisions, Contingent Liabilities and 
Contingent Assets 
Paragraph 31 
An entity shall not recognise a contingent asset. 
Paragraph 34 
“A contingent asset is disclosed, as required by paragraph 89, where an 
inflow of economic benefits is probable.” 
Paragraph 89 
“Where an inflow of economic benefits is probable, an entity shall 
disclose a brief description of the nature of the contingent assets at 
the end of the reporting period, and, where practicable, an estimate 
of their financial effect, measured using the principles set out for 
provisions in paragraphs 36–52.”
Observation 
It was noted from the stated accounting policy that contingent assets were 
stated to have neither been recognized nor disclosed in the financial 
Study on Compliance of Financial Reporting Requirements 
51 
statements. Although, paragraph 31 of Indian Accounting Standard 37 states 
that contingent assets should not be recognized in the financial statements, 
however, disclosure of such assets should be made in line with paragraph 34 
read with paragraph 89 of the standard, in cases where inflow of economic 
benefits is probable. 
Accordingly, it was viewed that the adopted policy on contingent assets is not 
in conformity with the requirements of Ind AS 37. 
40. First Time adoption of Indian Accounting 
Standards 
Matter contained in Financial Statements 
The relevant abstract of Note on First Time Adoption of Ind AS given in the 
annual report of a company, reads as follows: 
“FIRST TIME ADOPTION OF IND AS 
Transition to Ind AS 
These are the Company’s first financial statements prepared in accordance 
with Ind AS. 
A. Exemptions and exceptions availed 
The Company has applied the following optional exemptions in the financial 
statements: 
Ind AS optional exemptions 
Property, plant and equipment and intangible assets were carried in the 
Balance Sheet prepared in accordance with previous GAAP. 
Ind AS 101 permits a first-time adopter to measure items of PPE at deemed 
cost at the date of transition to Ind AS. Deemed cost is to be derived on 
basis of following two methods: 
(i) Fair value/revaluation as deemed cost 
(ii) Previous GAAP carrying value as deemed cost 
The company has elected to regard previous GAAP carrying values as 
deemed cost at the date of transition for all assets except in case of land
within Property, plant and equipment which are measured at fair value as 
deemed cost. (Emphasis supplied) 
Observations related to Assets
52
Principle: Ind AS 101 – First Time adoption of Indian Accounting 
Standards 
Paragraph D5 
“An entity may elect to measure an item of Property, Plant and Equipment 
at the date of transition to Ind ASs at its fair value and use that fair value 
as its deemed cost at that date.” 
Paragraph D7AA 
“Where there is no change in its functional currency on the date of 
transition to Ind ASs, a first-time adopter to Ind ASs may elect to continue 
with the carrying value for all of its property, plant and equipment as 
recognized in the financial statements as at the date of transition to Ind 
ASs, measured as per the previous GAAP and use that as its deemed cost 
as at the date of transition after making necessary adjustments in 
accordance with paragraph D21 and D21A, of this Ind AS…”
Definition of Deemed Cost 
“An amount used as a surrogate for cost or depreciated cost at a given 
date. Subsequent depreciation or amortization assumes that the entity had 
initially recognized the asset or liability at the given date and that its cost 
was equal to the deemed cost”. 
Observation 
It was noted from the note on first-time adoption of Ind AS financial 
statements that the Company has exercised the option under paragraph 
D7AA and used the carrying value of items of PPE as per previous GAAP, as 
the deemed cost at the date of transition, for all assets except land. Further, 
it was noted that land was measured at fair value. It was viewed that the 
company could measure the items of PPE either at fair value as per 
paragraph D5 or at previous GAAP carrying value as per paragraph D7AA, 
as its deemed cost at the time of transition. Further, it was viewed that option 
under paragraph D5 or D7AA should be exercised for entire PPE and not on 
selective basis or class basis. It may be noted that a similar view was taken 
in Issue No. 36 of Compendium on ITFG Clarification Bulletins, December 
2018 edition. The relevant extract of the issue number 36 is reproduced 
below: 
Study on Compliance of Financial Reporting Requirements 
53 
 “…If a first-time adopter chooses this option, then the option of applying this 
on selective basis to some of the items of property, plant and equipment and 
using fair value for others is not available.’’ 
Accordingly, it was viewed that the requirements of Ind AS 101 have not 
been complied with in preparation and presentation of financial statements. 
54
Chapter-2 
Observations related to Equity 
1. Statement of changes in Equity 
Matter contained in Financial Statements 
The relevant abstract of Note on Equity and Other Equity as given in the 
Annual Report of a company, reads as follows: 
“Note: Equity 
As at 
31/03/20XX 
As at 
31/03/20YY 
AUTHORISED SHARE CAPITAL: 
XX Equity Shares of Rs. 10/- each --- ---
ISSUED, SUBSCRIBED & PAID UP 
CAPITAL: 
 
XXX Equity Shares of Rs. 10 each fully 
Paid up (P.Y XX) 
--- ---
Note: Other Equity 
As at 
31/03/20XX 
As at 
31/03/20YY 
Security Premium Reserve 
As Per Last Balance Sheet --- ---
Add: On issue of shares - -
 --- ---
General Reserve 
As Per last Balance --- ---
Add: Transferred from profit & Loss 
Account 
- -
 --- ---
Study on Compliance of Financial Reporting Requirements 
55 
Profit & Loss Account 
As Per last Balance Sheet (---) (--)
Add: During the year profit/(Loss) (---) (--)
 (---) (---)
Principle: The Companies Act, 2013 and Ind AS 1: Presentation of 
Financial Statements 
Section - 2 (40) of the Companies Act, 2013 
"Financial statement" in relation to a company, includesi) a balance sheet as at the end of the financial year; 
ii) a profit and loss account, or in the case of a company carrying on any 
activity not for profit, an income and expenditure account for the 
financial year; 
iii) cash flow statement for the financial year; 
iv) a statement of changes in equity, if applicable; and 
v) any explanatory note annexed to, or forming part of, any document 
referred to in sub-clause (i) to sub-clause (iv): 
Provided that the financial statement, with respect to One Person 
Company, small company and dormant company, may not include the 
cash flow statement; 
Paragraph: 10 of Ind AS 1 
"A complete set of financial statements comprises: 
(a) a balance sheet as at the end of the period 
(b) a statement of profit and loss for the period; 
(c) Statement of changes in equity for the period; 
(d) a statement of cash flows for the period;; 
(e)
(ea), 
(f)………" 
Observations related to Equity
56
Observation 
It was noted from the Note on Equity and Other Equity that the company has 
prepared financial statements as per Ind AS and presented the Balance 
Sheet, Statement of Profit and Loss, Statement of Cash Flows and Notes to 
Accounts. However, it was observed that the company has not presented the 
Statement of Changes in Equity in the financial statements. 
It was viewed that Statement of Changes in Equity is also an integral part of 
financial statements and should be prepared and presented along with 
Balance Sheet, Statement of Profit and Loss and Statement of Cash Flows in 
format that is prescribed in Division II of Schedule III to the Companies Act, 
2013. 
Accordingly, it was viewed that the requirement of Ind AS 1 and the 
Companies Act, 2013 has not been complied with in preparation and 
presentation of financial statements. 
2. Other Equity 
Matter contained in Financial Statements 
The relevant abstract of the Statement of Changes in Equity and Statement 
of Profit and Loss as given in the Annual Report of a company, reads as 
follows: 
“STANDALONE STATEMENT OF CHANGES IN EQUITY 
Other Equity 
Particulars Reserve and Surplus Items of OCI Total 
Retained 
Earnings
General 
Reserve 
Equity 
Instruments 
through OCI 
….. 
….. 
Other 
Comprehensive 
income for the 
year, net of income 
tax 
 XXX XXX 
Study on Compliance of Financial Reporting Requirements 
57 
STANDALONE STATEMENT OF PROFIT & LOSS 
Particulars Note 
no. 
Year Ended 
March 31,20XX 
Year Ended 
March 31,20XX 
….. 
….. 
X Other Comprehensive 
income 
A (i) Items that will not be 
reclassified to profit or 
loss; 
- Actuarial gain and 
Losses on defined 
Benefit plans 
(ii) Income tax relating to 
items that will not be 
reclassified to profit and 
loss 
 
XXX 
XXX 
XXX 
XXX” 
Principle: Ind AS 1: Presentation of Financial Statements and Division 
II Ind AS Schedule III to the Companies Act, 2013 
Paragraph 106 of Ind AS 1 
“An entity shall present a statement of changes in equity as required by 
paragraph 10. The statement of changes in equity includes the following 
information: 
(d) for each component of equity, a reconciliation between the carrying 
amount at the beginning and the end of the period, separately (as a 
minimum) disclosing changes resulting from: 
… 
 (ii) other comprehensive income” 
Format of Statement of Changes in Equity 
Name of the Company……. 
A. Equity Share Capital 
Observations related to Equity
58
….. 
B. Other Equity 
…. 
Note: 
(i) Re-measurement of defined benefit plans and fair value changes 
relating to own credit risk of financial liabilities designated at fair value 
through profit or loss shall be recognised as a part of retained earning 
with separate disclosure of such items along with the relevant amounts 
in the Notes.
Observation 
It was noted from the Statement of Profit and Loss that the Other 
Comprehensive Income comprises actuarial gain and losses on defined 
benefit plans and the same has been added to ‘Equity Instruments through 
OCI’ under Statement of Changes in Equity. It was viewed that actuarial gain 
and loss should be recognised as a part of retained earnings with separate 
disclosure of such items along with the relevant amounts or should be shown 
as a separate column under Reserve and Surplus in line with the footnote to 
Format of Statement of Changes in Equity given under Division II of 
Schedule III to the Companies Act, 2013. It was further viewed that adding 
the actuarial gains or losses under the column ‘Equity Instruments through 
OCI’ is not correct. 
Accordingly, it was viewed that the requirements of Indian Accounting 
Standard 1 as well as Division II of Schedule III to the Companies Act, 2013 
have not been complied with in preparation and presentation of financial 
statements. 
3. Other Equity 
Matter contained in Financial Statements 
The relevant abstract of Note on Other Equity given in the Annual Report of a 
company, reads as below: 
Note: Other Equity 
Particulars As at 31 
March 20XX 
As at 31 
March 20YY 
Reserve for Equity Instruments through --- ---
Study on Compliance of Financial Reporting Requirements 
59 
Other Comprehensive Income 
Treasury Reserve --- ---
Employee Stock Option Reserve - -
Total --- ---
Principle: Ind AS 1, Presentation of Financial Statements and General 
Instructions for Preparation of Balance Sheet, Part I, Division II, 
Schedule III to the Companies Act, 2013 
Paragraph 79 of Ind AS 1 
“An entity shall disclose the following, either in the balance sheet or the 
statement of changes in equity, or in the notes: 
… 
(b) a description of the nature and purpose of each reserve within 
equity”. 
Note 6 General Instructions for Preparation of Balance Sheet, Part I, 
Division II, Schedule III to the Companies Act, 2013 
“D. Equity 
(II) Other Equity: 
… 
(d) Others – (specify the nature and purpose of each reserve and the 
amount in respect thereof)”
Observation 
It was noted from the note on ‘Other Equity’ that the Reserve for Equity 
Instruments through Other Comprehensive Income, Treasury Reserve and 
Employee Stock Option Reserve has been disclosed thereat. However, the 
nature and purpose of these reserves have not been disclosed in line with 
paragraph 79 (b) of Ind AS 1 and Note 6D II (iv) of Division II, Schedule III to 
the Companies Act, 2013. 
Accordingly, it was viewed that the requirements of Indian Accounting 
Standard 1 as well as Division II of Scheduled III to the Companies Act, 2013 
have not been complied with in preparation and presentation of financial 
statements. 
Observations related to Equity
60
4. Other Equity 
Matter contained in Financial Statements 
The relevant abstract of the Statement of Profit and Loss, Statement of 
Changes in Equity as given in the Annual Report of a company, reads as 
follows: 
“Statement of Profit and Loss for the year ended 31st March 20XX 
Particulars Note 
No. 
Year ended 
31.03.20XX 
Year ended 
31.03.20YY 
… 
VIII. Other comprehensive income 
Items that will not be reclassified 
to Statement of Profit and Loss 
 
(a) Changes in Fair Value of Equity 
Instruments through Other 
Comprehensive Income 
XXX XXX” 
“Statement of Changes in Equity for the year ended 31st March XXX 
A. Equity Share Capital 
 ….. 
B. Other Equity 
Particulars Reserves and Surplus Total 
Capital 
Reserve 
Retained 
Earnings 
Balance as at 31 March 
20YY 
--- --- ---
Profit for the year - --- ---
Other Comprehensive 
Income 
- --- ---
Balance as at 31 March 
20XX 
--- --- ---"
Study on Compliance of Financial Reporting Requirements 
61 
Principle: Ind AS 1: Presentation of Financial Statements, Format of 
Statement of Changes in Equity prescribed under Division II 
Schedule III to Companies Act, 2013, Guidance Note on Division II 
Schedule III to the Companies Act, 2013 and the Companies Act, 
2013. 
Paragraph 106 of Ind AS 1 
“A. For each component of equity an entity shall present, either in the 
statement of changes in equity or in the notes, an analysis of other 
comprehensive income by item (see paragraph 106 (d) (ii)).” 
Format of Statement of Changes in Equity in Div II- schedule III of the 
Companies Act, 2013 
Name of the Company……. 
B. Other Equity 
Reserves & 
surplus 
… … Retained 
Earnings 
Debt 
instruments 
through Other 
Comprehensive 
Income 
Equity 
Instruments 
through Other 
Comprehensive 
Income 
… Total 
Paragraph 8.2.2. Other Equity of Guidance Note on Division II 
Schedule III to the Companies Act, 2013 
(i) To (iv) …. 
(V) Equity Instruments through Other Comprehensive Income – 
As per Ind AS 109, companies have an irrevocable option to designate 
investments in equity instruments to be measured at FVOCI. For such 
instruments, the cumulative fair value gain or loss is presented as a part of 
Other Equity under this heading; 
Section 2(43) of the Companies Act, 2013 
“free reserves" means such reserves which, as per the latest audited 
balance sheet of a company, are available for distribution as dividend: 
Provided that –
Observations related to Equity
62
any amount representing unrealised gains, notional gains or revaluation of 
assets, 
i) whether shown as a reserve or otherwise, or 
ii) any change in carrying amount of an asset or of a liability recognized 
in equity, including surplus in profit and loss account on measurement 
of the asset or the liability at fair value, 
Shall not be treated as free reserves;
Observation 
It was noted that Other Comprehensive Income represents unrealized gain 
on changes in fair value of equity instruments and this balance has been 
transferred to retained earnings at the end of the year. It was viewed that 
cumulative fair value gain on equity instruments measured at FVOCI should 
be separately disclosed under the heading “Equity Instruments through Other 
Comprehensive Income” in line with paragraph 8.2.2 of Guidance Note as 
well as format of Statement of Changes in Equity prescribed under Division II 
Schedule III to the Companies Act, 2013. It may be noted that section 2(43) 
of the Companies Act, 2013 also restricts to include the fair value changes 
recognized under equity in free reserves such as “Retained Earnings “. 
Accordingly, it was viewed that classification of unrealized gain on equity 
instruments as a part of retained earnings is not in line with Section 2(43) as 
well as Schedule III to the Companies Act, 2013. 
63
Chapter-3 
Observations related to Liabilities 
1. Non-Current Borrowings 
Matter contained in Financial Statements 
From the financial statements of a company pertaining to financial year 2018-
19, it was noted that the Note on Non-Current Borrowings includes 
Redeemable Cumulative Preference Shares which would be redeemable at 
par in immediate next year. The relevant abstract of Note on Borrowings 
along with footnote, is reproduced below: 
“Borrowings (Non-current) 
Particulars As at 
31.03.2019 
As at 
31.03.2018 
Secured 
Redeemable cumulative preference shares 
from related party (see note below)
7,000 7000 
Note: 
… 
7.5% redeemable cumulative preference shares which are entirely held by 
the related party would be redeemable at par after 5 years from the date of 
allotment i.e., 10th January 2015. These shares would carry a fixed dividend 
of 7.5% p.a.” 
Principle: Ind AS 1, Presentation of Financial Statements 
Paragraph 60 
"An entity shall present current and non-current assets, current and 
non-current liabilities, as separate classifications in its balance sheet 
in accordance with paragraphs 66-76 …" 
Paragraph 69 
"An entity shall classify a liability as current when: 
… 
(d) it does not have an unconditional right to defer settlement of the 
Observations related to Liabilities
64
liability for at least twelve months after the reporting period. 
Terms of a liability that could, at the option of the counterparty, 
result in its settlement by the issue of equity instruments do not 
affect its classification." 
Observation 
It was noted that Redeemable Cumulative Preference Shares were to be 
redeemed at par after 5 years from the date of allotment (i.e. 10 January 
2015). Therefore, preference shares were due for redemption within the 12 
months from the end of the financial year under review. Accordingly, it was 
viewed that these Redeemable Cumulative Preference Shares should have 
been classified as current liabilities and not as non-current liabilities in the 
financial statements. Thus, the classification of such preference shares as 
non-current was not in line with the requirements of Ind AS 1. 
Accordingly, it was viewed that the requirements of Ind AS 1 have not been 
complied with in the preparation and presentation of financial statements. 
2. Borrowings 
Matter contained in Financial Statements 
The relevant abstract of Note on Borrowings and CARO Report given in the 
Annual Report of a company, reads as below: 
“Borrowings 
Particulars As at 31st
March, 20XX 
As at 31st
March, 20YY 
Secured 
Term Loans from Financial Institutions XXX XXX
Interest accrued and due on Term 
Loans from Financial Institutions 
XXX XXX
 “CARO Report 
In our opinion and according to the information and explanations given to us, 
the Company has defaulted in repayment of dues to financial institutions, 
banks or debenture holders as on 31st March 20YY, details of which is given 
below: 
Study on Compliance of Financial Reporting Requirements 
65 
Name of Financial 
Institutions/ Banks 
Outstanding Amount 
(Principal & Interest) 
(Rs. In Lacs) 
Period of 
Default 
Term Lenders XXX Since 20XX”
Principle: Division II Schedule III to the Companies Act, 2013 
Note 6(E)(I) of General Instructions for preparation of Balance Sheet 
“6. A company shall disclose the following in the Notes: 
E. Non-Current Liabilities 
I. Borrowings: 
(vii) Period and amount of default as on the Balance Sheet date in 
repayment of borrowings and interest shall be specified separately in 
each case.” 
Observation 
It was observed from the Note on Borrowings that there are term loans from 
financial institutions and interest accrued thereon. It was further noted from 
CARO report that the auditor has reported defaults in repayment of these 
dues (both Principal and Interest) with a defaults period spanning 7 years. 
However, the period and amount of default as on the Balance Sheet date in 
repayment of borrowings and interest has not been disclosed under notes to 
accounts. 
Accordingly, it was viewed that non-reporting about the default in repayment 
of borrowings is in contravention to the provisions of Division II, Schedule III 
to the Companies Act, 2013. 
3. Financial Liabilities 
Matter contained in Financial Statements 
The relevant abstract of Notes on Other Current Liabilities and Note on Other 
Non-Financial Liabilities given in the Annual Report of a company, read as 
below: 
Observations related to Liabilities
66
“Other Current Liabilities 
Particulars As at 31st 
March 20XX 
As at 31st 
March 20YY 
… 
iii) Employee Benefits Payable --- ---" 
 “Other Non – Financial Liabilities 
Particulars As at 31st 
March 20XX 
As at 31st
March 20YY 
… 
Leave Encashment Payable --- ---" 
Principle: Ind AS 32: Financial Instruments: Presentation 
Paragraph 11 
“… 
A financial liability is any liability that is: 
(a) a contractual obligation; 
(i) to deliver cash or another financial asset to another entity; or 
(ii) to exchange financial assets or financial liabilities with another 
entity under conditions that are potentially unfavourable to the 
entity” 
Observation 
It was noted from the notes to financial statements that the company has 
presented employee benefits payable under “Other Current Liabilities” and 
leave encashment payable under “Other Non-Financial Liabilities”. The Board 
viewed that the ‘Employee Benefits Payable’ and ‘Leave Encashment 
Payable’ are contractual obligations of the company to deliver cash to 
employees for the services rendered by them. Therefore, these should be 
classified as financial liabilities in accordance with paragraph 11 of Ind AS 
32. 
Accordingly, it was viewed that the requirement of Ind AS 32 has not been 
complied with in the preparation and presentation of financial statements. 
Study on Compliance of Financial Reporting Requirements 
67 
4. Financial Liabilities 
Matter contained in Financial Statements 
In the annual report of a company, unclaimed dividend was disclosed under 
the Note on Other Current Liabilities. 
Principle: Ind AS 32: Financial Instruments: Presentation and General 
Instructions for preparation of Balance Sheet given under Division II - 
IND AS Schedule III to the Companies Act, 2013 
Paragraph 11 of Ind AS 32 
“ 
… 
A financial liability is any liability that is: 
(a) a contractual obligation: 
(i) to deliver cash or another financial asset to another entity; or 
(ii) to exchange financial assets or financial liabilities with another 
entity under conditions that are potentially unfavourable to the 
entity; or” 
Note 6 (F) of General Instructions for preparation of Balance Sheet 
given under Division II - IND AS Schedule III to the Companies Act, 
2013 
“6. A company shall disclose the following in the Notes: 
F. Current Liabilities 
“II. Other Financial Liabilities 
Other Financial liabilities shall be classified as- 
(a) (Omitted) 
(b) … 
(c)… 
(d) Unpaid dividends 
…” 
Observations related to Liabilities
68
Observation 
It was noted from the financial statements that unclaimed dividend has been 
disclosed under the heading “Other Current Liabilities”. It was viewed that 
unclaimed/ unpaid dividend is a contractual obligation to deliver cash to 
settle the obligations, and therefore, satisfies the definition of financial 
liability as per Indian Accounting Standard 32. It was further viewed that 
Division II of Schedule III to Companies Act, 2013, also requires the 
disclosure of unpaid dividends under the head “Other Financial Liabilities”. 
Accordingly, the Board viewed that unpaid dividend is a financial liability in 
terms of Ind AS 32 and should have been disclosed as ‘Other Financial 
Liability’ in line with Note 6(F)(II) of General Instructions for Preparation of 
Balance Sheet of Division II – Ind AS Schedule III to the Companies Act, 
2013. 
Accordingly, it was viewed that the requirements of Ind AS 32 and Schedule 
III to the Companies Act, 2013 have not been complied with in the 
preparation and presentation of financial statements. 
5. Financial Liabilities 
Matter contained in Financial Statements 
The relevant abstract of accounting policy on financial instruments and Note 
on Other Financial Liabilities given in the Annual Report of a Company, reads 
as follows: 
“Accounting policy on Financial Instruments 
… 
Subsequent measurement 
… 
(iv) Financial liabilities 
Financial liabilities are subsequently carried at amortized cost using the 
effective interest method, except for contingent consideration recognized 
in a business combination which is subsequently measured at fair value 
through profit or loss. 
Study on Compliance of Financial Reporting Requirements 
69 
2.12 Other financial liabilities 
Particulars As at March 
31,20XX 
As at March 
31,20YY 
Financial liability carried at fair value 
through other comprehensive income 
--- ---"
Principle: Ind AS 109: Financial Instruments 
“4.2 Classification of financial liabilities 
Paragraph 4.2.1 
An entity shall classify all financial liabilities as subsequently 
measured at amortised cost… 
Option to designate a financial liability at fair value through profit or 
loss 
Paragraph 4.2.2 
An entity may, at initial recognition, irrevocably designate a financial 
liability as measured at fair value through profit or loss when 
permitted by paragraph 4.3.5, or when doing so results in more 
relevant information…”
Observation 
It was noted from the company’s accounting policy that financial liabilities are 
subsequently measured at amortized cost or at fair value through profit or 
loss. However, from the relevant note, it was noted that certain financial 
liabilities have been subsequently classified as fair value through other 
comprehensive income. It was viewed that the accounting treatment is 
neither in line with the accounting policy adopted by the company nor as per 
Indian Accounting Standard 109. 
Accordingly, it was viewed that the requirement of Indian Accounting 
Standard 109 has not been complied with preparation and presentation of 
financial statements. 
Observations related to Liabilities
70
6. Financial Liabilities 
Matter contained in Financial Statements 
An abstract of accounting policy on financial liabilities given in the Annual 
Report of a company, reads as below: 
“Financial liabilities 
… 
Initial recognition and measurement 
Financial liabilities are recognized when the company becomes a party to the 
contractual provisions of the instrument. Financial liabilities are initially 
measured at the amortized cost unless at initial recognition, they are 
classified as fair value through profit and loss. 
Subsequent measurement 
….. 
Principle: Ind AS 109: Financial Instruments 
Paragraph 5.1.1 
“Except for trade receivables within the scope of paragraph 5.1.3 at 
initial recognition, an entity shall measure a financial asset or 
financial liability at its fair value plus or minus, in the case of a 
financial asset or financial liability not at fair value through profit or 
loss, transaction costs that are directly attributable to the acquisition 
or issue of the financial asset or financial liability.”
Observation 
It was noted from the accounting policy on financial instruments that the 
company initially recognised financial liabilities at amortised cost unless they 
were classified at FVTPL. According to the Indian Accounting Standard 109, 
financial assets and financial liabilities should be initially recognised at fair 
value adjusted with transactions costs. Hence, it was viewed that stated 
policy is not in line with paragraph 5.1.1 of Indian Accounting Standard 109. 
Accordingly, it was viewed that the requirements of Indian Accounting 
Standard 109 have not been complied with in preparation and presentation of 
the financial statements. 
Study on Compliance of Financial Reporting Requirements 
71 
7. Interest Accrued 
Matter contained in Financial Statements 
The relevant abstract of Note on Disclosure required under Section 22 of 
MSMED Act, 2006 and Note on financial liability given in the Annual Report 
of a company, reads as below: 
“Disclosure required under Section 22 of the Micro, Small and Medium 
Enterprises Development Act, 2006 
Particulars As at 31 
March 20XX 
As at 31 
March 20YY 
Interest due thereon remaining unpaid 
to any supplier as at the end of the 
accounting year 
XXX XXX 
Other Financial Liabilities (Current) 
Particulars As at 31 
March 20XX 
As at 31 
March 20YY 
Interest Accrued but not due on 
Borrowings 
XXX XXX” 
Principle: Division II Schedule III to the Companies Act 2013 
Note 6(F) of General Instructions of Preparation of Balance Sheet 
II. Other Financial Liabilities: 
 Other Financial liabilities shall be classified as- 
 … 
(c) Interest accrued; 
(d) ….. 
(e) …. 
(f) Unpaid matured deposits and interest accrued thereon; 
(g) Unpaid matured debentures and interest accrued thereon; and 
(h) Others (specify nature). 
Observations related to Liabilities
72
Observation 
It was noted from the given note on “Disclosure required under Section 22 of the 
Micro, Small and Medium Enterprises Development Act, 2006” that the company 
has disclosed “Interest due thereon remaining unpaid to any supplier as at the 
end of the accounting year”. However, it was noted that under the 
Note on “Other Financial Liabilities”, only “interest accrued but not due on 
borrowings” has been disclosed and the company has not reported the liability 
for “Interest due but not paid to the Suppliers registered under MSME Act, 2006”. 
Accordingly, it was viewed that unpaid accrued interest has not been disclosed 
under the head of ‘Other Financial Liabilities’. 
Hence, the requirements of Part I, Division II - Ind AS Schedule III to the 
Companies Act 2013 have not been complied with in the preparation and 
presentation of financial statements. 
8. Current Tax Liabilities 
Matter contained in Financial Statements 
The relevant abstract of Note on Other Current Liabilities given in the Annual 
Report of a company, reads as below: 
Note on Other Current Liabilities 
Particulars As at March 31, 
20XX 
As at March 31, 
20YY 
Income tax payable XXX XXX 
Principle: Division II of Schedule III, Companies Act, 2013 
Format of Balance Sheet prescribed under Part I, Division II, Schedule III 
to the Companies Act, 2013 
Part I- Balance Sheet 
Particulars Note 
No. 
Figures as at 
the end of 
current 
reporting period 
Figures as at the 
end of the 
previous reporting 
period 
(2) Current liabilities 
… 
(d) Current Tax 
Liabilities 
(Net) 
Study on Compliance of Financial Reporting Requirements 
73 
Observation 
It was observed from the given note that “Income Tax Payable“ has been 
grouped under “Other Current Liabilities” in the Notes to the financial 
statements. It was viewed that tax payable should be shown as “Current Tax 
Liabilities (Net)” on the face of Balance Sheet under the “Current Liabilities”. 
Accordingly, it was viewed that the reporting of “Income Tax Payable“ under 
“Note on Other-Current Liabilities“ is not in line with the requirement of 
Division II - Schedule III to the Companies Act, 2013. 
9. Trade Payables -MSME 
Matter contained in Financial Statements 
The relevant abstract of Note on Trade Payable given in the Annual Report 
of a company, reads as below: 
“Trade Payables 
… 
As at March 31, 20YY and March 31, 20XX, there are no outstanding dues to 
micro, small and medium enterprises. There is no interest due or outstanding 
on the same. During the year ended March 31, 20YY and March 31, 20XX, 
an amount of Rs. XXX and Rs. XXX was paid beyond the appointed day
as defined in the Micro, Small and Medium Enterprises Development Act 
2006.” 
Principle: Guidance Note on Division II – IND AS Schedule III to the 
Companies Act, 2013 read with MSMED Act, 2006
Paragraph: 8.2.4.4 
“The following disclosures are required under Sec 22 of MSMED Act, 2006 
under the Chapter on Delayed Payments to Micro, Small and Medium 
Enterprises which are also required as per amended Ind AS Schedule III: 
(a) the principal amount and the interest due thereon (to be shown 
separately) remaining unpaid to any supplier as at the end of 
each accounting year. 
(b) the amount of interest paid by the buyer under MSMED Act, 2006 
along with the amounts of the payment made to the supplier 
beyond the appointed day during each accounting year; 
(c) … 
Observations related to Liabilities
74
The terms ‘appointed day’, ‘buyer’, ‘enterprise’, ‘micro enterprise’, ‘small 
enterprise’ and ‘supplier’, shall have the same meaning as assigned to 
them under clauses (b), (d), (e), (h), (m) and (n) respectively of section 2 
of the Micro, Small and Medium Enterprises Development Act, 2006. Such 
statutory disclosures should be made by an entity in its Notes to Accounts 
Observation 
It was noted from the given note on trade payable that a payment has been 
made beyond appointed day to Micro, Small and Medium Enterprises. 
However, the company has not disclosed the amount of interest paid as 
required by Section 22 of MSMED Act read with Guidance Note. 
Accordingly, it was viewed that the requirement of MSMED Act, 2006 read 
with Guidance Note on Division II - Ind AS Schedule III to the Companies 
Act, 2013 have not been complied with in preparation and presentation of 
financial statements. 
10. Trade Payables 
Matter contained in Financial Statements 
The relevant abstract of Balance Sheet and Notes on Trade Payable given in 
the Annual Report of a company, reads as below: 
Balance Sheet as at 31st March, 20XX 
Particulars Note 
No. 
As at 31st March, 
20XX 
As at 31st March, 
20YY 
(a) Financial Liabilities 
(iii) Trade Payables XX XX XX 
Note XX on Trade Payable 
Particulars As at 31st
March 20XX 
As at 31st
March 20YY 
Trade Payable 
Total outstanding dues of micro 
enterprises and small enterprises 
XXX XXX 
Total outstanding dues of other than 
micro and small enterprises 
XXX XXX 
Study on Compliance of Financial Reporting Requirements 
75 
Principle: Division II, Schedule III to the Companies Act, 2013 
Format of Balance Sheet prescribed under Part I , Division II Schedule III 
to the Companies Act, 2013 
Part I- Balance Sheet 
Particulars Note 
No. 
Figures as at 
the end of the 
current 
reporting 
Figures as at 
the end of the 
previous 
reporting period 
(ii) Trade Payables: - 
(A) total outstanding 
dues of micro 
enterprises and 
small 
enterprises; and 
(B) total outstanding 
dues of creditors 
other than micro 
enterprises and 
small 
enterprises. 
Observation 
It was observed from the Note on Trade Payable that there were outstanding 
dues payable to vendors registered under MSME Act, however, these dues 
have not been disclosed on the face of the Balance Sheet, instead the total 
trade payable were reported without bifurcation. It was viewed that trade 
payable should have been bifurcated into dues to MSME and other payable, 
in line with the format prescribed above. 
Accordingly, it was viewed that the requirements of Division II, Schedule III to 
the Companies Act, 2013 have not been complied with in the preparation and 
presentation of financial statements. 
Observations related to Liabilities
76
11. Provisions 
Matter contained in Financial Statements 
The relevant abstract of ’Note on Provisions’ given in the Annual Report of a 
company, reads as below: 
“Note XX – Provisions 
Particulars As at 31 
March 20XX 
As at 31 
March 
20YY 
…….. --- ---
Others: 
Provision for Indirect Tax Matters --- ---
Movement of Provision for Indirect Tax 
Matters 
 
Opening balance --- ---
Provision created / (utilised / reversed), net (---) ---
Closing balance -- --
Principle: Ind AS 37: Provisions, Contingent Liabilities and 
Contingent Assets 
Paragraph 85 
“An entity shall disclose the following for each class of provision: 
a) a brief description of the nature of the obligation and the 
expected timing of any resulting outflows of economic benefits.” 
Observation 
It was noted that the company has disclosed Provision for Indirect Tax 
Matters under note on provisions. However, the brief description of the 
nature of the obligation and the expected timing of any resulting outflows of 
economic benefits has not been provided in line with paragraph 85 of Indian 
Accounting Standard 37. 
Accordingly, it was viewed that the requirements of Ind AS 37 have not been 
complied with in the preparation nd presentation of financial statements. 
Study on Compliance of Financial Reporting Requirements 
77 
12. Provisions 
Matter contained in Financial Statements 
The relevant abstract of Note on Short term Provisions given in the Annual 
Report of a company, reads as below: 
Note XX: Short Term Provisions 
Particulars As at 31/03/20XX As at 31/03/20YY 
For Expenditure --- ---
Principle: Ind AS 37: Provisions, Contingent Liabilities and 
Contingent Assets 
Paragraph 84 
“For each class of provision, an entity shall disclose: 
a) … 
b) additional provisions made in the period, including increases to 
existing provisions; 
c) amounts used (i.e., incurred and charged against the provision) 
during the period; 
d) unused amounts reversed during the period; and 
e) the increase during the period in the discounted amount arising 
from the passage of time and the effect of any change in the 
discount rate. Comparative information is not required.” 
Observation 
It was noted that the company has disclosed short-term provisions for 
expenditures, however, no discourse has been provided regarding the 
movement of provision i.e., additional provision made in the current year, 
amounts used, etc. as required by paragraph 84 of Ind AS 37. 
Accordingly, it was viewed that the requirements of Ind AS 37 have not been 
complied with in the preparation and presentation of financial statements. 
13. Employee Benefits 
Matter contained in Financial Statements 
Observations related to Liabilities
78
In the Financial Statements, while giving disclosures required under Indian 
Accounting Standard 19, the description of risk associated with defined 
benefit plan was not disclosed. 
Principle: Ind AS 19: Employee Benefits 
Paragraph 139 
“An entity shall disclose: 
… 
(b) a description of the risks to which the plan exposes the entity, 
focused on any unusual, entity specific or plan-specific risks, and 
of any significant concentrations of risk…” 
Observation 
It was noted from the disclosures pertaining to employee benefits that, 
despite of having defined benefit plans, the company has not disclosed the 
entity specific or plan- specific risk associated with such defined benefit 
plans as required under paragraph 139(b) of Indian Accounting Standard 19. 
Accordingly, it was viewed that the requirement of Indian Accounting 
Standard 19 has not been complied with in preparation and presentation of 
financial statements. 
14. Defined Benefit Plans 
Matter contained in Financial Statements 
The relevant abstract of Note on Provisions and Accounting Policy on 
Employee benefits given in the annual report of a company, reads as below: 
“Note: Provisions 
Particulars As at 
31.03.20XX 
As at 
31.03.20YY 
Long Term Provisions 
Provisions for Employee Benefits (Gratuity) Nil --- 
Total Nil --- 
Accounting Policy on Employee Benefits 
“(L) Employee benefits 
Study on Compliance of Financial Reporting Requirements 
79 
(ii) Defined Benefit Plan 
The employee's gratuity fund scheme is company's defined benefit plan. The 
present value of the obligation under such defined benefit plan is determined 
on estimate basis.” 
Disclosure of employee benefits 
…. 
The company operates a defined benefit plan, viz., gratuity, for its 
employees. Under the gratuity plan, every employee who has completed at 
least five years of service gets a gratuity on departure @ 15 days of last 
drawn salary for each completed year of service. As actuarial valuation 
using the projected unit method is not received yet for the year end, the 
company has made provision for gratuity based on the premium 
demanded by LIC of India, which according to the company is more or 
less adequate. Adjustments, if any will be made on receipt of the 
valuation report. (emphasis supplied)” 
Principle: Ind AS 19: Employee Benefits 
Paragraph 67 
“An entity shall use the projected unit credit method to determine the 
present value of its defined benefit obligations and the related current 
service cost and, where applicable, past service cost.” 
Observation 
It was observed from the accounting policy that the company’s employee 
gratuity fund scheme is defined benefit plan. The present value of the 
obligation under such defined benefit plan is determined on an estimated 
basis. It was further stated that the company has not yet received the 
actuarial valuation report for the year end, hence it recognized the provision 
for gratuity based on the premium demanded by Insurance Company. It was 
viewed that Provision for Gratuity should be made based on Actuarial report 
which is applying the Projected Unit Credit Method and considering the 
assumptions prescribed by Indian Accounting Standard 19. 
It was noted that the company has neither provided any amount to the 
payable absences and post-employment benefits nor has made necessary 
disclosures. Also, it has not used the projected unit credit method for 
actuarial valuation as required by Indian Accounting Standard 19. 
Observations related to Liabilities
80
Accordingly, it was viewed that the requirements of Indian Accounting 
Standard 19 have not been complied with in the preparation and presentation 
of financial statements. 
15. Defined Benefit Plans 
Matter contained in Financial Statements 
The relevant abstract from the accounting policy on Employee Benefit given 
in the annual report of a company, reads as below: 
“Employee Benefits 
… 
c) Defined benefit plans 
The Company doesn’t operate a defined benefit gratuity plan, which requires 
contributions to be made to the recognized fund. Hence Company doesn’t 
carry out the Actuarial valuation.”
Principle: Ind AS 19: Employee Benefits 
Paragraph 72 
“Employee service gives rise to an obligation under a defined benefit plan 
even if the benefits are conditional on future employment (in other words 
they are not vested). Employee service before the vesting date gives rise 
to a constructive obligation because, at the end of each successive 
reporting period, the amount of future service that an employee will have to 
render before becoming entitled to the benefit is reduced. In measuring its 
defined benefit obligation, an entity considers the probability that some 
employees may not satisfy any vesting requirements. Similarly, although 
some post-employment benefits, for example, post-employment medical 
benefits, become payable only if a specified event occurs when an 
employee is no longer employed, an obligation is created when the 
employee renders service that will provide entitlement to the benefit if the 
specified event occurs. The probability that the specified event will occur 
affects the measurement of the obligation but does not determine whether 
the obligation exists.” 
Observation 
It was noted from the accounting policy that the company has not carried out 
the actuarial valuation for the gratuity plan and has not made any provision 
for the same. It was viewed that the liability for gratuity arises as soon as the 
Study on Compliance of Financial Reporting Requirements 
81 
employee started rendering the services, and therefore, liability in this regard 
should be recognized as and when incurred, i.e., when employee renders the 
services to the company. Accordingly, non-recognition of provision for 
gratuity is not in line with the requirement of Indian Accounting Standard 19. 
Accordingly, it was viewed that the requirements of Indian Accounting 
Standard 19 have not been complied with in the preparation and presentation 
of financial statements. 
82
Chapter-4 
Observations related to the Statement 
of Profit and Loss 
1. Revenue 
Matter contained in Financial Statements 
The relevant abstract of Accounting Policy on Revenue Recognition given in 
the Annual Report of a company, reads as follows: 
“Significant Accounting Policies 
… 
d. Revenue/ Expenses Recognition 
… 
The company adopted Ind AS 115 – “Revenue from Contracts with 
Customers” from 1st April 2018 using the cumulative catch-up transition 
method. In accordance with the cumulative catch-up transition method, the 
comparatives have not been retrospectively adjusted. The following is a 
summary of new and/or revised significant accounting policies related to 
revenue recognition. Refer Note 1 – “Significant Accounting Policies”, in the 
company’s annual report for the year ended 31st March 2018 for policies in 
effect for revenue prior to April 1, 2018. The effect on adoption of Ind AS 115 
was insignificant…” 
Principle: Ind AS 115: Revenue from Contracts with Customers 
Paragraph 110 
"The objective of the disclosure requirements is for an entity to disclose 
sufficient information to enable users of financial statements to 
understand the nature, amount, timing and uncertainty of revenue and 
cash flows arising from contracts with customers. To achieve that 
objective, an entity shall disclose qualitative and quantitative 
information about all of the following: 
(a) its contracts with customers (see paragraphs 113-122); 
(b) the significant judgments, and changes in the judgments, made in 
Study on Compliance of Financial Reporting Requirements 
83 
applying this Standard to those contracts (see paragraphs 123-126); 
and 
(c) any assets recognised from the costs to obtain or fulfil a contract 
with a customer in accordance with paragraph 91 or 95 (see 
paragraphs 127-128)." 
Paragraph 114 
An entity shall disaggregate revenue recognised from contracts with 
customers into categories that depict how the nature, amount, timing and 
uncertainty of revenue and cash flows are affected by economic factors. An 
entity shall apply the guidance in paragraphs B87-B89 when selecting the 
categories to use to disaggregate revenue. 
Paragraph B89 
Examples of categories that might be appropriate include, but are not limited 
to, all of the following: 
(a) type of good or service (for example, major product lines); 
(b) geographical region (for example, country or region); 
(c) market or type of customer (for example, government and nongovernment customers); 
(d) type of contract (for example, fixed-price and time-and-materials 
contracts); 
(e) contract duration (for example, short-term and long-term contracts); 
(f) timing of transfer of goods or services (for example, revenue from goods 
or services transferred to customers at a point in time and revenue from 
goods or services transferred over time); and 
(g) sales channels (for example, goods sold directly to consumers and goods 
sold through intermediaries)." 
Observation 
It was observed from the notes to financial statements that the company has 
not provided the necessary disclosures as required by Paragraph 110, 114 
read with paragraph B89 of Ind AS 115 in the financial statements. 
Accordingly, it was viewed that the requirements of Ind AS 115 have not 
been complied with in preparation and presentation of the financial 
statements. 
Observations related to Statement of Profit and Loss
84
2. Revenue 
Matter contained in Financial Statements 
An abstract of the Note on Revenue from Contracts with Customers as given 
in the Annual Report of the Company, reads as follows: 
“Revenue from contract with customers 
….. 
Timing of recognition of revenue: 
Particulars March 
20XX 
March 
20YY 
Services transferred over a period of time -- -- 
Total revenue from contracts with 
customers 
-- --” 
Principle: Ind AS 115: Revenue from Contracts with Customers 
Paragraph 124 
“For performance obligations that an entity satisfies over time, an entity shall 
disclose both of the following: 
(a) the methods used to recognize revenue (for example, a description of the 
output methods or input methods used and how those methods are 
applied); and 
(b) an explanation of why the methods used provide a faithful depiction of the 
transfer of goods or services.”
Observation 
It was noted from the notes to financial statements that the disclosures 
regarding timing of recognising revenue over a period of time has been 
given. However, it was viewed that as per the above stated requirements, if 
the performance obligations are satisfied over time, then the methods used 
to recognize revenue, i.e. output method or input method should also be 
disclosed along with how the followed method provides a faithful depiction of 
the transfer of goods or services. 
Study on Compliance of Financial Reporting Requirements 
85 
Accordingly, it was viewed that the requirements of Ind AS 115 have not 
been appropriately complied with in the preparation and presentation of 
financial statements. 
3. Revenue 
Matter contained in Financial Statements 
The relevant abstract of Accounting Policy on Revenue Recognition given in 
the Annual Report of a Company, reads as follows: 
“2.4 Revenue Recognition 
… 
Revenue is measured based on transaction price, which is fair value of the 
consideration received or receivable, net of discounts returns and applicable 
taxes….” 
Principle: Ind AS 115: Revenue from Contracts with Customers 
Paragraph 126AA 
“An entity shall reconcile the amount of revenue recognised in the statement 
of profit and loss with the contracted price showing separately each of the 
adjustments made to the contract price, for example, on account of discounts, 
rebates, refunds, credits, price concessions, incentives, performance 
bonuses, etc., specifying the nature and amount of each such adjustment 
separately.” 
Observation 
It was noted from the given accounting policy of revenue recognition that 
revenue is recognised net of discounts, returns and applicable taxes. It was 
viewed that the company has not provided the reconciliation of revenue 
recognised in the Statement of Profit and Loss with the contracted price 
showing separately the nature and amount of each such adjustment i.e., 
discounts, returns etc as required under paragraph 126AA of Ind AS 115. 
Accordingly, it was viewed that the requirements of Ind AS 115 have not 
been appropriately complied with in the preparation and presentation of 
financial statements. 
Observations related to Statement of Profit and Loss
86
4. Revenue 
Matter contained in Financial Statements 
The relevant abstract of the Accounting Policy on Construction Contracts as 
well as one note to accounts given in the Annual Report of a company, reads 
as follows: 
Significant accounting policies 
Construction contracts: 
Claims and amounts in respect thereof are recognized only when 
negotiations have advanced to a stage where it is probable that the 
customer(s) will accept them, and amounts can be reliably measured. In the 
case of Arbitration Awards which are granted in favor of the Company, 
the award amount (including interest thereon), are accounted when they 
are granted and where it is reasonable to expect ultimate collection of 
such awards. (Emphasis supplied)” 
“Note 
AB Ltd had issued a contract for construction. The Design Basis Note (DBN) 
submitted by AB Ltd during the tender stage was revised thrice. The project 
got delayed due to various reasons. 
Due to the above, the Company has raised two variations amounting to Rs. 
XX crores which are towards additional expenses on account of extended 
stay, categorization of excavation works, compensation due to loss of 
productivity, expenses incurred due to change in alignment, pend period cost 
etc. These variation costs have already been charged off to profit and loss 
account in past. Apart from this, negotiations are in progress with XX Ltd for 
variations towards increase in raw material quantity due to change in design. 
The value involved is around Rs. XX crores including escalation. Against 
these variations and increase in raw material quantity, the total unbilled 
receivable amounting to Rs. XX is outstanding as at March 31, 20XX. 
Based on the opinion from independent expert and the facts of the case, the 
management is confident of getting a favorable judgment and recover all the 
dues related to this project. 
Principle: Ind AS 1: Presentation of Financial Statements and Ind AS 
115: Revenue from Contracts with Customers 
Paragraph 18 of Ind AS 1 
“An entity cannot rectify inappropriate accounting policies either by disclosure 
Study on Compliance of Financial Reporting Requirements 
87 
of the accounting policies used or by notes or explanatory material.” 
Paragraph 9 of Ind AS 115 
“An entity shall account for a contract with a customer that is within the scope 
of this Standard only when all of the following criteria are met: 
… 
(e) it is probable that the entity will collect the consideration to which it will be 
entitled in exchange for the goods or services that will be transferred to 
the customer. In evaluating whether the collectability of an amount of 
consideration is probable, an entity shall consider only the customer’s 
ability and intention to pay that amount of consideration when it is due. 
The amount of consideration to which the entity will be entitled may be 
less than the price stated in the contract if the consideration is variable 
because the entity may offer the customer a price concession (see 
paragraph 52). 
Observation 
It was noted from the stated accounting policy that the company recognizes 
the revenue in case of arbitration awards, claims and variations, only when 
they are granted in favour of the company and it is reasonable to expect 
ultimate collection of such awards. However, from the note given, it was 
noted that the Company has raised variations, out of which certain unbilled 
receivables were outstanding. Further, it was stated that the management 
was confident of getting a favorable judgment, which indicates that as at the 
Balance Sheet date those claims and variations were not granted in favour of 
the company. Accordingly, it was viewed that the accounting treatment 
followed was not in line with the adopted accounting policy. 
Accordingly, it was viewed that the requirements of Ind AS 1 and Ind AS 115 
have not been complied with in the preparation and presentation of financial 
statements. 
5. Revenue 
Matter contained in Financial Statements 
The relevant abstract of the Accounting Policy on Construction Contracts 
given in the Annual Report of a Company, read as follows: 
Observations related to Statement of Profit and Loss
88
“Abstract of Significant Accounting Policy 
Construction contracts: 
The performance obligations are satisfied over time as the work progresses. 
The Company recognises revenue using input method (i.e. percentageof-completion method), based primarily on contract cost incurred to date 
compared to total estimated contract costs. Changes to total estimated 
contract costs, if any, are recognised in the period in which they are 
determined as assessed at the contract level. If the consideration in the 
contract includes price variation clause or there are amendments in 
contracts, the Company estimates the amount of consideration to which it will 
be entitled in exchange for work performed. 
… 
The percentage of completion is based primarily on contract cost incurred to 
date compared to total estimated contract cost for each contract in order to 
reflect the effective completion of the project. This percentage of 
completion could be based on technical milestones or as per the 
contractual terms specified. A construction contract is considered completed 
when the last technical milestone is achieved, which occurs upon contractual 
transfer of ownership of the asset”. 
Principle: Ind AS 115: Revenue from Contracts with Customers 
Paragraph 124 
“Determining the timing of satisfaction of performance obligations. 
For performance obligations that an entity satisfies over time, an entity shall 
disclose both of the following: 
(a) the methods used to recognise revenue (for example, a description of the 
output methods or input methods used and how those methods are 
applied); and…” 
Paragraph B 15 
Output methods recognize revenue on the basis of direct measurements of 
the value to the customer of the goods or services transferred to date relative 
to the remaining goods or services promised under the contract. Output 
methods include methods such as surveys of performance completed to date, 
appraisals of results achieved, milestones reached, time elapsed and units 
produced or units delivered 
Study on Compliance of Financial Reporting Requirements 
89 
Observation 
It was noted from the stated accounting policy on construction contracts that 
its first paragraph states that contract revenue is recognized based on the 
input method. However, the second paragraph states that the percentage of 
completion could be based on technical milestones or as per the contractual 
terms specified. As per paragraph B 15 of Ind AS 115, recognizing contract 
revenue on the basis of technical milestones is an output method. 
It was viewed that contradictory information has been given in the accounting 
policy. 
6. Interest Income 
Matter contained in Financial Statements 
An abstract of Note on Other Income given in the annual report of a 
company, reads as follows: 
“Other Income 
Particulars As at 
31.03.20XX 
As at 
31.03.20YY 
Other income (net) consists of the 
following 
 
Interest Income 
… 
Interest Income comprise: 
Interest on bank deposits 
Interest income on financial assets 
Other interest (including interest on income 
tax refunds) 
 
Principle: Ind AS 107: Financial Instruments – Disclosures and Guidance 
Note on Division II- Ind AS Schedule III to the Companies Act, 2013 
Paragraph 20(b) of Ind AS 107 
“An entity shall disclose the following items of income, expense, gains, or 
losses either in statement of profit and loss or in the notes: 
Observations related to Statement of Profit and Loss
90
…. 
(a) total interest revenue and total interest expense (calculated using effective 
interest method) for financial assets that are measured at amortized cost 
or that are measured at fair value through other comprehensive income in 
accordance with paragraph 4.1.2A or Ind AS 109 (showing these amounts 
separately); or financial liabilities that are not measured at fair value 
through profit or loss.” 
Paragraph 9.2 of Guidance Note on Division II- Ind AS Schedule III to the 
Companies Act, 2013
“Other Income 
The aggregate of ‘Other income’ is to be disclosed on face of the Statement of 
Profit and Loss. As per Note 5 of General Instructions for the Preparation of 
Statement of Profit and Loss ‘Other Income’ shall be classified as: 
(a) Interest income, 
(b) Dividend Income, 
(c) Other non-operating income (net of expenses directly attributable to such 
income). 
Indian Accounting Standard 107, para 20(b) requires total interest revenue 
calculated using the effective interest method for financial assets that are 
measured at amortized cost and that are measured at FVTOCI, to be shown 
separately. 
Accordingly, ‘interest income’ for financial assets measured at amortized cost 
and for financial assets measured at FVTOCI, calculated using effective 
interest method, should be presented in separate line items under ‘Other 
Income’.
Observation 
It was observed from the given note that the company has not disclosed the 
total interest revenue, calculated using the effective interest method, for 
financial assets that are measured at amortized cost and that are measured 
at FVTOCI separately in the notes to financial statements. It was viewed that 
interest income and interest expense which are calculated using effective 
interest method should be shown separately in line with paragraph 20 (b) of 
Indian Accounting Standard 107 read with Guidance Note on Division IISchedule III to the Companies Act, 2013. 
Study on Compliance of Financial Reporting Requirements 
91 
Accordingly, it was viewed that requirements of Indian Accounting Standard 
107 read with 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. 
7. Royalty Income 
Matter contained in Financial Statements 
The accounting policy on Royalty Income given in the Annual Report of a 
Company, reads as follows: 
“Royalty Income 
Royalty income is accounted for as per the terms of the agreement entered 
into with the parties involved”. 
Principle: Ind AS 115: Revenue from Contracts with Customers 
Paragraph 58 
"An entity shall apply paragraph B63 to account for consideration in the form of 
a sales-based or usage-based royalty that is promised in exchange for a 
license of intellectual property." 
Paragraph B63 
"Notwithstanding the requirements in paragraph 56-59, an entity shall 
recognise revenue for a sales-based or usage-based royalty promised in 
exchange for a license of intellectual property only when (or as) the later of the 
following events occurs: 
(a) The subsequent sale or usage occurs; and 
(b) The performance obligation to which some or all of the sales-based or 
usage-based royalty has been allocated has been satisfied (or partially 
satisfied)." 
Observation 
It was noted from the accounting policy that the royalty income is recognized 
by the company as per the terms of the agreement between the parties. It 
was viewed that the royalty income should be accounted for “sales based” or 
“usage based” royalty that is promised in exchange for license of intellectual 
property in line with paragraph 58 read with paragraph B63 of Ind AS 115. 
Observations related to Statement of Profit and Loss
92
Hence, it was viewed that the accounting policy for recognition of royalty 
income is not in line with the requirements of Ind AS 115. 
8. Insurance Claim 
Matter contained in Financial Statements 
The Note on Exceptional items given in the Annual Report of a company, 
reads as follows: 
“Exceptional items 
On 04 November 20XX, a fire broke out at one of the manufacturing facilities 
of the Company which caused damage to the Company’s property, plant, 
equipment and inventories. The Company lodged claim with the insurance 
company for losses suffered which is under survey by the insurance 
company. The Company has recorded a loss of Rs XXX arising from such 
incident for the year ended 31 March 20XX. Further, the Company has also 
recognised a minimum insurance claim receivable for equivalent amounts 
and has been disclosed under note XX in these standalone financial 
statements. The aforementioned losses and the corresponding credit arising 
from insurance claim receivable has been presented on a net basis (Rs. Nil) 
under Exceptional items in these standalone financial statements. There are 
no disputes made by the insurance company against such claim till the date 
of these standalone financial statements. The Company has received on 
account payments of Rs XX from the insurance company and Rs XX from the 
scrap vendor. The same has been adjusted with the amount recoverable 
from the insurance company. Also, the Company is in the process of 
determining its final claim for loss of property, plant and equipment and 
losses incurred due to interruption of business and has accordingly not 
recorded any further claim arising therefrom at this stage.” 
Other financial assets: 
Particulars As at 31 March 
20XX 
As at 31 March 
20YY 
Insurance claims receivables --- --- 
……. --- --- 
Study on Compliance of Financial Reporting Requirements 
93 
Principle: Ind AS 16: Property, Plant and Equipment and Ind AS 37: 
Provisions, Contingent Liabilities and Contingent Assets 
Paragraph 66 of Ind AS 16 
“Impairments or losses of items of property, plant and equipment, related 
claims for or payments of compensation from third parties and any 
subsequent purchase or construction of replacement assets are separate 
economic events and are accounted for separately as follows: 
(a) impairments of items of property, plant and equipment are recognised in 
accordance with Indian Accounting Standard 36;
(b) derecognition of items of property, plant and equipment retired or 
disposed of is determined in accordance with this Standard; 
(c) compensation from third parties for items of property, plant and equipment 
that were impaired, lost or given up is included in determining profit or loss 
when it becomes receivable; and 
(d) the cost of items of property, plant and equipment restored, purchased or 
constructed as replacements is determined in accordance with this 
Standard.”
(emphasis supplied) 
Paragraph 74 of Ind AS 16 
“The financial statements shall also disclose: 
… 
(d) if it is not disclosed separately in the statement of profit and loss, the 
amount of compensation from third parties for items of property, plant and 
equipment that were impaired, lost or given up that is included in profit or 
loss.” 
Paragraph 53 of Ind AS 37 
“Where some or all of the expenditure required to settle a provision is 
expected to be reimbursed by another party, the reimbursement shall be 
recognised when, and only when, it is virtually certain that 
reimbursement will be received if the entity settles the obligation. The 
reimbursement shall be treated as a separate asset. The amount 
recognised for the reimbursement shall not exceed the amount of the 
provision”.
Observations related to Statement of Profit and Loss
94
Observation 
It was observed that a fire occurred at one of the Company's manufacturing 
facilities, resulting in damage to property, plant and equipment as well as 
inventories. The Company has lodged a claim with the insurance provider for 
the incurred losses, which is currently under assessment. Additionally, the 
Company has recognized a loss of Rs XXX million, along with a minimum 
insurance claim receivable in the financial statements. These losses and the 
corresponding insurance claim receivable have been presented on a net 
basis under Exceptional Items in the Statement of Profit and Loss. 
It was viewed that the total loss resulting from the fire be fully expensed or 
provisioned, while the insurance claim should be recognised for the amount 
that is virtually certain to be received, in line with paragraphs 53 of Ind AS 37 
rather than netting these two amounts. Additionally, as per paragraph 66 (c) 
and (d) of Ind AS 16, the insurance claim receivable should be separately 
identified for claims related to Property, Plant, and Equipment and those 
pertaining to inventories. 
Accordingly, it was viewed that the requirements of Indian Accounting 
Standard 16 and Indian Accounting Standard 37 have not been complied 
with in the preparation and presentation of financial statements. 
9. Employee Benefits 
Matter contained in Financial Statements 
The relevant abstract of Note as well as Accounting Policy on Employee 
Benefits of a company, reads as below: 
”Note on Employee Benefits Expenses 
Particulars Year ending
31.03.20XX 
Year ending
31.03.20YY 
… 
Contribution to Provident Fund and Other 
Defined Contribution Funds (refer Note 43) 
XXX XXX 
Study on Compliance of Financial Reporting Requirements 
95 
43. Employee Benefits Obligations 
… 
d) Provident Fund 
The Company contribution towards Provident Fund managed either by 
approved trusts or by the Central Government is debited to the statement of 
profit and loss. In respect of provident fund management by the approved 
trust, the Company has an obligation to fund any shortfall on the yield of the 
trust’s investments over the administered interest rates on an annual basis. 
The Company also contributes to Coal Mines Provident Fund (CMPF) in 
respect of employees working in coal mines. 
Principle: Ind AS 19: Employee Benefits 
Paragraph 30 
“Defined contribution plans are post-employment benefit plans under 
which an entity pays fixed contributions into a separate entity (a fund) 
and will have no legal or constructive obligation to pay further 
contributions if the fund does not hold sufficient assets to pay all 
employee benefits relating to employee service in the current and prior 
periods. 
Defined benefit plans are post-employment benefit plans other than 
defined contribution plans.”
Observation 
It was noted from the Note on Employee Benefits Expenses that ‘contribution 
to provident funds’ and ‘other defined contribution funds’ was disclosed 
thereat. It was further noted from the Note on Employee Benefits Obligations 
that the company’s contribution towards ‘Provident Fund’ managed either by 
approved trusts or by the Central Government had been debited to the 
Statement of Profit and Loss as defined contribution plan. It was observed 
that in respect of provident funds managed by the approved trust, the 
company has an obligation to fund any shortfall on the yield of the trust’s 
investments over the administered interest rates on an annual basis. 
It was viewed that as per the definition provided in paragraph 8 of Indian 
Accounting Standard 19, the defined contribution plans are the plans for 
which the entity will have no legal or constructive obligation to pay further 
contributions if the fund does not hold sufficient assets to pay all employee 
benefits relating to employee service in the current and prior periods. If these 
Observations related to Statement of Profit and Loss
96
obligations are borne by the company, the plan will be treated as defined 
benefit plan. Accordingly, the Board viewed that, since in the given case the 
obligation to fund any shortfall on the yield of the trust’s investments over the 
administered interest rates on an annual basis is borne by the company, 
therefore, the plan should be treated as defined benefit plan and not as 
defined contribution plan. 
Accordingly, it was viewed that the requirements of Indian Accounting 
Standard 19 have not been complied with in preparation and presentation of 
the financial statements. 
10. Employee Benefits 
Matter contained in Financial Statements 
The relevant abstract of Statement of Profit and Loss and accounting policy 
on Employee Benefits given in the Annual Report of a company, reads as 
below: 
“STANDALONE STATEMENT OF PROFIT & LOSS 
 Particulars As at 31st 
March,20XX 
As at 31st 
March,20YY 
 
Other Comprehensive income 
A (i) Items that will not be reclassified to 
profit or loss: 
-Actuarial gain and losses on 
defined benefit plans 
 (ii) income tax relating to items that 
will not be reclassified to profit or 
loss 
XX 
(.14) 
XX 
(.14)” 
“ 
(m) Employee Benefits: 
… 
Study on Compliance of Financial Reporting Requirements 
97 
Other long-term employee benefits obligation 
Other Long term employee benefit comprise of Leave encashment which is 
provided for based on the actuarial valuation carried out as at the end of the 
year.” 
Principle: Ind AS 1: Presentation of Financial Statements and Ind AS 19: 
Employee Benefits 
Paragraph 7 of Ind AS 1 
“.… 
The components of other comprehensive income include: 
(a) … 
(b) remeasurements of defined benefit plans (see Indian Accounting Standard 
19, Employee Benefits); 
Paragraph 8 of Ind AS 19 
“ … 
Defined benefit plan are post-employment benefit plans other than defined 
contribution plans.” 
Paragraph 122 of Ind AS 19 
“Remeasurements of the net defined benefit liability (asset) recognised in other 
comprehensive income shall not be reclassified to profit or loss in a 
subsequent period. However, the entity may transfer those amounts 
recognised in other comprehensive income within equity”. 
Paragraph 127 of Ind AS 19 
“Remeasurements of the net defined benefit liability (asset) comprise: 
(a) actuarial gains and losses (see paragraphs 128 and 129);” 
Paragraph 156 of Ind AS 19 
“For other long-term employee benefits, an entity shall recognise the net total 
of the following amounts in profit or loss, except to the extent that another 
Indian Accounting Standard requires or permits their inclusion in the cost of an 
asset: 
… 
(c) remeasurements of the net defined benefit liability (asset) (see 
paragraphs 127– 130)
Observations related to Statement of Profit and Loss
98
Observation 
It was noted that the remeasurement of defined benefit plans have been 
disclosed as Other Comprehensive Income in the Statement of Profit and 
Loss. It was further noted from the disclosure of employee benefits that the 
remeasurement of defined benefit plans disclosed as other comprehensive 
income in the Statement of Profit and Loss, comprises of actuarial loss on 
Gratuity Rs. (0.05) Cr and actuarial gain on leave encashment Rs. 0.19 Cr. 
Further, it was noted from the accounting policy on employee benefits that 
the leave encashment has been recognized as ‘Other Long Term Employee 
Benefits’. Hence, it was viewed that remeasurement gain (actuarial gain) on 
Long Term Employee Benefits i.e. Rs 0.19 Cr. should be recognized in 
Statement of Profit and Loss as per paragraph 156 of Indian Accounting 
Standard 19. 
Accordingly, it was viewed that the requirements of Indian Accounting 
Standard 19 have not been complied with preparation and presentation of 
financial statements. 
11. Employee Benefits 
Matter contained in Financial Statements 
An abstract of Disclosures of Employee benefits given in the Annual Report 
of a company, reads as below: 
“Disclosures as required by Indian Accounting Standard 19- Employee 
Benefits 
Table: Principal Actuarial Assumptions of gratuity 
Particulars For the year 
ended 
31.03.20XX 
For the year 
ended 
31.03.20YY 
Discount rate (p.a.) 6.60 % 7.50% 
Salary escalation rate (p.a.) 5.00% 7.00% 
Estimate of future salary increases considered in actuarial valuation takes 
into account inflation, seniority, promotion and other relevant factors such as 
supply and demand in the employment market.” 
Study on Compliance of Financial Reporting Requirements 
99 
Principle: Ind AS 19: Employee Benefits 
Paragraph 57 
“Accounting by an entity for defined benefit plans involves the following steps: 
(a) determining the deficit or surplus. This involves: 
(i) using an actuarial technique, the projected unit credit method, to make a 
reliable estimate of the ultimate cost to the entity of the benefit that 
employees have earned in return for their service in the current and prior 
periods (see paragraphs 67–69). This requires an entity to determine how 
much benefit is attributable to the current and prior periods (see 
paragraphs 70–74) and to make estimates (actuarial assumptions) about 
demographic variables (such as employee turnover and mortality) and 
financial variables (such as future increases in salaries and medical costs) 
that will affect the cost of the benefit (see paragraphs 75–98).” 
Paragraph 135 
“An entity shall disclose information that: 
(a) explains the characteristics of its defined benefit plans and risks 
associated with them); 
(b) identifies and explains the amounts in its financial Indian Accounting 
Standard 19, Employee Benefits statements arising from its defined 
benefit plans; and 
(c) describes how its defined benefit plans may affect the amount, 
timing and uncertainty of the entity’s future cash flows.” 
Paragraph 144 
“An entity shall disclose the significant actuarial assumptions used to 
determine the present value of the defined benefit obligation. Such disclosure 
shall be in absolute terms (eg as an absolute percentage, and not just as a 
margin between different percentages and other variables). 
When an entity provides disclosures in total for a grouping of plans, it shall 
provide such disclosures in the form of weighted averages or relatively narrow 
ranges.” 
Observation 
It was noted from the disclosures provided that the company has disclosed a 
few actuarial assumptions. However, the other information like the mortality 
Observations related to Statement of Profit and Loss
100
rate and inflation rate as required by paragraph 57(a)(i) read with paragraph 
144 of Ind AS 19 has not been disclosed. 
Further, it was observed that the company has not disclosed information as 
required under paragraph 135 (c) as to how defined benefits plans may affect 
the amount, timing, and uncertainty of the entity’s future cash flows. 
Accordingly, it was viewed that the requirements of Indian Accounting 
Standard 19 have not been complied with in preparation and presentation of 
financial statements. 
12. Employee Benefits 
Matter contained in Financial Statements 
The relevant abstract from the Accounting Policy on Employee Benefits given 
in the Annual Report of a company, reads as below: 
“Accounting Policy on Employee Benefits 
Gratuity 
The Company provides for gratuity, a defined benefit retirement plan (the 
Gratuity Plan’) covering its eligible employees. The Gratuity Plan provides a 
lump sum payment to vested employees at retirement, death, incapacitation, 
or termination of employment, of an amount based on the respective 
employee’s salary and the tenure of employment with the Company. 
The Company recognizes the net obligation of a defined benefit plan in its 
Balance Sheet as an asset or liability. Gains and losses through remeasurements of the net defined benefit liability / (asset) are recognized in 
other comprehensive income. 
Compensated absences 
The Company has a policy on compensated absences which are both 
accumulating and non-accumulating in nature. The expected cost of 
accumulating compensated absences is determined by actuarial valuation 
performed by an independent actuary at each Balance Sheet date using 
projected unit credit method on the additional amount expected to be paid / 
availed as a result of the unused entitlement that has accumulated at the 
Balance Sheet date.” 
Study on Compliance of Financial Reporting Requirements 
101 
 “Note: Non-current Provisions
Particulars 31 March, 20XX 31 March, 20YY 
Provision for leave encashment -- -- 
Provision for Gratuity -- -- 
Total -- --" 
Principle: Ind AS 19: Employee Benefits 
Paragraph 140 
"An entity shall provide a reconciliation from the opening balance to the closing 
balance for each of the following, if applicable: 
(a) the net defined benefit liability (asset), showing separate reconciliations 
for: 
(i) plan asset. 
(ii) the present value of the defined obligation. 
(iii) the effect of asset ceiling. 
(b) any reimbursement right. An entity shall also describe the relationship 
between reimbursement right and the related obligation." 
Paragraph 141 
"Each reconciliation listed in paragraph 140 shall show each of the 
following, if applicable: 
(a) current service cost. 
(b) Interest income or expense. 
(c) Remeasurements of the net defined benefit liability (asset), showing 
separately: 
(i) the return on plan assets, excluding amounts included in interest 
in (b). 
(ii) actuarial gains and losses arising from changes in demographic 
assumptions. 
(iii) Actuarial gains and losses arising from changes in financial 
assumptions. 
(iv) Changes in the effect of limiting a net defined benefit asset to the 
Observations related to Statement of Profit and Loss
102
asset ceiling, excluding amounts included in interest in (b). An 
entity shall also disclose how it determined the maximum 
economic benefit available, i.e., whether those benefits would be 
in the form of refunds, reductions in future contributions or a 
combination of both. 
(d) Past service cost and gains and losses arising from settlements. As 
permitted by paragraph 100, past service cost and gains and losses 
arising from settlement need not be distinguished if they occur 
together. 
(e) The effect of changes in foreign exchange rates. 
(f) Contributions to the plan, showing separately those by the employer 
and by plan participants. 
(g) Payment from the plan, showing separately the amount paid in 
respect of any settlement. 
(h) The effect of business combinations and disposals." 
Observation 
It was noted from the accounting policy that the company has defined benefit 
obligations towards gratuity & leave encashments and also recognized the 
provisions for the same, as evident from relevant notes to the accounts. 
However, the company has not provided the disclosure as required by 
paragraphs 140 and 141 of Indian Accounting Standard 19, in respect to 
defined benefit plans. 
Accordingly, it was viewed that the requirements of Indian Accounting 
Standard 19 have not been complied with in preparation and presentation of 
the financial statements. 
13. Employee Benefits 
Matter contained in Financial Statements 
The abstract from Notes to Accounts related to disclosures on Employee 
Benefits given in the Annual Report of a company, reads as below: 
“Disclosure pursuant to Indian Accounting Standard 19 on “Employee 
Benefits” 
…………… 
Study on Compliance of Financial Reporting Requirements 
103 
Qualitative Disclosures 
Para 139(a) Characteristics of defined benefit plan: The Company has a 
defined benefit gratuity plan in India (funded). The company’s defined benefit 
gratuity plan is a final salary plan for employees, which requires contributions 
to be made to a separately administered fund. The fund is managed by a 
trust which is governed by the Board of Trustees. The Board of Trustees are 
responsible for the administration of the plan assets and for the definition of 
the investment strategy. 
Para 139(b) Risks associated with defined benefit plan: Gratuity is a 
defined benefit plan and company is exposed to the Following Risks: 
Interest rate risk: A fail in the discount rate which is linked to the G. Sec. 
Rate will increase the present value of the liability requiring higher provision. 
A fail in the discount rate generally increases the mark to market value of the 
assets depending on the duration of asset. 
Salary risk: The present value of the defined benefit plan liability is 
calculated by reference o the future salaries of members. As such, an 
increase in salary of the members more than assumed level will increase the 
plan’s liability. 
Investment risk: the present value of the defined benefit plan liability is 
calculated using a discount rate which is determined by reference to market 
yields at the end of the reporting period on government bonds. If the return 
on plan asset is below this rate, it will create a plan deficit. Currently, for the 
plan in India, it has a relatively balanced mix of investments in government 
securities, and other debt instruments. 
Asset liability matching risk: The plan faces the ALM risk as to the 
matching cash flow. Since the plan is invested in lines of Rule 101 of Income 
Tax Rules, 1962, this generally reduces ASL risk. 
Mortality risk: Since benefits under the plan is not payable for lifetime and 
payable till retirement age only, plan does not have any longevity risk. 
Para 139(c) Characteristics of defined benefit plans: During the year, there 
were no plan amendments, curtailments, and settlements. 
Para 147(a) A separate trust fund is created to manage the Gratuity plan.” 
Principle: Ind AS19: Employee Benefits 
Paragraph 139 
“(b) a description of the risks to which the plan exposes the entity, focused on 
Observations related to Statement of Profit and Loss
104
any unusual, entity-specific, or plan-specific risks, and of any significant 
concentrations of risk. For example, if plan assets are invested primarily in one 
class of investments, e.g., property, the plan may expose the entity to a 
concentration of property market risk”. 
Paragraph 147 
“To provide an indication of the effect of the defined benefit plan on the entity’s 
future cash flows, an entity shall disclose: 
…………… 
(c) information about the maturity profile of the defined benefit obligation. This 
will include the weighted average duration of the defined benefit obligation 
and may include other information about the distribution of the timing of 
benefit payments, such as a maturity analysis of the benefit payments.”
Observation 
It was noted from the given disclosures that although the company has 
provided necessary disclosures related to risks associated with gratuity plan, 
pertaining to interest rate risks, investment risk, salary risk and asset liability 
matching risk. However, the company has not disclosed the information 
required by paragraph 139 (b) and 147 (c) of Indian Accounting Standard 19 
like any unusual, entity-specific, or plan-specific risks, mortality risk, attrition 
rate associated with the defined benefit plan, any significant concentrations 
of risk, weighted average duration of the defined benefit obligation and 
maturity analysis of benefit payment. 
Accordingly, it was viewed that the requirements of Indian Accounting 
Standard 19 have not been complied with in preparation and presentation of 
the financial statements. 
14. Employee Benefits 
Matter contained in Financial Statements 
The relevant abstracts from Notes to Accounts and Accounting Policy on 
Employee Benefits given in the Annual Report of a company, reads as below: 
“Note: Employee Benefit Expenses 
 Particulars Year Ended 
31.03.20XX 
Year Ended 
31.03.20YY 
Salary* --- --- 
Study on Compliance of Financial Reporting Requirements 
105 
Ex Gratia --- --- 
Gratuity _ --- 
Staff Welfare --- --- 
*(includes Director’s Remuneration Rs. ---
/-) 
 
Total --- --- 
Employee Benefits 
… 
(i) Post Employment Benefits 
(a) Defined Contribution Plans 
State Government Provident Fund Scheme is a defined contribution 
plan. The contribution paid/payable under the scheme is recognized in 
the profit & loss account during the period during which the employee 
renders the related service.” 
Principle: Ind AS 19: Employee Benefits 
Paragraph 53 
“An entity shall disclose the amount recognised as an expense for 
defined contribution plans.”
Observation 
It was noted from the stated accounting policy of Employee Benefits that 
State Government Provident Fund Scheme is a defined contribution plan and 
contribution paid / payable is recognized in the Statement of Profit or Loss 
during the period in which the employee renders the related service. 
However, it was observed that the company has not disclosed the amount 
recognised as an expense for defined contribution plans as required by 
paragraph 53 of Indian Accounting Standard 19. 
Accordingly, it was viewed that the requirements of Indian Accounting 
Standard 19 have not been complied with in the preparation and presentation 
of financial statements. 
Observations related to Statement of Profit and Loss
106
15. Employee Benefits 
Matter contained in Financial Statements 
The relevant abstract of Notes to the Financial Statements and Statement of 
Profit and Loss given in the Annual Report of a company, reads as below: 
“Note: Employee Benefits Provisions 
The Company has got the actuarial valuation of employee benefit done at the 
year end. 
… 
Bifurcation of total Actuarial (gain)/ loss on liabilities 
Period 1/4/20XX to 31/3/20YY 
Actuarial gain/ losses from changes in 
Demographics assumptions (mortality) 
Not applicable
Actuarial gain/ losses from changes in financial 
assumptions 
0
Experience Adjustment (gain)/ loss for plan 
liabilities 
---
Total amount recognised in other 
comprehensive income 
---”
 “STATEMENT OF PROFIT AND LOSS FOR THE YEAR ENDED ON 
MARCH 31, 20XX 
Particulars Year ended 
31.03.20XX 
Amount (Rs) 
Year ended 
31.03.20YY 
Amount (Rs) 
… 
VII. Other Comprehensive Income 
 
a) Items that will not be reclassified to 
statement of profit and loss through Other 
Comprehensive Income Nil Nil
b) Income Tax relating to item (a) above Nil Nil
Other Comprehensive Income (net of 
tax) 
… -- --"
Study on Compliance of Financial Reporting Requirements 
107 
Principle: Ind AS 1: Presentation of Financial Statements and Ind AS 19: 
Employee Benefits 
Paragraph 7 of Ind AS 1 
“Definitions 
Other comprehensive income comprises items of income and 
expenses (including reclassification adjustments) that are not 
recognised in profit or loss as required or permitted by other Indian 
Accounting Standard s. 
The components of other comprehensive income include: 
… 
(b) remeasurement of defined benefit plans (see Indian Accounting 
Standard 19, Employee Benefits);” 
Paragraph 57 of Ind AS 19 
“Accounting by an entity for defined benefit plans involves the following 
steps: 
… 
(d) determining the remeasurements of the net defined benefit liability 
(asset), to be recognised in other comprehensive income, comprising: 
(i) actuarial gains and losses (see paragraphs 128 and 129); 
(ii) return on plan assets, excluding amounts included in net interest on 
the net defined benefit liability (asset) (see paragraph 130); and 
(iii) any change in the effect of the asset ceiling (see paragraph 64), 
excluding amounts included in net interest on the net defined benefit 
liability (asset). 
Where an entity has more than one defined benefit plan, the entity applies 
these procedures for each material plan separately.” 
Observation 
It was noted from the Note on Employee Benefit Provisions that the gain / 
loss on actuarial valuation has been transferred to Other Comprehensive 
Income (OCI). However, it was observed that no such gain / loss on actuarial 
valuation has been recognized under Other Comprehensive Income (OCI). It 
indicates that the actuarial gain/ loss would have been recognized in the 
Statement of Profit and Loss as employee benefit expense, which is not in 
Observations related to Statement of Profit and Loss
108
line with the requirement Indian Accounting Standard 1 and Indian 
Accounting Standard 19. 
It was further observed that all liability (current and non-current) towards 
employee benefits has been disclosed under Note on Other Current 
Liabilities. It was viewed that it should be shown as provision instead of 
liability since it is a liability of uncertain amount or timing. 
Accordingly, it was viewed that the requirements of Indian Accounting 
Standard 1 and 19 have not been complied with preparation and presentation 
of financial statements. 
16. Employee Benefits 
Matter contained in Financial Statements 
The relevant abstract of Statement of Profit and Loss and Note on 
Retirement Benefit Obligation given in the Annual Report of a company, 
reads as below: 
“Abstract of Statement of Profit and Loss 
 Particulars Year Ended 
31.03.20XX
Year Ended 
31.03.20YY
Profit for the Year --- ---
(VIII) Other Comprehensive Income 
A) Items that will not be reclassified to 
profit & loss
 
(i) Remeasurement of post-employment 
benefit Obligation
(100000) --
(ii) … _ _
(iii) Income tax relating to these items _ _
 --- _
B) Items that will not be reclassified to 
profit & loss
-- _
(IX) Other Comprehensive Income for the 
year
--- _
(IX) Profit/(Loss) After Tax Carried to 
Balance Sheet 
--- --- 
Earning Per Equity share: 
-Basic & diluted -- --” 
Study on Compliance of Financial Reporting Requirements 
109 
“Note: Retirement Benefit Obligation 
A) Defined Benefit Plans 
… 
Table showing Amount Recognised in the 
Statement of Profit & Loss 
01-April-XX 
to 
31-March-YY 
Current Service Cost 200000
Interest Cost 100000
Expected Return on Plan Assets -
Past Service Cost 100000
(Gain)/ Loss due to Settlements/ Curtailments/ 
Acquisitions/ Divestitures 
-
Total Expense/ (Income) included in “Employee 
Benefit Expense” 400000 
Table showing Amount recognised in Other 
Comprehensive Income (OCI) 
01-April-XX 
to 
31-March-YY 
Amount Recognised in OCI, Beginning of Period -
Re-measurements due to: 
Effect of Changes in financial assumptions [C] (200000)
Effect of Changes in demographic assumptions [D] - 
Effect of experience adjustments [E] (300000)
Actuarial (Gains)/ Losses (C+D+E) (500000)
Return on plan assets (excluding interest) -
Total re-measurements recognised in OCI (500000)
Amount recognized in OCI, End of Period (500000)
Observations related to Statement of Profit and Loss
110
Principle: Ind AS 19: Employee Benefits 
Paragraph 57
“Accounting by an entity for defined benefit plans involves the following 
steps: 
(a) … 
(b) … 
(c) determining amounts to be recognized in profit or loss: 
(i) current service cost (see paragraphs 70–74). 
(ii) any past service cost and gain or loss on settlement (see 
paragraphs 99–112). 
(iii) net interest on the net defined benefit liability (asset) (see 
paragraphs 123–126). 
(d) determining the remeasurements of the net defined benefit liability 
(asset), to be recognized in other comprehensive income, comprising: 
(i) actuarial gains and losses (see paragraphs 128 and 129); 
(ii) return on plan assets, excluding amounts included in net interest 
on the net defined benefit liability (asset) (see paragraph 130); 
and 
(iii) any change in the effect of the asset ceiling (see paragraph 64), 
excluding amounts included in net interest on the net defined 
benefit liability (asset). 
Where an entity has more than one defined benefit plan, the entity applies 
these procedures for each material plan separately.” 
Observation 
It was noted from the given note on Retirement Benefit Obligation that the 
company has netted-off the amount of employee benefit expense / (income) 
to be recognized in Statement of Profit & Loss with the Remeasurement of 
net defined benefit liability (Actuarial loss) which should be recognised in 
Other Comprehensive Income and presented the netted amount in Other 
Comprehensive Income. Hence, it was viewed that recognising the net of 
post employee benefit cost under “Other Comprehensive Income – Items that 
will not be reclassified to Profit & Loss” is not correct and the same results 
into incorrect Earnings Per Share, also. 
Study on Compliance of Financial Reporting Requirements 
111 
Accordingly, it was viewed that the requirements of Indian Accounting 
Standard 19 have not been complied with in preparation and presentation of 
financial statements. 
17. Employee Benefits 
Matter contained in Financial Statements 
The relevant abstract from the Note on Employee Benefits plan given in the 
Annual Report of a company, reads as below: 
“Note X: Details of Gratuity Plan 
Defined Benefit Plan 
Gratuity: The Company offers gratuity under employee benefit scheme to its 
employees. Gratuity is paid to a staff member who has put in a minimum 
qualifying period of 5 years of continuous services on superannuation, 
resignation, termination or to his nominee on death. 
These defined benefit plan expose the Company to actuarial risks, such as 
salary inflation risk, interest rate risk and market (investment) risk. 
Movement of defined benefit obligation and fair value of plan assets 
The amounts recognized in the balance sheet and the movement in the net 
defined benefit obligation over the years are as follows: 
Particulars Present 
Value of 
Obligation 
Fair Value 
of 
Obligation 
Net 
Amount 
April 01.20XX -- -- -- 
Interest Cost/ (Income) -- -- --
Current Service Cost -- -- --
Total amount recognized in 
statement of profit and loss 
-- -- -- 
Actuarial (Gains)/ Losses on 
obligation due to change in 
financial assumption 
-- -- --
Actuarial (Gains)/ Losses on 
obligation due to experience 
-- -- --
Observations related to Statement of Profit and Loss
112
Return on Plan Assets (greater)/ 
less than discount rate 
-- -- --
Total amount recognized in 
other comprehensive Income 
-- -- -- 
Employer Contribution -- -- --
Benefit Payments -- -- --
March 31,20YY -- -- -- 
Principle: Ind AS 19: Employee Benefits 
Paragraph 142 
“An entity shall disaggregate the fair value of the plan assets into classes that 
distinguish the nature and risks of those assets, subdividing each class of plan 
asset into those that have a quoted market price in an active market (as 
defined in Indian Accounting Standard 113, Fair Value Measurement) and 
those that do not. For example, considering the level of disclosure discussed in 
paragraph 136, an entity could distinguish between: 
(a) cash and cash equivalents; 
(b) equity instruments (segregated by industry type, company size, 
geography etc.); 
(c) debt instruments (segregated by type of issuer, credit quality, geography 
etc.); 
(d) real estate (segregated by geography etc.); 
(e) derivatives (segregated by type of underlying risk in the contract, for 
example, interest rate contracts, foreign exchange contracts, equity 
contracts, credit contracts, longevity swaps etc.); 
(f) investment funds (segregated by type of fund); 
(g) assets-backed securities; and 
(h) structured debt.” 
Observation 
It was noted from the financial statements that although various disclosures 
for employee benefits were provided by the company. However, the company 
Study on Compliance of Financial Reporting Requirements 
113 
has not provided the disclosures related to plan assets like disaggregation of 
plan assets as required by paragraph 142 of Indian Accounting Standard 19. 
Accordingly, it was viewed that the requirements of Indian Accounting 
Standard 19 have not been complied with in preparation and presentation of 
the financial statements. 
18. Employee Benefits 
Matter contained in Financial Statements 
The relevant abstract from the Accounting Policy and Notes on Employee 
Benefits given in an annual report, reads as below:
“Employee Benefits 
Post-employment benefits 
… 
(ii) Defined Benefit Plans: 
The Employees’ Group Gratuity-cum-Life Assurance Scheme with Life 
Insurance Corporation of India, Provident Fund Scheme managed by 
Regional Provident Fund Commissioner (RPFC), and the Employee’s 
Superannuation Scheme are the Company’s defined benefit plans. Wherever 
applicable, the present value of obligation under such defined benefit plans 
are determined based on actuarial valuation. In case of funded plans, the fair 
value of the plan assets is reduced from the gross obligation under the 
defined benefit plan to recognize the obligation on the net basis. 
Termination benefits 
Termination benefits are recognized as an expense in the period in which 
they are Incurred.” 
“Note (a) Disclosures as required by Indian Accounting Standard 
(Indian Accounting Standard) 19 Employee Benefits 
Employee benefits – provision for / contributions to retirement benefit 
schemes are made in accordance with Indian Accounting Standard – 19 
Employee Benefits as follows – 
Defined Contribution Plan – Company has contributed Rs. – towards 
Employee’s Pension Scheme (previous year: --) and Rs. XX towards 
Provident fund (Previous Year Rs. --), which is recognized as an expense in 
the Statement of Profit and Loss.”
Observations related to Statement of Profit and Loss
114
Principle: Ind AS 19: Employee Benefits 
Paragraph 8 
“Defined benefit plans are post-employment benefit plans other than 
defined contribution plans. Further, defined contribution plans are postemployment benefit plans under which an entity pays fixed contributions 
into a separate entity (a fund) and will have no legal or constructive 
obligation to pay further contributions if the fund does not hold sufficient 
assets to pay all employee benefits relating to employee service in the 
current and prior periods.” 
Paragraph 165 
“An entity shall recognize a liability and expense for termination benefits at 
the earlier of the following dates: 
(a) when the entity can no longer withdraw the offer of those benefits; and 
(b) when the entity recognizes costs for a restructuring that is within the 
scope of Indian Accounting Standard 37 and involves the payment of 
termination benefits.” 
Observation 
It was noted from the notes to accounts that contribution to provident fund 
has been shown under Defined Contribution Plan. However, under 
accounting policy it has been mentioned that the provident fund contribution 
is a Defined Benefit Plan. It was viewed that as the company has been 
transferring the provident fund contribution amount to the scheme managed 
by regional provident fund commissioner (RPFC), it should be considered as 
Defined Contribution Plan. 
It was further noted from the stated accounting policy that Termination 
benefits are recognized as an expense in the period in which they are 
incurred. It was viewed that the termination benefits expenses should be 
recognized when the entity can no longer withdraw the offer of those benefits 
or when the entity recognizes costs for a restructuring that is within the scope 
of Indian Accounting Standard 37 and involves the payment of termination 
benefits whichever is earlier as required by Indian Accounting Standard 19. 
Accordingly, it was viewed that the requirements of Indian Accounting 
Standard 19 have not been complied with in preparation and presentation of 
financial statements. 
Study on Compliance of Financial Reporting Requirements 
115 
19. Borrowing Cost 
Matter contained in Financial Statements 
The relevant abstract of Note on Property, Plant and Equipment and 
Director’s Report regarding operations of the company as given in the Annual 
Report, reads as below: 
“Note: Property, Plant and Equipment 
… 
(a) Detail of expenditure during construction pending allocation are given 
below:
… 
Interest and finance charges Rs. --- 
Miscellaneous Expenses Rs. -- 
Abstract of Director’s Report 
“OPERATIONS AND STATE OF COMPANY’S AFFAIRS 
… 
However, due to non-fulfilment of certain subsequent conditions of Power 
Purchase Agreement from both the parties, the said Power Purchase 
Agreement was cancelled by XXXX with effect from June 24, 20XX. 
Conversely, in view of the progress made by the Company in setting up the 
power project, the Company is exploring opportunities to establish the project 
under the policy formulated by the Ministry of Power, Government of India. 
During the year under review, the Company had incurred an aggregate 
expenditure of Rs. XXX /- towards net interest and Finance Charges and Rs. 
XXX/- towards administrative purpose. Pending Commencement of 
commercial activities by the Company, these have been considered as 
pre-operative expenses. (emphasis supplied)” 
Principle: Ind AS 23: Borrowing Costs
Paragraph 20 
“An entity shall suspend capitalisation of borrowing costs during 
extended periods in which it suspends active development of a 
qualifying asset.” 
Paragraph 21 
Observations related to Statement of Profit and Loss
116
“An entity may incur borrowing costs during an extended period in which it 
suspends the activities necessary to prepare an asset for its intended use 
or sale. Such costs are costs of holding partially completed assets and do 
not qualify for capitalisation. However, an entity does not normally 
suspend capitalising borrowing costs during a period when it carries out 
substantial technical and administrative work. An entity also does not 
suspend capitalising borrowing costs when a temporary delay is a 
necessary part of the process of getting an asset ready for its intended 
use or sale. For example, capitalisation continues during the extended 
period that high water levels delay construction of a bridge, if such high 
water levels are common during the construction period in the 
geographical region involved.” 
Paragraph 22 
“An entity shall cease capitalising borrowing costs when 
substantially all the activities necessary to prepare the qualifying 
asset for its intended use or sale are complete.” 
Paragraph 26 
“An entity shall disclose: 
(a) the amount of borrowing costs capitalised during the period; and 
(b) the capitalisation rate used to determine the amount of borrowing 
costs eligible for capitalisation.” 
Observation 
It was noted from the Director’s Report that Power purchase agreement was 
cancelled and the company was exploring opportunities to establish the 
project under the new policy. Thus, the power project is stalled and there is 
no substantial expenditure incurred related to active development of the 
project. It was viewed that as per Ind AS 23, the borrowing cost incurred 
during the suspension period should have been charged to the Statement of 
Profit and Loss instead of capitalizing it as pre-operative expenses. 
It was further noted that out of the total borrowed amount, 35% amount was 
deployed for purposes other than project i.e., to acquire investment in zero 
coupon debentures and advance for acquiring land. It was viewed that such 
Investment and Advance for acquiring land are not qualifying assets as per 
Ind AS 23, as it does not take substantial period of time to make it ready for 
its intended use or sale, hence, the borrowing costs incurred on such assets 
Study on Compliance of Financial Reporting Requirements 
117 
should not be capitalized as project cost/ pre-operative expenses, instead 
these costs should be charged to Statement of Profit and Loss. 
Accordingly, it was viewed that the requirements of Ind AS 23 have not been 
complied with in the preparation and presentation of financial statements. 
20. CSR Expenditure 
Matter contained in Financial Statements 
From the Annual Report of various companies, it was observed that the CSR 
disclosures have either not been provided or have been presented in the 
following manner: 
Corporate Social Responsibility Expenses (CSR)
As per Section 135(1) of the Companies Act, 2013 read with the guidelines 
issued by the Department of Public Enterprises, the Company is required to 
spend, in every financial year, at least two per cent of the average net profits 
of the Company made during the three immediately preceding financial years 
in accordance with its CSR Policy.
Details of CSR spent during the financial year: 
The Company is in the process of identifying the right charitable institutes to 
be associated with, which has vis-à-vis same purpose as that of Company 
CSR Policy, and therefore, in the current financial year there was a short 
spent of Rs. 0.60 million towards the CSR activities.” 
Principle: Division II Schedule III to the Companies Act, 2013 and 
Guidance Note on Division II Ind AS Schedule III to the Companies Act, 
2013 
Note: 7 of General Instructions for Preparation of Statement of Profit and 
Loss of Division II Schedule III to the Companies Act, 2013 
(m) Corporate Social Responsibility (CSR) 
Where the company covered under section 135 of the Companies Act, the 
following shall be disclosed with regard to CSR activities:- 
(i) amount required to be spent by the company during the year, 
(ii) amount of expenditure incurred, 
(iii) shortfall at the end of the year, 
(iv) total of previous years shortfall, 
Observations related to Statement of Profit and Loss
118
(v) reason for shortfall, 
(vi) nature of CSR activities, 
(vii) details of related party transactions, e.g., contribution to a trust 
controlled by the company in relation to CSR expenditure as per 
relevant Accounting Standard, 
(viii)where a provision is made with respect to a liability incurred by 
entering into a contractual obligation, the movements in the provision 
during the year shall be shown separately. 
Paragraph: 11.5 of Guidance Note on Division II Ind AS Schedule III to 
the Companies Act, 2013 
“Disclosures pertaining to corporate social responsibility activities 
[Clause (j) and (m) of Note 7] 
This new requirement introduced by the Companies Act 2013 is that the 
companies which are covered under Section 135 are required to disclose 
the amount of expenditure incurred on corporate social responsibility 
activities. The Guidance Note on Accounting for Expenditure on Corporate 
Social Responsibility Activities issued may be referred to for disclosure 
requirements, which are essentially as under: 
a. From the perspective of better financial reporting and in line with the 
requirements of Schedule III in this regard, it is recommended that all 
expenditure on CSR activities, that qualify to be recognized as 
expense should be recognized as a separate line item as ‘CSR 
expenditure’ in the statement of profit and loss. Further, the relevant 
note should disclose the break-up of various heads of expenses 
included in the line item ‘CSR expenditure’. 
b. The notes to accounts relating to CSR expenditure should also 
contain the following: 
(1) Gross amount required to be spent by the company during the 
year. 
(2) Amount spent during the year on: 
(i) Construction/acquisition of any asset 
(ii) On purposes other than (i) above 
The above disclosure, to the extent relevant, may also be made in 
the notes to the cash flow statement, where applicable. 
c. Details of related party transactions, e.g., contribution to a trust 
Study on Compliance of Financial Reporting Requirements 
119 
controlled by the company in relation to CSR expenditure as per 
Accounting Standard (AS) 18, Related Party Disclosures. 
d. Where a provision is made in accordance with paragraph 8 above the 
same should be presented as per the requirements of Schedule III to 
the Companies Act, 2013. Further, movements in the provision during 
the year should be shown separately.” 
Observation 
It was noted from the financial statements of certain companies that although 
they were required to spend on CSR activities as per the Companies Act, 
2013, however, some companies have not provided any disclosure while 
others have provided incomplete disclosures related to CSR. It was viewed 
that CSR disclosures should have been made in the financial statements in 
line with above stated requirements. 
Accordingly, it was viewed that the requirement of Schedule III as well as 
Guidance Note on Division II Ind AS Schedule III to the Companies Act, 2013 
have not been complied with respect to CSR disclosures. 
21. Prior Period Items 
Matter contained in Financial Statements 
In the financial statements of a company, under Note on Other Expenses, Prior 
Period Expense were shown. While in the financial statements of another 
company, it was stated that “Prior period income / expenses have been credited/ 
debited to the respective head of accounts in the Statement of Profit and Loss.” 
Further, the disclosures regarding the prior periods were not found in the 
financial statements of both the companies. 
Principle: Ind AS 8: Accounting Policies, Changes in Accounting 
Estimates and Errors 
Paragraph 42 
“Subject to paragraph 43, an entity shall correct material prior period errors 
retrospectively in the first set of financial statements approved for issue after 
their discovery by: 
(a) restating the comparative amounts for the prior period(s) presented in 
which the error occurred; or 
(b) if the error occurred before the earliest prior period presented, restating 
Observations related to Statement of Profit and Loss
120
the opening balances of assets, liabilities and equity for the earliest prior 
period presented.” 
Paragraph 49 
“In applying paragraph 42, an entity shall disclose the following: 
(a) the nature of the prior period error; 
(b) for each prior period presented, to the extent practicable, the amount of 
the correction: 
(i) for each financial statement line item affected; and 
(ii) if Ind AS 33 applies to the entity, for basic and diluted earnings per 
share; 
(c) the amount of the correction at the beginning of the earliest prior period 
presented; and 
(d) if retrospective restatement is impracticable for a particular prior period, 
the circumstances that led to the existence of that condition and a 
description of how and from when the error has been corrected 
Financial statements of subsequent periods need not repeat these 
disclosures.” 
Observation 
It was noted from the financial statements of certain companies that material 
amount of prior period expenses and income ha been recognized during the 
year under review. It was viewed that as per Ind AS 8, an entity shall correct 
prior period errors retrospectively by restating the comparative amounts for 
the prior periods presented in which the error occurred or if the error 
occurred before the earliest prior period presented, then restate the opening 
balances of assets, liabilities and equity for the earliest prior period 
presented. 
However, in the given cases, the material prior period error has not been 
corrected retrospectively. Further, the disclosures as required by paragraph 
49 of Ind AS 8 has not been given in the financial statements. 
Accordingly, it was viewed that the accounting treatments of prior period 
expenses and income followed by the companies are not in accordance with 
the requirements of Ind AS 8. 
Study on Compliance of Financial Reporting Requirements 
121 
22. Contract Liability 
Matter contained in Financial Statements 
The relevant abstract of the Note on Contract Balances given in the Annual 
Report of a company, read as follows: 
Contract balances 
 March 31, 20XX March 31, 20YY 
Contract liability -- --
Principle: Ind AS 115: Revenue from Contracts with Customers 
Paragraph 116 
“An entity shall disclose all of the following: 
(a) the opening and closing balances of receivables, contract assets and 
contract liabilities from contracts with customers, if not otherwise 
separately presented or disclosed; 
(b) revenue recognised in the reporting period that was included in the 
contract liability balance at the beginning of the period; and 
(c) revenue recognised in the reporting period from performance 
obligations satisfied (or partially satisfied) in previous periods (for 
example, changes in transaction price).” 
Paragraph 118 
“An entity shall provide an explanation of the significant changes in the 
contract asset and the contract liability balances during the reporting 
period. The explanation shall include qualitative and quantitative 
information. Examples of changes in the entity’s balances of contract 
assets and contract liabilities include any of the following: 
(a) changes due to business combinations; 
(b) cumulative catch-up adjustments to revenue that affect the 
corresponding contract asset or contract liability, including 
adjustments arising from a change in the measure of progress, a 
change in an estimate of the transaction price (including any changes 
in the assessment of whether an estimate of variable consideration is 
constrained) or a contract modification; 
(c) impairment of a contract asset; 
Observations related to Statement of Profit and Loss
122
(d) a change in the time frame for a right to consideration to become 
unconditional (ie for a contract asset to be reclassified to a 
receivable); and 
(e) a change in the time frame for a performance obligation to be satisfied 
(i.e for the recognition of revenue arising from a contract liability).” 
Observation 
It was noted from the notes to financial statements that the company has 
disclosed contract liabilities. It was also noted that there is a significant 
change in the balance of contract liability compared to previous year. 
However, the company has not provided the required disclosures or 
explanations regarding these significant changes in contract liability balances 
during the reporting period, including both qualitative and quantitative 
information as required by Ind AS 115. 
Accordingly, it was viewed that the requirements of Ind AS 115 have not 
been appropriately complied with in the preparation and presentation of 
financial statements. 
23. Tax Expense 
Matter contained in Financial Statements 
The relevant abstract of Statement of Profit and Loss and Note on Other 
Expenses given in the Annual Report of a company, reads as below: 
Statement of Profit and Loss for the Year Ended March 31, 20XX 
Particulars 
Year ended 
31.03.20XX 
Amount (Rs) 
Year ended 
31.03.20YY 
Amount (Rs) 
Total Expenses XXX XXX
Profit Before Tax XXX XXX
Tax expense 
(a) Current tax 62000 XXX
Profit After Tax XXX XXX
Study on Compliance of Financial Reporting Requirements 
123 
Note on Other Expenses 
Principle: Division II, Schedule III to the Companies Act, 2013 
Abstract of Format of Statement of Profit & Loss:- 
Part II: Statement of Profit and Loss 
Name of the Company… 
Statement of Profit and Loss for the period ended… 
Particulars 
Figures for 
the current 
reporting 
period 
Figures for the 
previous 
reporting 
period 
IV Total expenses XXX XXX 
V Profit/ (Loss) before 
exceptional items and tax 
XXX XXX 
VI Exceptional Items XXX XXX 
VII Profit/ (Loss) before tax XXX XXX 
VIII Tax expense: XXX XXX 
(1) Current Tax 
(2) Deferred Tax 
XXX XXX 
Observation 
It was observed from the given notes to financial statements that the tax 
expenses have been presented at two places in the financial statements, i.e., 
on the face of Statement of Profit and Loss at Rs 62,000 and under the Note 
on Other Expenses at Rs 1,40,000. It was viewed that as per the requirement 
of Schedule III, total tax expense for the year should be reported on the face 
of Statement of Profit and Loss subclassifying into current tax and deferred 
tax, and other relevant disclosures as required by Ind AS 12 should be made 
in the Notes to the financial statements. 
Particulars 
As at 31.03.20XX 
Amount (Rs.) 
As at 31.03.20YY 
Amount (Rs.) 
Income Tax 140000 XXX 
Observations related to Statement of Profit and Loss
124
Accordingly, it was viewed that the requirement of Schedule III to Companies 
Act, 2013 as well as Ind AS 12 have not been complied with in the 
preparation and presentation of financial statements. 
24. Items of Other Comprehensive Income and 
Tax Effect Thereon 
Matter contained in Financial Statements 
The relevant abstract of the Statement of Profit and Loss given in the Annual 
Report of a company, reads as below: 
“Statement of Profit and Loss 
Particulars Year Ended 
31.03.20XX 
Year Ended 
31.03.20YY 
Other Comprehensive Income 
A) Items that will not be reclassified to 
profit & loss 
 
(i) Re-measurement of postemployment benefit Obligation 
XX _
(ii) Fair Value changes in Financial 
Assets 
_ _
(iii) Income tax relating to these items Nil _
-- --
B) Items that will be reclassified to profit 
& loss
XX _
Principle: Ind AS 12 – Income Taxes 
Paragraph 61A 
Current tax and deferred tax shall be recognised outside profit or loss if 
the tax relates to items that are recognised, in the same or a different 
period, outside profit or loss. Therefore, current tax and deferred tax that 
relates to items that are recognised, in the same or a different period: 
a) in other comprehensive income, shall be recognised in other 
comprehensive income (see paragraph 62). 
b) directly in equity, shall be recognised directly in equity (see paragraph 
62A). 
Study on Compliance of Financial Reporting Requirements 
125 
Paragraph 62 
Indian Accounting Standards require or permit particular items to be 
recognised in other comprehensive income. Examples of such items are: 
(a) a change in carrying amount arising from the revaluation of property, 
plant and equipment (see Ind AS 16); and 
(b) [Refer Appendix 1] 
(c) exchange differences arising on the translation of the financial 
statements of a foreign operation (see Ind AS 21). 
(d) [Refer Appendix 1] 
Observation 
It was noted that the company has disclosed “Re-measurement of postemployment benefit Obligation” under the heading of ‘Items that will not be 
reclassified to statement of profit & loss’. However, it was noted that the 
corresponding income tax amount for this item has been reported as Nil. It 
was viewed that its tax impact should also be disclosed under other 
comprehensive income in line with paragraph 61A read with paragraph 62 of 
Ind AS 12. 
Accordingly, it was viewed that the requirements of Ind AS 12 have not been 
complied with in the preparation and preparation of financial statements. 
25. Items of Other Comprehensive Income 
Matter contained in Financial Statements 
The relevant abstract of Statement of Profit and Loss given in the Annual 
Report of a company, reads as below: 
“Statement of Profit and Loss 
Particulars 
For the year 
ended 
31.03.20XX 
For the year 
ended 
31.03.20YY 
Profit for the Year (A) XXX XXX 
Other Comprehensive Income 
… 
2. Items that will be reclassified to 
Statement of Profit and Loss
 
Observations related to Statement of Profit and Loss
126
Equity Instruments at Fair Value 
through Other Comprehensive 
Income
XXX XXX 
Tax on Above Item XXX XXX 
Total Other Comprehensive 
Income (B) 
XXX XXX” 
Principle: Division II, Schedule III to the Companies Act, 2013 and Ind 
AS 109: Financial Instruments 
Note 6(A) of General Instructions for preparation of Statement of 
Profit and Loss 
“Other Comprehensive Income shall be classified into- 
(A) Items that will not be reclassified to profit or loss 
(i); 
(ii); 
(iii) Equity Instruments through Other Comprehensive Income; 
…” 
Paragraph 4.1.4 of Ind AS 109 
A financial asset shall be measured at fair value through profit or 
loss unless it is measured at amortised cost in accordance with 
paragraph 4.1.2 or at fair value through other comprehensive income 
in accordance with paragraph 4.1.2A. However, an entity may make 
an irrevocable election at initial recognition for particular 
investments in equity instruments that would otherwise be measured 
at fair value through profit or loss to present subsequent changes in 
fair value in other comprehensive income (see paragraphs 5.7.5–
5.7.6). 
Observation 
It was observed from the Statement of Profit and loss that the Company has 
disclosed “Equity Instruments at Fair Value through Other Comprehensive 
Income” under the head “Items that will be reclassified to Statement of Profit 
or Loss”. In accordance with the above stated requirement, the Equity 
instruments measured at FVTOCI are required to be shown under the head 
Study on Compliance of Financial Reporting Requirements 
127 
“Items that will not be reclassified to Profit or Loss” in Other Comprehensive 
Income. 
Accordingly, it was viewed that requirements of Ind AS 109 and Division II, 
Schedule III to Companies Act, 2013 have not been complied with 
preparation and presentation of financial statements. 
26. Other Comprehensive Income 
Matter contained in Financial Statements 
The relevant abstract of Statement of Profit and Loss given in the Annual 
Report of a company, reads as below: 
Particulars For The Year 
ended as on 
31st March,20XX
For The Year 
ended as on 
31st March,20YY
Profit/(loss) for the period from 
continuing operations 
XXX XXX
Profit/(loss) for the period XXX XXX
Earnings per equity share 
[nominal value of share] XXX XXX 
Basic XXX XXX 
Diluted XXX XXX 
Principle: Division II, Schedule III to the Companies Act, 2013 and Ind AS 
1: Presentation of Financial Statements 
Note 2 General Instructions for Preparation of Statement of Profit and 
Loss
“Statement of Profit and loss shall include: 
(1) Profit or loss for the period; 
(2) Other comprehensive income 
The sum of (1) and (2) above is ‘Total comprehensive income’.” 
Paragraph 81A of Ind AS 1 
The statement of profit and loss shall present, in addition to the profit 
Observations related to Statement of Profit and Loss
128
or loss and other comprehensive income sections: 
(a) profit or loss; 
(b) total other comprehensive income; 
(c) comprehensive income for the period, being the total of profit or 
loss and other comprehensive income. 
Observation 
It was observed from the Statement of Profit and Loss, that entity has not 
disclosed line item of “Other Comprehensive Income” and “Total 
Comprehensive Income“ after reporting the “Profit/(Loss) from Continuing 
Operations”. 
It may be noted that “Other Comprehensive Income” is an integral part of 
Statement of Profit and Loss which is mandatorily to be reported to comply 
with the Divisions II, Schedule III to Companies Act, 2013. 
Accordingly, it was viewed that the requirements of Ind AS 1 and Division II, 
Schedule III to the Companies Act, 2013 have not been complied with in the 
preparation and presentation of financial statements. 
27. Share Based Payments 
Matter contained in Financial Statements 
The relevant abstract of Note on Employee Benefits given in the Annual 
Report of certain companies, reads as below: 
Note: Employee Benefit Expense 
Particulars Year Ended 
31-Mar-XX 
Year Ended 
31-Mar-YY 
… … … 
Employee Stock Option Scheme/ Share 
based Payment to Employee 
(---) --- 
Principle: Ind AS 102: Share Based Payment and Ind AS 1: Presentation 
of Financial Statements 
Paragraphs 44 of Ind AS 102 
“An entity shall disclose information that enables users of the financial 
Study on Compliance of Financial Reporting Requirements 
129 
statements to understand the nature and extent of share-based payment 
arrangements that existed during the period. 
Paragraphs 45 of Ind AS 102 
To give effect to the principle in paragraph 44, the entity shall disclose at least 
the following: 
(a) a description of each type of share-based payment arrangement that 
existed at any time during the period, including the general terms and 
conditions of each arrangement, such as vesting requirements, the 
maximum term of options granted, and the method of settlement (e. g., 
whether in cash or equity). An entity with substantially similar types of 
share-based payment arrangements may aggregate this information, 
unless separate disclosure of each arrangement is necessary to satisfy 
the principle in paragraph 44. 
(b) the number and weighted average exercise prices of share options for 
each of the following groups of options: 
(i) outstanding at the beginning of the period; 
(ii) granted during the period; 
(iii) forfeited during the period; 
(iv) exercised during the period; 
(v) expired during the period; 
(vi) outstanding at the end of the period; and 
(vii) exercisable at the end of the period. 
(c) for share options exercised during the period, the weighted average share 
price at the date of exercise. If options were exercised on a regular basis 
throughout the period, the entity may instead disclose the weighted 
average share price during the period. 
(d) For share options outstanding at the end of the period, the range of 
exercise prices and weighted average remaining contractual life. If the 
range of exercise prices is wide, the outstanding options shall be divided 
into ranges that are meaningful for assessing the number and timing of 
additional shares that may be issued and the cash that may be received 
upon exercise of those options. 
Observations related to Statement of Profit and Loss
130
Paragraph 112 of Ind AS 1 
The notes shall: 
a) … 
b) … 
c) provide information that is not presented elsewhere in the financial 
statements, but is relevant to an understanding of any of them. 
Observation 
It was noted from the Note on Employee Benefits that Share based Payment 
expense has been recognised in the previous financial year and it has been 
reversed during the current financial year. However, no disclosure had been 
given in the financial statement for share-based payment. It was viewed that 
the reason for reversing such expenses should have been disclosed in line 
with Ind AS 1. Further, it was viewed that all the necessary disclosures 
related to share-based payment should have been provided in the financial 
statements in line with Paragraph 44 and 45 of Ind AS 102. 
Accordingly, it was viewed that the requirements of Ind AS 102 and Ind AS 1 
have not been complied with in preparation and presentation of financial 
statements. 
28. Share Based Payments 
Matter contained in Financial Statements 
The abstract of Note on Share based Payments given under Critical 
Accounting Estimates in the Annual Report of a company, reads as below: 
“Share-based payments 
…… 
Employee Stock Appreciation Rights (SAR) 
The company has formed ‘ABC Employee Welfare Trust’ (AEW trust) for 
implementation of the schemes that are notified or may be notified from time 
to time by the Company under the plan, providing share-based payment to its 
employees. AEW trust purchases Company’s shares out of funds provided by 
the Company. Accordingly, the Company has approved the grant of 
Employee Stock Appreciation Rights (SARs) to the eligible employees of the 
Company. Each SAR shall confer the right to the eligible employee to 
receive appreciation (cash settled / equity settled) with respect to the 
Study on Compliance of Financial Reporting Requirements 
131 
underlying Equity Share on the entitled shares after it has been exercised in 
accordance with terms of the Scheme. The Company follows the intrinsic 
value method to account for its Employee Stock Appreciation Rights 
(SARs). …. (Emphasis Added)” 
Principle: Ind AS 102: Share Based Payment 
Paragraphs 10 
“For equity-settled share-based payment transactions, the entity 
shall measure the goods or services received, and the corresponding 
increase in equity, directly, at the fair value of the goods or services 
received, unless that fair value cannot be estimated reliably. If the 
entity cannot estimate reliably the fair value of the goods or services 
received, the entity shall measure their value, and the corresponding 
increase in equity, indirectly, by reference to the fair value of the 
equity instruments granted. 
Paragraphs 30 
“For cash-settled share-based payment transactions, the entity shall 
measure the goods or services acquired and the liability incurred at 
the fair value of the liability. Until the liability is settled, the entity 
shall remeasure the fair value of the liability at the end of each 
reporting period and at the date of settlement, with any changes in 
fair value recognised in profit or loss for the period.” 
Observation 
It was noted from the given accounting policy on share-based payment that 
the company measure its stock appreciation rights i.e., cash settled/equity 
settled share-based payment by using ‘intrinsic value method.’ It was viewed 
that cash settled as well as equity settled share-based payment should be 
measured at fair value as required by Ind AS 102. 
Accordingly, it was viewed that the requirements of Ind AS 102 have not 
been complied with in preparation and presentation of financial statements. 
29. Earnings Per Share 
Matter contained in Financial Statements 
The relevant abstract of Statement of Profit and Loss & Note on Earning Per 
Share given in the Annual Report of a company, reads as below: 
Observations related to Statement of Profit and Loss
132
“Statement of Profit and Loss for the year ended March 31, 20XX
Particulars Note 
No. 
March 
31, 20XX
March 
31, 20YY 
…………… --- --- ---
Earnings per share – (on Rs. 1 per share) 35 
Basic --- ---
Diluted --- ---"
Note 34: Earnings Per Share
Particulars March 31, 20XX March 31, 20YY
Basic Diluted Basic Diluted 
Total number of equity 
shares outstanding 
--- --- --- ---
Weighted average number 
of potential equity shares 
exercised by XYZ 
Employee Welfare Trust (---) (---) (---) (---) 
Weighted average number 
of potential equity shares 
resulting from exercise of 
employee stock option --- --- --- ---
Weighted average number 
of equity shares for 
calculation of earnings per 
share --- --- --- ---
Principle: Ind AS 33: Earnings per share, Ind AS 1: Presentation of 
Financial Statements and Division II, Schedule III to the Companies Act, 
2013 
Paragraph 70 of Ind AS 33 
“An entity shall disclose the following: 
(a) the amount used as the numerators in calculating basic and diluted 
earnings per share, and the reconciliation of those amounts to profit or 
Study on Compliance of Financial Reporting Requirements 
133 
loss attributable to the parent entity for the period. The reconciliation 
shall include the individual effect of each class of instruments that 
affects earnings per share.” 
Paragraph 113 of Ind AS 1 
An entity shall present notes in a systematic manner. An entity shall crossreference each item in the balance sheet and in the statement of profit and 
loss, and in the statements of changes in equity and of cash flows to any 
related information in the notes. 
Note 4(ii) of General Instructions for Preparation of Financial 
Statements of a Company Required to Comply with Ind AS given 
under Division II Schedule III to the Companies Act, 2013. 
Each item on the face of the Balance Sheet, Statement of Changes in 
Equity and Statement of Profit and Loss shall be cross-referenced to any 
related information in the Notes. In preparing the Financial Statements 
including the Notes, a balance shall be maintained between providing 
excessive detail that may not assist users of Financial Statements and not 
providing important information as a result of too much aggregation.
Observation 
It was noted that the company has disclosed only the denominators (i.e. 
number of outstanding shares) used for calculation of EPS. However, no 
disclosure was made regarding profits/ earnings used for calculation of 
earnings per shares (i.e. numerator) as required by paragraph 70(a) of Indian 
Accounting Standard 33. 
Additionally, it was noted that Note on Earnings per Share was given under 
Note 35, however, in the Statement of Profit and Loss reference of Note 34 
has been given instead of giving correct note reference. It is not in line with 
paragraph 113 of Ind AS 1 and Note 4 (ii) of General Instruction for 
preparation of financial statements of a company required to comply with Ind 
AS. 
Accordingly, it was viewed that the requirements of Ind AS 33, Ind AS 1 and 
Division II of Schedule III to the Companies Act 2013 have not been 
complied with in preparation and presentation of the financial statements. 
Observations related to Statement of Profit and Loss
134
30. Earnings Per Share 
Matter contained in Financial Statements 
The relevant abstract of Statement of Profit and Loss & Note on Earning Per 
Share given in the Annual Report of a company, reads as below: 
Statement of Profit and Loss 
Particulars Year Ended 
31.03.20XX 
Year Ended 
31.03.20YY 
… 
Profit for the Year 1000 800 
(VIII) Other Comprehensive Income 
A) Items that will not be reclassified to 
profit & loss 
 
… 
B) Items that will be reclassified to 
profit & loss
 
(IX) Other Comprehensive Income for 
the year 
100 80 
(X) Profit/(Loss) After Tax Carried to 
Balance Sheet 
1,100 880 
Note X: Earning Per Share (EPS) 
Particulars As at 
31.03.20XX 
As at 
31.03.20YY 
Net profit after tax as per Profit & Loss 
Statement
1,100 880 
Weighted average number of shares 
used as denominator for calculation of 
EPS
--- -- 
Basic & Diluted Earnings per shares -- --
Face value of Equity shares -- --
Study on Compliance of Financial Reporting Requirements 
135 
Principle: Ind AS 33: Earnings per share 
Paragraph 12 
“For the purpose of calculating basic earnings per share, the amounts 
attributable to ordinary equity holders of the parent entity in respect of: 
(a) profit or loss from continuing operations attributable to the parent entity; 
and 
(b) profit or loss attributable to the parent entity 
shall be the amounts in (a) and (b) adjusted for the after-tax amounts of 
Preference Dividends, differences arising on the settlement of preference 
shares, and other similar effects of preference shares classified as equity. 
Where any item of income or expense which is otherwise required to be 
recognised in profit or loss in accordance with Indian Accounting 
Standards is debited or credited to securities premium account/other 
reserves, the amount in respect thereof shall be deducted from profit or 
loss from continuing operations for the purpose of calculating basic 
earnings per share.
Observation 
It was noted from the Note to Accounts that total comprehensive income for 
the year was taken as a numerator for computation of the earnings per 
share, instead of taking profit for the year. It was viewed that it is net profit or 
loss after tax but before the adjustments of items of other comprehensive 
incomes, that is used for the purpose of calculating earnings per share. 
Accordingly, it was viewed that use of ‘total comprehensive income’ for the 
purpose of computation of earnings per share is not in line with the 
requirement of paragraph 12 of Indian Accounting Standard 33. 
Accordingly, it was viewed that the requirements of Ind AS 33 have not been 
complied with in the preparation and presentation of financial statements. 
31. Earnings Per Share 
Matter contained in Financial Statements 
The Note on Earnings per share given in the Annual Report of the company, 
reads as below: 
“Earnings Per Share: 
Observations related to Statement of Profit and Loss
136
Earnings per share is calculated by dividing net profit / (loss) after tax with 
weighted average number of equity shares (previous year net of dividend 
distribution tax on proposed preference dividend).” 
Principle: Ind AS 33: Earnings Per Share 
Paragraph 70 
“An entity shall disclose the following: 
(a) the amount used as the numerators in calculating basic and diluted 
earnings per share, and a reconciliation of those amounts to profit or loss 
attributable to the parent entity for the period. The reconciliation shall 
include the individual effect of each class of instrument that affects 
earnings per share.
(b) the weighted average number of ordinary shares used as the 
denominator in calculating basic and diluted earnings per share, and a 
reconciliation of these denominators to each other. The reconciliation 
shall include the individual effect of each class of instruments that affects 
earnings per share.”
Observation 
It was noted from the Note on Earnings Per Share (EPS) that the company 
had merely disclosed the method of calculation of EPS and no disclosures 
was made regarding amount used as numerator and weighted average 
number of shares used as denominator in calculating EPS as well as other 
information required under paragraph 70 of Indian Accounting Standard 33. 
Accordingly, it was viewed that the requirements Ind AS 33 have not been 
complied with in preparation and presentation of the financial statements. 
32. Earnings Per Share 
Matter contained in Financial Statements 
The relevant abstract of Statement of Profit and Loss & Note on Share 
Capital given in the Annual Report of a company, reads as below: 
Study on Compliance of Financial Reporting Requirements 
137 
“Statement of Profit and Loss for the year ended 31st March 20XX
Particulars Note No. As at 31st
March 20XX 
(In Rs.) 
As at 31st
March 20YY 
(In Rs.) 
…………… --- --- --- 
Earnings per share (Rs 1 
each) 
 
Basic (amount in Rs) .. -- -- 
Diluted (amount in Rs) -- --" 
“Note XX: Share Capital 
Particulars As at 31- 
March-XX 
As at 31-
March-YY 
As at 31-
March-ZZ 
Number 
of 
shares 
In 
Rs 
Number 
of 
shares 
In 
Rs 
Number 
of 
shares 
In 
Rs 
AUTHORISED 
Equity Shares of Rs 
10/- each (previous 
year Rs. 10 each) 
… … … … … …” 
Observation 
It was noted from the Statement of Profit and Loss that the nominal value of 
equity share was disclosed at Rs. 1/- each. However, the nominal value per 
share as per note on Share Capital was Rs 10/- each. 
Accordingly, it was viewed that contradictory information has been reported 
in the same set of financial statements regarding nominal value of equity 
shares. 
33. First time adoption of Ind AS 115 
Matter contained in Financial Statements 
The accounting policy on Revenue from Contracts with Customers given in 
the Annual Report of a Company, reads as follows: 
Observations related to Statement of Profit and Loss
138
“Sale of Goods 
Revenue from the sale of goods is recognized when the significant risks and 
rewards of ownership of the goods have passed to the buyer, usually on 
delivery of the goods. 
Sales & services include sales during trial run and excise duty/service tax 
recoverable. Liquidated damages are accounted for as and when they are 
ascertained. 
Revenue in respect of sales orders received on provisional price basis, is 
recognized on a provisional basis except to the extent stated otherwise. In 
respect of such sales orders, the Company recognizes the differential 
revenue, being the difference between provisional price and the final price, at 
the time when the provisional price gets firmed up” 
Principle: Ind AS 115: Revenue from Contracts with Customers 
Paragraph C1 of Appendix C1
“An entity shall apply this Standard for accounting periods beginning on or 
after 1 April 2018.” 
Paragraph C10 of Appendix C1
This Standard supersedes the following Standards: 
(a) Ind AS 11, Construction Contracts;
(b) Ind AS 18, Revenue.” 
Paragraph C (8) of Appendix ‘C’: 
“For reporting periods that include the date of initial application, an entity 
shall provide both of the following additional disclosures if this Standard is 
applied retrospectively in accordance with paragraph C3(b): 
(a) the amount by which each financial statement line item is affected in 
the current reporting period by the application of this Standard as 
compared to Ind AS 11 and Ind AS 18; and 
(b) an explanation of the reasons for significant changes identified in C 
8(a).”
Observation 
It was noted from adopted policy that the company recognises revenues after 
the transfer of risk and rewards of ownership of goods to the customers 
Study on Compliance of Financial Reporting Requirements 
139 
which depicts that it is following the principles of erstwhile Ind AS 18, which 
was withdrawn on introduction of Ind AS 115, Revenue from Contract with 
Customers. It was viewed that revenue is recognized when entity satisfies 
the performance obligation which may be either at any point of time or over 
the point of time as per Ind AS 115. 
It was, further, viewed that the company has not provided the necessary 
disclosures under Paragraph 110-128 & Paragraph C (8) of Ind AS 115 in the 
notes to financial statements. 
Accordingly, it was viewed that the requirements of Ind AS 115 have not 
been complied with in the preparation and presentation of financial 
statements. 
34. First time adoption of Ind AS 115
Matter contained in Financial Statements 
The relevant abstract of the Accounting Policy on Revenue from Contracts 
with Customers given in the Annual Report of a Company, read as follows: 
“Revenue recognition. 
Recognition of Revenue from Real Estate Development: 
Effective 1 April 2018, the Company has applied Ind AS 115 – “Revenue 
from contracts with customers”, which outlines single comprehensive model 
for accounting of revenue arising from contracts with customers and 
supersedes Ind AS 11 “Construction Contracts”. It focuses on performance 
obligations in a contract with customers, allocation of transaction price to the 
performance obligations and recognition of revenue as the performance 
obligations are satisfied either at a point in time or over a period of time. 
While recognizing revenue, the cost of land has been allocated in proportion 
to the percentage of work completed. If the outcome of a construction 
contract can be estimated reliably, contract revenue is recognized in the 
Statement of Profit and Loss in proportion to the stage of completion of the 
contract. The stage of completion is assessed by reference to surveys of 
work performed. Otherwise, contract revenue is recognized only to the extent 
of contract costs incurred that are likely to be recoverable. Contract costs are 
recognized as expenses as incurred unless they create an asset which is 
related to future contract activity. An expected loss on a contract is 
recognized immediately in the Statement of Profit and Loss. 
Observations related to Statement of Profit and Loss
140
Revenue is recognised in the income statement to the extent that it is 
probable that the economic benefits will flow to the Company and the 
revenue and costs, if applicable, can be measured reliably.” 
Principle: Ind AS 115: Revenue from Contracts with Customers and Ind 
AS 8: Accounting Policies, Changes in Accounting Estimates and Errors 
Paragraph C3 of Ind AS 115 
“An entity shall apply this standard using one of the following two 
methods: 
(a) retrospectively to each prior reporting period presented in 
accordance with Ind AS 8, Accounting Policies, Changes in 
Accounting Estimates and Errors, subject to the expedients in 
Paragraph C5; or 
(b) retrospectively with the cumulative effect of initially applying 
this Standard recognised at the date of initial application in 
accordance with Paragraph C7–C8.” 
Paragraph 28 of Ind AS 8 
"When initial application of an Ind AS has an effect on the current 
period or any prior period, would have such an effect except that it is 
impracticable to determine the amount of the adjustment, or might 
have an effect on future periods, an entity shall disclose: 
… 
(f) for the current period and each prior period presented, to the 
extent practicable, the amount of the adjustment: 
(i) for each financial statement line item affected; and 
(ii) if Indian Accounting Standard 33, Earnings per Share, 
applies to the entity, for basic and diluted earnings per 
share.” 
Observation 
The company has adopted Ind AS 115 for revenue recognition, effective April 
1, 2018. Upon initial application of this standard, the company is required to 
comply with the requirements outlined in paragraphs C7 and C8, in 
conjunction with C3 in Appendix C of Ind AS 115. However, the company has 
not disclosed the method used for its adoption, specifically whether the 
Study on Compliance of Financial Reporting Requirements 
141 
standard was applied retrospectively to each prior period or if the cumulative 
effect was considered. 
Furthermore, if the company chooses to adopt paragraph C3(i), it must 
disclose the amount of adjustment for the current period as well as for each 
prior period presented in the financial statements, as required by Ind AS 8. If 
the company opts to adopt the standard retrospectively, with the cumulative 
effect of the initial application recognized at that time, then the disclosure 
requirements of paragraphs C7 and C8 would apply. 
Accordingly, it was viewed that the requirements of Ind AS 115 have not 
been appropriately complied with in the preparation and presentation of 
financial statements. 
142
Chapter-5 
Observations related to Statement of 
Cash Flows 
1. Leases 
Matter contained in Financial Statements 
The relevant abstract of the Cash Flow Statement and the Note on Leases 
given in the Annual Report of a company, read as follows: 
“Standalone Cash Flow Statement for the year ended 31st March 20XX 
Particulars 31st March, 
20XX 
31st March, 
20YY 
C. Cash Flow from Financing Activities 
Payment of lease liabilities (---) ---"
 “Note on Leases: 
Amount recognized in profit and loss 
Particulars Amount 
Interest on lease liabilities ---
Variable lease payments not included in the 
measurement of lease liabilities 
Expenses relating to short-term leases ---
Expenses relating to leases of low-value assets, 
excluding short-term leases of low value assets 
---
 “Amount recognized in the Statement of Cash flows 
Particulars Amount 
Total cash outflow for leases ---"
Observations related to Statement of Cash Flows
143 
Principle: Ind AS 116: Leases 
Paragraph 50 
“In the statement of cash flows, a lessee shall classify: 
….. 
(b) cash payments for the interest portion of the lease liability within 
financing activities applying the requirements in Ind AS 7, Statement 
of Cash Flows, for interest paid; 
…” 
Observation 
It was noted from Note on Leases that the amount recognized in Statement 
of Profit and Loss, includes interest on lease liabilities. It indicates that the 
‘’total cash payment of lease liabilities’’ as disclosed in Cash Flow Statement 
also includes interest on lease liabilities. It was viewed that paragraph 50 of 
Indian Accounting Standard 116 requires to present cash payment for the 
interest portion of lease liability separately under the financing activities of 
the Statement of Cash Flows. 
Accordingly, it was viewed that the disclosures requirements of Indian 
Accounting Standard 116 have not been complied with in preparation and 
presentation of the financial statements. 
2. Disclosure of Cash Flows on Gross Basis 
Matter contained in Financial Statements 
The relevant abstract of Statement of Cash Flows and Note on Other 
Expenses given in an Annual Report, reads as follows: 
“Statement of Cash Flows 
(₹ in Lakhs) 
 Note 
No. 
March 
20XX 
March 
20YY 
(a) Cash Flow from Operating 
Activities 
 
… 
Loss on sale of Property, Plant and 
Equipment (net) 
- 5.90 ---
… 
Study on Compliance of Financial Reporting Requirements 
144
(c) Cash Flow from Financing 
Activities 
 
Long term borrowings (repaid)/taken 
(net)
 --- ---”
 “Other Expenses 
(₹ in Lakhs)
Particulars March 
20XX 
March 
20YY 
Loss on sale/disposal of Property, Plant and 
Equipment (net) 21.75 ---” 
Principle: Ind AS 7- Statement of Cash Flows 
Paragraph 17 
The separate disclosure of cash flows arising from financing activities is 
important because it is useful in predicting claims on future cash flows by 
providers of capital to the entity. Examples of cash flows arising from 
financing activities are: 
(a) …. 
(b) …. 
(c) cash proceeds from issuing debentures, loans, notes, bonds, 
mortgages and other short-term or long-term borrowings; 
(d) … 
(e) …. 
Paragraph 21 
An entity shall report separately major classes of gross cash receipts 
and gross cash payments arising from investing and financing 
activities, except to the extent that cash flows described in paragraphs 
22 and 24 are reported on a net basis. 
Paragraph 22 
Cash flows arising from the following operating, investing or financing 
activities may be reported on a net basis: 
(a) cash receipts and payments on behalf of customers when the cash 
flows reflect the activities of the customer rather than those of the 
entity; and 
(b) cash receipts and payments for items in which the turnover is quick, the 
amounts are large, and the maturities are short.
Observations related to Statement of Cash Flows
145 
Observation 
It was observed from the Statement of Cash Flows that the amount of loss on 
sale of Property, Plant and Equipment (PPE) adjusted with the profit for the 
year while determining the cash flows from operating activities, did not match 
with the amount of loss disclosed in Note on Other Expenses. It was viewed 
that an explanation should have been provided in the notes explaining the 
reason for such difference. 
It was further noted that the company has presented “Long term borrowings 
(repaid) / taken”, on a net basis, as single line item under the financing 
activities. It was viewed that except for the circumstances mentioned in 
paragraph 22 and 24 of Indian Accounting Standard 7, all the cash inflows 
and outflows from investing and financing activities should be reported on 
gross basis and not on net basis. In other words, cash received from raising 
Long-term borrowings and cash paid in repayment thereof should be 
disclosed on gross basis., Hence, it is appropriate to present cash flows from 
financing activities separately on gross basis. 
Accordingly, it was viewed that the requirements of Indian Accounting 
Standard 7 have not been complied with in the preparation and presentation 
of the Financial Statement. 
3. Disclosure of Cash Flows on Gross Basis 
Matter contained in Financial Statements 
The relevant abstract of the Statement of Cash Flows as given in the Annual 
Report of a company, is as follows: 
“STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31ST MARCH, 
20XX 
Particulars Year ended 
31.03.20XX 
Year ended 
31.03.20YY 
Amount (Rs.) Amount (Rs.) 
2. From Investing Activities 
… 
Decrease/Increase) in Non-Current 
Loans 
 
Decrease / (Increase) in Other 
Study on Compliance of Financial Reporting Requirements 
146
Principle: Ind AS 7: Statement of Cash Flows 
Paragraph 21 
“An enterprise should report separately major classes of gross cash 
receipts and gross cash payments arising from investing and 
financing activities, except to the extent that cash flows described in 
paragraphs 22 and 24 are reported on a net basis.” 
Observation 
It was noted from the Statement of Cash Flows that the company used the 
terminology of ‘Increase / decrease’ under the Investing and Financing 
Activities. It was viewed that the appropriate terminology is ‘Proceeds from/ 
Payment to’’. 
It was further noted that the company has presented “Increase / (Decrease) 
in loans/ financial assets” as single line item under the financing activities. It 
was viewed that cash receipts/payments on behalf of customers and for 
items where the turnover is quick, the amounts are large and maturities are 
short – in these cases only, the company can present the cash flows on net 
basis. Hence, it is appropriate to present cash flows from financing activities 
separately on gross basis. 
Accordingly, it was viewed that the requirement of Indian Accounting 
Standard 7 has not been complied with in preparation and presentation of 
financial statement. 
Financial Assets 
Decrease/Increase) in Other NonCurrent Loans 
 
3. From Financing Activities 
Decrease/(Increase) in Other Equity 
… 
 -“ 
Decrease/Increase) in Other Financial 
Liabilities 
 
Observations related to Statement of Cash Flows
147 
4. Disclosure of Changes in Liabilities arising 
from Financing Activities 
Matter contained in Financial Statements 
One of the Statement of Cash Flows did not contain certain disclosures. 
Principle: Ind AS 7- Statement of Cash Flows 
Paragraph 44A 
“An entity shall provide disclosures that enable users of financial statements 
to evaluate changes in liabilities arising from financing activities, including 
both changes arising from cash flows and non-cash changes.”
Observation 
It was observed from the Statement of Cash Flows that there were proceeds 
from long term borrowings and repayment of long-term borrowing during the 
year, however, the disclosures of changes in liabilities arising from financing 
activities including changes arising from cash flows and non-cash changes 
as required by paragraph 44A of Indian Accounting Standard 7, have not 
been disclosed. 
Accordingly, it was viewed that the requirements of Indian Accounting 
Standard 7 have not been complied with in the preparation and presentation 
of financial statements. 
5. Non-Cash Adjustment
Matter contained in Financial Statements
The relevant abstract of Statement of Cash Flows, Notes on Other Expenses, 
Inventories and Other Income as given in the Annual Report of a company, 
read as follows: 
“Statement of Cash Flows 
Particulars As at March 
31, 20YY 
As at March 
31, 20XX 
Cash flows from operating activities 
Profit for the year --- ---
Adjustments for: 
Study on Compliance of Financial Reporting Requirements 
148
Interest paid recognised in Profit or 
Loss 
--- ---
Depreciation and amortisation of noncurrent assets (continuing and 
discontinued operations)
--- ---
Note: Other Expenses 
Particulars As at March 
31, 20XX 
As at March 
31, 20YY 
Sundry Balance w/off --- ---
… 
Provision of Bad debt as per ECL 
Method 
--- ---
Bad and doubtful Debts ---
Note: Inventories 
Particulars As at 31st
Match, 20XX 
As at 31st
Match, 20YY 
(At lower of cost and net realisable value) 
…… 
Stores and spares 
[include material in transit 31st March, 
20XX Rs. --- (31st March, 20YY Rs. ---)] 
--- ---
 …… 
Write down of inventories to net realizable value relating to stores and spares 
amounted to Rs. XXX (31st March, 20XX Rs. ---)”
Note on Other Income 
Particulars As at March 
31, 20XX 
As at March 
31, 20YY 
(a) Interest Income 
- Bank Deposits --- ---" 
Observations related to Statement of Cash Flows
149 
Principle: Ind AS 7: Statement of Cash Flows 
Paragraph 20 of Ind AS 7 
“Under the indirect method, the net cash flow from operating activities is 
determined by adjusting profit or loss for the effects of: 
a. changes during the period in inventories and operating receivables 
and payables. 
b. non-cash items such as depreciation, provisions, deferred taxes, 
unrealised foreign currency gains and losses, and undistributed profits 
of associates; and 
c. all other items for which the cash effects are investing or financing 
cash flows.”
Observation 
It was noted from the Note on Other Expenses that the company has 
recognised non-cash expenses like the Provision for Bad & Doubtful Debts, 
Bad debts written off and Sundry balances written off in the Statement of 
Profit and loss. It was also noted from Note on Inventory that the company 
has written off stores and spares in the current year which is a non-cash 
transaction. However, it was observed that these non-cash items have not 
been adjusted to Net Profit while determining Cash Flow from Operating 
Activities. 
It was further noted from Note on Other Income that the company has 
recognized interest income from bank deposits in the Statement of Profit and 
Loss. However, such interest income has not been deducted from profit 
before tax while determining Cash Flow from Operating Activities. 
Accordingly, it was viewed that the requirements of Indian Accounting 
Standard 7 have not been complied with in the preparation and presentation 
of the financial statement.
6. Adjustment for Re-measurement of Defined 
Benefit Plan 
Matter contained in Financial Statements 
The relevant abstract of the Statement of Cash Flows and Statement of Profit 
and Loss as given in the Annual Report of a company, reads as follows: 
“Statement of Cash Flows for the year ended 31st March, 20XX 
Study on Compliance of Financial Reporting Requirements 
150
 
Particulars 
For the year 
ended 31st
March, 20XX 
For the year 
ended 31st
March, 20YY 
Cash Flow from Operating 
Activities 
 
Profit after tax --- ---
Adjustments for: 
Re-measurement of defined benefit 
liabilities/ (assets) through OCI 
--- ---
Statement of Profit and Loss for the year ended 31st March, 20XX 
Sr. 
No. 
Particulars For the year 
ended 31st
March, 20XX 
For the year 
ended 31st
March, 20YY 
 Profit for the year --- ---
 Other comprehensive income 
 A) Items that will not be 
reclassified to profit or loss 
 
… --- ---
(a) Remeasurements of defined 
benefit plans 
--- ---
 --- ---
 
Principle: Ind AS 7 – Statement of Cash flows 
Paragraph 20 
“Under the indirect method, the net cash flow from operating activities is 
determined by adjusting profit or loss for the effects of: 
a) changes during the period in inventories and operating receivables and 
payables; 
b) non-cash items such as depreciation, provisions, deferred taxes, 
unrealised foreign currency gains and losses, and undistributed profits 
of associates; and 
c) all other items for which the cash effects are investing or financing cash 
flows.” 
Observations related to Statement of Cash Flows
151 
Observation 
It was noted from the Statement of Profit & Loss that the company has 
recognised the loss on Re-measurement of the defined benefit plans, as a 
part of Other Comprehensive Income (OCI) and the same has been adjusted 
with the Profit for the year while deriving ‘Cash Flow from Operating 
Activities’. It was viewed that while determining the net Cash Flow from 
Operating Activities, profit for the year has been taken, and therefore, the 
adjustment made in OCI should not be adjusted in Profit for the year to 
derive Cash Flow from Operating Activities. 
Accordingly, it was viewed that the requirement of Indian Accounting 
Standard 7 has not been complied with in the preparation and presentation of 
the financial statement. 
7. Finance Cost 
Matter contained in Financial Statements 
The relevant abstract of the Statement of Cash Flows as given in the Annual 
Report of a company reads as follows: 
“Statement of Cash Flows 
(₹ in Lakhs) 
Particulars 31.03.20XX 31.03.20YY 
I. Cash Flow from Operating Activities 
Finance Cost 33.15 60.01
.. 
Cash Generated from / (used in) 
operations 
 
Interest paid (33.15) (60.01)
 
Principle: Ind AS 7 : Statement of Cash Flows 
Paragraph 33
“Interest paid and interest and dividends received are usually classified as 
operating cash flows for a financial institution. However, there is no 
Study on Compliance of Financial Reporting Requirements 
152
consensus on the classification of these cash flows for other entities. Some 
argue that interest paid and interest and dividends received may be 
classified as operating cash flows because they enter into the 
determination of profit or loss. However, it is more appropriate that interest 
paid and interest and dividends received are classified as financing cash 
flows and investing cash flows respectively, because they are costs of 
obtaining financial resources or returns on investments.” 
Observation 
It was noted from the Cash Flow Statement that the company has adjusted 
finance cost while determining the cash flows from operating activities and 
the same has been again deducted under cash flow from operating activities. 
It was viewed that the interest payment should be disclosed under cash flow 
from financing activities as required by paragraph 33 of Indian Accounting 
Standard 7. 
Accordingly, it was viewed that the requirements of Indian Accounting 
Standard 7 have not been complied with in the preparation and presentation 
of financial statement.
8. Adjustment of Income and Expenses
Matter contained in Financial Statements 
The relevant abstract of the Statement of Cash Flows and Note on Other 
Income in the financial statement of a company, reads as follows: 
“Statement of Cash Flows for the Year ended March 31, 20XX 
Year ended 
March 31, 20XX 
Year ended 
March 31, 20YY 
Cash Flow from Operating 
Activities 
 
Profit for the year XXX XXX 
Adjustments for: 
Interest Income recognised in 
profit or loss 
(1.86) (0.44) 
Observations related to Statement of Cash Flows
153 
Note on Other Income 
Principle: Ind AS 7 : Statement of Cash Flows 
Paragraph 20
“Under the indirect method, the net cash flow from operating activities is 
determined by adjusting profit or loss for the effects of: 
… 
 (c) all other items for which the cash effects are investing or financing 
cash flows.” 
Observation 
It was noted from the Note on Other Income that the company has interest 
income in the current year and previous year. However, the amount of 
interest income adjusted with profit before tax, while arriving at cash flow 
from operating activities, does not match with the amount disclosed in the 
note on other income and the company has not provided any explanation for 
mismatch between Statement of Cash Flow and Statement of Profit & Loss. 
Accordingly, it was viewed that the requirement of Indian Accounting 
Standard 7 has not been complied with in the preparation and presentation of 
the financial statement. 
9. Increase in Receivables 
Matter contained in Financial Statements 
An abstract of the Statement of Cash Flows and Note on Cash & Cash 
Equivalents of a company, reads as follows: 
 Year ended 
March, 31, 20XX 
Year ended 
March, 31, 20YY 
(a) Interest Income earned 
- On Financial assets (at 
amortised cost) 
 
Study on Compliance of Financial Reporting Requirements 
154
“Statement of Cash Flows 
Particulars Year ended 
March 31, 20XX 
Year ended 
March 31, 20YY 
Cash Flow from Operating 
Activities 
 
Profit for the year 
Adjustments for: 
… 
Construction contract costs --- ---
Construction Income --- ---
Movement in working capital: 
… 
Cash Flows from Investing 
Activities 
 
Increase in receivable under 
service concession agreement (net) 
(---) (---)
Cash and cash equivalents 
Particulars Year ended 
March 31, 20XX 
Year ended 
March 31, 20YY 
Cash and cash equivalents --- ---
Less- Secured Demand Loans from 
banks (cash credit) shown under 
current borrowings in note 
-- --
Less- Unsecured demand loans 
from banks (bank overdraft) shown 
under current borrowings in note 
-- --
Total --- ---"
 
Observations related to Statement of Cash Flows
155 
Principle: Ind AS 7 – Statement of Cash Flows 
Paragraph 20
“Under the indirect method, the net cash flow from operating activities is 
determined by adjusting profit or loss for the effects of: 
a) changes during the period in inventories and operating receivables and 
payables; 
b) non-cash items such as depreciation, provisions, deferred taxes, 
unrealised foreign currency gains and losses, and undistributed profits 
of associates; and 
c) all other items for which the cash effects are investing or financing cash 
flows” 
Paragraph 14 
Cash flows from operating activities are primarily derived from the principal 
revenue producing activities of the entity. Therefore, they generally result 
from the transactions and other events that enter into the determination of 
profit or loss. Examples of cash flows from operating activities are: 
(a) cash receipts from the sale of goods and the rendering of services; 
(b) … 
(c) cash payments to suppliers for goods and services; 
(d) … 
(e) … 
(f) … 
(g) cash receipts and payments from contracts held for dealing or trading 
purposes. 
Observation 
It was noted from the Statement of Cash Flows that the Company has 
adjusted construction income and construction cost while determining Cash 
Flows from Operating Activities. It was further noted that the equivalent 
amount of construction cost has been presented as an increase in 
receivables under the service concession agreement under the head of Cash 
Flows from Investing Activities. It was viewed that increase in receivables are 
operating receivables for the company in the given case. Hence, it should be 
presented under the head of Cash Flow from Operating Activities rather than 
Study on Compliance of Financial Reporting Requirements 
156
Investing Activities. Further, the company has not provided any explanatory 
note with reasons for presenting under investing activities. 
Accordingly, it was viewed that the requirements of Indian Accounting 
Standard 7 have not been complied with in the preparation and presentation 
of financial statements.
10. Income Tax Paid 
Matter contained in Financial Statements 
The relevant abstract of Note on Current Tax Liabilities as given in the 
Annual Report of a company, reads as follows: 
“Current Tax Liabilities (Net) 
(Rs. in Crores) 
Particulars As at 31st
March,20XX 
As at 31st
March,20YY 
As at 1st
April,20ZZ 
Provision for Tax (net of 
advance tax) 
6.50 10.20--- 10.50---"
 
Principle: Ind AS 7 : Statement of Cash Flows 
Paragraph 35
“Cash flows arising from taxes on income shall be separately 
disclosed and shall be classified as cash flows from operating 
activities unless they can be specifically identified with financing and 
investing activities.” 
Observation 
It was noted that the Company had reported Provision for tax (net of advance 
tax) under Note on Current Tax Liabilities (Net). It was further noted that 
such provision for tax (net of advance tax) has been reduced from previous 
year which indicates that certain advance taxes have been paid during the 
year. However, the company has not disclosed any tax payment in the Cash 
Flow Statement as required by Indian Accounting Standard 7. 
Accordingly, it was viewed that the requirements of Indian Accounting 
Standard 7 have not been complied with in the preparation and presentation 
of financial statements. 
157
Chapter-6 
Observations related to Other 
Disclosure 
1. Approval of Financial Statements 
Matter contained in Financial Statements 
The abstract of ‘Statement of Compliance’ as given in the Annual Report of a 
company, reads as follows: 
“Statement of Compliance 
The financial statements of the company have been prepared in accordance 
with Indian Accounting Standards (Ind AS) as per the Companies (Indian 
Accounting Standards) Rules, 2015 notified under section 133 of the 
Companies Act, 2013, (the ‘Act’) and other relevant provisions of the Act with 
effect from 1st April, 2017.” 
Principle: Ind AS 10: Events after the Reporting Period
Paragraph 17
“An entity shall disclose the date when the financial statements were 
approved for issue and who gave that approval. If the entity’s owners or 
others have the power to amend the financial statements after issue, the 
entity shall disclose that fact.” 
Observation 
It was noted that the company has given statement of compliance that 
financial statements have been prepared in accordance with applicable 
framework. However, it has neither disclosed approving date nor the 
approving authority for issue of financial statements, which is required to be 
disclosed as per paragraph 17 of Ind AS 10. 
Accordingly, it was viewed that the requirements of Ind AS 10 have not been 
complied with in preparation and presentation of the financial statements. 
Study on Compliance of Financial Reporting Requirements 
158
2. Basis of Preparation of Financial Statements 
Matter contained in Financial Statements 
The relevant abstract of Basis of Preparation and Note on Investments as 
given in the Annual Report of a company, reads as follows:
“Note: Significant Accounting Policies 
(a) Basis of Preparation: 
The financial statements have been prepared under the historical cost 
convention on accrual basis except certain financial instruments that are 
measured in terms of relevant Ind AS at amortized cost at the end of each 
reporting period. 
Note: Current Investment 
As at 31st
March, 20XX 
As at 31st 
March, 20YY
As at 31st
March, 20ZZ 
Quoted Investment in Mutual Funds at FVTPL “ 
… 
Principle: Ind AS 1: Presentation of Financial Statements 
Paragraph 112 
“The notes shall: 
(a) present information about the basis of preparation of the financial 
statements and the specific accounting policies used in 
accordance with paragraphs 117–124” 
Observation 
It was noted from the given notes that the company has Investments in 
mutual fund which were measured at Fair value through Profit or Loss. 
However, it was observed that the company has not provided reference of 
‘fair value measurement’ under the basis of preparation. 
Accordingly, it was viewed the requirement of Indian Accounting Standard 1 
have not complied with in the preparation and presentation of the financial 
statements. 
Observations related to Other Disclosure 
159 
3. Basis of Preparation of Financial Statements 
Matter contained in Financial Statements 
The Note on Basis of Preparation and Use of Estimates as given in the 
Annual Report of a company, reads as follows: 
“Note 2: Basis of Preparation 
“The financial statements of the company have been prepared in accordance 
with generally accepted accounting principles in India (Indian GAAP). The 
financial statements have been prepared on an accrual basis and under the 
historical cost convention. Accounting policies not specifically referred to 
otherwise are consistent and in consonance with generally accepted 
accounting principles. In applying the accounting policies considerations 
have been given to prudence, substance over form and materiality.” 
Principle: Ind AS 1: Presentation of Financial Statements 
Paragraph 112 
The noted shall: 
a) present information about the basis of preparation of the financial 
statements and the specific accounting policies used in accordance 
with paragraphs 117–124; 
b) disclose the information required by Ind ASs that is not presented 
elsewhere in the financial statements; and 
c) provide information that is not presented elsewhere in the financial 
statements but is relevant to an understanding of any of them. 
Observation 
It was noted from Basis of Preparation that financial statements have been 
prepared on an accrual basis and under the historical cost convention. 
However, it was observed that there were certain financial assets which were 
measured at fair value, but the exception for these items was not disclosed in 
the Basis of Preparation. 
It was further noted that an incorrect statement was made, indicating that the 
financial statements were prepared using Indian GAAP; however, they were 
actually prepared in accordance with the Ind AS framework. 
Accordingly, it was viewed that the requirements of Ind AS 1 have not been 
complied with in the preparation and presentation of financial statements. 
Study on Compliance of Financial Reporting Requirements 
160
4. First time adoption of Indian Accounting 
Standards 
Matter contained in Financial Statements 
A relevant abstract of Note on Property, Plant and Equipment as given in the 
Annual Report, reads as follows: 
“Property, Plant and Equipment 
Particulars Freehold 
Land 
Building 
owned Total 
Gross Carrying Amount as at April 
01, 20XX --- --- --- 
Accumulated Depreciation as at 
April 01, 20XX -- --- --- 
For Property, Plant and Equipment existing on April 01, 20XX, i.e., its date of 
transition to Ind AS, the company has used India GAAP carrying value as 
deemed costs. 
Principle: Ind AS 101 : First Time Adoption of Accounting Standards 
Paragraphs D5 
“An entity may elect to measure an item of property, plant and equipment at 
the date of transition to Ind ASs at its fair value and use that fair value as its 
deemed cost at that date.” 
Paragraphs D7AA
“Where there is no change in its functional currency on the date of transition to 
Ind ASs, a first-time adopter to Ind ASs may elect to continue with the carrying 
value for all of its property, plant and equipment as recognised in the financial 
statements as at the date of transition to Ind ASs, measured as per the 
previous GAAP and use that as its deemed cost as at the date of transition 
after making necessary adjustments in accordance with paragraph D21 and 
D21A, of this Ind AS” 
Definition of Deemed Cost 
“An amount used as a surrogate for cost or depreciated cost at a given date. 
Subsequent depreciation or amortisation assumes that the entity had initially 
recognised the asset or liability at the given date and that its cost was equal to 
the deemed cost.”
Observations related to Other Disclosure 
161 
Observation 
In was noted from the notes to financial statements that the company has 
exercised the option provided under paragraph D7AA for measuring the 
Property, Plant and Equipment (PPE) at deemed cost i.e. the carrying 
amount (depreciated cost) as per the Previous GAAP as on the date of 
transition. However, the company has presented Gross value of PPE and 
Accumulated depreciation as on the date of transition instead of presenting 
the Net value of PPE i.e. carrying amount (depreciated cost) as required by 
Ind AS 101 as well as educational material on Ind AS 101 published by ICAI. 
Accordingly, it was viewed that the requirements of Ind AS 101 have not 
been complied with in the preparation and presentation of financial 
statements. 
5. First Time adoption of Indian Accounting 
Standards 
Matter contained in Financial Statements 
From the financial statements of previous financial year, it was noted that the 
company has transitioned its basis of accounting from Indian Generally 
Accepted Accounting Principles (“IGAAP”) to Ind AS in the previous financial 
year and has elected to continue with the carrying value of its property, plant 
and equipment as well as its intangible assets as on transition date, 
measured as per the previous GAAP, as the deemed cost. 
Principle: Ind AS 101: First Time adoption of Indian Accounting 
Standards 
Paragraph 27AA 
“If an entity adopts the first-time exemption option provided in accordance 
with paragraph D7AA, the fact and the accounting policy shall be disclosed 
by the entity until such time that those items of Property, plant and 
equipment, investment properties or intangible assets, as the case may be, 
are significantly depreciated, impaired or derecognised from the entity’s 
Balance Sheet.” 
Paragraph D7AA 
“Where there is no change in its functional currency on the date of transition to 
Ind ASs, a first-time adopter to Ind ASs may elect to continue with the carrying 
value for all of its property, plant and equipment as recognised in the financial 
Study on Compliance of Financial Reporting Requirements 
162
statements as at the date of transition to Ind ASs, measured as per the 
previous GAAP and use that as its deemed cost as at the date of transition 
after making necessary adjustments in accordance with paragraph D21 and 
D21A, of this Ind AS. For this purpose, if the financial statements are 
consolidated financial statements, the previous GAAP amount of the 
subsidiary shall be that amount used in preparing and presenting consolidated 
financial statements. Where a subsidiary was not consolidated under previous 
GAAP, the amount required to be reported by the subsidiary as per previous 
GAAP in its individual financial statements shall be the previous GAAP 
amount. If an entity avails the option under this paragraph, no further 
adjustments to the deemed cost of the property, plant and equipment so 
determined in the opening balance sheet shall be made for transition 
adjustments that might arise from the application of other Ind ASs. This option 
can also be availed for intangible assets covered by Ind AS 38, Intangible 
Assets and investment property covered by Ind AS 40, Investment Property.”
Observation 
It was viewed that according to paragraph 27AA, if an entity chooses to 
utilize the first-time exemption option outlined in paragraph D7AA, the entity 
must disclose both the fact of adoption of first-time exemption and the 
accounting policy until the respective items of Property, Plant and Equipment 
(PPE), Investment Properties, or Intangible Assets are significantly 
depreciated, impaired, or derecognized from the entity's balance sheet. 
However, despite the entity having a significant balance of Property, Plant 
and Equipment (PPE) and intangible assets, the disclosure has not been 
provided in the current financial year in line with paragraph 27 AA of Ind AS 
101. 
Accordingly, it was viewed that the requirements of Ind AS 101 have not 
been complied with in preparation and presentation of financial statements. 
6. First Time adoption of Indian Accounting 
Standards 
Matter contained in Financial Statements 
From the disclosures relating to First time adoption of Ind AS, it was noted 
that only the "Reconciliation of Total Comprehensive Income and Equity” 
have been given in the financial statements. 
Observations related to Other Disclosure 
163 
Principle: Ind AS 101 : First Time adoption of Indian Accounting 
Standards 
Explanation of transition to Ind ASs 
Paragraphs 23 
“An entity shall explain how the transition from previous GAAP to Ind ASs 
affected its reported Balance sheet, financial performance and cash flows. 
Paragraphs 25 
“The reconciliations required by paragraph 24(a) and (b) shall give sufficient 
detail to enable users to understand the material adjustments to the Balance 
Sheet and Statement of profit and loss. If an entity presented a Statement of 
cash flows under its previous GAAP, it shall also explain the material 
adjustments to the Statement of cash flows.”
Observation 
It was observed that although reconciliation of Total Comprehensive Income 
and Equity have been given, however, details of material adjustments to the 
Balance Sheet, Statement of Profit & Loss and Statement of Cash Flow have 
not been provided in the notes to financial statements in line with paragraph 
25 of Ind AS 101. 
Accordingly, it was viewed that requirements of Ind AS 101 have not been 
complied with in preparation and presentation of financial statements. 
7. Reclassification of Items in Financial 
Statement 
Matter contained in Financial Statements 
One of the Notes to Accounts given in the financial statements of a company, 
reads as follows: 
“The previous year’s figures have been regrouped, rearranged & reclassified 
wherever considered necessary.” 
Principle: Ind AS 1: Presentation of Financial Statements 
Paragraph 40 
An entity shall present a third balance sheet as at the beginning of the 
preceding period in addition to the minimum comparative financial 
statements required in paragraph 38A if: 
Study on Compliance of Financial Reporting Requirements 
164
(a) it applies an accounting policy retrospectively, makes a retrospective 
restatement of items in its financial statements or reclassifies items 
in its financial statements; 
 and 
(b) the retrospective application, retrospective restatement or the 
reclassification has a material effect on the information in the 
balance sheet at the beginning of the preceding period. 
Paragraph 41
“If an entity changes the presentation or classification of items in its 
financial statements, it shall reclassify comparative amounts unless 
reclassification is impracticable. When an entity reclassifies 
comparative amounts, it shall disclose (including as at the beginning 
of the preceding period): 
(a) the nature of the reclassification. 
(b) the amount of each item or class of items that is reclassified; and 
(c) the reason for the reclassification.” 
Paragraph 42 
“When it is impracticable to reclassify comparative amounts, and entity 
shall disclose: 
(a) the reason for not reclassifying the amounts, and 
(b) the nature of the adjustments that would have been made if the 
amounts had been reclassified.” 
Observation 
It was noted from the given note that the previous year’s figures have been 
reclassified / regrouped. However, the nature of reclassification / regrouping, 
the amount of each item or class of item that is reclassified / regrouped and 
the reasons for the reclassification / regrouping have not been disclosed in 
line with the requirements of paragraph 41 of Ind AS 1. 
It was viewed that if any reclassification was made by the company, as 
stated in the given note, appropriate disclosures should have been made in 
line with paragraph 41 of Ind AS 1. 
Accordingly, it was viewed that the requirements of Ind AS 1 have not been 
complied with in the preparation and presentation of financial statements. 
Observations related to Other Disclosure 
165 
8. Presentation of Financial Statements 
Matter contained in Financial Statements 
An abstract of Other Equity given in the Annual Report of a company, reads 
as follows: 
“Note: Other Equity
Particulars As at 
31.3.20XX 
As at 
31.3.20YY 
…………… --- --- 
Dividend (including dividend distribution 
taxes) (---) (---)” 
Principle: Ind AS 1: Presentation of Financial Statements 
Paragraph 107
“An entity shall present, either in the statement of changes in equity or in the 
notes, the amount of dividends recognized as distribution to owners during the 
period, and related amount of dividends per share.” 
Observation 
It was noted from the Note on Other Equity that the company has deducted 
‘dividend distribution to shareholders’ from the retained earnings. However, 
the dividend per share has not been disclosed as required by paragraph 107 
of Indian Accounting Standard 1. 
Accordingly, it was viewed that the requirements of Indian Accounting 
Standard 1 have not been complied with. 
9. Presentation of Financial Statements 
Matter contained in Financial Statements 
One of the Notes to Accounts of a company, reads as follows: 
“Abstract of note 
“(a) AB Joint Venture (ABJV) had submitted claims for change orders 
aggregating to Rs XXX to X Ltd. The ABJV has invoked arbitration in 
respect of the aforesaid change orders, as the same were not approved 
Study on Compliance of Financial Reporting Requirements 
166
by Outside Expert Committee (OEC). Claims against change orders and 
counter claims by X Ltd aggregating to Rs XXX will be discussed in 
arbitration. 
(b) XY Infrastructure Limited (the company) has given advances aggregating 
to Rs. XXX which are receivable from ABJV. The recovery of this amount 
is dependent upon finalization of arbitration award”. 
Principle: Ind AS 1: Presentation of Financial Statements 
Paragraph 7 
“The following terms are used in this Standard with the meanings 
specified.`
Material 
Information is material if omitting, misstating or obscuring it could 
reasonably be expected to influence decisions that the primary users of 
general-purpose financial statements make on the basis of those financial 
statements, which provide financial information about a specific reporting 
entity.” 
Observation 
It was noted from the given note the company has given advances to AB 
Joint Venture (ABJV). Further, it was noted that ABJV had submitted claims 
for change orders to X Ltd and the ABJV has invoked arbitration in respect of 
the aforesaid change orders, as the same were not approved by Outside 
Expert Committee (OEC). The claims against change orders and counter 
claims by X Ltd will be discussed in arbitration. Further, it was noted that the 
collectability of advances given by the company under review to ABJV, 
depends upon finalization of arbitration award. 
It was viewed that the company has not provided any note to give clarity as 
to what extent these claims are accounted as contract receipts, as 
receivables and ECL made thereon in the books of the Joint Venture, and 
thereby, its impact on financial statements of the company under review. 
Accordingly, the given Note has not been elaborated enough to provide 
complete information. 
Hence, it was viewed that the given information is obscured as the 
information regarding a material item, transaction or other event is disclosed 
in the financial statement, but the language used is vague or unclear. 
Observations related to Other Disclosure 
167 
Accordingly, it is viewed that the requirements of Indian Accounting Standard 
1 have not been complied with preparation and presentation of financial 
statements. 
10. Ind AS issued but not yet effective 
Matter contained in Financial Statements 
In the financial statements pertaining to financial year 2018-19, a Note on 
‘’Recent Accounting Pronouncement’’ describes about New Accounting 
Standard: Ind AS 116. The relevant abstract of the Note is reproduced below: 
“Recent accounting pronouncements 
New Accounting Standard: Ind AS 116- Leases 
On March 30, 2019, the Ministry of Corporate Affairs notified the Companies 
(Indian Accounting Standards) Amendment Rules, 2019 containing Ind AS 
116 – ‘Leases’, related amendments to other Ind AS 116 replaces Ind AS 17 
– Leases and related Interpretation and guidance. The standard set out 
principles for recognition, measurement, presentation and disclosure of 
leases for both parties to a contract i.e., the lessee and the lessor. Ind AS 
116 introduces a single lessee accounting model and requires a lessee to 
recognize assets and liabilities for all leases with a term of more than 12 
months, unless the underlying asset is of low value. Currently, operating 
lease expenses are charged to the statement of profit and loss. The 
Standard also contains enhanced disclosure requirements for lessees. Ind As 
116 substantially carries forward the lessor accounting requirements as per 
Ind AS 17. Ind AS 116 is effective for annual periods beginning on or after 
April 1, 2019.” 
Principle: Ind AS 8 - Accounting Policies, Changes in Accounting 
Estimates and Errors 
Paragraph 30 
“When an entity has not applied a new Ind AS that has been issued but is 
not yet effective, the entity shall disclose: 
(a) this fact; and
(b) (known or reasonably estimable information relevant to assessing the 
possible impact that application of the new Ind AS will have on the 
entity’s financial statements in the period of initial application.”
Study on Compliance of Financial Reporting Requirements 
168
Observation 
It was noted from the given note that the company has disclosed about the 
requirement of the new standard (Ind AS 116) in brief. It was viewed that 
although the fact has been disclosed that Ind AS 116 (Leases) was issued 
but not effective for the reporting period, however, its impact on the financial 
statements have not been disclosed, as required by paragraph 30 of Ind AS 
8. 
Accordingly, it was viewed that the requirements of Ind AS 8 have not been 
complied with preparation and presentation of financial statements. 
11. Ind AS issued but not yet effective 
Matter contained in Financial Statements 
The financial statements of certain companies pertaining to financial year 
2018-19 has not provided any information regarding the new Ind AS that has 
been issued but not effective. 
Principle: Ind AS 8: Accounting Policies, Changes in Accounting 
Estimates and Errors 
Paragraph 30 
“When an entity has not applied a new Ind AS that has been issued but is 
not yet effective, the entity shall disclose: 
(a) this fact; and 
(b) known or reasonably estimable information relevant to assessing the 
possible impact that application of the new Ind AS will have on the 
entity’s financial statements in the period of initial application”.
Observation 
Ind AS 8 requires the entity to disclose the fact and impact of new standards 
that have been issued but not effective for the reporting period. It was noted 
that Ind AS 116 has been issued but was not effective for the reporting 
period, however, this fact and its possible impact has not been disclosed by 
the companies in the notes to accounts, as required by paragraph 30 of Ind 
AS 8. 
Accordingly, it was viewed that the requirements of Ind AS 8 have not been 
complied with in preparation and presentation of the financial statements. 
Observations related to Other Disclosure 
169 
12. Going Concern 
Matter contained in Financial Statements 
The relevant abstracts of Balance Sheet, Statement of Profit & Loss and 
Cash Flow Statement as given in the Annual Report of a company, reads as 
follows: 
“Balance Sheet as at 31 March 20XX
(All amounts are in Indian Rupees, except share data and as stated) 
Particulars Notes As at 
31 March 20XX 
As at 
31 March 20YY 
ASSETS 
…………… --- --- --- 
Total Current Assets --- --- 
 
EQUITY AND 
LIABILITIES 
 
…………… --- --- --- 
Total Equity (---) (---) 
 
Total Current Liabilities --- ---" 
 “Statement of Profit and Loss for the year ended 31 March 20XX
(All amounts are in Indian Rupees, except share data and as stated) 
Particulars Notes As at 
31 March 20XX 
As at 
31 March 20YY 
…………… --- --- ---" 
Profit for the year --- (---) 
Study on Compliance of Financial Reporting Requirements 
170
“Cash Flow Statement for the year ended 31 March 20XX 
(All amounts are in Indian Rupees, except share data and as stated) 
Particulars As at 
31 March 20XX 
As at 
31 March 20YY 
Cash Flow from Operating 
Activities 
 
…………… --- --- 
Cash generated from operations (--) (--)” 
Principle: Ind AS 1 : Presentation of Financial Statements 
Paragraph 25 
“When preparing financial statements, management shall make an 
assessment of an entity’s ability to continue as a going concern. An entity 
shall prepare financial statements on a going concern basis unless 
management either intends to liquidate the entity or to cease trading or has 
no realistic alternative but to do so. When management is aware, in making 
its assessment, of material uncertainties related to events or conditions 
that may cast significant doubt upon the entity’s ability to continue as a 
going concern, the entity shall disclose those uncertainties. When an entity 
does not prepare financial statements on a going concern basis, it shall 
disclose that fact, together with the basis on which it prepared the financial 
statements and the reason why the entity is not regarded as a going 
concern.” 
Paragraph 26 
“In assessing whether the going concern assumption is appropriate, 
management takes into account all available information about the future, 
which is at least, but is not limited to, twelve months from the end of the 
reporting period. The degree of consideration depends on the facts in each 
case. When an entity has a history of profitable operations and ready access 
to financial resources, the entity may reach a conclusion that the going 
concern basis of accounting is appropriate without detailed analysis. In other 
cases, management may need to consider a wide range of factors relating to 
current and expected profitability, debt repayment schedules and potential 
sources of replacement financing before it can satisfy itself that the going 
concern basis is appropriate.”
Observations related to Other Disclosure 
171 
Observation 
It was noted from the Balance Sheet of a company that the negative networth and negative working capital has been reported thereat. Also, the 
company had a history of reported losses in its Statement of Profit and Loss, 
and it did not generate any revenue from its operations. The reason the 
company was able to report a profit during the year was that it had 
recognized significant income as ‘changes in inventories’. Hence, it was 
viewed that the company should disclose the appropriateness & suitability of 
going concern assumption considering all these negative patterns showing 
weak performances and unsound financial position which are casting 
significant doubts on suitability of going concern assumption as required by 
paragraph 25 and 26 of Indian Accounting Standard 1. 
Accordingly, it was viewed that the requirements of Indian Accounting 
Standard 1 have not been complied with in preparation and presentation of 
the financial statements. 
13. Going Concern 
Matter contained in Financial Statements 
The relevant abstract of Director’s Report as given in the Annual Report, 
reads as follows: 
Abstract of Director’s Report 
“IMPACTING ON GOING CONCERN STATUS AND COMPANY’S 
OPERATIONS 
There has been no significant and material orders passed by any regulators 
or courts or tribunals impacting the going concern status and company’s 
operations in future.” 
Note 2.13(ii): Material uncertainty about going concern 
“In preparing financial statements, management has made an assessment of 
Company’s ability to continue as a going concern. Financial statements are 
prepared on a going concern basis. The Management is aware, in making its 
assessment, of material uncertainties related to events or conditions that 
may cast significant doubt upon the Company’s ability to continue as a going 
concern.” 
Study on Compliance of Financial Reporting Requirements 
172
Principle: Ind AS 1: Presentation of Financial Statements 
Paragraph 25 
“When preparing financial statements, management shall make an 
assessment of an entity’s ability to continue as a going concern. An entity shall 
prepare financial statements on a going concern basis unless management 
either intends to liquidate the entity or to cease trading or has no realistic 
alternative but to do so. When management is aware, in making its 
assessment, of material uncertainties related to events or conditions that may 
cast significant doubt upon the entity’s ability to continue as a going concern, 
the entity shall disclose those uncertainties. When an entity does not prepare 
financial statements on a going concern basis, it shall disclose that fact, 
together with the basis on which it prepared the financial statements and the 
reason why the entity is not regarded as a going concern.” 
Observation 
It was noted from the financial statements that there are material 
uncertainties involved around the company’s ability to continue as going 
concern which includes followings factors: 
 Cancellation of Power Purchase Agreement (PPA) 
 No addition in assets for the last two years 
 Interest due but not paid on loans taken from parents is more than 57% 
of principal amount of loan. 
 Non-realization of interest on loans advanced to others; 
 The company has a very minimal net worth compared to its liability; 
However, it was observed that the company has not made any disclosures 
related to going concern assumptions in line with paragraph 25 of Ind AS 1, 
even though uncertainties involved around the viability of power project. 
Accordingly, it was viewed that the requirements of Ind AS 1 have not been 
complied with in preparation and presentation of financial statements. 
14. Rounding off Figures 
Matter contained in Financial Statements 
From the financial statements of certain companies, it was noted that all the 
amounts were presented in terms of ‘Rupees’. The relevant abstracts are 
given below: 
Observations related to Other Disclosure 
173 
Balance Sheet as at March 31,20XX 
Particulars Note No. As at 31.03.20XX 
Amount (Rs) 
As at 31.03.20YY 
Amount (Rs) 
Statement of Profit and Loss for the Year ended on March 31, 20XX 
Particulars Note No. 
Year ended 
31.03.20XX 
Amount (Rs) 
Year ended 
31.03.20YY 
Amount (Rs) 
Cash Flow Statement for the Year Ended March 31, 20XX 
Particulars Year ended 31.03.20XX 
Amount (Rs) 
Year ended 31.03.20YY 
Amount (Rs) 
Principle: Division II, Schedule III to the Companies Act, 2013
Note 5 of General Instructions for Preparation of Financial Statements 
“Depending upon the Total Income of the company, the figures appearing 
in the Financial Statements shall be rounded off as below: 
Total Income Rounding Off 
i. less than one hundred 
crore rupees 
To the nearest hundreds, thousands, 
lakhs or millions, or decimals thereof. 
ii. one hundred crore 
rupees or more 
To the nearest, lakhs millions or crores, or 
decimals thereof. 
Observation 
It was viewed that as per the requirement of Schedule III, the amounts shown 
in the financial statements should be rounded off to nearest lakhs, millions or 
crores or decimal thereof based on the total income criteria. 
Accordingly, it was viewed that requirements of Division II – Ind AS Schedule 
III to Companies Act, 2013 have not been appropriately complied with in the 
preparation and presentation of financial statements. 
Study on Compliance of Financial Reporting Requirements 
174
15. Comparative Amounts 
Matter contained in Financial Statements 
From the Financial Statements of certain companies, it was noted that the 
company has not provided the comparatives for immediately preceding 
reporting year for the items of Property, Plant & Equipment. 
Principle: Division II, Schedule III to the Companies Act, 2013 and Ind 
AS 1: Presentation of Financial Statements 
Note 6 of General Instructions for Preparation of Financial Statement 
“Financial Statements shall contain the corresponding amounts 
(comparatives) for the immediately preceding reporting period for all items 
shown in the Financial Statements including Notes except in the case of 
first Financial Statements laid before the company after incorporation.” 
Paragraph 38 of Ind AS 1 
“Except when Ind ASs permit or require otherwise, an entity shall present 
comparative information in respect of the preceding period for all amounts 
reported in the current period’s financial statements. An entity shall include 
comparative information for narrative and descriptive information if it is 
relevant to understanding the current period’s financial statements” 
Paragraph 38A of Ind AS 1 
“An entity shall present, as a minimum, two balance sheets, two statements of 
profit and loss, two statements of cash flows and two statements of changes in 
equity, and related notes.” 
Observation 
It may be noted that Paragraph 6 of General instructions for preparation of 
Financial Statements stipulated in Division II – Ind AS Schedule III of the 
Companies Act, 2013, mandates to provide the comparatives for the 
preceding reporting period. Likewise, the provisions of Ind AS 1 outline the 
minimum requirement to present the comparative information in the financial 
statement. 
Accordingly, it was viewed that non-disclosure of comparative amounts is the 
non-compliance of Division II – Ind AS Schedule III to the Companies Act, 
2013 as well as Ind AS 1. 
Observations related to Other Disclosure 
175 
16. Non-Disclosure of Accounting Policy 
Matter contained in Financial Statements 
The relevant abstract of Note on Other Expenses as given in the Annual 
Report of a company, reads as follows: 
“Other Expenses 
Particulars Year Ended 
March 31, 
20XX 
Year Ended 
March 31, 
20YY 
…………… --- --- 
Impairment of investments in 
subsidiaries 
--- --- 
Diminution in value of receivables --- ---" 
Principle: Ind AS 1: Presentation of Financial Statements 
Paragraph 117 
“An entity shall disclose its significant accounting policies 
comprising: 
(a) the measurement basis (or bases) used in preparing the financial 
statements; and 
(b) the other accounting policies used that are relevant to an 
understanding of the financial statements.” 
Observation 
It was noted that the company had recorded expenses in the current year on 
account of ‘Impairment of Investment in Subsidiaries’ and ‘Diminution in 
Value of Receivables’. However, it was observed that the company has not 
disclosed the accounting policy for impairing the investments in subsidiaries 
and trade receivables I.e. impairment of financial assets. 
Accordingly, it was viewed that the requirements of Indian Accounting 
Standard 1 have not been complied with in preparation and presentation of 
the financial statements. 
Study on Compliance of Financial Reporting Requirements 
176
17. Non-Disclosure of Accounting Policy 
Matter contained in Financial Statements 
The relevant abstract of Note on Revenue from Operations as given in the 
Annual Report of a company, reads as follows: 
 “REVENUE FROM OPERATIONS 
Particulars Year ended March 
31, 20XX 
Year ended March 
31, 20YY 
…. 
Rendering of Services 
….. 
EPC Work --- ---" 
Principle: Ind AS 1: Presentation of Financial Statements 
Paragraph 117
“An entity shall disclose its significant accounting policies 
comprising: 
(a) the measurement basis (or bases) used in preparing the financial 
statements; and 
(b) the other accounting policies used that are relevant to an 
understanding of the financial statements.” 
Observation 
It was noted from the Note on Revenue that company has earned significant 
amount of revenue from EPC work. It was further noted that the accounting 
policy on revenue from various streams has been disclosed in the financial 
statements. However, its revenue recognition policy on ‘EPC work services’ 
have not been disclosed despite of its material amount of revenue. 
Accordingly, it was viewed that the requirements of Indian Accounting 
Standard 1 have not been complied with in preparation and presentation of 
the financial statements. 
Observations related to Other Disclosure 
177 
18. Non-Disclosure of Accounting Policy 
Matter contained in Financial Statements 
The relevant abstract of Notes on Deferred Tax, Other Income, Employee 
Benefits, Finance Costs, Administration and Other Expenses as given in the 
Annual Report of certain companies, reads as follows: 
“Deferred Tax 
Particulars For the year ended 
31.03.20XX 
For the year ended 
31.03.20YY 
… 
Deferred tax 
… 
MAT Entitlement 
 (Current year) 
MAT Entitlement 
(Earlier Periods) 
… 
… 
--- 
… 
… 
--- 
NOTE- 14: OTHER INCOME 
(Amount in ₹) 
As at 
31st March, 20XX 
As at 
31st March, 20YY 
Dividend Received XXX XXX 
 
NOTE- 15: EMPLOYEE BENEFITS EXPENSES 
(Amount in ₹) 
As at 
31st March, 20XX 
As at 
31st March, 20YY 
Salaries, Wages & Bonus XXX XXX 
Note: Finance Cost 
Particulars Year ended 
March 31, 20XX 
Year ended 
March 31, 20YY 
(a) Interest XXX YYY
Add: Exchange fluctuation XXX YYY
Study on Compliance of Financial Reporting Requirements 
178
considered as interest cost 
Less: Transferred to capital 
account 
(XXX) (YYY)
XXX YYY
(b) Discounting charges XXX YYY
Total XXX YYY
Note: Administrative & Other Expenses 
Particulars Year Ended 
31.03.20XX
Year Ended 
31.03.20YY
Rent & Lease --- ---
… 
Principle: Ind AS 1: Presentation of Financial Statements 
Paragraph 117 
“An entity shall disclose its significant accounting policies 
comprising: 
(a) the measurement basis (or bases) used in preparing the financial 
statements; and 
(b) the other accounting policies used that are relevant to an 
understanding of the financial statements 
Observation 
While reviewing financial statements of certain companies, it was noted that 
the following accounting policies have not been provided: 
(i) It was noted from the Note on Deferred Tax that MAT entitlement has 
been disclosed thereat for both the current year and previous year. 
However, the accounting policy on Minimum Alternate tax (MAT) has 
not been disclosed under the significant accounting policies. 
(ii) The accounting policy on dividend income as well as employee benefits 
has not been disclosed, despite the significant amounts of dividend 
income and employee benefits expenses recognised in the Statement 
of Profit and Loss. 
Observations related to Other Disclosure 
179 
(iii) It was noted from the Note on Finance Costs that there are interest 
expenses. However, the accounting on Borrowing Cost has not been 
disclosed. 
(iv) It was also noted from the Note on Administrative and Other Expenses 
that rental and lease expenses have been recognised during the year, 
which indicates that certain assets were taken on leases. However, the 
accounting policy on leases has not been given. 
(v) In addition to the above, the accounting policies regarding the Initial 
and subsequent measurement of financial assets, contingent assets & 
liabilities and the operating cycle have not been provided. 
Accordingly, it was viewed that the requirement of Ind AS 1 has not been 
complied with in preparation and presentation of the financial statements. 
19. Statement of Changes in Equity 
Matter contained in Financial Statements 
The relevant abstract of Equity and Other Equity as given in the Annual 
Report of a company, reads as follows: 
“Note: Equity 
As at 
31/03/20XX 
As at 
31/03/20YY 
AUTHORISED SHARE CAPITAL: 
XX Equity Shares of Rs. 10/- each --- ---
ISSUED, SUBSCRIBED & PAID UP 
CAPITAL:
 
XXX Equity Shares of Rs. 10 each fully 
Paid up (P.Y XX) 
--- ---
Note: Other Equity 
As at 
31/03/20XX 
As at 
31/03/20YY 
Security Premium Reserve --- ---
As Per Last Balance Sheet - -
Study on Compliance of Financial Reporting Requirements 
180
Add: on issue of shares --- ---
 
General Reserve 
As Per last Balance --- ---
Add: Transferred from Statement of Profit 
& Loss 
- -
 --- ---
Statement of Profit & Loss 
As Per last Balance Sheet (---) (--)
Add: During the year profit/(Loss) (---) (--)
 (---) (---)
Principle: The Companies Act, 2013 and Ind AS 1: Presentation of 
Financial Statements 
Section – 2 (40) of the Companies Act, 2013 
“Financial statement” in relation to a company, includes— 
i) a balance sheet as at the end of the financial year; 
ii) a profit and loss account, or in the case of a company carrying on 
any activity not for profit, an income and expenditure account for the 
financial year; 
iii) cash flow statement for the financial year; 
iv) a statement of changes in equity, if applicable; and 
v) any explanatory note annexed to, or forming part of, any document 
referred to in sub-clause (i) to sub-clause (iv): 
Provided that the financial statement, with respect to One Person 
Company, small company and dormant company, may not include the 
cash flow statement. 
Paragraph 10 of Ind AS 1 
“A complete set of financial statements comprises: 
(a) a balance sheet as at the end of the period 
Observations related to Other Disclosure 
181 
(b) a statement of profit and loss for the period; 
(c) Statement of changes in equity for the period; 
(d) a statement of cash flows for the period; 
(e) …….. 
(ea) …….. 
(f) ………” 
Observation 
It was noted from the Note on Equity and Other Equity that the company has 
prepared financial statements as per Ind AS and presented the Balance 
Sheet, Statement of Profit and Loss, Statement of Cash Flows and Notes to 
Accounts. However, it was observed that the company has not presented the 
Statement of Changes in Equity in the financial statements. 
It was viewed that statement of changes in equity is also an integral part of 
financial statement and should be prepared and presented along with 
Balance Sheet, Statement of Profit and Loss and Statement of Cash Flows in 
format that is prescribed in Division II of Schedule III to the Companies Act, 
2013. 
Accordingly, it was viewed that the requirement of Ind AS 1 and the 
Companies Act, 2013 has not been complied with in preparation and 
presentation of financial statements. 
20. Revenue 
Matter contained in Financial Statements 
The abstract of Disclosure pursuant to Ind AS 115 and Accounting Policy of 
Revenue Recognition, , reads as follows: 
“Reconciliation of Revenue Recognised with Contract Price in 
accordance with Para 126AA: 
… 
Accounting Policy on Revenue Recognition 
Contract assets in the nature of unbilled revenues are initially recognised for 
revenue earned from Infrastructure development and mining operations as 
receipt of consideration is conditional on successful completion of 
performance obligation. Upon fulfilment of performance obligation and 
Study on Compliance of Financial Reporting Requirements 
182
acceptance by the customer, the amounts recognised as unbilled revenues 
are reclassified to Trade Receivables.” 
Principle: Ind AS 115: Revenue from Contracts with Customers 
Paragraph 114 
An entity shall disaggregate revenue recognised from contracts with 
customers into categories that depict how the nature, amount, timing and 
uncertainty of revenue and cash flows are affected by economic factors. An 
entity shall apply the guidance in paragraphs B87–B89 when selecting the 
categories to use to disaggregate revenue. 
Paragraph 115 
In addition, an entity shall disclose sufficient information to enable users of 
financial statements to understand the relationship between the disclosure 
of disaggregated revenue (in accordance with paragraph 114) and revenue 
information that is disclosed for each reportable segment, if the entity 
applies Ind AS 108, Operating Segments. 
Paragraph 116 
Contract balances 
An entity shall disclose all of the following: 
(a) the opening and closing balances of receivables, contract assets and 
contract liabilities from contracts with customers, if not otherwise 
separately presented or disclosed; 
(b) revenue recognised in the reporting period that was included in the 
contract liability balance at the beginning of the period; and 
(c) revenue recognised in the reporting period from performance obligations 
satisfied (or partially satisfied) in previous periods (for example, changes 
in transaction price).
Observation 
It was noted from the notes to financial statements that the company has 
provided the reconciliation of Revenue Recognised with Contract Price as 
required by Paragraph 126AA of Ind AS 115. Further, the accounting policy 
relating to contract assets has been disclosed under the policy on Revenue 
Recognition. However, it was observed that the following disclosures have 
not been provided in the notes to financial statements: 
Observations related to Other Disclosure 
183 
a. Information pertaining to disaggregate revenue recognized from contract 
with customers, including details pertaining to nature, amount, timing 
and uncertainty of revenue as required by paragraphs 114 and 115 of 
Ind AS 115. 
b. Details pertaining to contract balances as required by paragraph 116 of 
Ind AS 115. 
Accordingly, it was viewed that the requirements of Ind AS 115 have not 
been appropriately complied with in the preparation and presentation of 
financial statements. 
21. Contract Assets 
Matter contained in Financial Statements 
The relevant abstract of the Note on Contract Balances given in the Annual 
Report of a Company, reads as follows: 
Contract balances 
Year ended 
March 31, 20XX 
Year ended 
March 31, 20YY 
Trade receivables -- -- 
Unbilled work in progress 
(contract assets) 
-- -- 
Principle: Ind AS 115: Revenue from Contracts with Customers 
Paragraph 118 
“An entity shall provide an explanation of the significant changes in the 
contract asset and the contract liability balances during the reporting 
period. The explanation shall include qualitative and quantitative 
information. Examples of changes in the entity’s balances of contract 
assets and contract liabilities include any of the following: 
a. changes due to business combinations; 
b. cumulative catch-up adjustments to revenue that affect the 
corresponding contract asset or contract liability, including 
adjustments arising from a change in the measure of progress, a 
change in an estimate of the transaction price (including any changes 
Study on Compliance of Financial Reporting Requirements 
184
in the assessment of whether an estimate of variable consideration is 
constrained) or a contract modification; 
c. impairment of a contract asset; 
d. a change in the time frame for a right to consideration to become 
unconditional (i.e. for a contract asset to be reclassified to a 
receivable); and 
e. a change in the time frame for a performance obligation to be 
satisfied (i.e., for the recognition of revenue arising from a contract 
liability).”
Observation 
It was noted from the Note on Contract Balances that the company had 
contract assets in form of unbilled revenue (WIP). It was also noted that 
there was a significant change in the balance of contract assets compared to 
previous year. However, the company has not provided the required 
disclosures or explanations regarding these significant changes in contract 
asset balances during the reporting period, including both qualitative and 
quantitative information as stipulated by Ind AS 115. 
Accordingly, it was viewed that the requirements of Ind AS 115 have not 
been appropriately complied with in the preparation and presentation of 
financial statements. 
22. Employee Benefits 
Matter contained in Financial Statements 
The relevant abstract from the Note on Employee Benefits Expense given in 
the Annual Report of a company, reads as below: 
Employee Benefits Expense 
 Year ended 
31 March 20XX 
Year ended 
31 March 20YY 
Salaries and wages -- --
Gratuity and Leave 
Encashment 
-- -
Contribution to Provident Fund -- -
-- --”
Observations related to Other Disclosure 
185 
Principle: Ind AS 19: Employee Benefits 
Paragraph 135 
“An entity shall disclose information that: 
(a) explains the characteristics of its defined benefit plans and risks 
associated with them (see paragraph 139); 
(b) identifies and explains the amounts in its financial statements arising 
from its defined benefit plans (see paragraphs 140–144); and 
(c) describes how its defined benefit plans may affect the amount, timing, 
and uncertainty of the entity’s future cash flows (see paragraphs 145–
147).” 
Observation 
It was noted from the stated note that the company has provided for gratuity, 
leave encashment and contribution to provident fund. However, the company 
has neither disclosed the accounting policy nor provided any disclosure 
related to these Post-employment Benefit Plans and Other Long-term 
employee Benefits in the financial statements, as required by Indian 
Accounting Standard 19. 
Accordingly, it was viewed that the requirements of Indian Accounting 
Standard 19 have not been complied with in the preparation and presentation 
of financial statements. 
23. Fair Value Measurement 
Matter contained in Financial Statements 
An abstract of Note on Fair value measurement as given in the Annual 
Report of a company, reads as below: 
“Fair value measurement 
Fair Value Hierarchy 
… 
The following table presents the fair value hierarchy of assets and liabilities 
measured at fair value on a recurring basis: 
Study on Compliance of Financial Reporting Requirements 
186
Particulars Fair Value 
Hierarchy 
(level) 
Fair Value as at 
A. Financial Assets 31.03.20
XX 
31.03.20
YY 
31.03.20
ZZ 
a) Measured at fair value through Profit or Loss 
 … … … … … 
b) Measured at Fair value through Other Comprehensive Income 
i. Investment in 
Equity Shares Level 1 & 3 -- -- -- 
There has not been any transfer amongst Level 1, Level 2 and Level 3. The 
sensitivity of valuation of financial assets considered as Level 2 and 
Level 3 is not material. 
(Emphasis supplied)” 
Principle: Ind AS 113: Fair Value Measurement 
Paragraph 93 
 “To meet the objectives in paragraph 91, an entity shall disclose, at a 
minimum, the following information for each class of assets and liabilities 
(see paragraph 94 for information on determining appropriate classes of 
assets and liabilities) measured at fair value (including measurements 
based on fair value within the scope of this Ind AS) in the balance sheet 
after initial recognition: 
… 
(h) for recurring fair value measurements categorised within Level 3 of 
the fair value hierarchy: 
(i) for all such measurements, a narrative description of the 
sensitivity of the fair value measurement to changes in 
unobservable inputs if a change in those inputs to a different 
amount might result in a significantly higher or lower fair value 
measurement. If there are interrelationships between those inputs 
and other unobservable inputs used in the fair value 
measurement, an entity shall also provide a description of those 
interrelationships and of how they might magnify or mitigate the 
Observations related to Other Disclosure 
187 
effect of changes in the unobservable inputs on the fair value 
measurement. To comply with that disclosure requirement, the 
narrative description of the sensitivity to changes in unobservable 
inputs shall include, at a minimum, the unobservable inputs 
disclosed when complying with 93(d). 
(ii) for financial assets and financial liabilities, if changing one or 
more of the unobservable inputs to reflect reasonably possible 
alternative assumptions would change fair value significantly, an 
entity shall state that fact and disclose the effect of those 
changes. The entity shall disclose how the effect of a change to 
reflect a reasonably possible alternative assumption was 
calculated. For that purpose, significance shall be judged with 
respect to profit or loss, and total assets or total liabilities, or, 
when changes in fair value are recognised in other 
comprehensive income, total equity. “ 
Paragraph 94 
“An entity shall determine appropriate classes of assets and liabilities on 
the basis of the following: 
(a) the nature, characteristics and risks of the asset or liability; and 
(b) the level of the fair value hierarchy within which the fair value 
measurement is categorised. 
The number of classes may need to be greater for fair value 
measurements categorised within Level 3 of the fair value hierarchy 
because those measurements have a greater degree of uncertainty and 
subjectivity. Determining appropriate classes of assets and liabilities for 
which disclosures about fair value measurements should be provided 
requires judgement. A class of assets and liabilities will often require 
greater disaggregation than the line items presented in the balance sheet. 
However, an entity shall provide information sufficient to permit 
reconciliation to the line items presented in the balance sheet. If another 
Ind AS specifies the class for an asset or a liability, an entity may use that 
class in providing the disclosures required in this Ind AS if that class 
meets the requirements in this paragraph.” 
Observation 
It was noted from the given notes to accounts that the levels of the fair value 
hierarchy within which fair value measurement is categorized for each class 
Study on Compliance of Financial Reporting Requirements 
188
of assets and liabilities have not been disclosed. It is not in line with the 
requirements of paragraph 94 of Ind AS 113. Further, it was noted that the 
company has measured the investment in equity instruments at fair value 
using market rate i.e., observable inputs, hence, it should be classified as 
Level 1 instrument, as required by Indian Accounting Standard 113. 
However, the company has clubbed Level 1 instruments with Level 3 
instruments. 
It was, further, noted that the company has disclosed the sensitivity impact 
as immaterial with respect to Level 3 instruments. It was viewed that the 
unobservable inputs have been used to calculate the discounted cash flow 
model for the purpose of their valuation, therefore, reporting of sensitivity 
analysis becomes crucial for the better understanding of the readers of the 
financial statements. Hence, the company should comprehend this, and 
various unobservable inputs used as well as variation levels used should 
have been disclosed. 
Accordingly, it was viewed that the requirements of Indian Accounting 
Standard 113 have not been complied with in the preparation and 
presentation of financial statements. 
24. Fair Value Measurement 
Matter contained in Financial Statements 
One of the Notes to Accounts regarding the Fair value of Financial Assets 
and Liabilities given in the Annual Report of a company, reads as below: 
“Note: Fair Value of Financial Assets and Liabilities: 
Fair Value hierarchy 
The following table provides the fair value measurement hierarchy of 
Company’s asset and liabilities grouped into Level 1 to Level 3 as 
described below: 
Level 1 
….. 
Level 2 
….. 
Level 3 
…… 
Observations related to Other Disclosure 
189 
Fair Value calculation by category is summarized below: 
Particulars Level Carrying value/fair value 
As at 31st
March, 
20XX
As at 31st
March, 
20YY
As at 1st
April, 
20ZZ 
Financial AssetsAt amortized cost
 
Investment 1&2 --- --- ---
Trade Receivables 2 --- --- ---
Loans 2 --- --- ---
Other Financial Asset 2 --- --- ---
Financial LiabilitiesAt amortized cost 
 
Borrowings 2 --- --- ---
Trade Payable 2 --- --- ---
Other Financial Liabilities 2 --- --- ---”
Principle: Ind AS 113: Fair Value Measurement 
Paragraph 91 
“An entity shall disclose information that helps users of its financial 
statements assess both of the following: 
(a) for assets and liabilities that are measured at fair value on a 
recurring or non-recurring basis in the balance sheet after initial 
recognition, the valuation techniques and inputs used to develop 
those measurements, 
(b) for recurring fair value measurements using significant 
unobservable inputs (Level 3), the effect of the measurements on 
profit or loss or other comprehensive income for the period.” 
Study on Compliance of Financial Reporting Requirements 
190
Observation 
It was noted from the financial statements that all the financial assets and 
financial liabilities have been measured at amortised cost, except 
investments in mutual funds. Further, it was noted that fair value hierarchy 
has been disclosed for all these financial assets and financial liabilities. It 
was viewed that the valuation techniques and inputs used to develop those 
measurements are required to be disclosed for assets and liabilities that are 
measured at fair value as per Indian Accounting Standard 113. Accordingly, 
it was viewed that disclosure of valuation techniques as well as the fair value 
hierarchy are not relevant for financial assets and financial liabilities 
measured at amortised cost. 
Accordingly, it was viewed that the requirements of Indian Accounting 
Standard 113 have not been complied with in the preparation and 
presentation of financial statements. 
25. Fair Value Measurement 
Matter contained in Financial Statements 
The accounting policy on Financial Instruments as given in the Annual 
Report of a company, reads as below: 
 “Financial instruments 
… 
In addition, for financial reporting purposes, fair value measurements are 
categorized into Level 1, 2 or 3 based on the degree to which the inputs to 
the fair value measurements are observable and the significance of the 
inputs to the fair value measurement in its entirety, which are described as 
follows: 
 Level 1 inputs are quoted prices (unadjusted) in active markets for 
identical assets or liabilities that the entity can access at the 
measurement date. 
 Level 2 inputs are inputs, other than quoted prices included within Level 
1, that are observable for the asset or liability, either directly or indirectly; 
and 
 Level 3 inputs for asset or liability that are not based on observable 
market data (unobservable inputs). 
Observations related to Other Disclosure 
191 
When measuring the fair value of an asset or a liability, the Company uses 
observable market data as far as possible. If the inputs used to measure the 
fair value of an asset or a liability fall into different levels of the fair value 
hierarchy, then the fair value measurement is categorized in its entirety in the 
same level of the fair value hierarchy as the lowest level input that is 
significant to the entire measurement.” 
Principle: Ind AS 113: Fair Value Measurement 
Paragraph 91 
“An entity shall disclose information that helps users of its financial 
statements assess both of the following: 
(a) for assets and liabilities that are measured at fair value on a 
recurring or non-recurring basis in the balance sheet after initial 
recognition, the valuation techniques and inputs used to develop 
those measurements. 
(b) for recurring fair value measurements using significant 
unobservable inputs (Level 3), the effect of the measurements on 
profit or loss or other comprehensive income for the period.” 
Paragraph 93 
“To meet the objectives in paragraph 91, an entity shall disclose, at a 
minimum, the following information for each class of assets and liabilities 
(see paragraph 94 for information on determining appropriate classes of 
assets and liabilities) measured at fair value (including measurements 
based on fair value within the scope of this Ind AS) in the balance sheet 
after initial recognition: 
…. 
Observation 
It was noted from the accounting policy on the financial instruments that the 
basis of categorization of fair value measurements into Level 1, 2 and 3 has 
been disclosed thereat. However, no disclosure has been provided regarding 
fair value hierarchy of various assets and liabilities as well as other 
disclosures required by paragraph 91 and 93 of Indian Accounting Standard 
113. 
Accordingly, it was viewed that the requirements of Indian Accounting 
Standard 113 have not been complied with in preparation and presentation of 
the financial statements. 
Study on Compliance of Financial Reporting Requirements 
192
26. Financial Instruments 
Matter contained in Financial Statements 
The financial statements indicate that the company holds financial assets 
including investments, loans, and trade receivables as well as financial 
liabilities such as borrowings and trade payables. 
Principle: Ind AS 107: Financial Instruments - Disclosures 
Paragraph 8 
“The carrying amounts of each of the following categories, as specified in 
Indian Accounting Standard 109, shall be disclosed either in the balance 
sheet or in the notes: 
(a) financial assets measured at fair value through profit or loss, showing 
separately (i) those designated as such upon initial recognition or 
subsequently in accordance with paragraph 6.7.1 of Indian Accounting 
Standard 109 and (ii) those mandatorily measured at fair value 
through profit or loss in accordance with Indian Accounting Standard 
109. 
(b) [Refer Appendix 1] (d) 
(e) financial liabilities at fair value through profit or loss, showing 
separately (i) those designated as such upon initial recognition or 
subsequently in accordance with paragraph 6.7.1 of Indian Accounting 
Standard 109 and (ii) those that meet the definition of held for trading 
in Indian Accounting Standard 109. 
(f) financial assets measured at amortised cost. 
(g) financial liabilities measured at amortised cost.”
Observation 
It was noted from Balance Sheet that the company had financial assets in 
form of investments, trade receivables, cash & cash equivalents and financial 
liabilities in the form of borrowings and trade payables. However, the 
measurement method used i.e., whether these are recognized at Fair value 
through Profit and Loss, amortized cost or Fair value through OCI has not 
been disclosed anywhere in the Notes to Accounts, as required by paragraph 
8 of Ind AS 107. 
Accordingly, it was viewed that requirements of Ind AS 107 have not been 
complied with in preparation and presentation of financial statements. 
Observations related to Other Disclosure 
193 
27. Financial Instruments 
Matter contained in Financial Statements 
The relevant abstract of the Balance Sheet of a company, reads as below: 
Balance Sheet 
Particulars Note 
No
31.03.20XX 31.03.20YY
Financial Assets -- --- --- 
…. 
Financial Liabilities 
Borrowings -- - -
Provisions -- --- ---
… --- --- ---"
Principle: Ind AS 107– Financial Instruments: Disclosures and Ind AS 
113: Fair Value Measurement 
Paragraph 31 of Ind AS 107 
“An entity shall disclose information that enables users of its financial 
statements to evaluate the nature and extent of risks arising from financial 
instruments to which the entity is exposed at the end of the reporting 
period.”
Paragraph 32 of Ind AS 107 
“The disclosures required by paragraphs 33–42 focus on the risks that 
arise from financial instruments and how they have been managed. These 
risks typically include, but are not limited to, credit risk, liquidity risk and 
market risk”. 
Paragraph 91 of Ind AS 113 
“An entity shall disclose information that helps users of its financial 
statements assess both of the following: 
(a) for assets and liabilities that are measured at fair value on a recurring 
or non-recurring basis in the balance sheet after initial recognition, the 
valuation techniques and inputs used to develop those measurements. 
(b) for recurring fair value measurements using significant unobservable 
Study on Compliance of Financial Reporting Requirements 
194
inputs (Level 3), the effect of the measurements on profit or loss or 
other comprehensive income for the period. 
Paragraph 93 of Ind AS 113 
“To meet the objectives in paragraph 91, an entity shall disclose, at a 
minimum, the following information for each class of assets and liabilities 
(see paragraph 94 for information on determining appropriate classes of 
assets and liabilities) measured at fair value (including measurements 
based on fair value within the scope of this Indian Accounting Standard) in 
the balance sheet after initial recognition 
… 
(a) for recurring and non-recurring fair value measurements, the level of 
the fair value hierarchy within which the fair value measurements are 
categorised in their entirety (Level 1, 2 or 3).” 
Observation 
It was noted from the Balance Sheet that although the company has financial 
assets and financial liabilities, however, the information regarding nature and 
risk arising from financial instruments has not been disclosed in line with 
paragraph 31 and 32 of Indian Accounting Standard 107. 
It was further noted from the notes to financial statements that the company 
has not provided the classification and fair values of various assets and 
liabilities, which includes trade receivables, loans, borrowings, trade 
payables and other financial liabilities etc., on the bases of their 
categorization into level 1, level 2 and level 3. It was viewed that the 
categorization of financial assets / financial liabilities into level 1, level 2 and 
level 3 are required by Indian Accounting Standard 113. 
Accordingly, it was viewed that the requirements of Indian Accounting 
Standard 107 and Indian Accounting Standard 113 have not been complied 
with in preparation and presentation of the financial statements. 
28. Financial Instruments 
Matter contained in Financial Statements 
An abstract of Balance Sheet of a company, reads as below: 
Standalone Balance Sheet as at 31st March 20XX 
(All amounts are in Lakhs of Indian Rupees, unless otherwise stated) 
Observations related to Other Disclosure 
195 
Note 
no. 
As at 31st
March 20XX 
As at 31st
March 20YY 
ASSETS 
1. Non-current assets 
(a) … 
… 
(d) Financial assets 
-Investments XXX XXX
-Loans & Advances XXX XXX
-Other Financial Assets XXX XXX
… 
2. Current Assets 
(a) Financial Assets 
-Trade Receivables XXX XXX
-Lease Receivables - XXX
-Cash and cash equivalents XXX XXX
-Loans XXX XXX
… 
EQUITY AND LIABILITIES 
… 
2. Non-current liabilities 
Financial liabilities 
-Borrowings XXX XXX
…. 
3. Current liabilities 
Financial liabilities 
-Trade Payables XXX XXX
Study on Compliance of Financial Reporting Requirements 
196
Principle: Ind AS 107: Financial Instruments - Disclosures 
Paragraph 31 
“An entity shall disclose information that enables users of its financial 
statements to evaluate the nature and extent of risks arising from 
financial instruments to which the entity is exposed at the end of the 
reporting period.” 
Paragraph 32 
“The disclosure required by paragraphs 33 – 42 focus on the risks that 
arise from financial instruments and how they have been managed. These 
risks typically include, but are not limited to, credit risk, liquidity, and 
market risk.” 
Observation 
It was noted from the financial statement that the Company has disclosed 
various financial assets viz., Investments, Loans and Advances (current and 
non-current), trade receivables and financial liabilities such as borrowings, 
deposits and trade payables. However, it has not provided the qualitative and 
quantitative disclosures regarding the risks arising from financial instruments 
as required by Indian Accounting Standard 107. 
Accordingly, it was viewed that the requirements of Indian Accounting 
Standard 107 have not been complied with in preparation and presentation of 
the financial statements. 
29. Financial Instruments 
Matter contained in Financial Statements 
Non-Disclosures of certain information in notes to financial statements. 
Principle: Ind AS 107: Financial Instruments- Disclosures and Ind AS 
113: Fair Value Measurement 
Paragraph 31 of Ind AS 107 
“An entity shall disclose information that enables users of its financial 
statements to evaluate the nature and extent of risks arising from financial 
instruments to which the entity is exposed at the end of the reporting 
period.” 
Observations related to Other Disclosure 
197 
Paragraph 33 of Ind AS 107 
“For each type of risk arising from financial instruments, an entity shall 
disclose: 
(a) the exposures to risk and how they arise. 
(b) its objectives, policies and processes for managing the risk and the 
methods used to measure the risk; and 
(c) any changes in (a) or (b) from the previous period.” 
Paragraph 39 of Ind AS 107 
“An entity shall disclose: 
(a) a maturity analysis for non-derivative financial liabilities (including 
issued financial guarantee contracts) that shows the remaining 
contractual maturities. 
(b) a maturity analysis for derivative financial liabilities. The maturity 
analysis shall include the remaining contractual maturities for those 
derivative financial liabilities for which contractual maturities are 
essential for an understanding of the timing of the cash flows (see 
paragraph B11B). 
(c) a description of how it manages the liquidity risk inherent in (a) and 
(b).” 
Paragraph 93 of Ind AS 113 
“To meet the objectives in paragraph 91, an entity shall disclose, at a 
minimum, the following information for each class of assets and liabilities 
(see paragraph 94 for information on determining appropriate classes of 
assets and liabilities) measured at fair value (including measurements 
based on fair value within the scope of this Indian Accounting Standard) in 
the balance sheet after initial recognition: 
… 
(b) for recurring and non-recurring fair value measurements, the level of 
the fair value hierarchy within which the fair value measurements are 
categorised in their entirety (Level 1, 2 or 3).” 
Observation 
It was noted from the financial statements that the Company has not 
provided the disclosures relating to financial risk management i.e., interest 
rate risk, market risk and maturity analysis as required by Indian Accounting 
Standard 107. Further, the company has not disclosed the categories and the 
Study on Compliance of Financial Reporting Requirements 
198
fair value hierarchy relating to fair value of financial instruments as required 
by Indian Accounting Standard 113. 
Accordingly, it was viewed that the requirements of Indian Accounting 
Standard 107 and 113 have not been complied with in preparation and 
presentation of the financial statements. 
30. Financial Instruments 
Matter contained in Financial Statements 
The abstract of Note on Financial Instruments given in the Annual report of a 
company, reads as follows: 
“Particulars Carrying Value/ Fair Value 
March 
31,20XX 
March 
31,20YY 
Financial Assets 
Financial Assets measured at Fair Value 
Investment measured at Fair value through 
Other Comprehensive Income (OCI)
--- --- 
Financial Assets measured at Amortised 
Cost 
Trade Receivable --- --- 
Cash and Bank Balances --- --- 
Other Financial Assets --- --- 
Total 
Financial Liabilities 
Financial Liabilities measured at 
Amortised Cost 
Borrowings --- --- 
Trade Payables --- --- 
Other Financial Liabilities --- --- 
Total --- ---"
Observations related to Other Disclosure 
199 
Principle: Ind AS 1: Presentation of Financial Statements and Ind AS 
107: Financial Instruments: Disclosures 
Paragraph 117 of Ind AS 1
“An entity shall disclose its significant accounting policies 
comprising: 
(a) The measurement basis (or bases) used in preparing the 
financial statements; and 
(b) The other accounting policies used that are relevant to an 
understanding of the financial statements.” 
Paragraph 21 of Ind AS 107
“In accordance with the paragraph 117 of Indian Accounting Standard 1, 
Presentation of Financial Statements, an entity discloses its significant 
accounting policies, comprising the measurement basis (or bases) used in 
preparing the financial statements and the other accounting policies used 
that are relevant to an understanding of the financial statements.” 
Paragraph B5 of Ind AS 107
“Paragraph 21 requires disclosure of the measurement basis (or bases) 
used in preparing the financial statements and the other accounting 
policies used that are relevant to an understanding of the financial 
statements. For financial instruments, such disclosure may include: 
(a) for financial liabilities designated as at fair value through profit or loss: 
(i) the nature of the financial liabilities the entity has designated as at 
fair value through profit or loss. 
(ii) the criteria for so designating such financial liabilities on initial 
recognition; and 
(iii) how the entity has satisfied the conditions in paragraph 4.2.2 of 
Indian Accounting Standard 109 for such designation. 
(aa) for financial assets designated as measured at fair value through 
profit or loss: 
(i) the nature of the financial assets the entity has designated as 
measured at fair value through profit or loss; and 
(ii) how the entity has satisfied the criteria in paragraph 4.1.5 of 
Indian Accounting Standard 109 for such designation. 
Study on Compliance of Financial Reporting Requirements 
200
(b) [Refer Appendix 1] 
(c) whether regular way purchases and sales of financial assets are 
accounted for at trade date or at settlement date (see paragraph 3.1.2 
of Indian Accounting Standard 109). 
(d) [Refer Appendix 1] 
(e) how net gains or net losses on each category of financial instrument 
are determined (see paragraph 20(a)), for example, whether the net 
gains or net losses on items at fair value through profit or loss include 
interest or dividend income. 
(f)-(g) [Refer Appendix 1]” 
Observation 
It was noted from the stated note that the company had financial instruments, 
comprising of financial assets and financial liabilities. However, the 
accounting policies for recognition and measurement of financial instruments 
as well as various other disclosures has not been provided in the financial 
statements in line with paragraph 21 read with paragraph B5 of Indian 
Accounting Standard 107. 
Accordingly, it was viewed that the requirements of Indian Accounting 
Standard 1 and Indian Accounting Standard 107 have not been complied 
with in preparation and presentation of the financial statements. 
31. Financial Instruments 
Matter contained in Financial Statements 
The relevant abstract of Note on Investments and Financial Risk 
Management as given in the Annual Report of a company, read as follows: 
“Investments: Non-Current 
Particulars Currency Face 
Value 
Number 
of 
shares
Balances 
as at 
… 
Equity Shares 
Quoted 
ABC Global Solution 
(carried at fair value 
through other 
comprehensive income) 
INR 10 xx xx xx xx 
Observations related to Other Disclosure 
201 
FINANCIAL RISK MANAGEMENT FRAMEWORK
Particulars Fair value 
through P&L 
Fair value 
through OCI 
… 
… 
Investments (Other than in 
subsidiary and interest in XYZ 
Benefit trust loan) 
…
XX
…
XX
…
…”
Principle: Ind AS 107: Financial Instruments - Disclosures 
Paragraph 11A 
"If an entity has designated investments in equity instruments to be 
measured at fair value through other comprehensive income, as permitted 
by paragraph 5.7.5 of Indian Accounting Standard 109, it shall disclose: 
(a) which investments in equity instruments have been designated to be 
measured at fair value through other comprehensive income 
(b) the reasons for using this presentation alternative." 
Observation 
It was noted from the given notes that the company has designated 
investment in Quoted Equity share measured at Fair Value through Other 
Comprehensive Income (FVTOCI). However, the company has not provided 
the disclosure of the reason for using the FVTOCI alternative in line with 
paragraph 11A of Indian Accounting Standard 107. 
Accordingly, it was viewed that the requirements Indian Accounting Standard 
107 have not been complied with in preparation and presentation of the 
financial statements. 
32. Financial Instruments 
Matter contained in Financial Statements 
A Note on Financial Risk Management as given in the Annual Report of a 
company, reads as follows: 
“Financial Risk Management Framework 
Market Risk 
Study on Compliance of Financial Reporting Requirements 
202
Market risk is the risk that the fair value or future cash flows of a financial 
instrument will fluctuate because of changes in market prices. Such changes 
in the values of financial instruments may result from changes in the foreign 
currency exchange rates, interest rates, credit, liquidity and other market 
changes. The company’s exposure to market risk is primarily on account of 
foreign currency exchange rate risk. 
Interest Rate Risk 
Interest rate risk is the risk that the fair value or future cash flows of a 
financial instrument will fluctuate because change in market interest rates. As 
the company has debt obligation with floating interest rates, the company is 
exposed to changes in market interest rates. As the company has no 
significant interest-bearing assets, the income and operating cash flows are 
substantially independent of changes in market interest rates. 
Foreign currency Exposure Risk 
The fluctuation in foreign currency exchange rates may have a potential 
impact on the statement of profit or loss and other comprehensive income 
and equity. Where any transaction references more than one currency or 
where assets/liabilities are denominated in a currency other than the 
functional currency of the respective entities. The risks primarily relate to 
fluctuations in US Dollar, Japanese Yen, SGD and EURO against functional 
currency of the company. The company, as per its risks management policy, 
uses derivative instruments primarily to hedge the foreign currency payable. 
The company evaluates the impact of foreign exchange rate fluctuations but 
assesses its exposure to exchange rate risks. It hedges a part of these risks 
by using derivatives financial instruments in line with its risks management 
policies. The information on derivative instruments is disclosed in note no. 
xx.” 
Principle: Ind AS 107: Financial Instruments – Disclosures 
Paragraph 40
“Unless an entity complies with paragraph 41, it shall disclose: 
(a) a sensitivity analysis for each type of market risk to which the entity is 
exposed at the end of the reporting period, showing how profit or loss 
and equity would have been affected by changes in the relevant risk 
variable that were reasonably possible at that date. 
(b) the methods and assumptions used in preparing the sensitivity 
analysis; and 
Observations related to Other Disclosure 
203 
(c) changes from the previous period in the methods and assumptions 
used, and the reasons for such changes.” 
Paragraph 41 
“If an entity prepares a sensitivity analysis, such as value-at-risk, that 
reflects interdependencies between risk variables (eg interest rates and 
exchange rates) and uses it to manage financial risks, it may use that 
sensitivity analysis in place of the analysis specified in paragraph 40. The 
entity shall also disclose: 
(a) an explanation of the method used in preparing such a sensitivity 
analysis, and of the main parameters and assumptions underlying the 
data provided; and 
(b) an explanation of the objective of the method used and of limitations 
that may result in the information not fully reflecting the fair value of 
the assets and liabilities involved. 
Observation 
It was noted from the relevant notes to the financial Statements that the 
company has not provided the disclosures related to sensitivity analysis for 
the interest rate risk, market risk and foreign currency exposure risk showing 
how profit or loss and equity would have been affected due to changes in the 
relevant risk variable that were reasonably possible at that date, as required 
by paragraph 40 and 41 of Indian Accounting Standard 107. 
Accordingly, it was viewed that the requirement of Indian Accounting 
Standard 107 has not been complied with in preparation and presentation of 
the financial statements. 
33. Financial Instruments 
Matter contained in Financial Statements 
The abstract of Note on Components of Other Comprehensive Income and 
Accounting Policy on Derivative Financial Instruments given in the Annual 
Report, reads as follows: 
Note on Components of Other Comprehensive Income 
March 31, 20XX March 31, 20YY 
Items that will be reclassified to 
profit or loss 
 
Study on Compliance of Financial Reporting Requirements 
204
Net movement on cash flow 
hedges 
XXX XXX 
Income tax effect XXX XXX 
“Derivative Financial Instruments 
Such derivatives financial instruments are initially recognised at fair value on 
the date on which a derivative contract is entered into and subsequently remeasured at fair value. Derivatives are carried as financial assets when the 
fair value is positive and as financial liabilities when the fair value is 
negative.” 
Note XX: Hedging Activities and Derivatives 
The Company uses foreign currency denominated borrowings and foreign 
exchange forward contracts to manage some of its transaction exposures. 
The foreign exchange forward contracts are not designated as cash flow 
hedges and are entered into for periods consistent with foreign currency 
exposure of the underlying transactions, generally from one week to twelve 
months. 
….. 
Details of foreign currency exposure that has been hedged by forward 
contract are as follows: 
Particulars Currency March 31, 20XX March 31, 20YY 
Trade payable and 
short-term borrowings 
USD XXX XXX 
Principle: Ind AS 107– Financial Instruments - Disclosures 
Paragraph 21 A 
“An entity shall apply the disclosure requirements in paragraphs 21B–24F 
for those risk exposures that an entity hedges and for which it elects to 
apply hedge accounting. Hedge accounting disclosures shall provide 
information about: 
(a) an entity’s risk management strategy and how it is applied to manage 
risk. 
(b) how the entity’s hedging activities may affect the amount, timing and 
uncertainty of its future cash flows; and 
Observations related to Other Disclosure 
205 
(c) the effect that hedge accounting has had on the entity’s balance 
sheet, statement of profit and loss and statement of changes in 
equity.” 
Observation 
It was observed from the adopted accounting policy on derivatives that the 
derivatives were stated to have been recognized at fair value. However, the 
company had not provided the disclosures with respect to Hedge Accounting 
as required by paragraph 21 A of Indian Accounting Standard 107. 
Accordingly, it was viewed that the requirements of Indian Accounting 
Standard 107 have not been complied with in preparation and presentation of 
the financial statements. 
34. Financial Risk Management 
Matter contained in Financial Statements 
From one of the financial statements, it was noted that the company has 
significant risk of liquidity as there is maturity gap between current assets 
and current liabilities. 
Principle: Ind AS 107– Financial Instruments - Disclosures 
Paragraph 39 
“An entity shall disclose: 
(a) a maturity analysis for non-derivative financial liabilities (including 
issued financial guarantee contracts) that shows the remaining 
contractual maturities. 
(b) a maturity analysis for derivative financial liabilities. The maturity 
analysis shall include the remaining contractual maturities for those 
derivative financial liabilities for which contractual maturities are 
essential for an understanding of the timing of the cash flows (see 
paragraph B11B). 
(c) a description of how it manages the liquidity risk inherent in (a) and 
(b).” 
Observation 
It was observed that the company has not provided disclosures relating to 
liquidity risk even though the company is facing huge risk of liquidity. It was 
Study on Compliance of Financial Reporting Requirements 
206
viewed that disclosures required under paragraph 39 of Indian Accounting 
Standard 107 should have been given in the financial statements. 
Accordingly, it was viewed that the requirements of Indian Accounting 
Standard 107 have not been complied with in the preparation & presentation 
of the financial statements. 
35. Capital Management 
Matter contained in Financial Statements 
The Note on Capital Management as given in the Annual Report of a 
company, reads as follows: 
“For the Purpose of the company’s capital management, capital includes 
issued equity capital, and all other equity reserves attributable to the equity 
holders. The primary objective of the company’s capital management is to 
maximize the shareholders’ value and keep the debt equity ratio within 
acceptable range. The company manages its capital structure and makes 
adjustments in light of changes in economic conditions and the requirements 
of the financial covenants. Breaches in meeting the financial covenants 
would entail the bank to immediately call loans and borrowings. There have 
been no breaches in the financial covenants of any interest-bearing loans 
and borrowing in the current period. To maintain or adjust the capital 
structure, the company may adjust the dividend payment to shareholders, 
return capital to shareholders and issue new shares.” 
Principle: Ind AS 1: Presentation of Financial Statements 
Paragraph 134 
“An entity shall disclose information that enables users of its 
financial statements to evaluate the entity’s objectives, policies and 
processes for managing capital.” 
Paragraph 135 
“To comply with paragraph 134, the entity discloses the following: 
(a) Qualitative information about its objectives, policies and processes for 
managing capital, including: 
i. a description of what it manages as capital. 
ii. when an entity is subject to externally imposed capital 
requirements, the nature of those requirements and how those 
Observations related to Other Disclosure 
207 
requirements are incorporated into the management of capital; 
and 
iii. how it is meeting its objectives for managing capital. 
(b) summary quantitative data about what it manages as capital. Some 
entities regard some financial liabilities (eg some forms of 
subordinated debt) as part of capital. Other entities regard capital as 
excluding some components of equity (eg components arising from 
cash flow hedges). 
(c) any changes in (a) and (b) from the previous period. 
(d) whether during the period it complied with any externally imposed 
capital requirements to which it is subject. 
(e) when the entity has not complied with such externally imposed capital 
requirements, the consequences of such non-compliance. The entity 
bases these disclosures on the information provided internally to key 
management personnel.” 
Observation 
It was noted from the note on capital management that the company has 
disclosed the primary objective of managing capital. However, it has not 
disclosed qualitative information about its policies and processes and 
summary of quantitative data. 
Accordingly, it was viewed that the disclosure requirements of Ind AS 1 have 
not been complied with in preparation and presentation of financial 
statements. 
36. Impairment of Assets 
Matter contained in Financial Statements 
The relevant abstract of Note on Other expenses given in the Annual Report 
of a company, reads as below: 
 “Other Expenses 
Particulars Year Ended 
March 31, 20XX 
Year Ended 
March 31, 20YY 
… --- --- 
Impairment loss on CWIP --- ---" 
Study on Compliance of Financial Reporting Requirements 
208
Principle: Ind AS 36: Impairment of Assets 
Paragraph 130 
“An entity shall disclose the following for an individual asset 
(including goodwill) or a cash-generating unit, for which an 
impairment loss has been recognized or reversed during the period: 
(a) the events and circumstances that led to the recognition or 
reversal of the impairment loss. 
... 
(c) for an individual asset: 
… 
(i) if the entity reports segment information in accordance with 
Ind AS 108, the reportable segment to which the asset 
belongs.” 
Observation 
It was noted from Note on Other Expenses that a significant amount of 
‘Impairment Loss on Capital-Work-In-Progress’ has been recognised during 
the year. However, necessary disclosures have not been made i.e. 
accounting policy adopted by the company to recognize the impairment 
losses, the events and circumstances that led to recognition of impairment 
loss and segments to which the asset impaired belongs. 
Accordingly, it was viewed that the requirements of Ind AS 36 have not been 
complied with in the preparation and presentation of the financial statements. 
37. Deferred Tax 
Matter contained in Financial Statements 
The relevant abstract of the Balance Sheet, Statement of Profit and Loss and 
the Note regarding Use of Estimates and Judgement for Deferred taxes given 
in the Annual Report, reads as follows: 
Observations related to Other Disclosure 
209 
Balance Sheet As at March 31,20XX 
Particulars Note No. As at 
31/03/20XX 
As at 
31/03/20YY 
A. ASSETS 
(1) Non-Current Assets 
… 
(a) Deferred tax Assets 
(Net) 
… 
X 
… 
-- 
… 
-- 
Statement of Profit and Loss As at March 31,20XX
Particulars Note No. As at 
31/03/20XX 
As at 
31/03/20YY 
(VI) Tax Expense 
- Deferred tax (--) (--) 
Basis of preparation of IND AS financial statements 
Use of Estimates and Judgment 
Deferred taxes: 
…… 
The ultimate realization of deferred tax assets is dependent upon the 
generation of future taxable profits during the periods in which those 
temporary differences and tax loss carry-forwards become deductible. The 
amount of the deferred tax assets considered realizable, however, could be 
reduced in the near term if estimates of future taxable income during the 
carry forward period are reduced.” 
Principle: Ind AS 12 : Income Taxes 
Paragraph 27 
“The reversal of deductible temporary differences results in deductions in 
determining taxable profits of future periods. However, economic benefits in 
the form of reductions in tax payments will flow to the entity only if it earns 
sufficient taxable profits against which the deductions can be offset. 
Therefore, an entity recognises deferred tax assets only when it is probable 
that taxable profits will be available against which the deductible temporary 
differences can be utilised”. 
Study on Compliance of Financial Reporting Requirements 
210
Observation 
In one of the notes to accounts, it was stated that the realization of deferred 
tax assets is dependent upon the generation of future taxable profits during 
the periods in which those temporary differences and tax loss carry-forwards 
become deductible. Further, it was noted from the Balance Sheet that 
deferred tax assets have been recognised during the year despite the fact 
that the company is having a material amount of accumulated losses. As per 
Ind AS 12 deferred tax assets can be recognized only when it is probable 
that taxable profits will be available against which the deductible temporary 
differences can be utilised. However, the accounting policy does not mention 
that it recognises deferred tax assets only when it is probable that taxable 
profits will be available against which the deductible temporary differences 
can be utilised, as required by Ind AS 12. 
Accordingly, it was viewed that the requirements of Ind AS 12 have not been 
complied with in the preparation and presentation of financial statements. 
38. Deferred Tax 
Matter contained in Financial Statements 
The relevant abstract of Accounting Policy on Deferred Tax as given in the 
Annual Report of a company, reads as below: 
“Deferred Tax 
In accordance with Ind AS 12 on ‘Income Taxes’, issued by the Institute of 
Chartered Accountants of India, on conservative basis, deferred tax assets 
have not been accounted for in the books, since the estimation of future 
taxable profits cannot be made , against which such deferred tax assets 
would be realized.” 
Principle: Ind AS 12 – Income Taxes 
Paragraph 81 
“The following shall also be disclosed separately: 
……… 
(e) the amount (and expiry date, if any) of deductible temporary differences, 
unused tax losses, and unused tax credits for which no deferred tax asset 
is recognised in the balance sheet.”
Observations related to Other Disclosure 
211 
Observation 
It was noted from the given accounting policy that deferred tax assets were 
not recognised since the estimation of future taxable profits could not be 
made against which such deferred tax assets could be realised. It was 
viewed that although the company had disclosed the fact that it has not 
recognised the deferred tax assets, however, it has not disclosed the amount 
of deductible temporary differences, unused tax losses, or unused tax credits 
for which no deferred tax asset has been recognised as required by Ind AS 
12. 
It was further noted that the company has disclosed a reference that ‘Ind AS 
12 issued by Institute of Chartered Accountants of India (ICAI)’. It was 
viewed that Ind AS have been notified by the Ministry of Corporate Affairs 
under Section 133 of Companies Act, 2013 after the recommendation of ICAI 
and in consultation with and after examination of the recommendations of the 
National Financial Reporting Authority. Accordingly, it is the Ministry of 
Corporate Affairs which notifies the Ind AS and not by ICAI. 
Accordingly, it was viewed that the requirements of Ind AS 12 have not been 
complied with and incorrect reference of ICAI as authority to issue Ind AS, 
has been provided in the financial statements. 
39. Deferred Tax 
Matter contained in Financial Statements 
An abstract of the Balance Sheet and Statement of Profit and Loss given in 
the Annual Report of a company, read as below: 
Balance Sheet as at March 31, 20XX 
 31.3.20XX 31.3.20YY 
Deferred Tax Liabilities Nil XXX 
Statement of Profit & Loss for the year ended 31st March 20XX 
(All amounts in Indian rupees unless otherwise stated) 
Particulars Notes Year Ended 
31-Mar-XX 
Year Ended 
31-Mar-YY 
Income 
… 
Total Income XXX XXX 
Study on Compliance of Financial Reporting Requirements 
212
 
Expenses 
… 
Total Expenses XXX XXX 
… 
Profit/(Loss) Before Tax (XXX) (XXX) 
Tax Expenses 
-Current Tax - - 
-Deferred Tax (XXX) Nil 
Principle: Ind AS 12 : Income Taxes 
Paragraph 79 
“The major components of tax expense (income) shall be disclosed 
separately. 
Paragraph 80 
Components of tax expense (income) may include: 
… 
(b) the amount of deferred tax expense (income) relating to the 
origination and reversal of temporary differences. 
(c) the amount of deferred tax expense (income) relating to changes in 
tax rates or the imposition of new taxes. 
(d) the amount of the benefit arising from a previously unrecognised tax 
loss, tax credit or temporary difference of a prior period that is used to 
reduce current tax expense. 
(e) the amount of the benefit from a previously unrecognised tax loss, tax 
credit or temporary difference of a prior period that is used to reduce 
deferred tax expense. 
(f) deferred tax expense arising from the write-down, or reversal of a 
previous write-down, of a deferred tax asset in accordance with 
paragraph 56; and 
(g) the amount of tax expense (income) relating to those changes in 
Observations related to Other Disclosure 
213 
accounting policies and errors that are included in profit or loss in 
accordance with Ind AS 8, because they cannot be accounted for 
retrospectively.” 
Paragraph 81 
The following shall also be disclosed separately: 
… 
(c) an explanation of the relationship between tax expense (income) and 
accounting profit in either or both of the following forms: 
(i) a numerical reconciliation between tax expense (income) and the 
product of accounting profit multiplied by the applicable tax 
rate(s), disclosing also the basis on which the applicable tax 
rate(s) is (are) computed; or 
(ii) a numerical reconciliation between the average Ind AS 12 
effective tax rate and the applicable tax rate, disclosing also the 
basis on which the applicable tax rate is computed:”
Observation 
The Balance Sheet indicates that the company had a significant amount of 
deferred tax liabilities in the previous financial year, which were credited in 
the Statement of Profit and Loss and adjusted against the current year's loss. 
However, it was observed that disclosures as per paragraph 80 (c) to (h) and 
81(c) of Ind AS 12 have not been provided. 
Accordingly, it was viewed that the requirements of Ind AS 12 have not been 
complied with in the preparation and presentation of financial statements. 
40. Deferred Tax 
Matter contained in Financial Statements 
The relevant abstract of Note on Reconciliation of tax expenses as given in 
the Annual Report of a company, reads as below: 
“Reconciliation of Tax Expenses and Details of Deferred Tax Balances 
Particulars As at 31 
March 20XX 
As at 31 
March 20YY 
i. Income tax expenses relating to 
continuing operations 
 
Study on Compliance of Financial Reporting Requirements 
214
Current Tax 
In respect of current year -- ---
MAT credit entitlement recognized -- ---
MAT credit entitlement written off -- ---
Total -- ---
ii. Income tax expenses relating to 
discontinued operations 
 
In respect of current year -- ---
MAT credit entitlement recognized -- ---
Total --- ---
iii. Income tax expenses relating to 
continuing and discontinued 
operations 
 
In respect of current year -- ---
MAT credit entitlement recognized -- ---
MAT credit entitlement written off -- ---
Total -- ---
Tax expenses for the current year represent unutilized MAT credit 
recognized in earlier years now written off. Other than the above, the net tax 
expense for the Company is Nil considering the unabsorbed tax losses and 
depreciation. During the year, the Company recognized MAT credit 
entitlement which is expected to be available for set off in the future years. 
Principle: Ind AS 12 : Income Taxes 
Paragraph 81 
“The following shall also be disclosed separately: 
… 
(c) an explanation of the relationship between tax expense (income) and 
accounting profit in either or both of the following forms: 
(i) a numerical reconciliation between tax expense (income) and the 
product of accounting profit multiplied by the applicable tax 
rate(s), disclosing also the basis on which the applicable tax 
rate(s) is (are) computed; or 
Observations related to Other Disclosure 
215 
(ii) a reconciliation between the average effective tax rate and the 
applicable tax rate, disclosing also the basis on which the 
applicable tax rate is computed” 
Observation 
It was noted that while providing Reconciliation of Tax Expense although the 
disclosures regarding current year tax as well as details of MAT has been 
given, however, the same is not in line with the requirements of paragraph 
81(c) of Ind AS 12. As per the standard, tax expense should be reconciled 
with the product of accounting profit multiplied by the applicable tax rates, 
and the basis on which the applicable tax rates have been computed should 
be disclosed. 
In the given case, the company has neither disclosed the reconciliation 
between average effective tax rate and applicable tax rates nor the basis of 
computing applicable tax rate. 
Accordingly, it was viewed that the requirement of Ind AS 12 has not been 
complied with in preparation and presentation of the financial statements. 
41. Deferred Tax 
Matter contained in Financial Statements 
The relevant abstract of the Statement of Profit and Loss as given in the 
Annual Report of a company, reads as below: 
“Statement of Profit and Loss 
As at March 31, 
20XX 
As at March 31, 
20YY 
Tax Expense 
(1) Current tax -- -- 
(2) Deferred tax -- -- 
-- -- 
Principle: Ind AS 12 : Income Taxes 
Paragraph 81 
“The following shall also be disclosed separately: 
… 
Study on Compliance of Financial Reporting Requirements 
216
(c) an explanation of the relationship between tax expense (income) and 
accounting profit in either or both of the following forms: 
i. a numerical reconciliation between tax expense (income) and the 
product of accounting profit multiplied by the applicable tax rate(s), 
disclosing also the basis on which the applicable tax rate(s) is 
(are) computed; or 
ii. a numerical reconciliation between the average effective tax rate 
and the applicable tax rate, disclosing also the basis on which the 
applicable tax rate is computed;” 
Observation 
It was observed that tax expense has been disclosed in Statement of Profit and 
Loss. However, the disclosure required by paragraph 81(c) of Ind AS 12 have not 
been given i.e., an explanation of relationship between tax expense (income) and 
accounting profit multiplied by the applicable tax rate(s), disclosing also the basis 
on which the applicable tax rate(s) is (are) computed. 
Accordingly, it was viewed that the requirements of Ind AS 12 have not been 
complied with in the preparation and presentation of the financial statements. 
42. Deferred Tax 
Matter contained in Financial Statements 
The abstract of Note on Deferred Tax given in the Annual Report of a 
company, reads as below: 
“Note XX: Deferred Tax Liabilities (Net) 
Particulars As at 
31.03.20XX 
As at 
31.03.20YY 
Deferred Tax Liabilities 
Fixed Assets: 
Impact of difference between tax 
depreciation and depreciation charged for 
the period 
-- --
Total -- --
Observations related to Other Disclosure 
217 
Principle: Ind AS 12 : Income Taxes 
Paragraph 5 
“Temporary differences are differences between the carrying amount of 
an asset or liability in the balance sheet and its tax base. Temporary 
differences may be either: 
(a) taxable temporary differences, which are temporary differences that 
will result in taxable amounts in determining taxable profit (tax loss) of 
future periods when the carrying amount of the asset or liability is 
recovered or settled; or 
(b) deductible temporary differences, which are temporary differences 
that will result in amounts that are deductible in determining taxable 
profit (tax loss) of future periods when the carrying amount of the 
asset or liability is recovered or settled. 
The tax base of an asset or liability is the amount attributed to that asset 
or liability for tax purposes.” 
Observation 
It was noted from the given note that Deferred Tax Liability (DTL) has been 
recognised and measured based on depreciation expense as per the books 
of accounts and tax depreciation. It indicates that the company has 
computed the deferred tax liability as per the Profit and Loss approach, 
instead of Balance sheet approach. As per the Ind AS 12, the company 
needs to consider the differences between the carrying amount of an asset 
or liability and its tax base. 
Accordingly, it was viewed that the requirement of Ind AS 12 has not been 
complied with in the preparation and presentation of financial statements. 
43. Deferred Tax 
Matter contained in Financial Statements 
An abstract of Note on Current Tax and Deferred Tax as given in the Annual 
Report of a company, reads as below: 
 “Current Tax and Deferred Tax
The following is the analysis of deferred tax asset/(liability) presented in the 
Balance Sheet: 
Study on Compliance of Financial Reporting Requirements 
218
Particulars Opening 
Balance 
Recognised 
in the Profit 
and Loss 
Recognised 
in OCI 
Closing 
Balance 
… 
Tax effect of 
items constitutes 
Deferred Tax 
Assets 
 
Bought forward 
loss and 
unabsorbed 
depreciation
XXX XXX XXX XXX 
Tax effect of 
items constituted 
Deferred Tax 
Liabilities 
 
Property, Plant 
and Equipment 
-- -- --- 
Effect of valuation -- -- -- --- 
… 
Net Deferred Tax 
Asset 
-- -- --
Principle: Ind AS 12 : Income Taxes 
Paragraph 35 
“… Therefore, when an entity has a history of recent losses, the entity 
recognises a deferred tax asset arising from unused tax losses or tax credits 
only to the extent that the entity has sufficient taxable temporary differences or 
there is convincing other evidence that sufficient taxable profit will be available 
against which the unused tax losses or unused tax credits can be utilised by 
the entity. In such circumstances, paragraph 82 requires disclosure of the 
amount of the deferred tax asset and the nature of the evidence supporting its 
recognition.” 
Paragraph 82 
“An entity shall disclose the amount of deferred tax asset and the nature of 
Observations related to Other Disclosure 
219 
evidence supporting its recognition, when: 
(a) the utilization of deferred tax asset is dependent on future taxable profits 
excess of the profits arising from the reversal of existing taxable 
temporary differences; and 
(b) the entity has suffered a loss in either the current or preceding period in 
tax jurisdiction to which the deferred tax asset relates” 
Observation 
It was observed from the Note on Deferred Taxes that the company has 
recognized deferred tax assets on carried-forward business losses and 
unabsorbed depreciation. Notably, the company has a history of incurring tax 
losses in recent years. In light of these circumstances, the company should 
have disclosed the nature of evidence supporting the recognition of the 
Deferred Tax Asset for the year under review. However, the same has not 
been disclosed in the financial statements as required by Paragraph 82 of 
Ind AS 12. 
Accordingly, it was viewed that the requirements of Ind AS 12 have not been 
complied with in preparation and presentation of the financial statements. 
44. Segment Reporting 
Matter contained in Financial Statements 
Abstract of Note on Segment Reporting given in Ind AS based financial 
statements of a company, reads as below: 
“Segment Reporting 
I. Primary segment (Business segment): 
The Company is mainly engaged in the pharmaceutical business. 
Considering the nature of business and financial reporting of the 
Company, the Company has only one business segment viz. 
pharmaceuticals as the primary reportable segment.
II. Secondary segment (Geographical segment): 
The Company operates in three principal geographic locations.
(i) Europe
(ii) Asia
(iii) Rest of the world
Study on Compliance of Financial Reporting Requirements 
220
Particulars Year ended 
31 March 20XX 
Year ended 
31 March 20YY 
I. Revenue from operations 
Continuing operations 
Europe -- --
Asia -- --
Rest of the world -- --
Discontinued operations 
Europe -- --
Asia -- --
Rest of the world -- --
 Total -- --
II. Total Assets 
Europe -- --
Asia -- --
Rest of the world -- --
 Total segment assets -- --
 Un-allocable -- --
 Total assets -- --
III. Cost incurred during the 
year to acquire segment 
assets 
 Continuing operations 
 Asia -- --
 Discontinued operations 
 Asia -- --
 Total -- --”
Observations related to Other Disclosure 
221 
Principle: Ind AS 108: Operating Segments 
Paragraph 5 
“An operating segment is a component of an entity: 
(a) That engages in business activities from which it may earn revenues 
and incur expenses including revenues and expenses relating to 
transactions with other components of the same entity, 
(b) Whose operating results are regularly reviewed by the entity’s chief 
operating decision maker to make decisions about resources to be 
allocated to the segment and assess its performance, and 
(c) For which discrete financial information is available.” 
General Information 
Paragraph 22 
“An entity shall disclose the following general information: 
(a) Factors used to identify the entity’s reportable segments, including 
the basis of organization (for example, whether management has 
chosen to organize the entity around differences in products and 
services, geographical areas, regulatory environments, or a 
combination of factors and whether operating segments have been 
aggregated. 
(aa)the judgment made by management in applying the aggregation 
criteria in paragraph 12. This includes brief description of the 
operating segment that have been aggregated in this way and the 
economic indicators that have been assessed in determining that the 
aggregated operating segments share similar economic 
characteristics; and 
(b) Types of products and services from which each reportable segment 
derives its revenues.” 
Information about geographical areas 
Paragraph 33 
“An entity shall report the following geographical information, unless the 
necessary information is not available and the cost to develop it would be 
excessive: 
(a) Revenues from external customers (i) attributed to the entity’s country 
of domicile and (ii) attributed to all foreign countries in total from 
Study on Compliance of Financial Reporting Requirements 
222
which the entity derives revenues. If revenues from external 
customers attributed to an individual foreign country are material, 
those revenues shall be disclosed separately. An entity shall disclose 
the basis for attributing revenues from external customers to 
individual countries. 
(b) Non-current assets other than financial instruments, deferred tax 
assets, post-employment benefit assets, and rights arising under 
insurance contracts (i) located in the entity’s country of domicile and 
(ii) located in all foreign countries in total in which the entity holds 
assets. If assets in an individual foreign country are material, those 
assets shall be disclosed separately. 
The amounts reported shall be based on the financial information that is 
used to produce the entity’s financial statements. If the necessary 
information is not available and the cost to develop it would be excessive, 
that fact shall be disclosed. An entity may provide, in addition to the 
information required by this paragraph, subtotals of geographical 
information about groups of countries.” 
Information about major customers 
Paragraph 34 
“An entity shall provide information about the extent of its reliance on its 
major customers. If revenues from transactions with a single external 
customer amount to 10 per cent or more of an entity’s revenues, the entity 
shall disclose that fact, the total amount of revenues from each such 
customer, and the identity of the segment or segments reporting the 
revenues. The entity need not disclose the identity of a major customer or 
the amount of revenues that each segment reports from that customer. 
For the purposes of this Ind AS, a group of entities known to a reporting 
entity to be under common control shall be considered a single customer. 
However, judgement is required to assess whether a government 
(including government agencies and similar bodies whether local, 
national, or international) and entities known to the reporting entity to be 
under the control of that government are considered a single customer. In 
assessing this the reporting entity shall consider the extent of economic 
integration between those entities.” 
Observations related to Other Disclosure 
223 
Observation 
It was noted from the segment reporting disclosures provided by the 
company that it has followed the principles of Accounting Standard 17: 
Segment Reporting (IGAAP). It was viewed that Indian Accounting Standard 
108 does not require the classification of segments into primary and 
secondary, rather it requires disclosure of segment information as ‘operating 
segment.’ 
It was viewed that the company has not provided the following necessary 
disclosures as required by Indian Accounting Standard 108: 
(i) Information related to Chief Operating Decision Maker and how the 
company has determined the operating segment. 
(ii) Factors used to identify the reportable segment; judgements made in 
applying aggregation criteria etc.; and 
(iii) Information related to major customers. 
Accordingly, it was viewed that requirements of Indian Accounting Standard 
108 have not been complied with in preparation and presentation of the 
financial statements. 
45. Segment Reporting 
Matter contained in Financial Statements 
Abstract of Note on Segment Reporting given in the Annual Report of a 
company, reads as below: 
“Segment Reporting 
The business activities of the Company predominantly fall within a single 
reportable business segment i.e., manufacture and sale of hosiery fabrics 
and garments in India. There are no separately reportable businesses or 
geographical segments that meet the criteria prescribed in Indian Accounting 
Standard 108 on Operating Segments. The aforesaid is in line with review of 
operating results by the chief operating decision maker.” 
Principle: Ind AS 108: Operating Segments 
Paragraph 31 
“Paragraphs 32–34 apply to all entities subject to this Ind AS including 
those entities that have a single reportable segment.… 
Paragraph 32 
Study on Compliance of Financial Reporting Requirements 
224
An entity shall report the revenues from external customers for each 
product and service, or each group of similar products and services, 
unless the necessary information is not available and the cost to develop it 
would be excessive, in which case that fact shall be disclosed… 
Paragraph 33 
An entity shall report the following geographical information, unless the 
necessary information is not available and the cost to develop it would be 
excessive: 
(a) … 
(b) non-current assets other than financial instruments, deferred tax 
assets, post-employment benefit assets, and rights arising under 
insurance contracts (i) located in the entity’s country of domicile and 
(ii) located in all foreign countries in total in which the entity holds 
assets. If assets in an individual foreign country are material, those 
assets shall be disclosed separately. 
… 
If the necessary information is not available and the cost to develop it 
would be excessive, that fact shall be disclosed….” 
Paragraph 34 
“An entity shall provide information about the extent of its reliance on its 
major customers. If revenues from transactions with a single external 
customer amount to 10 per cent or more of an entity’s revenues, the entity 
shall disclose that fact, the total amount of revenues from each such 
customer, and the identity of the segment or segments reporting the 
revenues…
Observation 
It was noted that the company was engaged in single reporting segment and 
no segment reporting disclosure has been provided in the financial 
statements. It was viewed that although the company was engaged in single 
reporting segment yet paragraph 31 of Ind AS 108 is applicable to it, and 
therefore, details required under paragraphs 32 to 34 of Ind AS 108 should 
have been disclosed. 
Accordingly, it was viewed that the requirements of Indian Accounting 
Standard 108 have not been complied with in preparation and presentation of 
financial statements. 
Observations related to Other Disclosure 
225 
46. Segment Reporting 
Matter contained in Financial Statements 
The relevant abstract of Note on Segment Reporting given in the Annual 
Report of a company, reads as below: 
 “Information about Major Customers 
Out of the total revenue of Rs. YY for 31st March 20XX, one customer has 
10% or more of the total revenue.” 
Principle: Ind AS 108: Operating Segments 
Paragraph 34 
“An entity shall provide information about the extent of its reliance on its 
major customers. If revenues from transactions with a single external 
customer amount to 10 per cent or more of an entity’s revenues, the entity 
shall disclose that fact, the total amount of revenues from each such 
customer, and the identity of the segment or segments reporting the 
revenues. The entity need not disclose the identity of a major customer or 
the amount of revenue that each segment reports from that customer. For 
the purposes of this Ind AS, a group of entities known to a reporting entity 
to be under common control shall be considered a single customer. 
However, judgement is required to assess whether a government 
(including government agencies and similar bodies whether local, national 
or international) and entities known to the reporting entity to be under the 
control of that government are considered a single customer. In assessing 
this, the reporting entity shall consider the extent of economic integration 
between those entities.” 
Observation 
It was noted from the stated note that the company has disclosed the mere 
fact that one customer had participated in the revenue of the company by 
more than 10%. It was viewed that other information such as total amount of 
revenue from such customer, which segment this customer falls into, etc. 
was not disclosed as per the requirement of paragraph 34 of Indian 
Accounting Standard 108. 
Accordingly, it was viewed that the requirements of Indian Accounting 
Standard 108 have not been complied with in the preparation and 
presentation of financial statements. 
Study on Compliance of Financial Reporting Requirements 
226
47. Related Party Disclosures 
Matter contained in Financial Statements 
The relevant abstract of Related Party Disclosure given in the Annual Report of a 
company, reads as below: 
“Transactions with Related Parties: 
Particulars Year ended 
March 31, 
20XX 
Year ended 
March 31, 
20YY 
Financial liabilities assumed (Refer 
note) 
 
Subsidiaries --- -
Investments (including deemed 
investment) written off (Refer note) 
 
-Subsidiaries --- -
Inter corporate deposits and other 
receivables written-off (Refer note) 
 
-Subsidiaries --- -
Inter corporate deposits converted into 
deemed investment 
 
-Subsidiaries --- -“
Note 
Loss on impairment/write off of investments in/and advances to XYZ 
and ABC 
The National Company Law Tribunal, Mumbai (NCLT) vide Order, has 
admitted an application filed against XYZ by an operational creditor and 
initiated the Corporate Insolvency Resolution Process (CIRP) under the 
Insolvency and Bankruptcy Code 2016 (‘IBC’). In accordance with the 
provisions of IBC, the powers of the Board of Directors of XYZ shall stand 
suspended and the management of XYZ presently vests with the Resolution 
Professional (’RP’) appointed under the provisions of IBC. ABC, a wholly 
owned subsidiary of the Company, is presently holding a 68.70% equity 
stake in XYZ. The Company took over liabilities aggregating Rs XXX 
pursuant to settlement agreements entered/ negotiations by the Company 
with the lenders of XYZ in connection with the put options/ corporate 
guarantees issued for borrowings of XYZ. In view of uncertainties associated 
Observations related to Other Disclosure 
227 
with the outcome of CIRP and as a matter of prudence, the Company had 
impaired/written off its exposure in both these entities during the year as 
stated below. 
Principle: Ind AS 24 : Related Party Disclosures 
Paragraph 18 
If an entity has had related party transactions during the periods covered 
by the financial statements, it shall disclose the nature of the related party 
relationship as well as information about those transactions and 
outstanding balances, including commitments, necessary for users to 
understand the potential effect of the relationship on the financial 
statements. These disclosure requirements are in addition to those in 
paragraph 17. At a minimum, disclosures shall include: 
(a) the amount of the transactions; 
(b) the amount of outstanding balances, including commitments, and: 
i. their terms and conditions, including whether they are secured, 
and the nature of the consideration to be provided in settlement; 
and 
ii. details of any guarantees given or received; 
(c) provisions for doubtful debts related to the amount of outstanding 
balances; and 
(d) the expense recognised during the period in respect of bad or doubtful 
debts due from related parties. 
Paragraph 24 
Items of a similar nature may be disclosed in aggregate except when 
Particulars ABC XYZ Total 
Non-current investments -- -- -- 
Non-current loans -- -- -- 
Other financial assets -- -- -- 
Liability for put option/corporate 
guarantee 
- -- -- 
Total -- --"
Study on Compliance of Financial Reporting Requirements 
228
separate disclosure is necessary for an understanding of the effects of 
related party transactions on the financial statements of the entity. 
Paragraph 24A 
Disclosure of details of particular transactions with individual related 
parties would frequently be too voluminous to be easily understood. 
Accordingly, items of a similar nature may be disclosed in aggregate by 
type of related party. However, this is not done in such a way as to 
obscure the importance of significant transactions. Hence, purchases or 
sales of goods are not aggregated with purchases or sales of fixed assets. 
Nor a material related party transaction with an individual party is 
clubbed in an aggregated disclosure.
Observation 
It was noted from the financial statements that the company has material 
related party transactions with subsidiary companies viz, inter corporate 
deposits converted into deemed investments, investments written off, inter 
corporate deposits and other receivables written off. However, party wise 
disclosures have not been made, rather all related party transactions have 
been clubbed under the categories of subsidiaries, Key Management 
Personnel, Joint Venture, Associates and Other Related Parties. 
Accordingly, it was viewed that the requirements of paragraph 24 of Indian 
Accounting Standard 24 have not been complied with in preparation and 
presentation of the financial statements. 
48. Related Party Disclosures 
Matter contained in Financial Statements 
An abstract of Related Party Disclosures given in the Annual Report of a 
company, reads as below: 
Related Party Disclosures 
 “List of Related Parties – Where Control Exists: 
Transactions between 
Holding and Subsidiaries
31.03.20XX 31.03.20YY
M/s XYZ Pvt. Ltd. Nil -- 
M/s DEF Pvt. Ltd. -- -- 
Observations related to Other Disclosure 
229 
M/s XYZ Pvt. Ltd. -- --" 
 “List of Related Parties where Control does not exist: 
Inter Corporate Transactions 31.03.20XX 31.03.20YY
PQR Pvt. Ltd. -- -- 
M/s STU Pvt. Ltd. Nil -- 
 “Outstanding Balance Receivable as at year end
31.03.20XX 31.03.20YY
ABC Limited (--) --" 
Principle: Ind AS 24 : Related Party Disclosures 
Paragraph 18 
“If an entity has had related party transactions during the periods covered 
by the financial statements, it shall disclose the nature of the related party 
relationship as well as information about those transactions and 
outstanding balances, including commitments, necessary for users to 
understand the potential effect of the relationship on the financial 
statements. These disclosure requirements are in addition to those in 
paragraph 17. At a minimum, disclosures shall include: 
(a) the amount of the transactions; 
(b) the amount of outstanding balances, including commitments, and: 
(i) their terms and conditions, including whether they are secured, 
and the nature of the consideration to be provided in settlement; 
and 
(ii) details of any guarantees given or received; 
(c) provisions for doubtful debts related to the amount of outstanding 
balances; and 
(d) the expense recognised during the period in respect of bad or doubtful 
debts due from related parties.” 
Study on Compliance of Financial Reporting Requirements 
230
Observation 
It was noted from the Related Party Disclosures that the company disclosed 
the transactions between the related parties along with the name of parties. 
However, the company has not disclosed the nature of these transactions 
and in some other cases, the company has not disclosed the relationship 
between the parties as required by paragraph 18 of Indian Accounting 
Standard 24. 
It was further noted that the company has disclosed the negative balance of 
receivable i.e., rental amount due. It was viewed that the same should be 
presented under payable (liability) rather than receivable. 
Accordingly, it was viewed that the requirements of Indian Accounting 
Standard 24 have not been complied with in preparation and presentation of 
the financial statements. 
49. Related Party Disclosures 
Matter contained in Financial Statements 
The footnote to Note on Financial Liabilities – Borrowings (Current) given in the 
Annual Report of a Company, reads as below: 
“All the above loans are guaranteed by XYZ Limited, the ultimate holding 
company.” 
Principle: Ind AS 24: Related Party Disclosures 
Paragraph 18 
If an entity has had related party transactions during the periods covered by 
the financial statements, it shall disclose the nature of the related party 
relationship as well as information about those transactions and outstanding 
balances, including commitments, necessary for users to understand the 
potential effect of the relationship on the financial statements. These 
disclosure requirements are in addition to those in paragraph 17. At a 
minimum, disclosures shall include: 
(a) the amount of the transactions 
(b) the amount of outstanding balances, including commitments, and: 
(i) their terms and conditions, including whether they are secured, and 
the nature of the consideration to be provided in settlement; and 
(ii) details of any guarantees given or received;” 
Observations related to Other Disclosure 
231 
Observation 
It was noted from the financial statements that the loans of the company 
have been guaranteed by its ultimate holding company. However, this 
information of guarantee taken has not been disclosed as part of related 
party disclosures, in line with Indian Accounting Standard 24. 
Accordingly, it was viewed that requirements of Indian Accounting Standard 
24 have not been complied with. 
50. Related Party Disclosures 
Matter contained in Financial Statements 
The relevant abstract of Related Party Disclosure given in the Annual Report 
of a company, reads as below: 
“Related Party Transactions 
(a) Name of Related Parties 
Joint Venture & Associate Companies 
1. …… 
2……. 
(b) The nature wise transactions with the above Joint Ventures and 
Associates are as follows: 
S.No. Nature of Transactions 20XX-YY 20YY-ZZ 
1. Purchase of goods XXX XXX
2. Sale of goods XXX XXX
3. Purchase of fixed assets - XXX
4. Rendering of Services XXX XXX
5. Receiving of Services XXX XXX
… …. XXX XXX
The outstanding balances are unsecured and are being settled in cash 
except advance against equities which are settled in equity.”
Principle: Ind AS 24: Related Party Disclosures 
Paragraph 18 
If an entity has had related party transactions during the periods covered by 
Study on Compliance of Financial Reporting Requirements 
232
the financial statements, it shall disclose the nature of the related party 
relationship as well as information about those transactions and outstanding 
balances, including commitments, necessary for users to understand the 
potential effect of the relationship on the financial statements. These 
disclosure requirements are in addition to those in paragraph 17. At a 
minimum, disclosures shall include: (a) the amount of the transactions; (b) the 
amount of outstanding balances, including commitments, and: (i) their terms 
and conditions, including whether they are secured, and the nature of the 
consideration to be provided in settlement; and (ii) details of any guarantees 
given or received; (c) provisions for doubtful debts related to the amount of 
outstanding balances; and (d) the expense recognised during the period in 
respect of bad or doubtful debts due from related parties.” 
Paragraph 19 
“The disclosures required by paragraph 18 shall be made separately for each 
of the following categories: (a) the parent; (b) entities with joint control of, or 
significant influence over, the entity; (c) subsidiaries; (d) associates; (e) joint 
ventures in which the entity is a joint venturer; (f) key management personnel 
of the entity or its parent; and (g) other related parties.” 
Observation 
Following discrepancies were noted with regards to the disclosure of Related 
Party Transactions: 
a. It was noted from the footnote given under Related Party Disclosures 
that the outstanding balances are unsecured and are being settled in 
cash. It indicates that there were certain outstanding balances with 
related parties. However, the balances with the Related party have not 
been disclosed separately for the categories as required by Paragraph 
18 and 19 of Ind AS 24. 
b. Nature-wise transactions with the Joint Ventures and Associates should 
have been given separately and should not be clubbed under one head, 
in line with Paragraph 19 of Ind AS 24. 
Accordingly, it was viewed that requirements of Indian Accounting Standard 
24 have not been complied with in preparation and presentation of the 
financial statements. 
Observations related to Other Disclosure 
233 
51. Related Party Disclosures 
Matter contained in Financial Statements 
The abstract of Related Party Disclosure given in one of the Annual Report, 
reads as below: 
Related Party Transactions: 
(I) Subsidiaries, Associates, Joint Ventures, and Others
Purchase of Materials, Capital Equipment and Others 
… 
(III) Key Managerial Remuneration 
(i) Executive Directors 
… 
Year ended 
31.03.20XX 
Year ended 
31.03.20YY 
(a) Remuneration of Executive Directors -- --
Short – term employee benefit -- --
Post-employment benefit -- --“
Principle: Ind AS 24: Related Party Disclosures 
Paragraph 24A 
“Disclosure of details of particular transactions with individual related parties 
would frequently be too voluminous to be easily understood. Accordingly, 
items of a similar nature may be disclosed in aggregate by type of related 
party. However, this is not done in such a way as to obscure the importance of 
significant transactions. Hence, purchases or sales of goods are not 
aggregated with purchases or sales of fixed assets. Nor a material related 
party transaction with an individual party is clubbed in an aggregated 
disclosure.” 
Observation 
It was noted from the disclosures on Related Party Transactions that the 
company has clubbed the purchase of materials and capital equipment and 
Study on Compliance of Financial Reporting Requirements 
234
disclosed them as single line items. Further, remuneration to executive 
Directors has been disclosed in aggregate instead of disclosing remuneration 
to each individual director. 
It was viewed that the purchase of materials and capital equipment shall not 
be aggregated as they are not the items of similar nature. Paragraph 24A of 
Ind AS 24 specifically mentions that purchase or sale of goods shall not be 
aggregated with purchase or sale of fixed assets. Further, it was viewed that 
remuneration paid to related parties (executive and non-executive directors) 
should be disclosed to individual directors rather than in aggregate. 
Accordingly, it was viewed that requirements of Indian Accounting Standard 
24 have not been complied with in preparation and presentation of the 
financial statements. 
52. Related Party Disclosures 
Matter contained in Financial Statements 
The relevant abstract of Note on Related party Transactions given in the 
Annual Report of a Company, reads as follows: 
“… 
The related party transactions with above KMPs which comprise directors 
and executive officers are as follows: 
Particulars Year ended 
March 31 
 20XX 20YY 
Salary and other employee benefits to whole time 
directors and executive officers (1)(2) 
-- -- 
Commission and other benefits to non-executive / 
independent directors 
-- -- 
Total -- --
 Total employee stock compensation for the year ended March 31, 20XX 
and March 31, 20YY includes a charge of Rs. XX and Rs. YY, towards 
KMP respectively. 
 does not include post-employment benefit based on actuarial valuation 
as this is done for the company as a whole.” 
Observations related to Other Disclosure 
235 
Principle: Ind AS 24 : Related Party Disclosures
Paragraph 17 
“An entity shall disclose the key management personnel compensation in 
total for each of following categories: 
a) Short-term employee benefits, 
b) Post-employment benefits, 
c) Other long-term benefits, 
d) Termination benefits, 
e) Share based payment” 
Observation 
It was noted from the given note that the company has paid salaries, 
commission and other employee benefits to its key management personnel. 
However, the compensation paid to key management personnel was not 
categorized into short-term employee benefits, post-employment benefits, 
other long-term benefits, termination benefits etc. as required under 
paragraph 17 of Indian Accounting Standard 24. 
Accordingly, it was viewed that the requirement of Indian Accounting 
Standard 24 has not been complied with in preparation and presentation of 
the financial statements. 
53. Related Party Disclosures 
Matter contained in Financial Statements 
The abstract of Accounting Policy on Employee Benefits given in the Annual 
Report of a company, reads as below: 
“Employee Benefits 
… 
(ii) Post-employment benefits 
… 
(b) Defined Benefit Plans: 
The employees’ gratuity fund scheme and the provident fund scheme 
managed by the trust of the Holding Company are the Group’s defined 
benefit plans. The present value of the obligation under such defined benefit 
Study on Compliance of Financial Reporting Requirements 
236
plans is determined based on actuarial valuation using the Projected Unit 
Credit Method, which recognizes each period of service as giving rise to 
additional unit of employee benefit entitlement and measures each unit 
separately to build up the final obligation.” 
Principle: Ind AS 24 : Related Party Disclosures 
Paragraph 9 
“The following terms are used in this Standard with the meanings 
specified: 
A related party is a person or entity that is related to the entity that is 
preparing its financial statements (in this Standard referred to as the 
‘reporting entity’). 
… 
(b) An entity is related to a reporting entity if any of the following 
conditions applies: 
… 
(v) The entity is a post-employment benefit plan for the benefit of employees 
of either the reporting entity or an entity related to the reporting entity. If 
the reporting entity is itself such a plan, the sponsoring employers are 
also related to the reporting entity. 
Observation 
It was noted from the accounting policy that the employees’ gratuity fund 
scheme and the provident fund scheme managed by the trust of the Holding 
Company are the Group’s defined benefit plans. However, no Related Party 
Disclosure has been made in this regard. It was viewed that in accordance 
with paragraph 9(b)(v) of Ind AS 24, Trust managed by the holding company 
and categorized under Employee Benefit Plan, is a related party to the 
subsidiary also, since subsidiary makes contribution to the trust for gratuity of 
its employees, and therefore, contribution made to it need to be disclosed 
under related party transactions. 
Accordingly, it was viewed that requirements of Indian Accounting Standard 
24 have not been complied with in preparation and presentation of the 
financial statements. 
54. Related Party Disclosures 
Matter contained in Financial Statements 
Observations related to Other Disclosure 
237 
The relevant abstract of Related Party Disclosures given in the Annual Report of 
a company, reads as below: 
 “Related party Disclosure 
 Mr. P Director 
Note: In accordance with Related Party disclosures as required by the Ind 
AS 24 “Related Party Disclosures” notified by Companies (Indian Accounting 
Standards) Rules, 2015 as amendment by Companies (Indian Accounting 
Standards) Amendment Rules, 2016, there is no related party transactions 
during the period.” 
Principle: Ind AS 24 : Related Party Disclosures
Paragraph 17 
“An entity shall disclose key management personnel compensation in total 
and for each of the following categories: 
(a) short-term employee benefits; 
(b) post-employment benefits; 
(c) other long-term benefits; 
(d) termination benefits; and 
(e) share-based payment.” 
Observation 
Under Related Party Disclosures, it has been reported that there were no related 
party transactions during the period. However, it was observed from the Report 
on Corporate Governance that ‘‘in view of the heavy losses incurred during the 
period, the company has decided not to pay the remuneration to its KMP for the 
period except Mr. P (Director) who had received a remuneration of Rs. XX during 
the current year i.e., from 01.07.20XX to 31.03.20YY’’. It was viewed that Mr P is 
a Key Management Personnel and remuneration paid/ payable to him is related 
party transaction and the same should be disclosed as part of Related Party 
Disclosures, in line with Indian Accounting Standard 24. 
Accordingly, it was viewed that the requirements of Indian Accounting 
Standard 24 have not been complied with in the preparation and presentation 
of the financial statements 
Study on Compliance of Financial Reporting Requirements 
238
55. Related Party Disclosures 
Matter contained in Financial Statements 
The relevant abstract of Annual Return given in the Annual Report of a 
company, reads as below: 
Remuneration of Directors and Key Managerial Personnel 
… 
C. Remuneration to Key Managerial Personnel other than 
MD/Manager/WTD 
Sr. 
No. 
Particulars of Remuneration Mr P 
1 Gross Salary 
(a) Salary as per provision contained in section 17(1) of 
the Income Tax Act, 1961 
 … 
XXXX 
… 
Total XXXX 
Principle: Ind AS 24 : Related Parties Disclosures 
Paragraph 17 
An entity shall disclose key management personnel compensation in total 
and for each of the following categories: 
a. short-term employee benefits; 
b. post-employment benefits; 
c. other long-term benefits; 
d. termination benefits; and 
e. share-based payment.” 
Paragraph 18 
“If an entity has had related party transactions during the periods covered by 
the financial statements, it shall disclose the nature of the related party 
relationship as well as information about those transactions and outstanding 
balances, including commitments, necessary for users to understand the 
potential effect of the relationship on the financial statements. These 
disclosure requirements are in addition to those in paragraph 17. “ 
Observations related to Other Disclosure 
239 
Observation 
It was noted that remuneration to Key Management Personnel (KMP) has 
been disclosed under Annual Return, however, the required disclosures as 
per paragraphs 17 and 18 of Indian Accounting Standard 24 have not been 
provided in the financial statements. 
Accordingly, it was viewed that the requirements of Indian Accounting 
Standard 24 have not been complied with in preparation and presentation of 
the financial statements. 
56. Related Party Disclosures 
Matter contained in Financial Statements 
The relevant abstract of Note on Other Financial Liabilities and Related Party 
Disclosure given in the Annual Report of a company, reads as below:
“Other Financial Liabilities 
As at March 
31, 20XX
As at March 
31, 20YY 
Current 
Payable to State Government 
towards project management fees 
-- --"
“Related Party Disclosures
(b) Related Parties with whom transactions have taken place during the 
year 
Enterprises having significant influence over the 
company 
 “State Government “ 
Principle: Ind AS 24 : Related Party Disclosures 
Paragraph 18 
“If an entity has had related party transactions during the periods covered 
by the financial statements, it shall disclose the nature of the related party 
relationship as well as information about those transactions and 
outstanding balances, including commitments, necessary for users to 
understand the potential effect of the relationship on the financial 
statements. These disclosure requirements are in addition to those in 
Study on Compliance of Financial Reporting Requirements 
240
paragraph 17. At a minimum, disclosures shall include: 
(a) the amount of the transactions; 
(b) the amount of outstanding balances, including commitments.” 
Observation 
It was noted from the Related Party Disclosure that State Government has 
been disclosed thereat as enterprise having significant influence over 
company. It was further noted from Note on Other Financial Liabilities, that a 
current liability has been disclosed thereat as ‘payable to State Government 
as project management fee’. However, no disclosure of such transaction/ 
Balance has been made under Related Party Disclosure in line with 
paragraph 18 of Indian Accounting Standard 24. 
Accordingly, it was viewed that the requirements of Indian Accounting 
Standard 24 have not been complied with in preparation and presentation of 
the financial statements. 
57. Related Party Disclosures 
Matter contained in Financial Statements 
The relevant abstract of Corporate Governance Report and Related Party 
Disclosure given in the Annual Report of a company, reads as below: 
“5 REMUNERATION OF DIRECTORS 
(a) Disclosures on remuneration and shareholding of Director:- 
NAME OF 
MEMBER 
FIXED COMPONENT 
(Rs. In lacs) 
PERFORMANCE 
LINKED 
INCENTIVES 
SHARES 
HELD 
Mr. A Basic XX NIL XX 
Allowances Nil 3.56% 
Commission Nil 
Other 
Benefits 
TOTAL XX” 
Observations related to Other Disclosure 
241 
RELATED PARTY DISCLOSURE 
There is no transaction or balance outstanding at the end of the period with 
the related parties hence no disclosures of transactions with the related 
parties are given.” 
Principle: Ind AS 24: Related Party Disclosures
Paragraph 17
“An entity shall disclose key management personnel compensation 
in total and for each of the following categories: 
(a) short-term employee benefits; 
(b) post-employment benefits; 
(c) other long-term benefits; 
(d) termination benefits; and 
(e) share-based payment.” 
Observation 
It was noted from the Corporate Governance Report that the company has 
paid remuneration to Mr. A, Executive Whole time Director. It was viewed 
that the compensation paid to Mr A, key managerial personnel should be 
disclosed by the company under Related Party Disclosures in line with 
paragraph 17 of Indian Accounting Standard 24. 
Accordingly, it was viewed that the requirements of Indian Accounting 
Standard 24 have not been complied with in preparation and presentation of 
the financial statements. 
58. Related Party Disclosures 
Matter contained in Financial Statements 
The relevant abstract of Related Party Disclosure given in the Annual Report 
of a company, reads as below: 
“Related Party Disclosure as per Indian Accounting Standard– 24, Related 
Party Disclosure for the year ended March 31, 20XX 
Nature of Relationship Name of Party 
Other Related Parties w.e.f., April 01, 20XX ABC Limited 
XYZ Limited 
Study on Compliance of Financial Reporting Requirements 
242
PQR Limited 
TUV Limited 
DEF Limited 
EFG Limited 
FGH Limited 
MNO Limited 
GHI Limited 
DEF Limited 
CID Foundation 
 “Closing Balance
Nature of Transaction Holding Company 
… --- 
Outstanding loan amount of securitized 
book purchased 
DEF Finance Limited -- 
Outstanding loan amount of securitized 
book sold 
DEF Finance Limited --” 
Principle: Ind AS 24 : Related Parties Disclosures 
Paragraph 18 
“If an entity has had related party transactions during the periods covered by 
the financial statements, it shall disclose the nature of the related party 
relationship as well as information about those transactions and outstanding 
balances, including commitments, necessary for users to understand the 
potential effect of the relationship on the financial statements. These 
disclosure requirements are in addition to those in paragraph 17. At a 
minimum, disclosures shall include: 
Observations related to Other Disclosure 
243 
… 
(b) the amount of outstanding balances, including commitments, and: 
(i) their terms and conditions, including whether they are secured, and the 
nature of the consideration to be provided in settlement;” 
Observation 
It was noted that names of various entities had been disclosed with the 
relationship as ‘other related parties w.e.f., April 1, 20XX’. It was viewed that the 
nature of relationship with these entities should have been disclosed in line with 
paragraph 18. It was further noted that certain outstanding balances with respect 
to securitized book purchased and sold were disclosed, however, the terms and 
conditions of these loans were not disclosed in line with the paragraph 18(b) (i). 
Accordingly, it was viewed that the requirements of Indian Accounting 
Standard 24 have not been complied with in preparation and presentation of 
the financial statements. 
59. Related Party Disclosures 
Matter contained in Financial Statements 
The relevant abstract of Related Party Disclosure given in the Annual Report 
of a company, reads as below: 
Transactions with related parties for the year ended 31st March 20XX: 
Transaction Name of 
the 
Related 
Party 
Holding Company Total 
 20YY-XX 20ZZ-YY 20YY-XX 20ZZ-YY 
……… 
Loans taken 
(Maximum 
balance) 
ABC -- -- -- -- 
Principle: Ind AS 24 : Related Party Disclosures
Paragraph 18
“If an entity has had related party transactions during the periods 
covered by the financial statements, it shall disclose the nature of the 
Study on Compliance of Financial Reporting Requirements 
244
related party relationship as well as information about those 
transactions and outstanding balances, including commitments, 
necessary for users to understand the potential effect of the relationship 
on the financial statements. These disclosure requirements are in 
addition to those in paragraph 17. At a minimum, disclosures shall 
include: 
(a) the amount of transactions 
(b) ....” 
Observation 
It was noted that the company has disclosed the maximum amount of loans 
taken from the related party. It was viewed that instead of disclosing 
maximum loan amount, the company should disclose the amount of loan 
taken and repaid during the year separately in line with paragraph 18 of 
Indian Accounting Standard 24. 
Accordingly, it was viewed that the requirements of Indian Accounting 
Standard 24 have not been complied with in preparation and presentation of 
the financial statements. 
60. Related Party Disclosures 
Matter contained in Financial Statements 
The relevant abstract of certain Notes to Accounts given in the Annual 
Report of a company, reads as below: 
 “Other Financial Assets 
Particulars As at 
31.03.20XX 
As at 
31.03.20YY 
Unsecured Considered Good 
Loans to the Related Parties -- --- 
Advances recoverable in cash or kind 
or for value to be received (includes 
business advances given to related 
party Rs. XX PY Rs. XX) (included 
doubtful of Rs. XX P. Year Rs. XX 
Company has already initiated legal 
proceedings against one of the party) 
--- -- 
Observations related to Other Disclosure 
245 
“Short Term Borrowings
Particulars As at 
31.03.20XX 
As at 
31.03.20YY 
Unsecured Loans from Relate Party 
ABC Limited (Interest Bearing @ 8% 
p.a. payable within 12 months) 
--- _” 
 “Trade Payables 
Particulars As at 31.03.20XX As at 31.03.20YY 
Trade Payables -- -- 
Total -- --" 
(c) Includes payable to related party of Rs. XX Crores, PY Rs. XX. 
“Other Current Liabilities 
Particulars As at 
31.03.20XX 
As at 
31.03.20YY 
Advance from Customers (include 
due to related party Rs. XX, PY Nil 
-- --" 
Principle: Ind AS 24: Related Party Disclosures 
Paragraphs 18 
“If an entity has had related party transactions during the periods covered 
by the financial statements, it shall disclose the nature of the related party 
relationship as well as information about those transactions and 
outstanding balances, including commitments, necessary for users to 
understand the potential effect of the relationship on the financial 
statements. These disclosure requirements are in addition to those in 
paragraph 17. At a minimum, disclosures shall include: 
(a) the amount of the transactions; 
(b) the amount of outstanding balances, including commitments, and: 
(i) their terms and conditions, including whether they are secured, 
and the nature of the consideration to be provided in settlement; 
Study on Compliance of Financial Reporting Requirements 
246
and 
(ii) details of any guarantees given or received; 
(c) provisions for doubtful debts related to the amount of outstanding 
balances; and 
(d) the expense recognised during the period in respect of bad or doubtful 
debts due from related parties.” 
Paragraphs 24 
“Items of a similar nature may be disclosed in aggregate except when 
separate disclosure is necessary for an understanding of the effects of 
related party transactions on the financial statements of the entity.” 
Paragraphs 24A 
“Disclosure of details of particular transactions with individual related parties 
would frequently be too voluminous to be easily understood. Accordingly, 
items of a similar nature may be disclosed in aggregate by type of related 
party. However, this is not done in such a way as to obscure the importance of 
significant transactions. Hence, purchases or sales of goods are not 
aggregated with purchases or sales of fixed assets. Nor a material related 
party transaction with an individual party is clubbed in an aggregated 
disclosure.” 
Observation 
From the Notes to Accounts given in the financial statements, numerous 
instances were identified regarding loans provided to or obtained from 
related parties and sums due from or owed to related parties. However, 
these related party transactions have not been disclosed under Related Party 
Disclosures as required by paragraph 18, read with paragraph 24 and 24A of 
Indian Accounting Standard 24. 
Accordingly, it was viewed that requirements of Indian Accounting Standard 
24 have not been complied with in preparation and presentation of the 
financial statements. 
61. Related Party Disclosures 
Matter contained in Financial Statements 
An abstract of Related Party Disclosure given in the Annual Report of a 
company, reads as below: 
Observations related to Other Disclosure 
247 
“Disclosure of Related Party Transactions: 
Principle: Ind AS 24: Related Party Disclosures 
Paragraph 17
“An entity shall disclose key management personnel compensation 
in total and for each of the following categories: 
a) short-term employee benefits; 
b) post-employment benefits; 
c) other long-term benefits; 
d) termination benefits; and 
e) share based payement” 
Observation 
It was noted from the given note that the company has disclosed short term 
employee benefits plan and other long-term employee benefits plan 
expenses related to Key Managerial Personnel (KMP). However, it is silent 
on post-employment benefits plan expense related to KMPs. 
Accordingly, it was viewed that requirements of Indian Accounting Standard 
24 have not been complied with in preparation and presentation of the 
financial statements. 
Particulars 20XX-YY 
Rs. 
20YY-ZZ 
Rs. 
Key Managerial Personnel – Salary and 
Perquisites 
 
Mr. SP 
 Short term employee benefits -- -- 
 Other long term benefits - -- 
Mr. S K S 
 Short term employee benefits --- - 
 Other long term benefits --- - 
 
Study on Compliance of Financial Reporting Requirements 
248
62. Contingent Liabilities 
Matter contained in Financial Statements 
The relevant abstract of Note on Contingent Liabilities and Commitments 
given in the Annual Report of a company, reads as below: 
Contingent Liabilities And Commitments 
Particulars As at 31 March 
20XX 
As at 31 March 
20YY 
(i) Contingent Liability 
(a) Bank guarantees outstanding XXX XXX 
Principle: Guidance Note on Division II Ind AS Schedule III to the 
Companies Act, 2013 
Paragraph 8.2.14 
Contingent liabilities and commitments 
(i) Contingent Liabilities shall be classified as- 
(a) … 
(b) guarantees excluding financial guarantees; and 
(c) … 
…. 
Paragraph 8.2.14.1 
“A contingent liability in respect of guarantees arises when a company issue 
guarantees to another person on behalf of a third party e.g., when it 
undertakes to guarantee the loan given to a subsidiary or to another company 
or gives a guarantee that another company will perform its contractual 
obligations. However, where a company undertakes to perform its own 
obligations, and for this purpose issues, what is called a "guarantee", it does 
not represent a contingent liability and it is misleading to show such items as 
contingent liabilities in the Balance Sheet. For various reasons, it is customary 
for guarantees to be issued by Bankers e.g. for payment of insurance 
premium, deferred payments to foreign suppliers, letters of credit, etc. For this 
purpose, the company issues a "counter-guarantee" to its Bankers. Such 
"counter-guarantee" is not really a guarantee at all, but is an undertaking to 
perform what is in any event the obligation of the company, namely, to pay the 
insurance premium when demanded or to make deferred payments when due. 
Observations related to Other Disclosure 
249 
Hence, such performance guarantees and counter guarantees should not be 
disclosed as contingent liabilities.” 
Observation 
It was observed that the company has disclosed Bank Guarantees 
outstanding as at balance sheet date, as Contingent Liability. It was viewed 
that bank guarantees undertaken by companies for its own obligations are 
counter guarantees/ performance guarantee and does not represent a 
contingent liability. Therefore, performance guarantee and counter guarantee 
should not be considered as contingent liabilities. 
Accordingly, it was viewed that presentation of Bank Guarantees under 
“Contingent Liabilities” is not in line with the Guidance Note on Division II Ind 
AS Schedule III to the Companies Act, 2013. 
250
Chapter-7 
Observations related to Auditor’s 
Report 
1. Format of Auditor’s Report 
Matter contained in the Independent Auditor’s Report 
The relevant abstract of the Independent Auditor’s Report of a company, 
reads as follows: 
“To the Members of, 
ABC Limited 
1. Report on the Indian Accounting Standards (Ind AS) Financial 
Statements 
… 
2. Management’s Responsibility for the Ind AS Financial Statements 
… 
3. Auditor’s Responsibility 
… 
4. Key Audit Matters 
… 
5. Opinion 
… 
6. Report on Other Legal and Regulatory Requirements” 
Principles: SA 700 (Revised): Forming an opinion and Reporting on 
Financial Statements, SA 720: The Auditor's Responsibilities relating 
to Other Information and SA 701: Communicating Key Audit Matters in 
the Independent Auditor's Report 
Auditor's Opinion 
Paragraph 23 of SA 700 (Revised) 
The first section of the auditor's report shall include the auditor's opinion 
and shall have the heading "Opinion." 
Observations related to Auditor’s Report
251 
Basis for Opinion 
Paragraph 28 of SA 700(Revised) 
''The auditor's report shall include a section, directly following the Opinion 
section, with the heading "Basis for Opinion", that:(Ref: Para. A27) 
(a) States that the audit was conducted in accordance with Standards on 
Auditing; (Ref: Para A28) 
(b) Refers to the section of the auditor's report that describes the auditor's 
responsibilities under the SAs; 
(c) Includes a statement that the auditor is independent of the entity in 
accordance with the relevant ethical requirements relating to the audit, 
and has fulfilled the auditor's other ethical responsibilities in 
accordance with these requirements. The statement shall refer to the 
Code of Ethics issued by ICAI; (Ref: Para A29-A34) 
(d) States whether the auditor believes that the audit evidence the auditor 
has obtained is sufficient and appropriate to provide a basis for the 
auditor's opinion.'' 
Going Concern 
Paragraph 29 of SA 700(Revised) 
''Where applicable, the auditor shall report in accordance with SA 570 
(Revised).'' 
Key Audit Matters 
Paragraph 30 of SA 700(Revised) 
''For audits of complete sets of general-purpose financial statements of 
listed entities, the auditor shall communicate key audit matters in the 
auditor's report in accordance with SA 701.'' 
Responsibilities for the Financial Statements 
Paragraph 33 of SA 700(Revised) 
''The auditor's report shall include a section with a heading 
"Responsibilities of Management for the Financial Statements." The 
auditor's report shall use the term that is appropriate in the context of the 
legal framework applicable to the entity and need not refer specifically to 
"management". In some entities, the appropriate reference may be to those 
charged with governance. (Ref: Para. A39)'' 
Study on Compliance of Financial Reporting Requirements 
252
Auditor's Responsibilities for the Audit of the Financial Statements 
Paragraph 37 of SA 700 (Revised) 
''The auditor's report shall include a section with the heading "Auditor's 
Responsibilities for the Audit of the Financial Statements." 
Other Reporting Responsibilities 
Paragraph 43 of SA 700(Revised) 
''If the auditor addresses other reporting responsibilities in the auditor's 
report on the financial statements that are in addition to the auditor's 
responsibilities under the SAs, these other reporting responsibilities shall 
be addressed in a separate section in the auditor's report with a heading 
titled "Report on Other Legal and Regulatory Requirements" or otherwise 
as appropriate to the content of the section, unless these other reporting 
responsibilities address the same topics as those presented under the 
reporting responsibilities required by the SAs in which case the other 
reporting responsibilities may be presented in the same section as the 
related report elements required by the SAs. (Ref: Para. A53-A55)'' 
Paragraph 21 of SA 720 
"The auditor's report shall include a separate section with a heading "Other 
Information", or other appropriate heading, when, at the date of the 
auditor's report: 
(a) For an audit of financial statements of a listed entity, the auditor has 
obtained, or expects to obtain, the other information; or 
(b) For an audit of financial statements of an unlisted corporate entity, the 
auditor has obtained some or all of the other information. (Ref: Para. 
A52) 
Section 143 (3) (f) of the Companies Act, 2013 
"(3) The auditor's report shall also state- 
… 
(f) the observations or comments of the auditors on financial transactions 
or matters which have any adverse effect on the functioning of the 
company." 
Paragraph 13 of SA 701 
"The description of each key audit matter in the Key Audit Matters section 
of the auditor's report shall include a reference to the related disclosure(s), 
Observations related to Auditor’s Report
253 
if any, in the financial statements and shall address: (Ref: Para. A34-A41) 
(a) Why the matter was considered to be one of the most significance in 
the audit and therefore determined to be a key audit matter; and (Ref: 
Para. A42-A45) 
(b) How the matter was addressed in the audit. (Ref: Para. A46-A51)." 
Observation 
The following non-compliances were observed from the Independent 
Auditor’s Report, 
(i) It was noted that Auditor’s Report was divided into six sections in 
following order; 
 Report on the Indian Accounting Standards (Ind AS) Financial 
Statements 
 Management’s Responsibility for the Ind AS Financial Statements 
 Auditor’s Responsibility 
 Key Audit Matters 
 Opinion 
 Report on Other Legal and Regulatory Requirements. 
It was observed that the auditor has followed the old format of the audit 
report as per SA 700. It was viewed that SA 700 (Revised) is effective 
for audits of financial statements for periods beginning on or after April 1, 
2018, accordingly, the Auditor’s report should be in the following order: 
 Opinion 
 Basis for opinion 
 Going Concern 
 Key Audit Matter 
 Responsibilities of Management for the Financial Statements 
 Auditor’s Responsibilities for the Audit of the Financial Statements 
 Report on Other Legal and Regulatory Requirements 
Study on Compliance of Financial Reporting Requirements 
254
(ii) It was noted that the separate section on going concern has not 
been reported by the auditor as required by SA 700 (Revised) 
eventhough there were certain events which may cast material 
uncertainty about going concern, as evident from the company 
overview, Key Audit Matter and negative net worth. 
(iii) It was noted that SA 720 (Revised), The Auditor’s Responsibilities 
Relating to Other Information, was also applicable on the company 
for the financial year under review, however, the auditor has not 
reported Other Information in line with SA 720 (Revised). 
(iv) It was further noted that the auditor has not reported as per section 
143(3)(f) of the Companies Act, 2013. 
(v) It was noted that the description of each key audit matter has not 
been properly given to address reason for consideration of this 
matter to be one of the most significant in the audit and how the 
matter was addressed in the audit, which is required to be given as 
per SA 701. 
Accordingly, it was viewed that the auditor has not complied with the 
requirement of SA 700 (Revised), SA 701, SA 720 (Revised), SA 570 
(Revised) and the Companies Act, 2013. 
2. Auditor’s Report on the First Standalone Ind 
AS Financial Statements 
Matter contained in the Independent Auditor’s Report 
The relevant Abstract of Independent Auditor’s Report given in the Annual 
Report of a company, reads as follows: 
 “TO THE MEMBERS OF XYZ LIMITED 
… 
REPORT ON THE FINANCIAL STATEMENTS: 
We have audited the accompanying financial statements of XYZ LIMITED 
(“the Company”), which comprise the Balance Sheet as at March 31, 20XX, 
the Statement of Profit and Loss, the Cash Flow Statement for the year then 
ended, and a summary of the significant accounting policies and other 
explanatory information as required for fair presentation of financial 
statements. 
Observations related to Auditor’s Report
255 
Management’s Responsibility for the Financial Statements 
The Company’s Board of Directors is responsible for the matters stated in 
Section 134(5) of the Companies Act, 2013 (“the Act”) with respect to the 
preparation of these financial statements that give a true and fair view of the 
financial position, financial performance and cash flows of the Company in 
accordance with the accounting principles generally accepted in India, 
including the Accounting Standards specified under Section 133 of the Act, 
read with Rule 7 of the Companies(Accounts) Rules, 2014… 
Report on Other Legal and Regulatory Requirements 
… 
(d) In our opinion, the aforesaid financial statements comply with the 
Accounting Standards specified under Section 133 of the Act, read with 
Rule 7 of the Companies (Accounts) Rules, 2014.” 
Principle: Implementation Guide on Auditor’s Report under IND AS for 
transition phase 
Annexure I 
“Illustrative Format of Independent Auditor’s Report on the First 
Standalone Ind AS Financial Statements of a Company under the 
Companies Act, 2013 and the Rules There under 
INDEPENDENT AUDITOR’S REPORT 
Report on the Standalone Ind AS Financial Statements 
We have audited the accompanying standalone Ind AS financial 
statements of ABC Company Limited (“the Company”), which comprise the 
Balance Sheet as at 31st March, 20XX, and the Statement of Profit and 
Loss (including Other Comprehensive Income), the Cash Flow Statement 
and the Statement of Changes in Equity for the year then ended, and a 
summary of the significant accounting policies … 
Management’s Responsibility for the Standalone Financial Statements 
The Company’s Board of Directors is responsible for the matters stated in 
Section 134(5) of the Companies Act, 2013 (“the Act”) with respect to the 
preparation of these standalone Ind AS financial statements that give a 
true and fair view of the state of affairs(financial position), profit or loss 
(financial performance including other comprehensive income), cash flows 
and changes in equity of the Company in accordance with the accounting 
Study on Compliance of Financial Reporting Requirements 
256
principles generally accepted in India, including the Indian Accounting 
Standards (Ind AS) prescribed under section 133 of the Act… 
Auditor’s Responsibility 
Our responsibility is to express an opinion on these standalone Ind AS 
financial statements based on our audit… 
Other Matters 
a) Predecessor auditor to audit transition adjustments 
The comparative financial information of the company for the year ended 
31st March XXX and the transition date opening balance sheet as at 1st 
April XXX prepared in accordance with Ind AS included in these 
standalone Ind AS financial statements have been audited by the 
predecessor auditor who had audited the financial statements for the 
relevant periods. The report of the predecessor auditor on the comparative 
financial information and the opening balance sheet dated XXX expressed 
an unmodified opinion. 
… 
Report on Other Legal and Regulatory Requirements 
1.
2. As required by Section 143(3) of the Act, we report that: 
… 
d) The Balance Sheet, the Statement of Profit and Loss, the Cash Flow 
Statement and Statement of Changes in Equity dealt with by this 
Report are in agreement with the books of account [and with the 
returns received from the branches not visited by us]. 
e) In our opinion, the aforesaid standalone Ind AS financial statements 
comply with the Indian Accounting Standards prescribed under section 
133 of the Act. 
…” 
Observation 
The following non-compliance were observed during the review of auditor’s 
report on Ind AS financial statements of transition year: 
Observations related to Auditor’s Report
257 
1) The wordings of the introductory paragraph should be "Report on the Ind 
AS Financial Statements”. Further, it was viewed that in case of first-time 
adoption of Ind AS, auditor is required to state “Report on the 
Standalone Ind AS Financial Statements” as per the implementation 
guide on Auditor’s Report under Ind AS for transition phase read with its 
illustrative format given above. Similarly, in the Section auditor’s 
responsibility the auditor has used the term "financial statements" 
instead of "Ind AS financial statements”. 
2) In the section "Management's Responsibility for Financial Statements," 
the auditor states, "true and fair view of the company's financial position, 
financial performance, and cash flows..." in the first sentence. However, 
the auditor has not mentioned "including other comprehensive income" 
and ‘’changes in equity". 
3) It was noted that the comparative financial information of the company 
for the year ended 31st March 2017 and the transition date opening 
balance sheet as at 1st April 2016 prepared in accordance with Ind AS 
included in these standalone Ind AS financial statements, were audited 
by the predecessor auditor who had audited the financial statements for 
the relevant periods. However, the auditor has not included paragraph 
"Other Matters" in his audit report in which he should have commented 
upon: 
‘The report of the auditor who has performed audit on the comparative 
financial information as on 31st March 2017 and the transition date 
opening balance sheet as on 1st April 2016, and whether the opinion on 
those statements was modified or otherwise.’ 
4) While reporting under ‘Management Responsibility Section’ and Report 
on Other Legal and Regulatory Requirements’, the auditor uses the 
words "including the Accounting Standards specified under Section 133 
of the Act, read with Rule 7 of the Companies (Accounts) Rules, 2014" in 
the first sentence. It was observed that Rule 7 of the Companies 
(Accounts) Rules 2014 was a transitional provision until the accounting 
standards were notified by the Central Government under Section 133 of 
the Companies Act, 2013. Subsequently, the Central Government 
notified these standards. The accounting standards applicable to the 
company under reference are Ind-AS as notified under the ‘The 
Companies (Indian Accounting Standards) Rules, 2015’. It was viewed 
that the use of the words “read with Rule 7 of the Companies (Accounts) 
Rules, 2014’ is inappropriate in the circumstances where transitional 
Study on Compliance of Financial Reporting Requirements 
258
provision is no longer applicable. It would have been more informative to 
state as follows: 
‘read with the Companies (Indian Accounting Standards) Rules, 2015, as 
amended’ along with ‘Section 133 of the Act’. 
Accordingly, it was viewed that the auditor’s report has not been prepared in 
accordance with the requirements of SA 700 (Revised) as well as 
Implementation Guide on Auditor’s Report under IND AS for transition phase. 
3. Addressee 
Matter contained in the Independent Auditor’s Report 
The relevant abstract of Independent Auditors’ Report reads as below: 
INDEPENDENT AUDITORS’ REPORT 
To 
The Resolution Professional of ABC LTD 
…” 
Principle: SA 700 (Revised) - Forming an Opinion and Reporting on 
Financial Statements 
Paragraph A16 of Application and Other Explanatory Material 
“… The auditor’s report is normally addressed to those for whom the report is 
prepared, often either to the shareholders or to those charged with governance 
of the entity whose financial statements are being audited.” 
Observation 
It was noted that the company is in the Corporate Insolvency Resolution 
Process (CIRP) and a Resolution Professional has been appointed. It was 
further noted that the Auditor’s Report has been addressed to Resolution 
Professional. 
It was viewed that with the appointment of an Interim Resolution Professional 
(IRP)/Resolution Professional (RP), the powers of the Board of Directors 
vested by virtue of the Companies Act, 2013 are suspended and the IRP/RP 
is mandated to manage the affairs of the Company. Nevertheless, the 
Auditor, appointed by the members of the Company, should continue to 
perform his duties as per the Companies Act, 2013 and SEBI regulations. 
Observations related to Auditor’s Report
259 
Hence, it was viewed that the audit report should be addressed to 
shareholders instead of Resolution professional. 
Accordingly, it was viewed that the requirement of SA 700 (Revised) has not 
been appropriately complied with. 
4. Addressee 
Matter contained in the Independent Auditor’s Report 
An abstract of Auditor’s Report of XYZ Ltd, reads as under 
“Report on the Internal Financial Controls Over Financial Reporting under 
Clause (i) of Subsection 3 of Section 143 of the Companies Act, 20l3 (“the 
Act”) 
We have audited the internal financial controls over financial reporting of 
ABC LIMITED ("the Company") as of March 31, 20XX in conjunction with 
our audit of the standalone financial statements of the Company for the year 
ended on that date.” 
(emphasis supplied) 
Principle: SA 700 (Revised) - Forming an Opinion and Reporting on 
Financial Statements 
Paragraph A16 
“The law or regulation applicable to the entity often specifies to whom the 
auditor’s report is to be addressed. The auditor’s report is normally 
addressed to those for whom the report is prepared, often either to the 
shareholders or to those charged with governance of the entity whose 
financial statements are being audited. “
Observation 
It was noted from the Auditor’s Report that the X audit firm was appointed as 
auditor of XYZ Ltd. However, Annexure A of the auditor’s report mention the 
name of other company i.e. “ABC Limited”. 
Accordingly, it was viewed that the requirements of SA 700 (Revised) have 
not been complied with. 
Study on Compliance of Financial Reporting Requirements 
260
5. Opinion 
Matter contained in Independent Auditor’s Report 
The relevant abstract of an Independent Auditor’s Report reads as follows: 
“INDEPNDENT AUDITOR’S REPORT 
To the Members of: 
ABC Corporation Limited 
Report on the audit of financial statements 
We have audited the accompanying financial statements of ABC Corporation 
Limited (“the company”), which comprise Balance Sheet as at 31st March, 
20XX, the Statement of Profit and Loss (including Other Comprehensive 
Income), and summary of significant accounting policies and other 
explanatory information (hereinafter referred to as “financial statements”). 
……………” 
Principle: SA 700 (Revised)- Forming an Opinion and Reporting on 
Financial Statements 
Paragraph 8 
“Reference to “financial statements” in this SA means “a complete set of 
general-purpose financial statements, including the related notes”. The 
related notes ordinarily comprise a summary of significant accounting 
policies and other explanatory information and any other information 
required to be included as part of the financial statements by the law and 
regulations governing the entity. The requirements of the applicable 
financial reporting framework determine the form and content of the 
financial statement, and what constitute a complete set of financial 
statements.” 
Paragraph 23 
“The first section of the auditor’s report shall include the auditor’s opinion 
and shall have the heading “Opinion”.” 
“Illustration 1 - Auditor’s Report on Financial Statements of a Listed 
Company Prepared in Accordance with a Fair Presentation Framework 
… 
Observations related to Auditor’s Report
261 
Report on the Audit of the Standalone Financial Statements 
Opinion 
We have audited the standalone financial statements of ABC Company 
Limited (“the Company”), which comprise the balance sheet as at 31st 
March 20XX, and the statement of profit and loss, (statement of changes in 
equity) and statement of cash flows for the year then ended, and notes to 
the financial statements, including a summary of significant accounting 
policies and other explanatory information …………….”
Observation 
It was noted from the Independent Auditor’s Report that while giving the 
opinion on financial statements auditor has included ‘Balance Sheet’, 
‘Statement of Profit and Loss (including other comprehensive income), 
‘Summary of Accounting Policies’, and ‘Other Explanatory Notes’ in his 
statement. However, he has omitted to include ‘Statement of Changes in 
Equity, Statement of Cash Flow’ and ‘Notes to the Financial Statements’. It 
was further noted that auditor has omitted to give the heading ‘Opinion’ for its 
opinion paragraph. 
Accordingly, it was viewed that the auditor has not complied with the 
requirements of SA 700(Revised). 
6. Unmodified Opinion 
Matter contained in Independent Auditor’s Report 
An abstract of Opinion Paragraph given in one of the Independent Auditor’s 
Report, reads as below: 
 “5. Opinion 
In our opinion and to the best of our information and according to the 
explanations given to us, and subject to note given above, the Ind AS 
financial statements give the information required by the Act in the manner 
so required and give a true and fair view in conformity with the accounting 
principles generally accepted in India; of the state of the affairs of the 
company as at 31st March 20XX, and its losses, cash flows for the year 
ended on that date.” 
 (emphasis supplied) 
Study on Compliance of Financial Reporting Requirements 
262
Principles: SA 705: Modification to the Opinion in the Independent 
Auditor’s Report and SA 700 (Revised): Forming and Opinion and 
Reporting on Financial Statements 
Paragraph 21 of SA 705 
“If there is a material misstatement of the financial statements that relates 
to specific amounts in the financial statements (including quantitative 
disclosures), the auditor shall include in the basis for Opinion section a 
description and quantification of the financial effects of the misstatement, 
unless impracticable. If it is not practicable to quantify the financial effects, 
the auditor shall so state in this section. (Ref: Para A22)” 
Paragraph A20 of SA 700 (Revised) 
“When the auditor expresses an unmodified opinion, it is not appropriate to 
use phrases such as “with the foregoing explanation” or “subject to” in 
relation to the opinion, as these suggest a conditional opinion or a 
weakening or modification of opinion.” 
Observation 
It was noted from the opinion paragraph that the auditor has given an 
unmodified opinion. However, while giving unmodified opinion the auditor has 
reported that ‘’subject to note given above, the Ind AS financial statements 
give the information required by the Act in the manner so required and give a 
true and fair view’’. It was viewed that when the auditor expresses an 
unmodified opinion, it is not appropriate to use phrases such as “with the 
foregoing explanation” or “subject to” in relation to the opinion, because it 
indicates a conditional opinion or modification of opinion as per SA 700 
(Revised). Accordingly, providing an unmodified opinion by using the phrase 
‘subject to note given above’ is not in line with the requirements of SA 700 
(Revised). 
In case, the auditor is expressing modified opinion, then the auditor should 
report brief description of material misstatements in financial statement as 
well as their effect thereon, and if it is not practicable to quantify their impact, 
the fact should be stated in the basis for modified opinion paragraph. 
Accordingly, it was viewed that the requirements of SA 700 (Revised) and SA 
705 have not been complied with. 
Observations related to Auditor’s Report
263 
7. Modified Opinion 
Matter contained in Independent Auditor’s Report 
The relevant abstract of the Independent Auditor’s Report of a company 
reads as below: 
“Basis of Qualified Opinion 
… 
4. Disclaimer of Opinion 
… 
(v) Attention is invited to Note no. 30 where the profit of Rs. XX Crores 
fully represents write back of sundry balances and is not out of 
normal business of the Company. 
5. Basis of Disclaimer of Opinion 
… 
“Note 30: Earning Per Share 
… 
Note: The profit of Rs. X crores fully represent write back of balances and is 
not out of normal business of the company.” 
Principle: SA 705: Modification to the Opinion in the Independent 
Auditor’s Report 
Paragraph 13 
“If the auditor is unable to obtain sufficient appropriate audit evidence, the 
auditor shall determine the implications as follows: 
(a) If the auditor concludes that the possible effects on the financial 
statements of undetected misstatements, if any, could be material but 
not pervasive, the auditor shall qualify the opinion; or 
(b) If the auditor concludes that the possible effects on the financial 
statements of undetected misstatements, if any, could be both material 
and pervasive so that a qualification of the opinion would be inadequate 
to communicate the gravity of the situation, the auditor shall: 
(i) Withdraw from the audit, where practicable and possible under 
applicable law or regulation; or (Ref: Para. A13) 
(ii) If withdrawal from the audit before issuing the auditor’s report is not 
practicable or possible, disclaim an opinion on the financial 
statements. (Ref. Para. A14).” 
Study on Compliance of Financial Reporting Requirements 
264
Observation 
It was noted from the Auditor’s Report that the auditor has modified his 
opinion by giving Qualified Opinion as well as Disclaimer of Opinion. It was 
viewed that there is a distinction between qualified opinion, a disclaimer of 
opinion and an adverse opinion as per SA 705 (Revised). As per the 
Standard, the auditor shall either qualify his opinion if the possible effect of 
undetected misstatements is likely to be material but not pervasive, or give 
disclaimer of opinion, if possible, effect of undetected misstatements is 
material as well as pervasive and the auditor is unable to obtain sufficient 
and appropriate audit evidence. 
Accordingly, it was viewed that the auditor’s report is not in line with the 
requirements of SA 705 (Revised). 
8. Going Concern 
Matter contained in Independent Auditor’s Report 
The relevant abstract of Emphasis of Matter given in the Independent 
Auditor’s Report is reproduced below: 
 “Emphasis of Matter 
We draw attention to the note no. XX of the financial statements, the 
Company has incurred loss of Rs. XX during the year (accumulated losses 
as at 31st March, 20XX is Rs. XXX) resulting in to erosion of its net worth as 
at 31st March, 20XX. The ability of the Company to continue as a going 
concern is significantly dependent on its ability to successfully fund its 
operating and capital fund requirement. The management in view of its 
business plan is confident of generating cash flows to fund the operating and 
capital requirements of the Company. Accordingly, these Statements have 
been prepared on a going concern basis. Our report is not qualified in 
respect of this matter.” 
Principle: SA 570 (Revised): Going Concern read with SA 701: 
Communicating Key Audit Matters in the Independent Auditor’s 
Report and Implementation Guide to SA 701 
Paragraph 22 of SA 570 (Revised) 
22. If adequate disclosure about the material uncertainty is made in the 
financial statements, the auditor shall express an unmodified opinion and 
the auditor’s report shall include a separate section under the heading 
“Material Uncertainty Related to Going Concern” to: (Ref: Para. A28–A31, 
Observations related to Auditor’s Report
265 
A34) 
(a) Draw attention to the note in the financial statements that discloses 
the matters set out in paragraph 19; and 
(b) State that these events or conditions indicate that a material 
uncertainty exists that may cast significant doubt on the entity’s ability 
to continue as a going concern and that the auditor’s opinion is not 
modified in respect of the matter. 
Question 30 of Implementation Guide to SA 701 
“Will matters relating to going concern now be reported as key audit matter 
as required by SA 701 or an Emphasis of Matters as required by SA 570 
(Revised) or SA 706 (Revised)? 
Response 30: 
Scenario 1: Material Uncertainty w.r.t. Going Concern exists 
In the event of existence of a material uncertainty that casts a significant 
doubt on the entity’s ability to continue as a going concern in the 
foreseeable future, the same by nature would be a key audit matter. There 
could be 2 situations here. First, where adequate disclosure about the 
material uncertainty is made in the financial statements and second, where 
adequate disclosure about the material uncertainty is not made in the 
financial statements. Reporting in Situation 1 If adequate disclosure 
about the material uncertainty is made in the financial statements, the 
auditor shall express an unmodified opinion and the Material uncertainty is 
required to be disclosed separately under a separate section ‘Material 
uncertainty related to going concern’, after ‘Basis for Opinion’ paragraph 
as required by SA 570 (Revised). In the case of a listed entity, in addition 
to the disclosure under the aforesaid separate section, under the key audit 
matters section also, the auditor is required to make a reference. 
Therefore, in the event of a material uncertainty, when an Emphasis of 
Matter paragraph used to be provided earlier has now been replaced with 
inclusion as a separate paragraph with heading ‘Material uncertainty 
related to going concern’ and would no longer be an Emphasis of Matter 
paragraph.”
Illustration: In the auditor’s report having unmodified opinion: 
Material Uncertainty Related to Going Concern 
We draw attention to Note XX in the financial statements, which indicates 
that the Company incurred a net loss of ZZZ during the year ended March 
Study on Compliance of Financial Reporting Requirements 
266
31, 20X1 and, as of that date, the Company’s current liabilities exceeded 
its total assets by YYY. These events or conditions, along with other 
matters as set forth in Note XX, indicate that a material uncertainty exists 
that may cast significant doubt on the Company’s ability to continue as a 
going concern. Our opinion is not modified in respect of this matter. 
Key Audit Matters 
Key audit matters are those matters that, in our professional judgment, 
were of most significance in our audit of the financial statements of the 
current period. These matters were addressed in the context of our audit 
of the financial statements as a whole, and in forming our opinion thereon, 
and we do not provide a separate opinion on these matters. In addition to 
the matter described in the Material Uncertainty Related to Going 
Concern section, we have determined the matters described below to 
be the key audit matters to be communicated in our report. 
[Description of each key audit matter in accordance with SA 701] 
…”(emphasis supplied) 
Observation 
It was observed from the auditor’s report that the Going Concern matter has 
been addressed under the heading “Empasis of Matters”. It was viewed that, 
following the introduction of SA 570 (Revised), in the event of a material 
uncertainty, the emphasis of matter paragraph has been replaced with a 
separate paragraph titled ‘Material uncertainty related to going concern’. 
Additionally, since the company is listed the reference to this matter should 
have been included under Key Audit Matters also in the given manner. 
Accordingly, it was viewed that the requirements of SA 570 (Revised) and SA 
701 have not been complied with. 
9. Going Concern 
Matter contained in the Annual Report 
The relevant abstract of the Director’s Report and Note XX of the Financial 
Statements, is reproduced below: 
 “Director’s Report 
… 
Observations related to Auditor’s Report
267 
IMPACTING ON GOING CONCERN STATUS AND COMPANY’S 
OPERATIONS 
There has been no significant and material orders passed by any regulators 
or courts or tribunals impacting the going concern status and company’s 
operations in future.” 
“Note XX: Material uncertainty about Going Concern 
“In preparing financial statements, management has made an assessment of 
Company’s ability to continue as a going concern. Financial statements are 
prepared on a going concern basis. The Management is aware, in making its 
assessment, of material uncertainties related to events or conditions that 
may cast significant doubt upon the Company’s ability to continue as a going 
concern.” 
Principles: SA 570 (Revised): Going Concern and Ind AS 1: 
Presentation of Financial Statements 
Paragraph 23 of SA 570 (Revised) 
23. If adequate disclosure about the material uncertainty is not made in 
the financial statements, the auditor shall: (Ref: Para. A32–A34) 
(a) Express a qualified opinion or adverse opinion, as appropriate, in 
accordance with SA 705 (Revised)4; and 
(b) In the Basis for Qualified (Adverse) Opinion section of the auditor’s 
report, state that a material uncertainty exists that may cast significant 
doubt on the entity’s ability to continue as a going concern and that 
the financial statements do not adequately disclose this matter.” 
Paragraph 25 of Ind AS 1 
“25. When preparing financial statements, management shall make an 
assessment of an entity’s ability to continue as a going concern. An entity 
shall prepare financial statements on a going concern basis unless 
management either intends to liquidate the entity or to cease trading or 
has no realistic alternative but to do so. When management is aware, in 
making its assessment, of material uncertainties related to events or 
conditions that may cast significant doubt upon the entity’s ability to 
continue as a going concern, the entity shall disclose those uncertainties. 
When an entity does not prepare financial statements on a going concern 
basis, it shall disclose that fact, together with the basis on which it 
prepared the financial statements and the reason why the entity is 
not regarded as a going concern.” 
(emphasis supplied)
Study on Compliance of Financial Reporting Requirements 
268
Observation 
It was noted that annual report of a company reveals material uncertainties 
regarding its ability to continue as going concern, including the cancellation 
of long-term project, no asset addition’s in the last two years, unpaid interest 
on a loan from parent company which exceeds 57% of the principal amount, 
non-realization of interest on loans advanced to others and negative net 
worth. 
It was viewed that when management is aware of material uncertainties 
related to events or conditions that may cast significant doubt upon the 
entity’s ability to continue as a going concern, the company should disclose 
those material uncertainties as required by Paragraph 25 of Ind AS 1. 
Further, it was viewed that since the company was facing various significant 
uncertainties posing a potential threat to its continuity as a going concern 
and considering the insufficient disclosures in its financial statements, the 
auditor should have given either a qualified opinion or an adverse opinion in 
his audit report as per the requirements of SA 570 (Revised). 
Accordingly, it was viewed that the requirements of SA 570 (Revised), SA 
705 and Ind AS 1 have not been complied with. 
10. Communicating Key Audit Matters in the 
Auditor’s Report 
Matter contained in Independent Auditor’s Report 
The relevant abstract of the Independent Auditor’s Report is reproduced 
below: 
“Independent Auditor’s Report 
… 
Key Audit Matters 
Key audit matters are those matters that, in our professional judgement, were 
of most significance in our audit of the standalone Ind AS financial 
statements for the year ended March 31, 20XX. These matters were 
addressed in the context of our audit of the standalone Ind AS financial 
statements as a whole, and in forming our opinion thereon, and we do not 
provide a separate opinion on these matters. We have determined the 
matters described below to be the key audit matters to be communicated in 
our report. 
Observations related to Auditor’s Report
269 
Key Audit Matter Auditor’s Response 
1. Goodwill Impairment testing and 
Impact on COVID-19 thereon 
… 
Principal Audit Procedure 
… 
Principle: SA 701: Communicating Key Audit Matters in the 
Independent Auditor’s Report 
Paragraph 13 of SA 701 
''13.The description of each key audit matter in the Key Audit Matters 
section of the auditor's report shall include a reference to the 
related disclosure(s), if any, in the financial statements and shall 
address:(Ref: Para. A34-A41)
(a) Why the matter was considered to be one of most significance in 
the audit and therefore determined to be a key audit matter; and 
(Ref: Para A42-A45)
(b) How the matter was addressed in the audit. (Ref: Para. A46-A51)"
(emphasis supplied) 
Observation 
It was observed from the Balance sheet that goodwill represents 65% of the 
company’s total assets. Additionally, it was noted from the auditor’s report 
that Impairment testing of Goodwill and the COVID 19 impact thereon has 
been considered as Key Audit Matter. From notes to accounts, it was noted 
that a detailed note in this regard has also been given in the financial 
statements. However, the auditor has not given the reference to the relevant 
note to accounts while reporting the Key Audit Matter in his Audit Report. 
Accordingly, it was viewed that the requirements of SA 701 have not been 
complied with by the auditor. 
11. Key Audit Matter Section 
Matter contained in Independent Auditor’s Report 
The relevant Abstract of the Independent Auditor’s Report given in the 
Annual Report of a company, reads as follows: 
“Report on audit of the Standalone Financial Statements 
Study on Compliance of Financial Reporting Requirements 
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Opinion 
… 
In our opinion and to the best of our information and according to the 
explanations given to us, the aforesaid standalone financial statements give 
the information required by the Act in the manner so required and give a true 
and fair view in conformity with the accounting principles generally accepted 
in India, of the state of affairs of the Company as at March 31, 20XX and 
profit / loss, and its cash flows for the year ended on March, 20XX. 
… 
Key Audit Matters 
1. Key audit matters are those matters that, in our professional judgment, 
were of most significance in our audit of the Special Purpose Financial 
Statements of the current year. These matters were addressed in the 
context of our audit of the financial statements as a whole, and in 
forming our opinion thereon, and we do not provide a separate opinion 
on these matters.
2. We have determined the matters described below to be the key audit 
matters to be communicated in our report.
Key Audit Matter How our audit addresses the key audit 
matter 
---Nil--- 
Principles: SA 701 - key Audit Matters in the Independent Auditor’s 
Report and SA 700 (Revised) - Forming an Opinion and Reporting on 
Financial Statements 
Paragraph 5 of SA 701 
“This SA applies to audits of complete sets of general-purpose financial 
statements of listed entities and circumstances when the auditor otherwise 
decides to communicate key audit matters in the auditor’s report. This SA 
also applies when the auditor is required by law or regulation to 
communicate key audit matters in auditor’s report. However, SA 705 
prohibits the auditor from communicating key audit matters when the 
auditor disclaims an opinion on the financial statements, unless such 
reporting is required by law or regulation.” 
Observations related to Auditor’s Report
271 
Paragraph A22 of SA 700(Revised) 
“In the case of financial statements prepared in accordance with a fair 
presentation framework, the auditor’s opinion states that the financial 
statements present fairly, in all material respects, or give a true and fair 
view of, the matters that financial statements are designed to present. For 
example, in case of financial statements of companies prepared in 
accordance with the Companies (Indian Accounting Standards) Rules, 
2015, these matters are: true and fair view of the state of affairs of the 
company as at the end of its financial year and its profit or loss,” 
Observation 
It was noted from the Key Audit Matter paragraph of Independent Auditor’s 
Report that the auditor has made reference to the ‘Special Purpose Financial 
Statements’ while describing the key audit matters and his professional 
judgement in that regard. It was viewed that the financial statements on 
which the auditor has given his report are the general-purpose financial 
statements, therefore, it leads to incorrect references in the report. 
It was further noted from the ‘Opinion’ paragraph that the auditor has used 
the term ‘profit / losses’. It was viewed that, since the company has incurred 
loss during the year, the auditor should have clearly mentioned the term 
‘loss’ in his report in line with paragraph A22 of SA 700(Revised). 
Accordingly, it was viewed that the requirement of SA 700(Revised) and SA 
701 have not been complied with by the auditor. 
12. Other Information 
Matter contained in the Independent Auditor’s Report 
An abstract of the Independent Auditor’s Report of a company, reads as 
below: 
“Information Other than the Ind AS Financial Statements and Auditor’s 
Report thereon 
The Company’s Board of Directors is responsible for the other information. 
The other information comprises the information included in the Annual 
Report but does not include the standalone financial statements and our 
auditor’s report thereon. 
Study on Compliance of Financial Reporting Requirements 
272
Our opinion on the standalone financial statements does not cover the other 
information and we do not express any form of assurance conclusion 
thereon. 
In connection with our audit of the standalone financial statements, our 
responsibility is to read the other information identified and, in doing so, 
consider whether the other information is materially inconsistent with the 
standalone financial statements, or our knowledge obtained in the audit, or 
otherwise appears to be materially misstated. If, based on the work we have 
performed, we conclude that there is a material misstatement of this other 
information, we are required to report that fact. We have nothing to report in 
this regard.” 
Principles: SA 720 (Revised)- The Auditor’s Responsibilities Relating 
to Other Information 
Paragraph 22 
“When the auditor’s report is required to include an Other Information 
section in accordance with paragraph 21, this section shall include: (Ref: 
Para. A53) 
 … 
(b) An identification of: 
 … 
(ii) For an audit of financial statements of a listed entity, other 
information, if any, expected to be obtained after the date of the 
auditor’s report 
Illustrative Format 4 of Appendix 2 
Other Information [or another title if appropriate, such as 
“Information Other than the Financial Statements and Auditor’s 
Report Thereon”] 
The Company’s Board of Directors is responsible for the other information. 
The other information comprises the [information included in the X report, 
but does not include the financial statements and our auditor’s report 
thereon]. The X report is expected to be made available to us after the 
date of this auditor's report. 
Our opinion on the financial statements does not cover the other 
information and we will not express any form of assurance conclusion 
thereon. 
In connection with our audit of the financial statements, our responsibility 
Observations related to Auditor’s Report
273 
is to read the other information identified above when it becomes available 
and, in doing so, consider whether the other information is materially 
inconsistent with the financial statements or our knowledge obtained in the 
audit, or otherwise appears to be materially misstated. 
[When we read the X report, if we conclude that there is a material 
misstatement therein, we are required to communicate the matter to those 
charged with governance and (describe actions applicable in the 
applicable laws and regulations).] 
(emphasis supplied)”
Observation 
It was noted from the annual report that the Director’s Report and Other 
related information were signed on July 19, 2019, while the auditor’s report 
and financial statements were signed on May 15, 2019, i.e., prior to the 
availability of this other information. It was observed that, in the Auditor’s 
Report, the auditor expressed an opinion on the information other than the 
standalone financial statements as of May 15, despite the same was not 
available at that time. 
It was viewed that the auditor should have reported the fact that other 
information is expected to be made available to them after the date of this 
auditor's report and should have reported as per the illustrative format given 
under SA 720. 
Accordingly, it was viewed that the auditor’s reporting is not in line with the 
requirement of SA 720 read with illustration 4 thereon. 
13. Other Information 
Matter contained in the Independent Auditor’s Report 
The Other Information paragraph has not been included in the Independent 
Auditor’s Report of certain companies. 
Principle: SA 720 (Revised)- The Auditor’s Responsibilities Relating 
to Other Information 
Paragraph 21 
“The auditor’s report shall include a separate section with a heading “Other 
Information”, or other appropriate heading, when, at the date of the 
auditor’s report: 
(a) For an audit of financial statements of a listed entity, the auditor has 
Study on Compliance of Financial Reporting Requirements 
274
obtained, or expects to obtain, the other information; or 
(b) For an audit of financial statements of an unlisted corporate entity, the 
auditor has obtained some or all of the other information. (Ref: Para. 
A52) 
Paragraph 22 
When the auditor’s report is required to include an Other Information 
section in accordance with paragraph 21, this section shall include: (Ref: 
Para. A53) 
(a) A statement that management is responsible for the other information; 
(b) An identification of: 
(i) Other information, if any, obtained by the auditor prior to the date of 
the auditor’s report; and 
(ii) For an audit of financial statements of a listed entity, other 
information, if any, expected to be obtained after the date of the 
auditor’s report; 
(c) A statement that the auditor’s opinion does not cover the other 
information and, accordingly, that the auditor does not express (or will 
not express) an audit opinion or any form of assurance conclusion 
thereon; 
(d) A description of the auditor’s responsibilities relating to reading, 
considering and reporting on other information as required by this SA; 
and 
(e) When other information has been obtained prior to the date of the 
auditor’s report, either: 
(i) A statement that the auditor has nothing to report; or 
(ii) If the auditor has concluded that there is an uncorrected material 
misstatement of the other information, a statement that describes 
the uncorrected material misstatement of the other information”.
Observations related to Auditor’s Report
275 
Observation 
It was noted that SA 720 (revised) was applicable to the auditor’s report for 
the year under review. However, the auditor has not reported on Other 
Information as per the above stated requirement of SA 720(Revised). 
Accordingly, it was viewed that the requirements of SA 720 (revised) have 
not been complied with. 
14. Other Information 
Matter contained in the Annual Report 
The relevant abstract of the Director’s Report and Note on Other Current 
Financial Liabilities as given in the Annual Report of a company, reads as 
below: 
“Annexure A to Director’s Report 
Form No. MGT-9 Extract of Annual Returns 
V. INDEBTEDNESS 
Indebtedness of the Company including interest outstanding/accrued but not 
due for payment. 
Secured 
Loans 
excluding 
deposits 
Unsecured 
Loans 
Deposits Total 
Indebtedness 
… 
Indebtedness at 
the end of the 
financial year 
 
i. Principal 
Amount 
-- --
ii. Interest due 
but not paid 
-- - - --
iii. Interest 
accrued but 
not due 
-- - - --
Total (i+ii+iii) --- - - ---
Study on Compliance of Financial Reporting Requirements 
276
Note on Other Current Financial Liabilities 
(Rupees in lakhs) 
March 31, 20XX March 31, 20YY 
Current maturities of longterm borrowings (refer note: 
3.11) 
-- --
Interest accrued but not due on 
borrowings 
-- --
Interest accrued and due on 
borrowings 
-- -
… 
Principle: SA 720 (Revised)- The Auditor’s Responsibilities Relating 
to Other Information 
Paragraph 17 
“If the auditor concludes that a material misstatement of the other 
information exists, the auditor shall request management to correct the 
other information. If management: 
(a) Agrees to make the correction, the auditor shall determine that the 
correction has been made; or 
(b) Refuses to make the correction, the auditor shall communicate the 
matter with those charged with governance and request that the 
correction be made. “ 
Paragraph 18 
“If the auditor concludes that a material misstatement exists in other 
information obtained prior to the date of the auditor’s report, and the other 
information is not corrected after communicating with those charged with 
governance, the auditor shall take appropriate action, including: (Ref: Para. 
A44) 
(a) Considering the implications for the auditor’s report and communicating 
with those charged with governance about how the auditor plans to 
address the material misstatement in the auditor’s report (see 
paragraph 22(e)(ii)); or (Ref: Para. A45) 
(b) Withdrawing from the engagement, where withdrawal is possible under 
applicable law or regulation. (Ref: Para. A46–A47)”
Observations related to Auditor’s Report
277 
Observation 
It was observed that there is a material difference between Principal amount 
of Indebtedness disclosed in Part V of Form No. MGT 9 and the balance at 
the end of the reporting date under Note on Other Current Financial Liability 
in the financial statements. 
It was viewed that the auditor has not reported the inconsistency in his report 
under the section ‘’Information other than the financial statements and 
auditor’s report thereon”. 
Accordingly, it was viewed that the requirement of SA 720 (Revised) has not 
been complied with. 
15. Responsibilities of Management and Those 
Charged with Governance 
Matter contained in the Independent Auditor’s Report 
An abstract of Independent Auditor’s Report of a company, reads as below: 
“Independent Auditor’s Report 
To the Members of 
ABC Industries Limited 
Report on the Standalone Ind AS Financial Statements 
… 
Management’s Responsibility for the Financial Statements 
…” 
Principle: SA 700 (Revised)- Forming an Opinion and Reporting on 
Financial Statements 
“INDEPENDENT AUDITOR’S REPORT 
To the Members of ABC Company Limited 
Report on the Audit of the Standalone Financial Statements 
… 
Responsibilities of Management and Those Charged with Governance 
for the Standalone Financial Statements 
…” 
Study on Compliance of Financial Reporting Requirements 
278
Observation 
It was noted from the Independent Auditor’s Report that the auditor has used 
the heading “Management’s Responsibility for the Financial Statements” 
instead of using correct heading i.e., “Responsibilities of Management and 
Those Charged with Governance for the Standalone Financial Statements “. 
Accordingly, it was viewed that the requirements of SA 700(Revised) have 
not been complied with. 
16. Auditor’s Responsibilities for the Audit 
Matter contained in the Independent Auditor’s Report 
From the Independent Auditor’s Report of a company, it was noted that the 
auditor’s responsibilities paragraph is incomplete. 
Principle: SA 700 (Revised)- Forming an Opinion and Reporting on 
Financial Statements 
Paragraph 40 
“The Auditor’s Responsibilities for the Audit of the Financial Statements 
section of the auditor’s report also shall: (Ref: Para. A45) 
(a) State that the auditor communicates with those charged with 
governance regarding, among other matters, the planned scope and 
timing of the audit and significant audit findings, including any 
significant deficiencies in internal control that the auditor identifies 
during the audit; 
(b) State that the auditor provides those charged with governance with a 
statement that the auditor has complied with relevant ethical 
requirements regarding independence and communicate with them all 
relationships and other matters that may reasonably be thought to 
bear on the auditor’s independence, and where applicable, related 
safeguards;”
Observation 
It was noted that while reporting Auditor’s Responsibilities for the Audit of the 
Standalone Financial Statements the auditor has not stated that he has 
communicated with those charged with governance regarding planned scope 
and timing of the audit, significant audit findings as well as complied with 
Observations related to Auditor’s Report
279 
relevant ethical requirements as required by paragraph 40 (a) & (b) of SA 
700 (Revised). 
Accordingly, it was viewed that the requirements of SA 700(Revised) have 
not been complied with by the auditor. 
17. Emphasis of Matter 
Matter contained in Financial Statements 
The relevant abstract of the Note on Other Intangible Assets given in the 
Annual Report of a company, reads as below: 
“The SCAs for both projects has been granted for an initial period of 30 years 
from the “operations Date” which is October 24, 2000 in case of VHRP and 
February 20, 2003, in case of AMRP. The SCAs also envisage the Company 
earning designated return over the period of 30 years. In the event, the 
Company is unable to earn the designated return, the SCAs provide for 
extension of the period of 30 years by two years at a time until the project 
costs and the returns thereon are recovered by the Company. However, the 
Company has made an application to GoG for restricting the concession 
period up to FY 2040 for VHRP and AMRP, acceptance of the application is 
awaited from GoG. Accordingly, the remaining amortization period 
considered for the Toll Collection Rights at the end of the reporting period is 
22 years. (March 31, 2017: 23 years).” 
Principle: SA 706 (Revised)- Emphasis of Matter Paragraphs and 
Other Matter Paragraphs in the Independent Auditor’s Report 
Paragraph 8 
"If the auditor considers it necessary to draw users' attention to a matter 
presented or disclosed in the financial statements that, in the auditor's 
judgment, is of such importance that it is fundamental to users' 
understanding of the financial statements, the auditor shall include an 
Emphasis of Matter paragraph in the auditor's report provided: (Ref: Para. 
A5-A6) 
a) The auditor would not be required to modify the opinion in accordance 
with SA 705(Revised) as a result of the matter; and 
b) When SA 701 applies, the matter has not been determined to be a key 
audit matter to be communicated in the auditor's report. (Ref: Para. 
A1-A3) 
Study on Compliance of Financial Reporting Requirements 
280
Observation 
The Note regarding ‘Amortization of Rights under Service Concession 
arrangements (SCA)’ indicates that these rights were originally to be 
amortized over a period of 30 years, as stipulated by the Government of 
Gujarat (GoG). However, the company has submitted an application to GoG, 
(which was under consideration of authority at the reporting date), to extend 
the amortization period to 2040 instead of 2030 and based on that 
application, the period of ‘amortization of rights under SCA’ has been 
increased by 10 years i.e., without confirmation being received from GoG. It 
was viewed that such a change in the useful life of the ‘rights under SCA’ will 
significantly alter the amount of amortization expenses, thereby impacting 
the Statement of Profit and Loss. Given the implications of this adjustment on 
the financial statements, it is crucial for the users to be informed. Therefore, 
it should have been brought to their notice by the auditor by way of 
‘emphasis of matter’ in line with paragraph 6 of SA 706. 
Accordingly, it was viewed that the requirements of SA 706 (Revised) have 
not been complied with by the auditor. 
18. Other Matters - Accounts of Branches 
Matter contained in Financial Statements 
The relevant abstract of the Independent Auditor’s Report and Note on 
Income Tax given in the Annual Report of a company, reads as follows: 
“Independent Auditor’s Report 
…. 
Other Matter 
The comparative financial information of the Company for the year ended 
March 31, 20XX and the transition date opening balance sheet as at April 1, 
20YY included in these standalone Ind AS financial statements, have been 
restated to comply with Ind AS. Adjustments made to the previously issued 
said financial information prepared in accordance with the Companies 
(Accounting Standards) Rules, 2006 to comply with Ind AS have been 
audited by us. 
Report on the Other Legal and Regulatory Requirements 
1. As required by Section 143(3) of the Act, based on our audit and on the 
consideration of the reports of the branch auditors and other auditors on 
the separate financial statements, to the extent applicable that:
Observations related to Auditor’s Report
281 
 …” 
“Note: Income Tax 
… 
The Company is also subject to tax on income attributable to its permanent 
establishments in foreign jurisdictions due to operation of foreign branches.” 
Principle: SA 700 (Revised): Forming an opinion and Reporting on 
Financial Statements 
Appendix (Ref Para. A14)
Illustrations of Independent Auditor's Reports on Financial 
Statements 
“INDEPENDENT AUDITOR’S REPORT 
… 
Other Matter 
We did not audit the financial statements / information of __________ 
(number) branches included in the standalone financial statements of the 
Company whose financial statements / financial information reflect total 
assets of Rs. _____ as at 31st March, 20XX and total revenues of Rs. 
______ for the year ended on that date, as considered in the standalone 
financial statements. The financial statements / information of these 
branches has been audited by the branch auditors whose reports have 
been furnished to us, and our opinion in so far as it relates to the amounts 
and disclosures included in respect of these branches, is based solely on 
the report of such branch auditors. 
Our opinion is not qualified in respect of this matter.”
Observation 
It was noted from the Independent Auditor’s Report as well as Notes to 
financial statements of the company that the company has branches, 
including foreign branches, and the auditor considered the reports received 
from branches during the audit. However, it was observed that auditor has 
not provided the details of branches that were not audited by him under 
‘other matter’ paragraph. Further, the total assets and total revenues of these 
branches were not reported by the auditor in line with the format of the 
Independent Auditor’s Report given under Appendix to SA 700 (Revised). 
Study on Compliance of Financial Reporting Requirements 
282
Accordingly, it was viewed that the format of Independent Auditor’s Report 
given under Appendix to the SA 700 (Revised) has not been complied with. 
19. Report on Other Legal and Regulatory 
Requirements 
Matter contained in the Independent Auditor’s Report 
The relevant abstract of the Auditor’s Report reads as follows: 
… 
Report on Other Legal and Regulatory Requirements 
… 
With respect to the other matters to be included in the Auditor’s Report in 
accordance with Rule 11 of the Companies (Audit and Auditors) Rules, 2014, 
as amended in our opinion and to the best of our information and according 
to the explanations given to us: 
i. The Company has disclosed the impact of pending litigations on its 
financial position in its standalone financial statements. 
ii. The Company has made provision, as required under the applicable law 
or accounting standards, for material foreseeable losses, if any, on longterm contracts including derivative contracts; 
iii. …. 
Principle: SA 700 (Revised) - Forming an Opinion and Reporting on 
Financial Statements 
Appendix 
Illustrations of Independent Auditor's Reports on Financial 
Statements 
"… 
Report on Other Legal and Regulatory Requirements 
… 
(h) With respect to the other matters to be included in the Auditor's Report 
in accordance with Rule 11 of the Companies (Audit and Auditors) 
Rules, 2014, in our opinion and to the best of our information and 
according to the explanations given to us: 
i. The Company has disclosed the impact of pending litigations on its 
Observations related to Auditor’s Report
283 
financial position in its financial statements - Refer Note XX to the 
financial statements. (emphasis supplied) 
ii. The Company has made provision, as required under the applicable 
law or accounting standards, for material foreseeable losses, if any, on 
long-term contracts including derivative contracts - Refer Note XX to 
the financial statements; (emphasis supplied) 
…
Observation 
It was noted from the auditor’s report that the company has disclosed the 
impact of pending litigations on its financial position as well as made 
provision required under the applicable law or accounting standards, for 
material foreseeable losses, if any, on long-term contracts including 
derivative contracts. However, the reference of the related notes to accounts 
has not been provided in the auditor’s report for better understanding of the 
users of the financial statements. 
Accordingly, it was viewed that the requirement of SA 700 (Revised) has not 
been appropriately complied with. 
20. Report on Other Legal and Regulatory 
Requirements 
Matter contained in the Independent Auditor’s Report 
The relevant abstract of Independent Auditor's Report of a company, reads 
as follows: 
“Report on Other Legal and Regulatory Requirements 
1. As required by section 143(3) of the Act, based on our audit we report 
that: 
(g)
i. The company has disclosed the impact of pending litigation on its 
financial position in its financial statements. 
ii. There has been no delay in transferring amounts, required to be 
transferred, to the Investor Education and Protection Fund by the 
company
(emphasis supplied)” 
Study on Compliance of Financial Reporting Requirements 
284
Principle: SA 700 (Revised): Forming an opinion and Reporting on 
Financial Statements 
Illustration 1 - Auditor's Report on Financial Statements of a Listed 
Company Prepared in Accordance with a Fair Presentation 
Framework 
Report on Other Legal and Regulatory Requirements 
… 
(h) With respect to the other matters to be included in the Auditor’s Report 
in accordance with Rule 11 the Companies (Audit and Auditor’s) Rules, 
2014, in our opinion and to the best of our information and according to the 
explanation given to us: 
I. The Company has disclosed the impact of pending litigations on 
its financial position in its financial statements - Refer Note XX 
to the financial 
II. …. 
III. There has been no delay in transferring amounts, required to be 
transferred, to the Investor Education and Protection Fund by 
the Company {or, following are the instances of delay in 
transferring amounts, required to be transferred, to the Investor 
Education and Protection Fund by the Company or there were 
no amounts which were required to be transferred to the 
Investor Education and Protection Fund by the Company.} 
Observation 
The auditor reported that the company has disclosed the impact of pending 
litigation on its financial position in its financial statements. However, upon 
review, it was observed from the financial statements that the company had 
not provided any details of pending litigations. 
Further, the auditor has reported that ‘there has been no delay in transferring 
amounts, required to be transferred, to the Investor Education and Protection 
Fund by the company’. However, it was observed from the financial 
statements that there were no outstanding amounts to be transferred to 
Investor Education and Protection Fund. It was viewed the auditor should 
have reported that “There were no amounts which were required to be 
transferred to the Investor Education and Protection Fund by the Company”. 
Observations related to Auditor’s Report
285 
Accordingly, it was viewed that the auditor’s report is not appropriate and not 
in line with SA 700 (Revised). 
21. Date of the Auditor’s Report 
Matter contained in the Independent Auditor’s Report 
An abstract of Auditor’s Report of a company, reads as below: 
“Auditor’s Report 
XYZ & CO 
Chartered Accountant 
FRN : XXXXW 
(Mr. D) 
Proprietor 
Membership No . 99999 
Place: XXX 
Date: “ 
Principle: SA 700 (Revised) - Forming an Opinion and Reporting on 
Financial Statements 
“Date of the Auditor’s Report 
48. The auditor’s report shall be dated no earlier than the date on which 
the auditor has obtained sufficient appropriate audit evidence on which 
to base the auditor’s opinion on the financial statements, including 
evidence that: (Ref: Para. A58–A61) 
(a) All the statements that comprise the financial statements, 
including the related notes, have been prepared; and 
(b) Those with the recognized authority have asserted that they have 
taken responsibility for those financial statements.”.
Observation 
It was noted from Auditor’s Report that the date of signing the audit report 
was not mentioned which is required by paragraph 48 of SA 700 (Revised). 
Accordingly, it was viewed that the requirements of SA 700(Revised) have 
not been complied with by the auditor. 
Study on Compliance of Financial Reporting Requirements 
286
22. Signing of Audit Report 
Matter contained in the Annual Report 
The relevant abstracts of the Auditor’s Report and Balance Sheet given in 
the Annual Report of a company, reads as under: 
“Auditor’s Report 
For ABC & Co. 
Mr. A 
Sd/- 
Membership No.: 99999 
Balance Sheet 
“For ABC & Co. 
Chartered Accountants 
Sd/- 
(Mr. A) 
Proprietor 
Principle: SA 700 (Revised) - Forming an Opinion and Reporting on 
Financial Statements 
Paragraph 46 
” The auditor’s report shall be signed. The report is signed by the auditor 
(i.e. the engagement partner) in his personal name. Where the firm is 
appointed as the auditor, the report is signed in the personal name of the 
auditor and in the name of the audit firm. The partner/proprietor signing the 
audit report also needs to mention the membership number assigned by 
the Institute of Chartered Accountants of India. They also include the 
registration number of the firm, wherever applicable, as allotted by ICAI, in 
the audit reports signed by them. (Ref: Para. A56-A57)” 
Observation 
It was noted from the Independent Auditors Report that the Firm Registration 
Number has not been mentioned thereat. Further, it was noted that the 
Membership No. and Firm Registration number has not been mentioned in 
the audited Financial Statements. 
Observations related to Auditor’s Report
287 
Accordingly, it was viewed that the requirements of SA 700 have not been 
complied with. 
23. Balance Confirmation 
Matter contained in the Annual Report 
The relevant abstract of the Independent Auditor’s Report and Note XX of the 
Financial Statements, is reproduced below: 
“Independent Auditor’s Report 
… 
Emphasis of Matter 
Balance confirmations received from parties covered under the head Trade 
receivables, Trade payables, Long term and short-term liabilities, Other 
Current liabilities, Long term and Short term Loan & Advances and deposits 
were limited. None of the major parties have confirmed their balances and 
hence, differences, if any could not be identified. Pending confirmation and 
reconciliation, consequential impact on the Ind AS financial statements 
cannot be quantified.” 
“Note XX 
Confirmations for balances as at 31st March 20XX from Trade Receivables, 
Trade Payables and Loans & Advances/ Deposits were circulated, but 
response received was limited.” 
Principle: SA 505: External Confirmation, SA 705 (Revised): 
Modifications to the Opinion in the Independent Auditor’s Report and 
SA 706 (Revised): Emphasis of Matter Paragraphs and Other Matter 
Paragraphs in the Independent Auditor’s Report 
Paragraphs 12 and 13 of SA 505 
"12. In the case of each non-response, the auditor shall perform alternative 
audit procedures to obtain relevant and reliable audit evidence. (Ref: 
Para A18- A19)" 
"13. If the auditor has determined that a response to a positive confirmation 
request is necessary to obtain sufficient appropriate audit evidence, 
alternative audit procedures will not provide the audit evidence the 
auditor requires. If the auditor does not obtain such confirmation, the 
auditor shall determine the implications for the audit and the auditor's 
opinion in accordance with SA 705(Revised). (Ref: Para A20)" 
Study on Compliance of Financial Reporting Requirements 
288
Paragraphs 7 and 21 of SA 705 (Revised) 
"7. The auditor shall express a qualified opinion when: 
(a) The auditor, having obtained sufficient appropriate audit evidence, 
concludes that misstatements, individually or in the aggregate, are 
material, but not pervasive, to the financial statements; or 
(b) The auditor is unable to obtain sufficient appropriate audit 
evidence on which to base the opinion, but the auditor concludes 
that the possible effects on the financial statements of undetected 
misstatements, if any, could be material but not pervasive. 
"21. If there is a material misstatement of the financial statements that 
relates to specific amounts in the financial statements (including 
quantitative disclosures in the notes to the financial statements), the 
auditor shall include in the Basis for Opinion section a description and 
quantification of the financial effects of the misstatement, unless 
impracticable. If it is not practicable to quantify the financial effects, 
the auditor shall so state in this section. (Ref: Para. A22)" 
Paragraph 9 of SA 706 (Revised) 
"9. When the auditor includes an Emphasis of Matter paragraph in the 
auditor's report, the auditor shall: 
 … 
(b) Include in the paragraph a clear reference to the matter being 
emphasized and to where relevant disclosures that fully describe 
the matter can be found in the financial statements. The 
paragraph shall refer only to information presented or disclosed in 
the financial statements. 
…"
Observations related to Auditor’s Report
289 
Observation 
It was noted from Note XX that Confirmations for balances from Trade 
Receivables, Trade Payables and Loans & Advances/ Deposits were 
circulated, but response received was limited. It was further noted that 
auditor has emphasized this matter under audit report that none of the major 
parties have confirmed their balances, and hence, the differences, if any 
could not be identified. 
It was viewed that if the amount of party’s balance is not material, then such 
note was not required in the financial statements. However, if the amount is 
material, then it is the responsibility of the auditor to modify the report and 
quantify its effect as required by paragraphs 7 and 21 of SA 705 read with 
paragraph 13 of SA 505. 
Further, it was viewed that the auditor should have performed alternate audit 
procedures to satisfy himself regarding external confirmation, and if he is not 
in agreement with the balances reported , then he shall modify his report in 
accordance with SA 705, otherwise such notes should not be given in the 
financial statements as these might create confusions in the mind of readers 
of the financial statements that balance confirmations have not been done 
and auditor has not carried out appropriate audit procedures in accordance 
with paragraph 12 of SA 505 with regard to confirmation of reported 
balances. 
Furthermore, it was observed that the auditor has drawn attention relating to 
the aforesaid matter under emphasis of matter, without giving the cross 
reference to the relevant notes to accounts for the matter being emphasized, 
as required by Paragraph 9 to SA 706. 
Accordingly, it was viewed that the requirements of SA 505, SA 705 
(Revised) and SA 706 (Revised) have not been complied with by the auditor. 
24. Related Parties 
Matter contained in Financial Statements 
The relevant abstract of Note XX on Related Party Disclosures as given in 
the Annual Report of a company, reproduced below: 
“Note XX: Related Party Disclosures 
 … 
(Related Party relationship is as identified by the Company and relied 
upon by the auditors.) 
Study on Compliance of Financial Reporting Requirements 
290
Principle: SA 550: Related Parties 
Paragraphs 9 and 15 of SA 550 
"9. The objectives of the auditor are: 
(a) Irrespective of whether the applicable financial reporting framework 
establishes related party requirements, to obtain an understanding of 
related party relationships and transactions sufficient to be able: 
i. To recognize fraud risk factors, if any, arising from related party 
relationships and transactions that are relevant to the 
identification and assessment of the risks of material 
misstatement due to fraud; and 
ii. To conclude whether the financial statements, insofar as they are 
affected by those relationships and transactions: 
a. Achieve a true and fair presentation (for fair presentation 
frameworks); or 
b. Are not misleading (for compliance frameworks); and 
(b) In addition, where the applicable financial reporting framework 
establishes related party requirements, to obtain sufficient 
appropriate audit evidence about whether related party relationships 
and transactions have been appropriately identified, accounted for 
and disclosed in the financial statements in accordance with the 
framework." 
"15. During the audit, the auditor shall remain alert, when inspecting 
records or documents, for arrangements or other information that may 
indicate the existence of related party relationships or transactions that 
management has not previously identified or disclosed to the auditor. (Ref: 
Para. A22-A23) 
…"
Observation 
It was noted from the Note on Related Party Disclosures that the 
management has used expression “As identified by the Company and relied 
upon by the auditors”. It was viewed that usage of the phrase ‘relied upon by 
the Auditors’ may lead the users of financial statements to believe that the 
auditor has merely relied on the information provided by the management 
Observations related to Auditor’s Report
291 
without applying appropriate audit procedures to verify the information with 
regard to the transactions made with the related party. 
It was, further, viewed that if the auditor has performed all the necessary 
audit procedures to conclude that the related party relationship existed 
among the parties then the auditor should have insisted on not bringing such 
phrases (As identified by the Company and relied upon by the auditors) in 
the financial statements. 
Accordingly, it was viewed that the requirements of SA 550 have not been 
complied with by the auditor. 
292
Chapter - 8 
Observations related to CARO 
1. Property, Plant and Equipment 
Matter contained in the Independent Auditor’s Report 
The relevant abstract of Annexure B to Independent Auditor’s Report on 
Property, Plant and Equipment given in the Annual Report of a company, 
reads as follows: 
Annexure B to Independent Auditor’s Report 
“(i) (a) … 
 (b) Property, Plant and Equipment have been physically verified by the 
management during the year and no material discrepancies were 
noticed on such verification.” 
Principle: The Companies (Auditor's Report) Order, 2016 
Paragraph 3 (i) (b)1
“Whether these fixed assets have been physically verified by the 
management at reasonable intervals; whether any material discrepancies 
were noticed on such verification and if so, whether the same have been 
properly dealt with in the books of account.” (Emphasis supplied)
Observation 
It was noted that the auditor has reported in CARO report that “Property, 
Plant and Equipment (PPE) have been physically verified by the 
management during the year”. It may be noted that paragraph 3(i)(b) of 
CARO, 2016 requires the auditor to comment as to whether the physical 
verification of PPE was performed at a reasonable interval by the 
management. 
Accordingly, it was viewed that the auditor’s reporting is not in line with the 
requirements of paragraph 3(i)(b) of CARO, 2016. 
1
 This observation is still relevant under paragraph 3(i)(b) of the CARO, 2020. 
Observations related to CARO
293 
2. Physical Verification of Inventory 
Matter contained in the Independent Auditor’s Report 
The relevant abstract of Annexure A to Independent Auditor’s Report on 
Physical Verification of Inventory given in the Annual Report of a company, 
reads as below: 
“Annexure - A to the Independent Auditor’s Report
… 
ii. As per the information and explanations given to us, the management 
has conducted physical verification of inventory at reasonable intervals 
during the year wherever possible and required, and the discrepancies 
noticed have been properly dealt with in the books.” 
(Emphasis supplied)
Principle: The Companies (Auditor's Report) Order, 2016 
Paragraph 3(ii) 2
(c) “Whether physical verification of inventory has been conducted at 
reasonable intervals by the management and whether any material 
discrepancies were noticed and if so, whether they have been properly 
dealt with in the books of account;”
Observation 
It was noted from auditor’s reporting on paragraph 3(ii) of CARO, 2016 that 
the auditor has used the phrase “wherever possible and required”, while 
commenting on whether the physical verification of inventory was conducted 
during the year. It was viewed that the stated wording is not appropriate, as it 
is creating ambiguity in the minds of readers. It was viewed that the CARO 
reporting should be based on the factual information. 
Accordingly, it was viewed that the auditor’s reporting is not in line with the 
requirement of paragraph 3(ii) of CARO, 2016. 
2
 This observation is still relevant under paragraph 3(ii)(a) of the CARO, 2020. 
Study on Compliance of Financial Reporting Requirements 
294
3. Loans and Advances 
Matter contained in the Independent Auditor’s Report 
The relevant abstract of Annexure B to Independent Auditor’s Report given in 
the Annual Report of a company, reads as below: 
 “3.(ii) According to the information given to us, the borrowers have been 
regular in the repayment of principles and interest on loans as stipulated.” 
(Emphasis supplied)
Principle: Guidance Note on the Companies (Auditor’s Report) Order, 
2016 
“Paragraph 383
B. whether the schedule of repayment of principal and payment of interest 
has been stipulated and whether the repayments or receipts are regular. 
Paragraph 3(iii)(b) 
Audit Procedures and Reporting 
(b) The auditor has to examine from the loan agreements / mutually 
agreed letter of arrangement, as the case may be, whether the 
schedule of repayment of principal and payment of interest has been 
stipulated at the time of sanction. If there is no such agreement / 
arrangement or the agreement / arrangement does not contain the 
schedule of repayment of principal and payment of interest, the auditor 
shall report that there is no stipulation of schedule of repayment of 
principal and payment of interest.”
Observation 
It was noted from given abstract of CARO report that auditor has used the 
words, ‘according to the information given to us’ the borrowers have been 
regular in the repayment of principles and interest on loans as stipulated 
under CARO, 2016. 
It was viewed that the use of such expression ‘’According to the information 
given to us’’ may lead users of the financial statements to believe that the 
auditor has merely relied on the information provided by the management 
without carrying out any other appropriate audit procedures to verify the 
3
 This observation is still relevant under paragraph 52(b) and (e) of GN on the CARO, 
2020 (Revised 2022 Edition) 
Observations related to CARO
295 
information as to whether the repayment of principles and interest on loans is 
regular or not. 
Accordingly, it was viewed that the requirements of CARO 2016 have not 
been complied with. 
4. Loans, Investments, Guarantees and Security 
Matter contained in the Annual Report 
The relevant abstract of Annexure A to Independent Auditor’s Report on 
Loans, Investments, Guarantees and Security and Note of Contingent 
Liabilities and Commitments given in the Annual Report of a company, reads 
as below: 
“Annexure A to Auditor’s Report 
… 
(iv) In our opinion and according to the information and explanation given to 
us the company has complied with the provision of section 185 and 186 
of the Act with respect to the investment made. 
(Emphasis supplied) 
Note: Contingent Liabilities and commitments (to the extent not 
provided for) 
S. 
No. 
Particulars March 
31, 20XX 
March 
31, 20YY 
April 1, 
20ZZ 
(1) Guarantees issued on behalf of 
the third parties (net of margin 
money) 
--- --- --- 
Principle: The Companies (Auditor's Report) Order, 2016 
Paragraph 3(iv)4
“In respect of loans, investments, guarantees, and security whether 
provisions of section 185 and 186 of the Companies Act, 2013 have been 
complied with. If not, provide the details thereof.” 
4
 This observation is still relevant under paragraph 3(iv) of the CARO, 2020. 
Study on Compliance of Financial Reporting Requirements 
296
Observation 
It was noted from Note on Contingent Liabilities that the Company has issued 
“Guarantees on behalf of third parties”. It was further noted from CARO 
report that the auditor has reported compliances with section 185 and 186 of 
Companies Act, 2013 with respect to the investments made. However, the 
auditor has not reported on the compliances of these sections with respect to 
the “Guarantee or Security provided” as required by paragraph 3(iv) of 
CARO, 2016. 
Accordingly, it was viewed that the requirements of the paragraph 3(iv) of the 
CARO, 2016 have not been appropriately complied with. 
5. Loans, Investments, Guarantees and Security 
Matter contained in the Independent Auditor’s Report 
The relevant abstract of Annexure A to Independent Auditor’s Report given in 
the Annual Report of an Infrastructure company, reads as follows: 
“ 
(iv) In our opinion and according to the information and explanations given to 
us, there are no loans given in respect of which provisions of section 185 
of the Act are applicable and hence not commented upon. Further, 
based on the information and explanations given to us, being an 
infrastructure company, provision of section 186 of the Act is not 
applicable to the Company and hence not commented upon.” 
Principle: The Companies Act, 2013 and the Companies (Auditor’s 
Report) Order, 2016 
Section 186 (11) of Companies Act, 2013
“Nothing contained in this section, except sub-section (1) shall apply – 
(a) …. company established with the object of and engaged in the 
business of financing industrial enterprises, or of providing 
infrastructure facilities.”
Paragraph 3(iv) of the CARO, 20165
“In respect of loans, investments, guarantee, and security, whether 
provisions of sections 185 and 186 of the Companies Act,2013 have been 
complied with. If not, provide the details thereof. “ 
5
 This observation is still relevant under paragraph 3(iv) of the CARO, 2020. 
Observations related to CARO
297 
Observation 
It was noted from the CARO Report wherein the auditor has stated that 
“provisions of section 186 of Companies Act, 2013 are not applicable to the 
Company and hence, not commented upon”. The Board viewed that an 
infrastructure company is excluded from the provisions of section 186 except 
the provisions of section 186(1). In other words, the requirements of section 
186(1) are applicable to infrastructure companies, and therefore, auditor 
should have given his comment on compliance with the provisions of section 
186(1) by the company in line with paragraph 3(iv) of CARO, 2016. 
Accordingly, it was viewed that the requirements of paragraph 3(iv) of CARO, 
2016 have not been complied with. 
6. Undisputed Statutory Dues 
Matter contained in the Independent Auditor’s Report 
The relevant abstract of Annexure A to Independent Auditor’s Report on 
Undisputed Statutory Dues given in the Annual Report of a company, reads 
as below: 
“(vii)(a) The company is regular in depositing with appropriate authorities 
undisputed statutory dues, including Provident Fund, Employees State 
Insurance, Income Tax, Sales Tax, service tax, duty of Custom, duty of 
excise, value added tax, cess and any other statutory dues applicable to it.“ 
Principle: The Companies (Auditor's Report) Order, 2016 
Paragraph 3(vii)(a) 
“Whether the company is regular in depositing undisputed statutory dues 
including Goods and Service Tax, provident fund, employees’ state 
insurance, income-tax, sales-tax, service tax, duty of customs, duty of 
excise, value added tax, cess and any other statutory dues to the 
appropriate authorities and if not, the extent of the arrears of outstanding 
statutory dues as on the last day of the financial year concerned for a 
period of more than six months from the date they became payable, shall 
be indicated.”
Observation 
It was noted from the financial statements that the company has neither paid any 
employee benefits nor made contribution to provident fund or ESI. However, it 
was observed that while reporting about the regularity of depositing undisputed 
Study on Compliance of Financial Reporting Requirements 
298
statutory dues, the auditor has reported that ‘’the company is regular in 
depositing statutory dues of provident fund, employees’ state insurance with 
appropriate authorities”. 
Accordingly, it was viewed that auditor’s reporting contradicts with the 
information available in the financial statements. 
7. Statutory Dues 
Matter contained in the Annual Report 
The relevant abstract of Annexure B to Independent Auditor’s Report and 
Note on Contingent Liabilities given in the Annual Report of a company, 
reads as below: 
Annexure B to Independent Auditor’s Report 
… 
“Clause (vii) (b)
“Details of dues of Excise Duty, Service Tax and Customs Duty which have 
not been deposited as on March 20XX on account of disputes are given below:
…” 
(Emphasis supplied) 
 “Note: Contingent Liabilities and Commitments 
Particulars As at 31 
March 20XX 
As at 31 
March 20YY 
(i) Contingent Liability 
(a). … --- --- 
(b) Claims against the company not 
acknowledged as debts 
 
 - Income tax matters --- 
 - Excise, Service Tax and Goods 
& Service Tax related matters 
--- --- 
 - Sales Tax related matters --- --- 
Observations related to CARO
299 
Principle: The Companies (Auditor's Report) Order, 2016 and Guidance 
Note on the CARO, 2016
Paragraph 3 (vii) (b) of the CARO, 20166
“Where dues of income tax or sales tax or service tax or duty of customs or 
duty of excise or value added tax have not been deposited on account of any 
dispute, , then the amounts involved and the forum where dispute is pending 
shall be mentioned. (a mere representation to the concerned Department shall 
not be treated as a dispute)”.
Paragraph 43(g) of the Guidance Note on CARO, 2016 
“Further, a plain reading of this clause suggests that the amounts to be 
reported under clause 3(vii)(b) of the order are those which have not been 
deposited on account of any dispute, irrespective of the treatment of such 
disputed amounts in accounts. It is quite possible that an amount is 
disputed and has not been deposited but on consideration of the 
likely outcome of the dispute, a provision has been made in the 
accounts. Such an amount will need to be reported, notwithstanding 
that it has been provided for in accounts. Similarly, even if it had not 
been provided for in accounts, it would have to be reported as long as 
it is not deposited. It is also possible that an amount is disputed, has 
been deposited and on consideration of the likely outcome of the dispute, 
has been shown as a recoverable. Though such an amount is not 
contemplated for reporting under this clause, since it has been deposited, 
the fact of such deposit having been made under protest should be 
brought out by the auditor in his report under this clause. 
Whether a disputed amount should be provided for in the accounts or not 
will need to be judged in the context of AS 4, “Contingencies and Events 
Occurring After the Balance Sheet Date/Ind AS 10, “Events after the 
Reporting Period” and AS 29, “Provisions, Contingent Liabilities and 
Contingent Assets”/Ind AS 37, “Provisions, Contingent Liabilities and 
Contingent Assets”.
Observation 
It was noted from Note on Contingent Liabilities that the company has 
disclosed claims against company with respect to Income Tax and Sales Tax 
6
 This observation is still relevant under paragraph 3(vii)(b) of the CARO, 2020 read with 
paragraph 60(i) of GN on the CARO, 2020(Revised 2022 Edition). 
. 
Study on Compliance of Financial Reporting Requirements 
300
matters. However, it was observed that the auditor has not given any 
reference under clause (vii)(b) of CARO, 2016, with respect to Income Tax 
and Sales Tax Matters. It was viewed that in case the amount has been 
deposited under protest, then such fact should have been disclosed by the 
auditor in his audit report as per paragraph 43(g) of the Guidance Note on 
CARO, 2016. 
Accordingly, it was viewed that the requirements of paragraph 3(vii)(b) of 
CARO 2016 read with paragraph 43(g) of the Guidance note on CARO,2016 
have not been complied with. 
8. Disputed Statutory Dues 
Matter contained in the Independent Auditor’s Report 
The relevant abstract of Annexure B to Independent Auditor’s Report on 
Disputed Statutory Dues, reads as below: 
“(vii)(b) In our opinion, there are no material dues of the duty of customs, 
service tax, excise duty, Goods and Service Tax, VAT, which have not been 
deposited on account of dispute.” 
(Emphasis supplied)
Principle: The Companies (Auditor’s Report) Order, 2016 and 
Guidance Note on the CARO, 2016 
Paragraph 3(vii)(b) of CARO, 20167
“Where dues of income tax or sales tax or service tax or duty of customs or 
duty of excise or value added tax have not been deposited on account of 
any dispute, then the amounts involved and the forum where dispute is 
pending shall be mentioned. (a mere representation to the concerned 
Department shall not be treated as a dispute).” 
Paragraph 43 of Guidance Note on the Companies (Auditor’s Report) 
Order, 2016 
… 
(a) This clause requires that in case of disputed statutory dues, the 
amounts involved should be stated along with the forum where the 
dispute is pending. Therefore, even minor amounts would be required 
7
 This observation is still relevant under paragraph 3(vii)(b) of the CARO, 2020 read with 
paragraph 60 (a) of Guidance Note on CARO, 2022 (2022 edition) 
Observations related to CARO
301 
to be reported under this clause. The auditor should be reported in a 
manner so that the reader is able to understand the dispute and the 
amount involved therein.”
Observation 
Under the stated clause, the auditor has reported that there are “no material 
dues” which have not been deposited on account of dispute. As per 
paragraph 43 (a) of the Guidance Note on CARO, 2016 even minor amounts 
would be required to be reported in a manner so that the reader is able to 
understand the dispute and the amount involved therein. It was viewed that 
usage of such phrase/ statements gives an impression that the auditor has 
verified and reported only the dues that were material in nature and has not 
covered all the applicable dues that were under dispute as per the paragraph 
3(vii)(b) of CARO, 2016. 
Accordingly, it was viewed that the requirements of Paragraph 3(vii)(b) of 
CARO ,2016 read with Paragraph 43(a) stipulated under Guidance Note on 
CARO, 2016 have not been appropriately complied with. 
9. Borrowings 
Matter contained in the Annual Report 
The relevant abstract of Annexure B to Independent Auditor’s Report and 
Note on Borrowings given in the Annual Report of a company, reads as 
below: 
Annexure B to Independent Auditor’s Report 
“… 
(viii) In our opinion and according to the information and explanations given to 
us, the Company has defaulted in repayment of dues to financial 
institutions, banks or debenture holders as on 31st March 20XX, details 
whereof is given herein below: 
Name of Dues of 
Financial Institutions/ Banks 
Principal 
outstanding 
Amount 
(Rs. In Lacs) 
Period of 
Default 
Term Lenders --- Since 20XX 
Study on Compliance of Financial Reporting Requirements 
302
Note: Borrowings 
Particulars 31.3.20XX 31.3.20YY 
Secured
Term loans from Financial Institutions --- ---- 
Interest Accrued and due on Term 
loans from Financial Institutions 
---- --- 
Principle: The Companies (Auditor's Report) Order, 2016 
Paragraph 3(viii)8
“Whether the company has defaulted in repayment of loans or borrowings 
to a financial institution, bank, government or dues to debenture holders? If 
yes, the period and the amount of default to be reported (in case of 
defaults to banks, financial institution, and government, lender wise details 
to be provided). “ 
Observation 
It was noted from the CARO Report that the auditor has reported principal 
amount outstanding and period of default for all the lenders in aggregate. It 
was viewed that if there were any defaults in repayment to any lender, then 
the auditor should have provided the required detail for each type of lender 
such as Banks, Financial Institutions and Government along with its period 
and amount of default. 
 It was further noted from the notes to financial statements that the company 
has borrowings from financial institutions with payable outstanding in form of 
principal as well as interest thereon. Accordingly, the amount of default 
should include the principal amount and Interest due thereon. However, it 
was observed that the Auditor has reported about the default of Principal 
amount only in his Report. 
Accordingly, it was viewed that the requirements of Paragraph 3(vii)(b) of 
CARO, 2016 have not been complied with appropriately. 
8
 This observation is still relevant under paragraph 3(ix)(a) of the CARO,2020. 
Observations related to CARO
303 
10. Term Loans 
Matter contained in the Annual Report 
The relevant abstract of Annexure B to Independent Auditor’s Report and 
Note on Non-current Financial Liability and Statement of Cash Flow given in 
the Annual Report of a company, reads as below: 
Abstract of Annexure B to Independent Auditor’s Report 
… 
“(ix)…The company did not raise any money by way of initial public offer or 
further public offer and terms loans during the year. Accordingly, our 
comment on this clause is not required.” 
Note: Non-Current Financial Liability- Borrowings 
“Particulars As at 31st
March,20XX 
As at 31st
March,20YY 
As at 1st
April,20ZZ 
Secured Term Loan --- --- ---
Total --- --- ---“ 
Standalone Cash Flow Statement 
“Particulars 31st March, 
20XX 
31st March, 
20YY 
Cash flow from financing activities 
Proceeds/(repayment) from/ to long 
term borrowings 
--- ---" 
Principle: The Companies (Auditor's Report) Order, 2016 
Paragraph 3(ix)9
“Whether moneys raised by way of initial public offer or further public offer 
(including debt instruments) and term loans during the year were applied 
for the purposes for which those are raised, if not, the details together with 
delays or default and subsequent rectification, if any, as may be 
applicable, be reported.”
9
 This observation is still relevant under paragraph 3(ix)(c) of CARO, 2020. 
Study on Compliance of Financial Reporting Requirements 
304
Observation 
It was noted from the CARO report that while reporting in pursuance to 
clause (ix) of paragraph 3 of CARO, 2016, the auditor has, inter alia, 
reported that the company did not raise any money by way of term loans 
during the year. However, it was observed from the Cash flow Statement and 
Note on “Non-current Borrowings” that the company has obtained the 
additional long-term borrowings during the year. The Board viewed that the 
auditor’s reporting under paragraph 3(ix) of CARO, 2016 is contrary to the 
information provided in financial statements of the company. Further, the 
same has resulted to non-reporting of ‘’whether the term loans were applied 
for the purpose for which these loans were obtained’’. 
Accordingly, it was viewed that the requirements of paragraph 3(ix) of CARO, 
2016 have not been complied with by the auditor. 
11. Fraud 
Matter contained in the Independent Auditor’s Report 
The relevant abstract of Annexure B to Independent Auditor’s Report 
regarding Fraud as given in the Annual Report of a company, reads as 
below: 
Abstract of Annexure B to Independent Auditor’s Report 
… “(x) During the course of our examination of the books and records of the 
Company, carried out in accordance with the generally accepted auditing 
practice in India, and according to the information and explanations given to us, 
no fraud by the Company or on the Company by its officers or employees has 
been noticed or reported during the course of our audit.” 
(Emphasis supplied)
Principle: The Companies (Auditor's Report) Order, 2016 
Paragraph 3 (x)10
“Whether any fraud by the company or any fraud on the company has been 
noticed or reported during the year, if yes, the nature and the amount 
involved is to be indicated.”
10 This observation is still relevant under paragraph 3(xi)(a) of the CARO, 2020. 
Observations related to CARO
305 
Observation 
In pursuance to paragraph 3 (x) of CARO 2016, the Auditor has reported that 
no fraud has been reported or noticed during the ‘course of our audit’. 
However, it was viewed that as per the requirement of the stated paragraph, 
the auditor needs to report for the entire financial year and not just the period 
under audit. 
Accordingly, it was viewed that the auditor has not appropriately commented 
on paragraph 3(x) of CARO, 2016. 
12. Related Party Transaction 
Matter contained in the Independent Auditor’s Report 
The relevant abstract of Annexure A to Independent Auditor’s Report on 
Related Party Transaction given in the Annual Report of a company, reads 
as below: 
Abstract of Annexure A to Independent Auditor’s Report 
“… 
xii. In our opinion and as per information and explanations provided to us by 
management all the transactions with the related parties are in compliance with 
the provisions of sections 177 and 188 of Companies Act, 2013 where applicable 
and the details have been disclosed in the financial statements as required under 
Accounting Standard (AS) 18, Related Party Disclosures specified under 
Section 133 of the Act, read with rule 7 of the Companies (Accounts) Rules, 
2014.” 
(Emphasis supplied)
Principle: The Companies (Auditor's Report) Order, 2016 
Paragraph 3(xiii)11
“Whether all transactions with the related parties are in compliance with 
sections 177 and 188 of Companies Act, where applicable and the details 
have been disclosed in the Financial Statements etc., as required by 
applicable accounting standards.”
11 This observation is still relevant under paragraph 3(xiii) of the CARO, 2020. 
Study on Compliance of Financial Reporting Requirements 
306
Observation 
It may be noted that clause 3(xiii) of CARO, 2016 requires the auditor to 
report that all the related party transactions have been disclosed as per the 
applicable accounting standards. It was noted that the applicable accounting 
standards on the company is Indian Accounting Standard 24, Related Party 
Disclosures, notified under Companies (Indian Accounting Standards) Rules, 
2015, as amended and not the Accounting Standard 18. Accordingly, the 
comment made by the auditor, referring to AS 18 instead of Ind AS 24, is not 
correct. 
Accordingly, it was viewed that the auditor’s reporting is not appropriate in 
this regard. 
ISBN : 978-93-48313-17-1
ICAI
STUDY ON COMPLIANCE OF
FINANCIAL REPORTING REQUIREMENTS 
(Ind AS FRAMEWORK)
VOLUME III
STUDY ON COMPLIANCE OF FINANCIAL REPORTING REQUIREMENTS 
(Ind AS FRAMEWORK) 
VOLUME III
Financial Reporting Review Board

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