Key Non-compliances Observed by FRRB in the Financial Statements of Banks

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The Financial Reporting Review Board (FRRB) of the Institute of Chartered Accountants of India (ICAI) plays a crucial role in ensuring that general purpose financial statements of different organizations adhere to generally accepted accounting principles (GAAP). The establishment of the FRRB serves as a proactive mechanism aimed at enhancing financial reporting and auditing practices. To promote better compliance with financial reporting requirements, the board regularly publishes common instances of non-compliance or errors found in financial statements. This discussion will take a closer look at some of the key non-compliances and errors observed by the FRRB in the financial statements of the banks.

A. Non-Reporting of ‘No Segments for reporting’

I. Reporting Issue: A bank has not disclosed anything regarding “Segment Reporting” in the notes to accounts in its financial statements.

II. FRRB Opinion: The bank should have disclosed the fact in its notes to accounts that neither any segment reporting disclosures have been made nor the fact that the bank has only one ‘business segment’ as well as only one ‘geographical segment’ as per the provisions of AS 17, Segment Reporting.

B. Accounting policy on Investment

I. Reporting Issue: A cooperative bank has the following policy on Investments: Investments in subsidiaries/joint ventures are categorized as held to maturity (HTM) and assessed for impairment to determine permanent diminution, if any, in accordance with the RBI guidelines and suitable provisions are made.

II. FRRB Opinion: The cooperative bank has drafted the policy on ‘Investments’ by loosely interchanging the words ‘other than temporary’ with the words ‘permanent diminution’. ‘Permanent diminution’ and ‘other than temporary diminution’ carries altogether different meaning. The bank should have restrained using the word ‘permanent diminution’ instead of ‘other than temporary diminution’.

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