FRRB Observation | Key Non-compliances in Reporting of Financial Assets, Investments & Loans

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The Financial Reporting Review Board (FRRB) of ICAI conducts a review of general purpose financial statements of various entities for compliance with generally accepted accounting principles (GAAP), compliance with the reporting obligations of the auditor and compliance with disclosure requirements prescribed by regulatory bodies, statutes and rules and regulations applicable to the entities. FRRB was constituted as a proactive mechanism to improve financial reporting and auditing reporting practices. The following will take a closer look at some of the key non-compliances and errors observed by the FRRB about Ind AS 109 Financial Assets, Ind AS 27 Investments, Loans to subsidiaries, and Ind AS 12 Deferred tax assets. This will serve as a benchmark for verifying whether entities have complied with Ind AS when preparing their annual financial statements.

I. Inappropriate Reporting

The company has disclosed in the note to the financial statements under ‘Other Non-current Assets’, the deposit of rent under Security Deposits.

II. Relevant Provisions

Para 11 of Ind AS 32, Financial Instruments, states that

A financial asset is any asset that is:

(a) cash;

(b) an equity instrument of another entity;

(c) a contractual right to receive cash or another financial asset from another entity or to exchange financial assets or financial liabilities with another entity under conditions that are potentially favourable to the entity; etc.

III. FRRB Observation

Deposit of rent is a financial asset, in terms of para 11 of Ind AS 32 and it should have been disclosed under the head “Other Financial Assets” instead of Other Non-current Assets.

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