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· Point of recognition of revenue in case of commission income was not disclosed in significant accounting policies.

· Accounting policies related to revenue recognition of services rendered, interest, and dividend had not been disclosed in the significant accounting policies.

· Copy of actuary’s Certificate was not available in the files to validate the provision made in the accounts as disclosed in the Significant Accounting Policies as required by Para 8(i) of Statement of Significant Accounting Policies.

· Company had not disclosed accounting policies in respect of cash & cash equivalents, revenue recognition in respect of interest on fixed deposits and dividend. · Accounting policy in respect of capital subsidy in reserve was not disclosed.

· No disclosures were made in significant accounting policies in respect of employee VRS on actuarial valuation basis.

· The accounting policy for recognition of intangible assets was not disclosed separately, though it was significant in respect of the company.

· AS-1, disclosure of accounting policies, states the disclosure of significant accounting policies followed by the company. However, the company had not disclosed separately in its notes or accounting policies, the indirect method used for presenting its cash flow statement.

· The accounting policy disclosure as per AS-1 was incomplete, as it did not indicate the event and point of recognition of revenue in respect of goods dealt with by the enterprise, nor did the policy of revenue recognition (AS-9) reflect the recognition of revenue in respect of the subsidy paid by the government as part of sales revenue.

· Company had taken the foreign currency loan for acquisition of fixed assets. The policy on exchange difference on loan contracted for acquiring fixed assets was not stated.

· Policy for valuation of inventory of raw material was not disclosed by the company.

· The valuation of inventory had not been done as per the adopted accounting policy of the company. Thus, the auditor should have qualified the audit report or requested to change the accounting policy followed, but no measures were taken.

· Stores and spares were valued at cost. However, it should be lower of cost or NRV. It was not stated that cost of material was net of taxes /duties for which input credit was available.

· The Auditors had not reported whether Cash Flow Statement was in compliance with the Accounting Standards or not.

· The company had written back on account of provision for doubtful debts and advances. It was not adjusted from profits to arrive at the Operating profit before working capital changes, while preparing cash flow statement under indirect method. Thus, violating the provisions of AS-3.

· Company had shown as inflow on account of “proceeds from sale of current investments” under the cash flow from investing activities head. However no calculation for the said figure was available in the working papers of the Auditors.

· As required by Para 25 of AS 3 effect of changes in exchange rates of cash and cash equivalents were not disclosed.

· It was observed that company had not disclosed the effects of change in exchange rates on cash and cash equivalent held in foreign currency that should be reported as a separate part of reconciliation of the changes in cash & cash equivalents during the period.

· In Cash Flow Statement, interest from Inter-corporate deposit had been included in the income from the operation instead of disclosing the same as income from investing and financing activity. Similarly profit and loss on sale of fixed assets was shown in operating income instead of disclosing as income from investing activity, and purchase of fixed assets was shown net of sales proceeds.

· The method adopted for preparation of Cash Flow Statement was not disclosed by the entity.

· Company had not disclosed the components of cash and cash equivalents and had not presented the reconciliation of the amounts in cash flow statement with equivalent items reported in the Balance Sheet.

· The cash flow statement of the audited entity disclosed the aggregate value of investments made and loans & advances to subsidiary companies. However, cash flow from operating activities and financing activities was different. Even after considering the proceeds of sale of investments, there was a decrease in cash and cash equivalents which reflects that the short term funds had been utilized for investing in long term assets like investment in subsidiary companies and advancement of loans and advances. Further, it was presented that long term loans obtained from banks had been advanced to the subsidiary companies for purchase of lands. However, one of the condition mentioned in sample sanction letters produced was that the “proceeds of loans should not be utilized for procurement of land”.

· The requirement of AS 5 was not met by the company, as it did not make adequate provision for loss, even though no interest was serviced on loans for several years. Thus, the auditor should have issued a qualification that the profits and assets were overstated.

· The proceeds received on termination of licenses were not disclosed as an extraordinary item. There was no documentation in place to conclude why the same had not been disclosed as extraordinary item

· Excess/ short depreciation as a result of non segregation of furniture and fixture, and office equipments was not quantified by the management, as depreciation is charged at different rates on Furniture and Office Equipments under Companies Act.

· Sales were shown at net of excise duty in the Statement of Profit and Loss instead of the gross value; however, excise duty should be shown as a deduction in the Statement of Profit and Loss.

· Disclosure with respect of interest received and interest paid were net off which was in contravention to AS-9 Revenue Recognition.

· Accounting policy stated that dividends on equity shares had been recognized on receipt basis. However, para 13 of AS 9 requires dividends on equity shares to be recognized when owner’s right to receive is established.

· Cost of fixed assets was net of taxes/duties which were eligible for credit. It was not stated in policy to fixed assets.

· Land was wrongly capitalized as part of plant & machinery in earlier years rectified during the year under audit but the impact of depreciation on reversal was not evident from the working papers.

· Note on fixed assets did not disclose preceding previous year figures of Gross block, Depreciation and net block.

· No permanent diminution had been provided for in respect of investments made even though there was substantial reduction in the net worth of the companies in which investments were made.

· Company had not disclosed un-hedged foreign currency transactions in the Financial Statement.

· Conversion of items of Income & Expenditure of non integral entities at the year-end rates was not in accordance with the requirement of AS-11 as well as the accounting policy.

· Company’s long term investment in the subsidiary company, recorded at cost showed negative net worth for more than 12 years, indicating a decline in value of investment that was not temporary. Thus, the cost of investments should have been written off and the auditor should have qualified that the profits and assets were overstated.

· Note on Current Investment did not disclose breakup of investment in various mutual funds both in units and values, whether these were quoted or unquoted and method of valuation and its market value. Bifurcation of investments purchased, traded during the year along with units were also not stated in the Financial Statements.

· The company had disclosed the movement in the liability for gratuity and compensated absences where the present value of defined benefit obligation, current service cost, etc. was mentioned. However, the movement of various cost components did not tally with the certificate obtained from an independent actuary on the valuation of the obligations.

· Actuarial Valuation report was not obtained in case of Gratuity Liability at the year end and hence disclosures as mentioned in AS 15 were not made in the financial statement.

· Disclosure required under Para-120(n) had not been given in the financial statements. Further, there was a variation in the opening balance of the present value of obligation of gratuity the reason for which was not explained.

· An amount had been wrongly classified as provision for ‘Leave Encashment’. Further the provision for gratuity was understated.

· Company had not disclosed the disclosures in respect of Leave encashment as required under AS-15.

· The employee benefits were not in accordance with AS-15 Employee Benefits as it comprised only gratuity.

· Interest expense should include Exchange difference on foreign currency borrowing in accordance with para 4(e) of AS 16. This amount was not quantified and reclassified under interest. Instead it was included under Exchange Gain/Loss(net).

· Type of products and services in each business segment was not mentioned as required by AS 17 Segment reporting.

· Net revenue as well as net profit (results) from interest income was more than 10% of the total net profit, however, the same was not considered as a separate segment as per the requirements of AS 17.

· Secondary segment information was not disclosed.

· The Sales Promotion expenses paid amounting to service charges were not disclosed as related party expense as per AS-18 ‘Related Party Disclosures’.

· Company had made investment in an associate company. However, the said transaction was not disclosed in the related party transactions as per AS 18. Further the interest accrued on the share application money receivable from the said company was also not disclosed.

· Company had not disclosed the nature of a transaction related to its subsidiary.

· Related party disclosure was not made in respect of debit balance against subsidiary of the Company.

· Company had not made complete disclosure of nature of transaction with related parties. There were outstanding receivable/payable balances as at the year-end. The opening balances with these parties were nil. Thus, the company had transactions with such entities during the year. However, no disclosure had been made for such transactions under “Nature of transaction with related Parties”

· Nature of transaction with the related parties had not been disclosed by the company as per Para 23 of AS 18 “Related Party Transactions”. Further, the company had disclosed the year-end balances with related parties but had not disclosed all transactions contributing towards such balances.

· As required by AS 18, material balances (over 10% of total) with related parties should be disclosed separately. However, it had been disclosed by the company in aggregate in the standalone financial statements.

· In the Related Party disclosures relating to Purchase of Fixed Assets, a sum was shown to be relating to one subsidiary; however, the fixed assets were purchased from another subsidiary.

· EPS was not shown on the face of Statement of Profit and Loss as required by AS 20- Earnings Per Share.

· In relation to Employee stock option plan, instances of non compliances with respect to the disclosure requirements of Para 48 to 51 of the Guidance Note on “Accounting for Employee Share based Payment” was observed.

· Disclosure required by the Guidance Note on Employee Share based Payments was not made in the Financial Statements.

· There was non-compliance of AS-21 with regard to reporting of consolidated financial statements in the annual report of a subsidiary of the company under audit. Further, the name of the subsidiary company was not disclosed in note disclosing related party name and transactions with them as per requirements of AS-18.

· In CFS, the auditors' remuneration of the subsidiaries had been clubbed under "Professional fee" in order to restrict the consolidated figure of audit fee to the auditors of the Holding Company only. However, the audit fee of the CFS should be the aggregate of the audit fee of the Holding Company and all the subsidiaries grouped under the CFS. (Ref para 13 of AS 21).

· The Company included land as an item considered for WDV of assets from the books of accounts and computed deferred tax, whereas the land does not suffer depreciation and thus has no timing difference, hence it should not be considered for deferred tax computation.

· Incomplete disclosure had been made in respect of Deferred tax assets and deferred tax liabilities as required by para 31 of AS 22.

· The company had netted off DTL from DTA, management had not disclosed it separately looking at the materiality.

· Intangible assets were included under the head ‘Other Fixed Assets’ however, these assets were taken on lease and intangible assets should be shown separately for proper classification and disclosure. Further, the fixed assets were not classified in Balance Sheet viz. premises and other fixed assets as required by the Banking Regulation Act. Moreover, the gross carrying amount and accumulated amortization (aggregated with accumulated impairment losses) at the beginning and end of the period was not disclosed with each class of intangible assets as per AS-26 ‘Intangible Assets’.

· Company had made an addition during the year in Intangible Assets which being amount transferred from capital work in Progress. The amount being expenditure incurred during various previous years which according to the management have no further economic benefits, even then it has been capitalized to Software head and also depreciated this amount on an accelerated basis (i.e. 100% written off during the year). The Accounting policy of the Company given under the Notes to Accounts states that “Cost of software is amortized over a period of 6 years, being the estimated useful life as per the management estimates.” However, the Company had provided the amortization in the very first year without any disclosure.

· In respect of two standstill projects undertaken by the company due to Court orders, the carrying value was material however; no impairment testing was done as per AS 28 (Impairment of Assets) and AS 29 (Provisions, Contingent Liabilities, and Contingent Assets).

· Service tax demand was not shown as contingent liability.

· No disclosure was made in contingent liability for the interest portion of the disputed demands.

· Contingent liability in respect of the amount discounted through Bank was not disclosed. (AS 29).

· No disclosure was made in contingent liability for consequential demands under service tax on the basis of demands raised by the department for earlier years.

· No disclosure had been made as per AS 29, Provision, Contingent liabilities and Contingent Assets for the factoring arrangements entered into by the Company.

· Disputed demands in respect of Sales tax and excise duty were not disclosed under “Contingent Liability”. (AS-29).

· The company in its Director’s report had mentioned demands of excise duty and demands of luxury tax were pending decision before various Courts and Appellate Authorities. However, the company has not treated it as contingent liabilities.

· The operating profit was shown under total consolidated profit by the company, and no segment wise break up was given for this profit, thus, not distinguishing between the amount received as dividends from subsidiaries and that from mining activities.

· Disclosure prescribed under AS 32 for financial instruments & Derivatives had not been made in the financial statement.

Quality Review Board Report on Quality Review Findings (2012-15) Click Here >>

Quality Review Board (QRB) Report 2012-15- Observations on Compliances and Disclosures as per various Accounting Standards (AS) |18-08-2015|