January | 2024 | P3559 (New)

Commonly Found Errors in

Reporting Practices

Research Committee
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.

DISCLAIMER:
The views and opinions expressed in this document are those of the author
and based on his experience and not necessarily those of the Institute or any
other regulatory body. Examples of analysis performed, methodologies
and approaches described within document are only examples which have
been truncated with a lot of specifics omitted for brevity of these articles.
They should and must not be utilized ‘as-is’ in the real-world without
having sufficient guidance or experience or otherwise consulting a
professional.

Basic draft of this publication was prepared by CA. Ankit Maheshwari and
CA. Kuldeep Kothari

First Edition : January, 2024

Committee/Department : Research Committee

E-mail : [email protected]

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January | 2024 | P3559 (New)
 Foreword
In today's dynamic and rapidly evolving business landscape, the importance
of transparent and effective reporting practices cannot be overstated. The
annual report is a vital communication tool, providing stakeholders with a
snapshot of an organization's financial health, overall performance, and
future prospects. Excellent reporting serves a number of purposes, ranging
from informed decision-making, compliance with regulatory requirements,
effective risk management, benchmarking & performance evaluation, to gain
credibility & investors’ confidence.
The Research Committee of the Institute of Chartered Accountants of India
(ICAI) organizes the ICAI Award for Excellence in Financial Reporting every
year with an objective to empower the organizations to enhance the quality of
their reporting processes, thereby fortifying the transparency and credibility
of financial & non- financial information disseminated to the public.
I am happy to note that the Committee has compiled the observations
encountered during the evaluation process of ICAI Awards for Excellence in
Financial Reporting 2022-2023 in the form of publication "Commonly Found
Errors in Reporting Practices”.
The objective of the publication is to assist the preparers & presenters of
information to understand and improve the pitfalls that were commonly
observed as a roadblock for an organisation to achieve excellent reporting.
Further, compilation will offer insights into the best practices adopted and
followed by the leading organizations, to inspire a culture of continuous
improvement in reporting standards across the business landscape.
My sincere appreciation to CA. (Dr.) Anuj Goyal, Chairman, CA. Cotha S
Srinivas, Vice-Chairman, and all members of the Research Committee for
bringing out the publication.
I encourage members of the accounting profession, business leaders,
regulators, and other stakeholders to embrace valuable resource in their
pursuit of excellence in reporting practices.
Wishing you insightful reading.

13th January 2024 CA. Aniket Sunil Talati

President, ICAI
 Preface
The Institute of chartered accountants of India through its Research
Committee holds “ICAI Awards For Excellence In Financial Reporting” every
year, the objective behind is to recognize and encourage excellence in
preparation and presentation of information in the annual report and related
documents. The independent & transparent three tier process followed for
the evaluation not only allows to find the best practices adopted by different
organisations but at the same time, to find those areas where the
organization should take care of for better reporting to the interested
stakeholders.
As an institute, our role is to promote & instill the best reporting practices
across the entities. This award competition, plays dual role, one to recognize
the entities for their efforts and other is to provide the benchmark for other
organisations to improve their reporting practices.
Now, this time to move a step ahead, we decided to inform the observations
noticed during the process at different levels of evaluation for the easy
reference point to improve & excel the reporting area. I hope this publication
would be of immense use and continued interest to the preparers,
management, auditors, and all others involved in the process of preparation
& presentation of financial & non- financial information in the annual report &
related documents.
I would like to thank CA. Aniket Sunil Talati, Hon’ble President, ICAI and CA.
Ranjeet Kumar Agarwal, Hon’ble Vice President, ICAI for their direction and
guidance in effective functioning of the Research Committee. I am also
thankful to CA. Cotha S Srinivas, Vice Chairman of the Research Committee,
for his consistent guidance. I would like to thank all the stakeholders and
experts of the Research Committee especially for their time and inputs.
Further, my appreciation to the team of Research Committee for their
continuous efforts and support for carrying out the activities of Research
Committee.
I would like to thank CA. Ankit Maheshwari and CA. Kuldeep Kothari, the
resource persons for their valuable contribution in preparation of this
publication. I also acknowledge the assistance, co-operation and untiring
efforts made by Dr. Amit Kumar Agrawal, Secretary, Research Committee,
CA. Neha Bansal, Assistant Secretary, CA. Saloni Jain, Professional, CA.
Rahul Jain, Professional and CA. Abhishek Sharma, Professional in finalising
the publication.

CA. (Dr.) Anuj Goyal

Chairman, Research Committee
New Delhi
December 28, 2023
 Introduction
Annual reports serve as the compass guiding stakeholders through the
financial and operational journey of the organization. Yet, amidst the
comprehensiveness data and narratives, the reporting errors can
inadvertently obscure the true picture.
This publication aims to dissect and illuminate the prevalent errors frequently
found in reporting practices. From financial misstatements to inconsistencies
in data presentation, it embarks on a journey to identify and rectify these
issues. This publication covers a wide range of factors, viz: Compliance with
Standards: Adhering to accounting standards and regulatory requirements
ensures that financial reporting meets established criteria, fostering
credibility and trust among stakeholders.
Governance and Internal Controls: Strong governance structures and robust
internal controls help prevent errors, frauds, and misstatements. They
provide assurance that the reported information is accurate and reliable.
Stakeholder Engagement: Actively engaging with stakeholders,
understanding their information needs, and incorporating their feedback into
reporting processes contribute to the relevance and usefulness of the
reports.
Transparency: Transparent reporting involves providing clear,
comprehensive, and understandable information. This includes disclosing
accounting policies, assumptions, and potential risks, enabling stakeholders
to make informed decisions.
Clarity and Conciseness: Clear and concise communication facilitates
understanding. Annual reports should present information in a
straightforward manner, avoiding unnecessary complexity or ambiguity.
By understanding the nuances of reporting errors, organizations can enhan ce
the trust of stakeholders, foster transparency, and pave the way for more
informed decision-making.
We sincerely hope that this publication serves as a catalyst, inspiring
organizations to aspire to excellence in reporting practices. By delving into
the key factors that underpin reliable and transparent reporting practices, it
aims to encourage a collective commitment to contributing not only to the
advancement of individual entities but also to the broader landscape of
financial integrity and stakeholders’ trust.
Happy reading and learning!
 Contents
Part I – Financial Information ............................................. 1-79
1. Investment property: Disclosures ....................................................... 1
2. Disclosure of Rental income and Direct Operating Expenses ............. 1
3. Investment property: Accounting Policy ............................................. 2
4. Performance Obligation and its description ........................................ 2
5. Accounting Policy for Revenue Recognition ....................................... 3
6. Disclosures under Revenue Recognition ............................................ 3
7. Extent of risks and rewards transfer................................................... 4
8. Terminology for Related Party ........................................................... 5
9. Definition of Key management personnel ........................................... 5
10. Related Party Disclosures ................................................................. 6
11. Disclosure of transactions with related party ...................................... 6
12. Disclosures relating to key managerial personnel ............................... 7
13. Events Occurring after Balance Sheet date ........................................ 7
14. Cash and cash equivalents- Not available for use by Group ............... 8
15. Reporting cash flows on a net basis .................................................. 8
16. Disclosure of changes in liabilities - Statement of Cash Flows ............ 9
17. Preparation of Statement of Cash Flows ............................................ 9
18. Reconciliation of cash and cash equivalents .................................... 10
19. Interest and dividends in the Statement of Cash Flows .................... 10
20. Effect of obtaining control or losing control of subsidiaries
in statement of cash flows ............................................................... 11
21. Components of cash and cash equivalents ...................................... 11
22. Dividend distribution tax for financing activities ................................ 12
23. Exchange Earner Foreign Currency Account.................................... 13
24. Presenting advance for tax and provision for tax .............................. 13
25. Presentation of deferred tax liability / asset in the consolidated
financial statement .......................................................................... 14
26. Offsetting of deferred tax assets and deferred tax liabilities .............. 15
27. Convincing evidence ....................................................................... 16
28. Disclosure of Provisions .................................................................. 16
29. Property, Plant and Equipment- Accounting policy ........................... 18
30. Property, Plant and Equipment- Nomenclature ................................. 19
31. Expenditure during construction period ............................................ 19
32. Disclosure of the risk- Investments in Plan Assets ........................... 20
33. Director Sitting Fees ....................................................................... 20
34. Defined contribution plans ............................................................... 21
35. Defined benefit plans – inappropriate classification .......................... 21
36. Disclosure of the amortization period and the amortization method .. 22
37. Intangible assets – Assets with indefinite life ................................... 22
38. Amortization of intangible assets- Terminology ................................ 24
39. Intangible Assets under Development .............................................. 24
40. Research and Development Expense .............................................. 25
41. Disclosure of Maturity Analysis ........................................................ 25
42. Inappropriate Lease Disclosures ..................................................... 26
43. Short Term Leases and Low Value Leases ...................................... 28
44. Disclosures regarding leases ........................................................... 29
45. Disclosure of qualitative and quantitative information about leasing
activities ......................................................................................... 30
46. Going Concern ................................................................................ 31
47. Corresponding amounts for immediately preceding reporting period . 32
48. Change in accounting policy ............................................................ 33
49. Accounting Policies- Disclosure ....................................................... 35
50. Disclosures for comparative figures ................................................. 37
51. Prior period errors ........................................................................... 38
52. Disclosure of Credit risk .................................................................. 39

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53. Qualitative and quantitative disclosures for each type of risk ............ 40
54. Incorrect categorization of market risk ............................................. 41
55. Provision matrix for ECL on Trade Receivables ............................... 42
56. Derecognition of investments in equity instruments .......................... 44
57. Reclassification of financial assets .................................................. 44
58. Assets held for disposal .................................................................. 45
59. Qualifying Assets ............................................................................ 48
60. Date of cessation ............................................................................ 49
61. Disclosure of Borrowing cost ........................................................... 49
62. Non-Disclosures of Discount Rate(s) ............................................... 49
63. Valuation of inventories ................................................................... 51
64. Disclosure of Cost formula .............................................................. 52
65. Nature of Government Grant ........................................................... 53
66. Different Accounting policies ........................................................... 53
67. Intragroup transactions ................................................................... 54
68. Change in ownership interest in an associate or a joint venture ........ 54
69. Disclosure of Place of incorporation and proportion of ownership
interest ........................................................................................... 55
70. Weighted average number of shares ............................................... 55
71. Disclosure regarding the amount used in the numerator ................... 56
72. Bonus shares not considered for calculation of Earnings per share .. 57
73. Dividend on cumulative preference shares ....................................... 58
74. EPS for Continuing and Discontinued Operation .............................. 58
75. Foreign currency transactions: Monetary assets and liabilities .......... 59
76. Segment reporting .......................................................................... 59
77. Segment disclosures made in consolidated financial statements ...... 60
78. Employee share-based payments - disclosures................................ 60
79. Statement of Changes in Equity ...................................................... 61
80. Share application money received pending allotment / calls
received in advance ........................................................................ 62

xi
81. Employee Stock Options outstanding .............................................. 62
82. Equity Share Capital disclosures ..................................................... 63
83. Movement in reserves ..................................................................... 63
84. Debentures: Terms of redemption / conversion ................................ 64
85. Disclosure of nature of security ....................................................... 64
86. Borrowings ..................................................................................... 65
87. Borrowings not used for specified purposes ..................................... 65
88. Loan to Subsidiaries ....................................................................... 65
89. Loans and advances ....................................................................... 66
90. Disclosures for Loans or advances granted to promoters, directors and
the related parties ........................................................................... 66
91. Contingent liabilities and commitments ............................................ 67
92. Cryptocurrency or Virtual Currency .................................................. 68
93. Details of Title deeds of Immovable Property not held in name of the
Company ........................................................................................ 68
94. Capital-Work-in Progress (CWIP) .................................................... 69
95. Shareholding pattern of promoters ................................................... 69
96. Disclosure of Shareholding .............................................................. 70
97. Disclosure of Ratios ........................................................................ 70
98. Revaluation of property ................................................................... 71
99. Trade Payables ageing schedule ..................................................... 72
100. Trade Receivables ageing schedule ................................................ 72
101. Basis of ageing schedule for Trade Receivables and Trade
Payables......................................................................................... 74
102. Relationship with Struck off Companies ........................................... 74
103. Investor Education and Protection Fund .......................................... 75
104. Consistency of Information .............................................................. 75
105. Impact of amendments in accounting standards ............................... 76
106. Cross Referencing .......................................................................... 76
107. Rounding Off .................................................................................. 77

xii
108. Disclosure of registered valuer as per Companies Act, 2013 ............ 78
109. Disclosure of Investment made in Subsidiaries and/ Joint venture
or Associates .................................................................................. 78
110. Nomenclature for presentation of Quarterly Results ......................... 79
111. The Code on Social Security, 2020 .................................................. 79

PART II- Non-Financial Information ........................... 81-116

112. Statement on Vision and Mission ..................................................... 81
113. Strategic Objectives ........................................................................ 81
114. Organization and Group Structure ................................................... 81
115. Management discussion & analysis ................................................. 82
116. Board Report .................................................................................. 83
117. Credit Rating in Board of Directors Report ....................................... 86
118. Chairman’s Statement/Speech ........................................................ 86
119. Contribution to national exchequer .................................................. 87
120. Risk Management and Mitigation measures ..................................... 87
121. Human Resource policies ................................................................ 89
122. Internal Control System ................................................................... 90
123. Information systems audit................................................................ 90
124. CSR – Impact Assessment Report ................................................... 91
125. Corporate Social responsibility ........................................................ 93
126. Corporate Governance Report ......................................................... 94
127. Corporate Governance Compliance Certificate ................................ 94
128. Date of Audit Committee Meetings .................................................. 95
129. Composition of Directors as per SEBI LODR ................................... 95
130. Compliance with the Ethics & Business Conduct for Board &
Senior Management ........................................................................ 96
131. Shares held by Directors & their Relatives ....................................... 97
132. Investors Presentation .................................................................... 97

xiii
133. Value Creation Model .................................................................... 100
134. Integrated Reporting ..................................................................... 100
135. Value added statement ................................................................. 103
136. Performance Analysis for past years.............................................. 104
137. orizontal/Vertical Analysis ............................................................. 105
138. Sustainability Reporting ................................................................ 106
139. Index of the annual report ............................................................. 108
140. Colour scheme .............................................................................. 108
141. More use of Graphs, Charts etc. .................................................... 108
142. Website Disclosures ...................................................................... 109
143. Website disclosures for public companies ...................................... 112
144. Website disclosure under SEBI (Listing Obligations and Disclosure
Requirements) Regulations, 2015 .................................................. 112
145. Website disclosure under SEBI (Prohibition of Insider Training)
Regulations, 2015. ........................................................................ 116

PART III – Industry Specific Observations .................. 117-146

BANKING SECTOR
146. Compliance of RBI’s Circular – Write-Off ....................................... 117
147. Compliance of RBI’s Circular – Liquidity Coverage Ratio ................ 117
148. Mandatory Compliance with Reserve Bank of India Act, 1934 (RBI Act)
that govern the banking industry in India ........................................ 118
149. Investment by Banking Company .................................................. 122
150. Implementation of Ind AS is deferred on banking industry .............. 123
151. Utilisation of Floating Provisions .................................................... 123
152. Disclosure of Sale and Transfers to/ from HTM Category ............... 124
153. Provisioning pertaining to Fraud Accounts ..................................... 125
154. Basel III Framework on Liquidity Standards – Net Stable
Funding Ratio (NSFR) – Final Guidelines ...................................... 126

xiv
155. Enhancement in family pension of employees of banks - Treatment of
additional liability 127
156. Share issue expenses debited to Share premium account .............. 128

INSURANCE SECTOR
157. Format prescribed by IRDA ........................................................... 129
158. Nomenclature prescribed by IRDA ................................................. 129
159. Insurance Companies -Disclosure of Encumbrances ...................... 130
160. Disclosure of ‘Ageing of claims’ ..................................................... 130
161. Computation of Managerial Remuneration- Disclosure ................... 131
162. Compliance with Accounting standards- Insurance Companies ...... 131
163. Insurer Prohibited for investment of funds outside India ................. 132
164. Accounting and Disclosure of Unclaimed Amount of Policy holders 132
165. Segment Reporting as per IRDAI guidelines .................................. 133
166. Risk Management Disclosures ...................................................... 134

NBFC SECTOR
167. Ratios Disclosure 135
168. Contingent Liability Disclosure ....................................................... 135
169. Loans to Directors, Senior Officers and relatives of Directors ......... 136
170. Audit Fees- Disclosure .................................................................. 136

NPOs
171. Disclosure about Sources and Uses of Funds ................................ 137
172. Separate set of accounts and records for The Foreign Contribution 137
173. Disclosure about Budget & its utilization ........................................ 137
174. Revenue Recognition for NPO’s .................................................... 138
175. Disclosure of Use of Fund Based Accounting ................................. 138
176. Government’s policy in relation to initiatives of the organization ..... 139

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PUBLIC SECTOR UNDERTAKINGS
177. Information about CSR common theme ......................................... 139
178. CSR expenditure on common theme ............................................. 140
179. Allocation of funds for CSR ........................................................... 140
180. Preference to Aspirational Districts for CSR ................................... 141
181. Composition of Board of Directors ................................................. 141
182. Roles and Responsibilities of Board and Directors ......................... 142
183. Review of information by audit committee ...................................... 142
184. Representation of holding company on board of subsidiary
company ....................................................................................... 143
185. Composition of audit committee ..................................................... 143
186. Composition of remuneration committee ........................................ 144
187. Disclosure of remuneration of directors .......................................... 144
188. Declaration of compliance with code of conduct ............................. 145
189. Disclosure of compliance with corporate governance guidelines ..... 145
190. Quorum in audit committee meetings ............................................. 146

xvi
 Part I – Financial Information
1. Investment property: Disclosures
Observation(s) What should one remember?
It was noted that the As per Para 75 of Ind AS 40, an entity
company has not made the shall disclose its accounting policy for
disclosures as required by measurement of investment property.
Ind AS 40 “Investment Further, as per Para 79 of Ind AS 40, an
Property”. entity shall disclose the depreciation
methods used and the useful lives or the
depreciation rates used.
Illustrative accounting policy for investment
property is as follows:
“Investment properties are initially
recognised at cost including transaction
costs. Subsequently investment properties
comprising buildings are carried at cost
less accumulated depreciation and
accumulated impairment losses, if any.
Depreciation on buildings is calculated
using the straight line method to allocate
their cost, net of their residual values, over
their estimated useful lives. Depreciation is
provided on useful life of assets as
prescribed in Schedule II to the
Companies Act, 2013.

2. Disclosure of Rental income and Direct Operating

Expenses
Observation(s) What should one remember?
It was observed that the As per Para 75(f) of Ind AS 40 (Investment
company have not Property), an entity shall disclose the
disclosed the rental income amounts recognized in profit or loss for:
and direct operating
 Part I – Financial Information

expenses related to (a) rental income from investment

investment property as property;
required under Ind AS 40. (b) direct operating expenses (including
repairs and maintenance) arising from
investment property that generated
rental income during the period; and
(c) direct operating expenses (including
repairs and maintenance) arising from
investment property that did not
generate rental income during the
period.

3. Investment property: Accounting Policy

Observation(s) What should one remember?
In certain cases, where the Paragraph 30 of IND AS 40 states: An
company had investment entity shall adopt as its accounting policy
property, the accounting the cost model prescribed in paragraph 56
policy stated that the to all of its investment property.
investment property was Paragraph 32 of IND AS 40 requires all
stated at fair value. entities to measure the fair value of
investment property for the purpose of
disclosure even though they are required
to follow the cost model for measurement
purpose.

4. Performance Obligation and its description

Observation(s) What should one remember?
It was observed that entity As per Para 119(b) of Ind AS 115, an
has not disclosed about entity shall disclose information about its
payment terms of contracts performance obligations in contracts with
with customers. customers, including a description of the
significant payment terms (for example,
when payment is typically due, whether
the contract has a significant financing
component, whether the consideration
amount is variable and whether the

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Commonly Found Errors in Reporting Practices

estimate of variable consideration is

typically constrained in accordance with
paragraphs 56–58).

5. Accounting Policy for Revenue Recognition

Observation(s) What should one remember?
It was noted that the Ind AS 115 prescribes the following five-
accounting policy can be step model for revenue recognition.:
drafted better in line with 1. Identify the contract(s) with a
requirement of Ind AS 115. customer;
Company has not disclosed
2. Identify the separate performance
the events pertaining to
obligations in the contract;
five-step model of revenue
recognition. 3. Determine the transaction price;
4. Allocate the transaction price to the
separate performance obligations; and
Recognize revenue when (or as) each
performance obligation is satisfied.
Company should disclose its accounting
policy for revenue recognition by including
the five-step model as mentioned.

6. Disclosures under Revenue Recognition

Observation(s) What should one remember?
It was observed that As per Ind AS 115 (para 114) An entity
organizations fail to give shall disaggregate revenue recognized
appropriate disclosures as from contracts with customers into
per Ind AS 115 in terms of categories that depict how the nature,
 Revenue Disclosure amount, timing and uncertainty of revenue
and cash flows are affected by economic
 Extended warranty and
factors. An entity shall apply the guidance
other adjustments are
in paragraphs B87–B89 when selecting
not disclosed in the
the categories to use to disaggregate
reconciliation with
revenue.
contract revenue or a
aggregate disclosure is As per Ind AS 115 (para 126AA) entity
shall reconcile the amount of revenue

3
 Part I – Financial Information

given without specifying recognized in the statement of profit and

the reasons. 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.
The illustrative format for reconciliation of
revenue recognized in statement of profit
and loss with the contracted price is as
below to be presented along with nature
and amount of each adjustment
separately:
Particulars For the For the
year year
2023-24 2022-23
Contracted
Price
Adjustments:
Trade
Discounts
Refunds
Revenue
recognized
in Statement
of Profit and
Loss

7. Extent of risks and rewards transfer

Observation(s) What should one remember?
It has been observed that Paragraph 38 of IND AS 115, states ….”an
the terminology used in the entity shall consider indicators of the

4
Commonly Found Errors in Reporting Practices

accounting policy for transfer of control, which include, but are

revenue recognition with not limited to, the following:
respect to transfer of control d. the transfer of the significant risks and
is not in line with that of IND rewards of ownership of an asset to
AS 115. For example, the the customer may indicate that the
accounting policies state customer has obtained the ability to
that revenue is recognized direct the use of, and obtain
on transfer of ‘sufficient’ or substantially all of the remaining
‘substantial’ risks and benefits from, the asse.”
rewards.
As seen from the above, the requirement
is to make an assessment of whether
‘significant’ risks and rewards have been
transferred.

8. Terminology for Related Party

Observation(s) What should one remember?
It was noted that in the As per the Ind AS 24, the correct
related party disclosures, terminology is ‘Close Member of Key
company has used the Management Personnel’.
terminology ‘Relatives of
Key Management
Personnel’. It is not as per
Ind AS 24.

9. Definition of Key management personnel

Observation(s) What should one remember?
It was noted that in the In Ind AS 24, following definition is given:
disclosure of name of “Key management personnel are those
related parties and nature of persons having authority and
relationship, company has responsibility for planning, directing and
presented the following controlling the activities of the entity,
categories for directors: directly or indirectly, including any
Non-Executive Director, director (whether executive or otherwise)
Non-Executive Independent of that entity.”
Director and Key Managerial
As per the Ind AS 24, all directors are
Personnel. In the category

5
 Part I – Financial Information

of KMP, company has considered as KMP. Therefore, company

disclosed the name of has violated the provisions of Ind AS 24.
executive director only.
From the disclosure given
by company, it can be
interpreted that company did
not consider the non-
executive directors as KMP.

10. Related Party Disclosures

Observation(s) What should one remember?
It was observed that in most As per Ind As 24 to enable users of
cases organizations failed to financial statements to form a view about
give appropriate disclosures the effects of related party relationships
of related parties. on an entity, it is appropriate to disclose
the related party relationship when control
exists, irrespective of whether there have
been transactions between the related
parties. This is because the existence of
control relationship may prevent the
reporting entity from being independent in
making its financial and operating
decisions.

11. Disclosure of transactions with related party

Observation(s) What should one remember?
It was noted in some cases Para 18 of Ind AS 24 states that
from the note on ‘Related If an entity has had related party
Party Transactions’ that transactions during the periods covered by
debentures were issued to the financial statements, it shall disclose
holding company and the nature of the related party relationship
ultimate holding company as well as information about those
and same was disclosed as transactions and outstanding balances,
transactions entered including commitments, necessary for
between them during the users to understand the potential effect of
year. However, the amount the relationship on the financial

6
Commonly Found Errors in Reporting Practices

outstanding towards these statements. These disclosure

debentures was not requirements are in addition to those in
disclosed therefore the paragraph 17. At a minimum, disclosures
requirements of Ind AS 24 shall include:
have not been complied a) the amount of the transactions.
with.
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;

12. Disclosures relating to key managerial personnel

Observation(s) What should one remember?
It was observed in a few As per paragraph 17 of IND AS 24, “An
cases, in case of key entity shall disclose key management
managerial personnel, personnel compensation in total and for
where the disclosure of each of the following categories: (a) short-
remuneration paid to them term employee benefits; (b) post-
was not made in employment benefits; (c) other long-term
accordance to the benefits; (d) termination benefits; and (e)
standards requirement. share-based payment.”

13. Events Occurring after Balance Sheet date

Observation(s) What should one remember?
It was observed that Some As Per Para 19 of IND AS 10 ‘Event after
organizations fail to give the reporting period’:
appropriate accounting If an entity receives information after the
policy and disclosures as reporting period about conditions that
per Ind AS -10 Event after existed at the end of the reporting period, it
the Reporting period. shall update disclosures that relate to
those conditions, in the light of the new
information.

7
 Part I – Financial Information

14. Cash and cash equivalents- Not available for use by

Group
Observation(s) What should one remember?
It was observed that the Para 48 of Ind AS 7 states that, “An entity
company has not disclosed shall disclose, together with a
the amount of significant commentary by management, the amount
cash and cash equivalents of significant cash and cash equivalent
that are not available for balances held by the entity that are not
use. Even if, there is no available for use by the group.”
such conditions or
restrictions in using the
cash and cash equivalent,
then management should
explicitly disclose to be in
compliance with Ind AS 7.

15. Reporting cash flows on a net basis

Observation(s) What should one remember?
It was observed that in Para 21 of Ind AS 7 states that “An entity
several cases, proceeds shall report separately major classes of
and repayment of term gross cash receipts and gross cash
loans, current borrowings payments arising from investing and
etc. were disclosed on a net financing activities, except to the extent
basis in the statement of that cash flows described in paragraphs
cash flows. Similarly, in 22 and 24 are reported on a net basis.”
certain cases likepurchase / Ind AS -7 has specific conditions to be
sale of investments in fulfilled in order to report cash flows on a
subsidiaries, sale/ purchase net basis which have been specified in
of PPE, were disclosed on paragraph 22 as “Cash flows arising from
net basis. This observation the following operating, investing, or
is also noticed in case of financing activities may be reported on a
public sector entities. net basis:
a) cash receipts and payments on behalf
of customers when the cash flows
reflect the activities of the customer

8
Commonly Found Errors in Reporting Practices

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.
Unless the above conditions are fulfilled,
ensure that disclosures are made on a
gross basis rather than net basis.

16. Disclosure of changes in liabilities - Statement of

Cash Flows
Observation(s) What should one remember?
It was noted that the As per Para 44A of Ind AS 7 (Statement of
company has not made the Cash Flows), “An entity shall provide
disclosure about changes disclosures that enable users of financial
in liabilities arising from statements to evaluate changes in
financing activities, liabilities arising from financing activities,
including both changes including both changes arising from cash
arising from cash flows and flows and non-cash changes.”
non-cash changes. Ideally such reconciliation should be
presented along with the Statement of
cash flows.

17. Preparation of Statement of Cash Flows

Observation(s) What should one remember?
It was observed in some Ind AS 7 requires all to prepare and
cases a statement of cash present statement of cash flows. Every
flows is not prepared by a organization, whether it is small or big in
certain organization when size, whether it’s a manufacturing
such companies are not organization or trading concern or service
exempt from the preparation organization, needs cash for running its
of Statement of Cash Flows. business. Thus, every organization is
Further in some cases required to generate the cash and utilizes
incorrect terminology was cash continuously thus it is important for
used for statement of cash every organization to prepare statement of
flow cash flows.

9
 Part I – Financial Information

The correct terminology as per IND AS -7

is “Statement of cash flow” not “ Cash
Flow Statement”

18. Reconciliation of cash and cash equivalents

Observation(s) What should one remember?
In some cases, it was The requirement of paragraph 45 of Ind
observed that the aggregate AS 7 needs to be complied with, which
cash and cash equivalents, states:
considered in the statement “An entity shall disclose the components
of cash flows were not of cash and cash equivalents and shall
reconciled with the cash present a reconciliation of the amounts in
and cash equivalents its statement of cash flows with the
disclosed under the head equivalent items reported in the balance
‘cash and bank balances’ in sheet.”
the balance sheet. This
observation was also
noticed in case of financial
service sector entities.

19. Interest and dividends in the Statement of Cash

Flows
Observation(s) What should one remember?
It was observed that in Para 31 as per Ind AS 7 state
some cases the interest and s that Cash flows from interest and
dividend paid are disclosed dividends received and paid shall each be
together instead of disclosed separately. Cash flows arising
disclosing them separately from interest paid and interest and
in the Statement of Cash dividends received in the case of a
Flows. financial institution should be classified as
cash flows arising from operating
activities. In the case of other entities,
cash flows arising from interest paid
should be classified as cash flows from
financing activities while interest and
dividends received should be classified as

10
Commonly Found Errors in Reporting Practices

cash flows from investing activities.

Dividends paid should be classified as
cash flows from financing activities.

20. Effect of obtaining control or losing control of

subsidiaries in statement of cash flows
Observation(s) What should one remember?
It was observed that entities As per Para 39 of Ind AS 7 “The
have not shown the effect of aggregate cash flows arising from
obtaining control or losing obtaining or losing control of subsidiaries
control of subsidiaries or or other businesses shall be presented
other businesses as separately and classified as investing
separate line items in activities”.
statement of cash flows. An entity shall disclose, in aggregate, in
respect of both obtaining and losing
control of subsidiaries or other businesses
during the period each of the following:
a) the total consideration paid or
received.
b) the portion of the consideration
consisting of cash and cash
equivalents.
c) the amount of cash and cash
equivalents in the subsidiaries or other
businesses over which control is
obtained or lost; and
d) the amount of the assets and liabilities
other than cash or cash equivalents in
the subsidiaries or other businesses
over which control is obtained or lost,
summarized by each major category

21. Components of cash and cash equivalents

Observation(s) What should one remember?
Cash and cash equivalents, In explaining the definition of cash
in a few cases, included equivalents, paragraph 6 & 7 of IND AS 7

11
 Part I – Financial Information

deposits with maturity over states: “Cash equivalents are short-term,

twelve months. highly liquid investments that are readily
convertible to known amounts of cash and
which are subject to an insignificant risk of
changes in value. Cash equivalents are
held for the purpose of meeting short-term
cash commitments rather than for
investment or other purposes. For an
investment to qualify as a cash equivalent
it must be readily convertible to a known
amount of cash and be subject to an
insignificant risk of changes in value.
Therefore, an investment normally
qualifies as a cash equivalent only when it
has a short maturity of, say, three months
or less from the date of acquisition.”
Consequently, where deposits with
maturity over 12 months are included in
cash equivalents, it would be appropriate
to explain why these were considered as
cash equivalents.

22. Dividend distribution tax for financing activities

Observation(s) What should one remember?
In certain cases, it was As per Para 31 of IND AS 7, ….
observed that, there was no “Dividends paid should be classified as
specific mention of dividend cash flows from financing activities.”
distribution tax although the As per Para 36 of IND AS 7, …..”when it is
cash flows from financing practicable to identify the tax cash flow
activities included dividend with an individual transaction that gives
paid. rise to cash flows that are classified as
investing or financing activities the tax
cash flow is classified as an investing or
financing activity as appropriate.”

12
Commonly Found Errors in Reporting Practices

23. Exchange Earner Foreign Currency Account

Observation(s) What should one remember?
It was viewed in some Paragraph 28 of Ind AS 7 states that the
cases from the Note in unrealized gains and losses arising from
Cash and Cash Equivalents changes in foreign currency exchange
read with the Statement of rates are not cash flows. However, the
Cash Flows that the effect of exchange rate changes on cash
company held bank balance and cash equivalents held or due in a
in Exchange Earners foreign currency is reported in the
Foreign Currency Account statement of cash flows in order to
(EEFC). It was viewed that reconcile cash and cash equivalents at the
the effect of changes in the beginning and the end of the period. This
exchange rate on cash and amount is presented separately from cash
cash equivalents balance, flows from operating, investing, and
as required by paragraph 28 financing activities and includes the
of Ind AS 7 is not disclosed differences, if any, had those cash flows
under the Statement of been reported at end of period exchange
Cash Flows. Accordingly, it rates
was viewed that the
requirements of paragraph
28 of Ind AS 7 has not been
complied with in preparation
and presentation of
statement of cash flows.

24. Presenting advance for tax and provision for tax

Observation(s) What should one remember?
1. In many cases, it was IND AS12 has a specific requirement with
observed that advance respect to offsetting.
taxes were presented under As per paragraph 71, An entity shall offset
the head ‘loans and current tax assets and current tax
advances’ and provision for liabilities if, and only if, the entity:
tax under the head
(a) has a legally enforceable right to set
‘provisions’ without
off the recognized amounts; and
offsetting the two amounts.
(b) intends either to settle on a net basis,

13
 Part I – Financial Information

or to realize the asset and settle the

liability simultaneously
An entity will normally have a legally
enforceable right to set off a current tax
asset against a current tax liability when
they relate to income taxes levied by the
same taxation authority and the taxation
laws permit the entity to make or receive a
single net payment.
Where the enterprise can fulfill the criteria
set out in paragraph 71 of IND AS 12,
disclose the advance tax / provision for tax
on a net basis.
2. In another case, it was 2. Similarly, where the enterprise cannot
noted that the company has fulfill the criteria set out in paragraph 71 of
not fulfilled the criteria as IND AS 12, shall not disclose the advance
per IND AS 12 and tax / provision for tax on a net basis.
disclosed the advance tax /
provision for tax on a net
basis.

25. Presentation of deferred tax liability / asset in the

consolidated financial statement
Observation(s) What should one remember?
In some cases, it was As per Ind AS 12 para 74 An entity shall
observed that treatment for offset deferred tax assets and deferred tax
offsetting of deferred tax liabilities if, and only if:
liability/deferred tax asset in a) The entity has a legally enforceable
the consolidated financial right to set off current tax assets
statements of a company is against current tax liabilities and
not in line with Ind AS 12.
b) the deferred tax assets and the
deferred tax liabilities relate to income
taxes levied by the same taxation
authority on either:
I. the same taxable entity; or
II. different taxable entities which

14
Commonly Found Errors in Reporting Practices

intend either to settle current tax

liabilities and assets on a net
basis, or to realize the assets
and settle the liabilities
simultaneously, in each future
period in which significant
amounts of deferred tax
liabilities or assets are expected
to be settled or recovered.
Consequently, in case of consolidated
financial statements, it would be
appropriate to offset the deferred tax
assets and deferred tax liabilities of the
parent and the subsidiaries, only in cases
where the abovementioned conditions are
satisfied.

26. Offsetting of deferred tax assets and deferred tax

liabilities
Observation(s) What should one remember?
It was viewed in some Para 74 of Ind AS 12 states that the
cases from the Standalone An entity shall offset deferred tax assets
Financial Statements that and deferred tax liabilities if, and only if:
the company has presented
a) the entity has a legally enforceable
deferred tax asset (DTA) &
right to set off current tax assets
deferred tax liability (DTL)
against current tax liabilities; and
separately on the face of
the balance sheet instead of b) the deferred tax assets and the
being presented on net deferred tax liabilities relate to
basis on the face of the income taxes levied by the same
balance sheet after taxation authority on either:
offsetting, accordingly it was I. the same taxable entity; or
viewed that the II. different taxable entities which
requirements of para 74 of intend either to settle current tax
Ind AS 12 have not been liabilities and assets on a net
complied with. basis, or to realise the assets
and settle the liabilities

15
 Part I – Financial Information

simultaneously, in each future

period in which significant
amounts of deferred tax liabilities
or assets are expected to be
settled or recovered.

27. Convincing evidence

Observation(s) What should one remember?
In certain cases, it was Paragraph 82 of IND AS 12 has a specific
observed that the notes to disclosure requirement relating to
accounts included a note convincing evidence which reads as
that deferred tax assets follows: ‘An entity shall disclose the
have been recognized on amount of a deferred tax asset and the
unused tax losses or tax nature of the evidence supporting its
credits only to the extent recognition’ when:
that the entity has sufficient (a) The utilisation of the deferred tax
taxable temporary asset is dependent on future taxable
differences or there is profits in excess of the profits arising
convincing other evidence from the reversal of existing taxable
that sufficient taxable profit temporary differences; and
will be available against
(b) the entity has suffered a loss in either
which the unused tax losses
the current or preceding period in the
or unused tax credits can be
tax jurisdiction to which the deferred
utilised by the entity.
tax asset relates.
However, no disclosures
were made as to what is the Ensure that the nature of evidence is also
convincing evidence as disclosed in this regard.
required by IND AS 12

28. Disclosure of Provisions

Observation(s) What should one remember?

In certain cases, it was With respect to provisions, IND AS 37

observed that the note on requires disclosures as contained in
provisions disclosed paragraph 84 and 85 which state:
provision towards “84. For each class of provision, an entity
decommissioning liability,

16
Commonly Found Errors in Reporting Practices

but there were no further shall disclose:

disclosures made in the (a) the carrying amount at the beginning
financial statements in line and end of the period;
with the requirements of
(b) additional provisions made in the
IND AS 37. The similar
period, including increases to existing
nature of non- discloser is
provisions;
observed in case of
financial service sector (c) amounts used (i.e. incurred and
entities for loan commitment charged against the provision) during
in the notes of provision, the period ;
where reconciliation as (d) unused amounts reversed during the
required under Para 84 of period ; and
IND AS 37 is not provided.
(e) the increase during the period in the
It was noted that in the discounted amount arising from the
notes of Provisions (Non- passage of time and the effect of any
Current), company has change in the discount rate.
presented the following:
Comparative information is not required.
(a) Provision for employee
85. An entity shall disclose the following
benefits
for each class of provision:
(b) Others (Refer note
(a) a brief description of the nature of the
below)
obligation and the expected timing of
In the note, it is mentioned any resulting outflows of economic
that “Others include matters benefits;
relating to indirect tax
(b) an indication of the uncertainties
matters”.
about the amount or timing of those
outflows. Where necessary to provide
adequate information, an entity shall
disclose the major assumptions made
concerning future events, as
addressed in paragraph 48;and
(c) the amount of any expected
reimbursement, stating the amount of
any asset that has been recognised
for that expected reimbursement”

17
 Part I – Financial Information

29. Property, Plant and Equipment- Accounting policy

Observation(s) What should one remember?
It was observed that as per Para 117 of Indian Accounting Standard
para 7 & 67 of IND AS 16 (IND AS) 1, Disclosure of Accounting
“Property, Plant and Policies requires, “An entity shall disclose
Equipment”, Accounting material accounting policy information.
policy for recognition and Accounting policy information is material
de-recognition criteria of if, when considered together with other
Property, plant, equipment information included in an entity’s financial
is not disclosed in material statements, it can reasonably be expected
accounting policies. to influence decisions that the primary
users of general purpose financial
statements make on the basis of those
financial statements.”
Accordingly, the entity should have
mentioned Recognition and Derecognition
criteria for Property Plant & Equipment as
per Para 7 & 67 of IND AS 16 ‘Property
Plant & Equipment’.
As per Para 7 The cost of an item of
property, plant and equipment shall be
recognized as an asset if, and only if:
(a) it is probable that future economic
benefits associated with the item will
flow to the entity; and
(b) the cost of the item can be
measured reliably.
As per Para 67 The carrying amount of an
item of property, plant and equipment
shall be derecognized:
(a) on disposal; or
(b) when no future economic benefits
are expected from its use or
disposal.

18
Commonly Found Errors in Reporting Practices

30. Property, Plant and Equipment- Nomenclature

Observation(s) What should one remember?
It was observed that the Ind As 16, Property, Plant and Equipment
heading “tangible Assets” to be read with Ind AS 1, Presentation of
has been used by the financial statements and Format of
company instead of using Balance Sheet given under Division -II Ind
the correct nomenclature AS Schedule III to of the Companies Act,
i.e., “Property, Plant and 2013 that states the balance sheet shall
Equipment” which is include the line items that present the
suggested by Ind AS 1, Ind following amounts:
AS 16 as well as Division II ASSETS
Ind AS Schedule III to
1. Non- current assets
Companies Act, 2013.
a) Property, Plant and Equipment’s
In another case, it was
noted that the company has
used the term ‘fixed asset’
instead of ‘Property, Plant
and Equipment’.

31. Expenditure during construction period

Observation(s) What should one remember?
In certain cases, the Reference in this regard is made to the
accounting policy stated requirements of paragraph 16 of IND AS
that certain expenses such 16, which states: “The cost of an item of
as indirect costs / other property, plant and equipment comprises:
incidental expenses which its purchase price and any costs directly
were incurred during attributable to bringing the asset to the
construction period, were location and condition necessary for it to
included in the amounts be capable of operating in the manner
capitalized. intended by management.”
Consequently, it needs to be elaborated in
the accounting policy as to whether the
indirect costs were in fact directly
attributable to construction of the asset.

19
 Part I – Financial Information

32. Disclosure of the risk- Investments in Plan Assets

Observation(s) What should one remember?
It was observed that in As per Para 139(b) of Ind AS 19,
some cases, companies ‘Employee Benefits’ An entity shall
have not disclosed the risk disclose the description of the risks to
associated with the which the plan exposes the entity,
investments in plan assets focused on any unusual, entity specific or
as per para 139(b) of Ind plan-specific risks, and of any significant
AS 19. 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.
The entity should have made the following
disclosure.

33. Director Sitting Fees

Observation(s) What should one remember?
1. It was observed from the 1. Director’s sitting fees should have
note on ‘Other Expenses’ been disclosed under the head employee
that the director’s sitting benefit expenses in line with paragraph 7
fees were disclosed there. of Ind As 19. “An employee may provide
Hence the requirement of services to an entity on a full-time, part
Ind AS 19 has not been time, permanent, casual or temporary
complied with in preparation basis. For the purpose of this Standard,
and presentation of the employees include directors (either in
Financial Statements. whole-time or part time employment of the
2. It was also observed in company) and other management
another case that in the personnel”.
note related to KMP’s 2. Para 17 of Ind AS 24 states that “an
remuneration/compensation entity shall disclose key management
the company has presented personnel compensation in total and for
the sitting fees paid to each of the following categories:
independent director under (a) short-term employee benefits;
the separate head other

20
Commonly Found Errors in Reporting Practices

than the five heads (b) post-employment benefits;

prescribed under Para 17 of (c) other long-term benefits;
Ind AS 24.
(d) termination benefits; and
(e) share-based payment.”
As per ITFG Bulletin 11 Issue 9, The
sitting fees paid to directors will fall under
the definition of “Short-term employee
benefits” as per Ind AS 19 and is required
to be disclosed in accordance with the
paragraph 17 of Ind AS 24.
Therefore, the company should disclose
the sitting fees under “Short Term
Employee benefits” instead of any other
head.

34. Defined contribution plans

Observation(s) What should one remember?
Where a company had Paragraph 53 of IND AS 19 states:
defined contribution plans in “An entity shall disclose the amount
the form of provident fund, it recognised as an expense for defined
was noticed that it did not contribution plans.”
make a separate disclosure
of what was the amount
recognized in this regard in
the statement of profit and
loss during the year.

35. Defined benefit plans – inappropriate classification

Observation(s) What should one remember?
In some cases, it was Appropriate recognition and measurement
observed that the of employee benefits is dependent on the
classification of employment accurate classification of the employee
benefits were not in benefit in accordance with the guidance in
accordance with the IND AS 19. Inappropriate classification of
requirements of IND AS 19. employee benefits could potentially lead to

21
 Part I – Financial Information

For example, in some inappropriate recognition of expenses,

cases, employee benefit in related provision as well as incorrect
the nature of gratuity was presentation & disclosures.
classified as a ‘short term Reference should be made to the
employee benefit’ with no definitions of the various categories of
explanation as to the employee benefits and each employee
reason for such benefit needs to be carefully analyzed to
classification. identify appropriate classification.

36. Disclosure of the amortization period and the

amortization method
Observation(s) What should one remember?
It was observed in some As per Para 104 of Ind AS 38 “Intangible
cases that companies did Assets”, the amortization period and the
not disclose its amortization amortization method for an intangible
period and the amortization asset with a finite useful life shall be
method for an intangible reviewed at least at each financial year-
asset. end.
Company has not disclosed its policy
regarding review of amortization period
and method.

37. Intangible assets – Assets with indefinite life

Observation(s) What should one remember?
In certain cases, it was As per Para 107 of IND AS 38, ‘An
noticed, that the entities intangible asset with an indefinite useful
disclosed certain intangible life shall not be amortised.’
assets as perpetual assets As per Para 108 of IND AS 38, ‘In
with no amortisation being accordance with Ind AS 36, an entity is
provided on the same. required to test an intangible asset with an
However, impairment loss indefinite useful life for impairment by
needs to be provided. comparing its recoverable amount with its
carrying amount
(a) annually, and
(b) whenever there is an indication that

22
Commonly Found Errors in Reporting Practices

the intangible asset may be impaired.’

Also, as per Para 109 of IND AS 38, ‘The
useful life of an intangible asset that is not
being amortised shall be reviewed each
period to determine whether events and
circumstances continue to support an
indefinite useful life assessment for that
asset.’
2. It was observed that 2. Para 88 of Ind AS 38 states that an
companies have not entity shall assess whether the useful
segregated the life of an intangible asset is finite or
intangible assets with indefinite and, if finite, the length of, or
finite useful lives and number of production or similar units
with indefinite useful constituting, that useful life. An
lives. intangible asset shall be regarded by
the entity as having an indefinite useful
life when, based on an analysis of all
of the relevant factors, there is no
foreseeable limit to the period over
which the asset is expected to
generate net cash inflows for the
entity.
Further, Para 118(a) of Ind AS 38
states that an entity shall disclose, for
each class of intangible assets,
whether the useful lives are indefinite
or finite and, if finite, the useful lives or
the amortization rates used.
Therefore, companies should clearly
segregate the assets with finite useful
lives from the assets with indefinite
useful lives.
3. It was observed that the 3. Ind AS 38 have mentioned the
companies have used terminology ‘indefinite useful lives’.
incorrect terminology for Para 91 of Ind AS 38 specifically states
‘indefinite useful lives’. that the term 'indefinite' does not mean
Companies have used ‘infinite’. The useful life of an intangible

23
 Part I – Financial Information

the term ‘infinite’. asset reflects only that level of future

maintenance expenditure required to
maintain the asset at its standard of
performance assessed at the time of
estimating the asset’s useful life, and
the entity’s ability and intention to
reach such a level. A conclusion that
the useful life of an intangible asset is
indefinite should not depend on
planned future expenditure in excess
of that required to maintain the asset at
that standard of performance.

38. Amortization of intangible assets- Terminology

Observation(s) What should one remember?
In relation to intangibles, in In case of intangible assets, the term to be
some cases, it was noticed used is ‘amortization’ and not
that the accounting policy ‘depreciation’ in line with IND AS 38.
states the ‘depreciation
rates’ rather than specifying
the same as ‘amortization
rates’.

39. Intangible Assets under Development

Observation(s) What should one remember?
It was observed from the As per schedule III Intangible Assets
Notes on Property plant and under Development were disclosed
Equipment in the financial separately on the face of the balance
statement that Intangible sheet.
Assets under Development ASSETS
has been shown as a part of
1.Non-current assets
“others” under other
intangible assets line item. (f) Intangible assets under development

24
Commonly Found Errors in Reporting Practices

40. Research and Development Expense

Observation(s) What should one remember?
It was also noticed that no Paragraph 54 of IND AS 38 very clearly
distinction was made states: ‘No intangible asset arising from
between “research” and research (or from the research phase of
“development” phases in an internal project) shall be recognized.
drafting the related Expenditure on research (or on the
accounting policies leading research phase of an internal project) shall
to inappropriate accounting be recognised as an expense when it is
policies: incurred.’
For example, policies read The words / phrases used in describing
as under: “Capital the accounting policy should be as per the
expenditure relating to respective Indian accounting standards.
Research and Development
amounting to Rs. XX
(previous year Rs. XX) has
been included in assets.”
Such accounting policy
conveys an impression that
expenses pertaining to the
‘research phase’ are also
considered for
capitalization.

41. Disclosure of Maturity Analysis

Observation(s) What should one remember?
It was observed that the As per Para 97 of Ind AS 116, for
company (as a lessor, for operating lease, a lessor shall disclose a
operating leases) has not maturity analysis of lease payments,
disclosed the maturity showing the undiscounted lease payments
analysis as required under to be received on an annual basis for a
Para 97 of Ind AS 116. minimum of each of the first five years
and a total of the amounts for the
remaining years.

25
 Part I – Financial Information

42. Inappropriate Lease Disclosures

Observation(s) What should one remember?
In certain cases, it was As per para 31 of IND AS 116, a lessee
observed that the shall apply the depreciation requirements
accounting policy in books in Ind AS 16, Property, Plant and
of lessee stated that the Equipment, in depreciating the right-of-use
leased assets are asset, subject to the requirements in
depreciated over the period paragraph 32.
of lease term with no Para 32 of IND AS 116 requires: If the
reference to the useful life lease transfers ownership of the underlying
of the asset or Lease term. asset to the lessee by the end of the lease
2. It was noted that term or if the cost of the right-of-use asset
companies have used the reflects that the lessee will exercise a
terminology ‘Leased Assets’ purchase option, the lessee shall
for assets taken on lease. depreciate the right-of-use asset from the
3. It was observed that the commencement date to the end of the
companies have not useful life of the underlying asset.
presented the right-of-use Otherwise, the lessee shall depreciate the
assets appropriately in the right-of-use asset from the commencement
financial statements. date to the earlier of the end of the useful
life of the right-of-use asset or the end of
4. It was observed that
the lease term.
companies have disclosed
its accounting policy for 2. As per Ind AS 116, the correct
leases without terminology is ‘Right-of-Use Assets’ for
distinguishment of ‘as a assets taken on lease instead of ‘Leased
lessor’ and ‘as a lessee’. Assets’.
5. It was observed that 3. Para 47(a) of Ind AS 116 states that a
companies have not lessee shall either present in the balance
disclosed the maturity sheet, or disclose in the notes right-of-use
analysis of lease liabilities assets separately from other assets. If a
for lessee as per Ind AS lessee does not present right-of-use assets
116. separately in the balance sheet, the lessee
shall:
(i) Include right-of-use assets within the
same line item as that within which the
corresponding underlying assets would

26
Commonly Found Errors in Reporting Practices

be presented if they were owned; and

(ii) Disclose which line items in the balance
sheet include right-of-use assets
4. In view of Ind AS 116, accounting
policy for leases ‘as a lessor’ and ‘as a
lessee’ should be clearly distinguished so
that users can better understand about the
company’s accounting treatment for both
‘as a lessor’ and ‘as a lessee’.
Para 58 of Ind AS 116 requires the lessee
to disclose the maturity analysis of lease
liabilities applying paragraphs 39 and B11
of Ind AS 107, separately from the maturity
analyses of other financial liabilities.
Illustrative format for presenting maturity
profile of lease liabilities is as follows:
Lease As at As at
Liabilities 31st 31st
March, March,
2024 2023
Before 3 months
3 – 6 months
6 – 12 months
1 – 3 years
3 – 5 years
Above 5 years
Total
As a best reporting practice, company
should disclose the interest rate implicit in
the lease or lessee’s incremental
borrowing rate used for the measurement
of lease liability.

27
 Part I – Financial Information

43. Short Term Leases and Low Value Leases

Observation(s) What should one remember?
1. It was observed that the 1. Para 8 of Ind AS 116 specifies the
accounting polices for basis of election of short-term leases
election of short-term or leases of low value assets as
leases and leases of low follows:
value assets was not in  The election for short-term leases
accordance with the Ind shall be made by class of
AS 116 with respect to underlying asset to which the right
class of assets or of use relates. A class of
individual asset. underlying asset is a grouping of
2. It was observed that underlying assets of a similar
companies had not nature and use in an entity’s
given the disclosures for operations.
short-term leases and  The election for leases for which
leases of low-value the underlying asset is of low
assets as required value can be made on a lease-by-
under Ind AS 116. lease basis.
2. Para 60 of Ind AS 116 states that a
lessee that accounts for short-term
leases or leases of low-value assets
applying paragraph 6 shall disclose
this fact.
Further, Para 53(c) and (d) of Ind AS
116 requires the lessee to disclose the
following:
 the expense relating to short-term
leases accounted for applying
paragraph 6. This expense shall
not include the expense relating to
leases with a lease term of one
month or less.
 the expense relating to leases of
low-value assets accounted for
applying paragraph 6. This
expense shall not include the

28
Commonly Found Errors in Reporting Practices

expense relating to short-term

leases of low-value assets
included in paragraph 53(c).

44. Disclosures regarding leases

Observation(s) What should one remember?
It was observed in some Ind AS 116 requires an entity i.e., lessee
cases including entities of to disclose information in the notes that,
financial service sector, do together with the information provided in
not meet the disclosure the balance sheet, statement of profit and
objective as per Ind AS 116 loss and statement of cash flows, gives a
that provide adequate basis for users of financial statements to
information to users of assess the effect that leases have on the
financial statements. financial position, financial performance,
E.g. A company has taken and cash flows of the lessee.
various residential and Para 52 states that A lessee shall disclose
office premises under information about its leases for which it is
operating lease and the a lessee in a single note or separate
company has not disclosed section in its financial statements.
the total cash outflows for However, a lessee need not duplicate
leases as per Para 53 (g) of information that is already presented
IND AS 116. elsewhere in the financial statements,
provided that the information is
incorporated by cross-reference in the
single note or separate section about
leases.
Para 53 states that a lessee shall disclose
the following amounts for the reporting
period:
a) depreciation charge for right-of-use
assets by class of underlying asset.
b) interest expense on lease liabilities.
c) The expense relating to short-term
leases accounted for applying
paragraph 6. This expense need not
include the expense relating to leases

29
 Part I – Financial Information

with a lease term of one month or

less.
d) The expense relating to leases of
low-value assets accounted for
applying paragraph 6. This expense
shall not include the expense relating
to short-term leases of low-value
assets included in paragraph 53(c).
e) the expense relating to variable lease
payments not included in the
measurement of lease liabilities.
f) income from subleasing right-of-use
assets
g) total cash outflow for leases.
h) additions to right-of-use assets.
i) gains or losses arising from sale and
leaseback transactions; and
j) the carrying amount of right-of-use
assets at the end of the reporting
period by class of underlying asset
Further, Para 54 of Ind AS 116 states that
‘A lessee shall provide the disclosures
specified in paragraph 53 in a tabular
format, unless another format is more
appropriate. The amounts disclosed shall
include costs that a lessee has included in
the carrying amount of another asset
during the reporting period.’

45. Disclosure of qualitative and quantitative

information about leasing activities
Observation(s) What should one remember?
It was observed in some As per Ind AS 116 para 59 states that in
cases that companies fail to addition to the disclosures required in
give additional qualitative paragraphs 53–58, a lessee shall disclose

30
Commonly Found Errors in Reporting Practices

and quantitative information additional qualitative and quantitative

about its leasing activities information about its leasing activities
that are necessary to meet necessary to meet the disclosure objective
the disclosure requirements in paragraph 51 (as described in
of Ind AS 116. paragraph B48). This additional
information may include, but is not limited
to, information that helps users of financial
statements to assess:
a) the nature of the lessee’s leasing
activities.
b) future cash outflows to which the
lessee is potentially exposed that are
not reflected in the measurement of
lease liabilities. This includes
exposure arising from:
i. variable lease payments (as
described in paragraph B49).
ii. extension options and termination
options (as described in
paragraph B50).
iii. residual value guarantees (as
described in paragraph B51); and
iv. leases not yet commenced to
which the lessee is committed.
c) restrictions or covenants imposed by
leases; and
d) sale and leaseback transactions (as
described in paragraph B52).

46. Going Concern

Observation(s) What should one remember?
It was noted from the Note Para 25 of Ind AS 1 state that when
on Capital management that preparing financial statements,
the company manages its management shall make an assessment of
capital to ensure that it will an entity’s ability to continue as a going
continue as going concern. concern. An entity shall prepare financial

31
 Part I – Financial Information

It was observed that the statements on a going concern basis

entire net worth of the unless management either intends to
company is substantially liquidate the entity or to cease trading or
eroded and there was no has no realistic alternative but to do so.
material business activity When management is aware, in making its
during the year. assessment, of material uncertainties
The company has not made related to events or conditions that may
the relevant disclosures as cast significant doubt upon the entity’s
per the requirements of ability to continue as a going concern, the
para 25 of Ind AS 1. 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.
It should be noted that merely erosion of
net worth is a not a reason for not
presenting the financial statements on
going concern basis.
As per Ind AS 1, the decision of whether
to prepare the financial statements or not
is based on the assessment of the entity’s
ability to continue as a going concern. The
management should have prepared the
business continuity plan and justified it.
For example, in case of new aged
companies or start-ups, they are into cash
losses, but they have the future viability
business plan to continue as a going
concern.

47. Corresponding amounts for immediately preceding

reporting period
Observation(s) What should one remember?
It has been observed in As per Para 36 of IND AS 1, An entity
reports that the disclosure shall present a complete set of financial

32
Commonly Found Errors in Reporting Practices

made by entities in respect statements (including comparative

of presenting comparative information) at least annually. When an
information in case of entity changes the end of its reporting
change in reporting period period and presents financial statements
like from calendar year to for a period longer or shorter than one
financial year is not year, an entity shall disclose, in addition to
adequate and not in the period covered by the financial
accordance with IND AS -1. statements:
(a) the reason for using a longer or
shorter period, and
(b) the fact that amounts presented in
the financial statements are not
entirely comparable.
Accordingly, entity should present the
current year financials for a shorter or
longer period as the case may be &
disclosures should be appropriately given
for the true & fair reporting to the
stakeholders.

48. Change in accounting policy

Observation(s) What should one remember?
1. In certain cases, it was 1. In case of Voluntary change in
observed that notes to the accounting policy has an effect on the
financial statements current period or any prior period or might
mentioned that a change in have an effect on future periods, as per
accounting policy e.g. Paragraph 29 of IND AS 8, an entity shall
change in method of disclose…”
inventory valuation. a. the nature of the change in accounting
However, there were no policy
further disclosures
b. the reasons why applying the new
regarding the impact of
accounting policy provides reliable
such changes etc.
and more relevant information
2. It was observed that in
c. for the current period and each prior
case of voluntary change in
period presented, to the extent
accounting policies, entities
practicable, the amount of the

33
 Part I – Financial Information

are providing the disclosure adjustment:

made at the time of change (i) for each financial statement line
in subsequent periods also. item affected; and
(ii) if Ind AS 33 applies to the entity,
for basic and diluted earnings per
share; and
d. the amount of the adjustment relating
to periods before those presented, to
the extent practicable.
e. if retrospective application is
impracticable for a particular prior
period, or for periods before those
presented, the circumstances that led
to the existence of that condition and
a description of how and from when
the change in accounting policy has
been applied.
2. As per Para 29 of Ind AS 8, in case of
voluntary change in accounting policies,
there is no requirement in subsequent
periods to repeat these disclosures. In the
subsequent periods, the accounting policy
information of previous years is not
considered as material. As per Para 117D
of Ind AS 1, If an entity discloses
immaterial accounting policy information,
such information shall not obscure
material accounting policy information.
Therefore, disclosing the voluntary change
in accounting policies in subsequent
periods may be considered as obscure in
material accounting policy information and
thus, entity should not disclose it in
subsequent periods.

34
Commonly Found Errors in Reporting Practices

49. Accounting Policies- Disclosure

Observation(s) What should one remember?
1. It has been observed that 1. Para 117 of Indian Accounting Standard
at times, the entity had (IND AS) 1, Disclosure of Accounting
certain transactions or Policies requires, “An entity shall disclose
events with regard to which material accounting policy information.
accounting policies were Accounting policy information is material
not disclosed even though if, when considered together with other
amounts involved were information included in an entity’s financial
qualifying the test of statements, it can reasonably be expected
materiality, like company to influence decisions that the primary
had foreign operations, but users of general purpose financial
no reference to manner of statements make on the basis of those
translating results & financial statements.
financial position of a Para 117B of Ind AS 1 states that
foreign operation is given. Accounting policy information is expected
2. In certain other cases, it to be material if users of an entity’s
was observed that rather financial statements would need it to
than stating the accounting understand other material information in
policy used, the policy only the financial statements. For example, an
referred to the Accounting entity is likely to consider accounting
Standard being applied. For policy information material to its financial
example, in one case, the statements if that information relates to
accounting policy merely material transactions, other events or
stated: “Property, Plant & conditions and:
Equipment is recognized & (a) the entity changed its accounting
measured in accordance policy during the reporting period and
with IND AS 16.” this change resulted in a material
change to the information in the
financial statements
(b) the entity chose the accounting policy
from one or more options permitted by
Ind ASs;
(c) the accounting policy was developed
in accordance with Ind AS 8 in the
absence of an Ind AS that specifically

35
 Part I – Financial Information

applies
(d) the accounting policy relates to an
area for which an entity is required to
make significant judgements or
assumptions in applying an
accounting policy, and the entity
discloses those judgements or
assumptions in accordance with
paragraphs 122 and 125; or
(e) the accounting required for them is
complex and users of the entity's
financial statements would otherwise
not understand those material
transactions, other events or
conditions-such a situation could arise
if an entity applies more than one Ind
AS to a class of material transactions.
In view of above, entity should assess the
materiality of an accounting policy
information. If the accounting policy
information tested to be material, then
such accounting policy information should
be disclosed. Further, as per Para 117A of
Ind AS 1, Accounting policy information
that relates to immaterial transactions,
other events or conditions is immaterial
and need not be disclosed.
2. Para 117C of Ind AS 1 states that
Accounting policy information that focuses
on how an entity has applied the
requirements of the Ind ASs to its own
circumstances provides entity-specific
information that is more useful to users of
financial statements than standardised
information, or information that only
duplicates or summarises the
requirements of the Ind ASs.

36
Commonly Found Errors in Reporting Practices

Therefore, entity should disclose entity-

specific information rather than disclosing
that “PPE is recognized and measured in
accordance with Ind AS 16.
Illustrative disclosure of accounting policy
for PPE is as follows:
“All items of property, plant and
equipment, including freehold land, are
initially recorded at cost. Subsequent to
initial recognition, property, plant and
equipment other than freehold land are
measured at cost less accumulated
depreciation and any accumulated
impairment losses. Freehold land has an
unlimited useful life and therefore is not
depreciated.”

50. Disclosures for comparative figures

Observation(s) What should one remember?
It was observed that the As per Para 41 of Ind AS 1:
organizations fail to give If an entity changes the presentation or
significant disclosures classification of items in its financial
regarding comparative statements, it shall reclassify comparative
figures in case of amounts unless reclassification is
reclassification of items in impracticable. When an entity reclassifies
its financial statements. 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.
Para 42 When it is impracticable to
reclassify comparative amounts, an entity
shall disclose:

37
 Part I – Financial Information

(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.

51. Prior period errors

Observation(s) What should one remember?
In certain cases, where the In case of prior period expenses, as per
profit and loss account Paragraph 49 of IND AS 8,"an entity shall
included a prior period disclose the following:
expense, it was observed a. the nature of the prior period error"
that, there was no
disclosure regarding the
nature of expense.
3. Sensitivity Analysis for each type of Market Risk
Observation(s) What should one remember?
It was observed in some Para 40 of Ind AS 107 states disclosure
cases from the note on regarding market risk and information
financial risk management related to sensitivity analysis.
that while giving disclosure Unless an entity complies with paragraph
of market risk, the 41, it shall disclose:
information related to
a. a sensitivity analysis for each type of
sensitivity analysis for each
market risk to which the entity is
type of market risk has not
exposed at the end of the reporting
been disclosed in line with
period, showing how profit or loss and
paragraph 40 of Ind AS 107.
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
c. changes from the previous period in
the methods and assumptions used,

38
Commonly Found Errors in Reporting Practices

and the reasons for such changes

As a best reporting practice, sensitivity
analysis for each type of risk should be
presented in tabular format.

52. Disclosure of Credit risk

Observation(s) What should one remember?
It was observed in some Para 36 of Ind AS 107 states that for all
cases from note on financial financial instruments within the scope of
risk Management that while this Ind AS, but to which the impairment
disclosure of Credit risk, the requirements in Ind AS 109 are not
information about the applied, an entity shall disclose by class of
collateral held as security financial instrument:
and other credit a) the amount that best represents its
enhancements has not been maximum exposure to credit risk at the
disclosed in line with para end of the reporting period without
36 of Ind AS 107. taking account of any collateral held or
other credit enhancements (eg netting
agreements that do not qualify for
offset in accordance with Ind AS 32);
this disclosure is not required for
financial instruments whose carrying
amount best represents the maximum
exposure to credit risk.
b) a description of collateral held as
security and other credit
enhancements, and their financial
effect (eg quantification of the extent
to which collateral and other credit
enhancements mitigate credit risk) in
respect of the amount that best
represents the maximum exposure to
credit risk (whether disclosed in
accordance with (a) or represented by
the carrying amount of a financial
instrument).

39
 Part I – Financial Information

53. Qualitative and quantitative disclosures for each

type of risk
Observation(s) What should one remember?

It was observed from the Para 33 of Ind AS 107 requires for each
financial statements of the type of risk arising from financial
company that qualitative instruments, an entity shall disclose:
and quantitative disclosures a) the exposures to risk and how they
as required by the arise.
paragraphs 33 and 34 of Ind
b) its objectives, policies, and processes
AS 107 related to each type
for managing the risk and the methods
of risk arising from financial
used to measure the risk; and
instruments have not been
made by the company in the c) any changes in (a) or (b) from the
Notes to Accounts. previous period.
Para 34 of Ind AS 107 requires for each
type of risk arising from financial
instruments, an entity shall disclose:
a) summary quantitative data about its
exposure to that risk at the end of the
reporting period. This disclosure shall
be based on the information provided
internally to key management
personnel of the entity (as defined in
Ind AS 24, Related Party Disclosures),
for example the entity’s board of
directors or chief executive officer.
b) the disclosures required by paragraphs
36–42, to the extent not provided in
accordance with (a).
c) concentrations of risk if not apparent
from the disclosures made in
accordance with (a) and (b).

40
Commonly Found Errors in Reporting Practices

54. Incorrect categorization of market risk

Observation(s) What should one remember?
It was noted that the As per Appendix A of Ind AS 107 defines
companies have presented the market risk as follows: The risk that the
the incorrect categorization fair value or future cash flows of a financial
of market risk of financial instrument will fluctuate because of
instruments. changes in market prices. Market risk
comprises three types of risk:
 Currency Risk
 Interest Rate Risk
 Other Price Risk
Currency Risk: The risk that the fair value
or future cash flows of a financial
instrument will fluctuate because of
changes in foreign exchange rates.
Interest Rate Risk: The risk that the fair
value or future cash flows of a financial
instrument will fluctuate because of
changes in market interest rates.
Other Price Risk: The risk that the fair
value or future cash flows of a financial
instrument will fluctuate because of
changes in market prices (other than those
arising from interest rate risk or currency
risk), whether those changes are caused by
factors specific to the individual financial
instrument or its issuer or by factors
affecting all similar financial instruments
traded in the market.
Entity should ensure the correct
categorization of market risk as per Ind AS
107 and use the correct terminology while
making such disclosure.

41
 Part I – Financial Information

55. Provision matrix for ECL on Trade Receivables

Observation(s) What should one remember?
It was observed that Para 35M of Ind AS 107 states, “To enable users
the disclosure made of financial statements to assess an entity’s
by the companies in credit risk exposure and understand its
relation to Credit significant credit risk concentrations, an entity
Risk Exposure of its shall disclose, by credit risk rating grades, the
Financial Instruments gross carrying amount of financial assets and the
is not in accordance exposure to credit risk on loan commitments and
with the financial guarantee contracts. This information
requirements of Para shall be provided separately for financial
35M and Para 35N of instruments:
Ind AS 107 as it does (b) for which the loss allowance is measured at
not give information an amount equal to 12-month expected credit
of the provision losses;
matrix used for
(c) for which the loss allowance is measured at
computing
an amount equal to lifetime expected credit
impairment loss
losses and that are:
allowance for Trade
Receivables and the (i) financial instruments for which credit risk
credit risk grades has increased significantly since initial
used for managing recognition but that are not credit-
the credit risk of impaired financial assets;
Other Financial (ii) financial assets that are credit-impaired
Assets. at the reporting date (but that are not
purchased or originated credit- impaired);
and
(iii) trade receivables, contract assets or
lease receivables for which the loss
allowances are measured in accordance
with paragraph 5.5.15 of Ind AS 109.
(d) that are purchased or originated credit-
impaired financial assets.
Further, Para 35N of Ind AS 107 states, For trade
receivables, contract assets and lease
receivables to which an entity applies paragraph

42
Commonly Found Errors in Reporting Practices

5.5.15 of Ind AS 109, the information provided in

accordance with paragraph 35M may be based
on a provision matrix (see paragraph B5.5.35 of
Ind AS 109).
Illustrative format for presenting the provision
matrix is as follows:
Particulars Trade Receivables days past due
Current More More Total
than than
30 60
days days
Dealer
financing
Expected 0.10% 2% 5%
credit loss
rate
Estimated 20,000 10,000 1,000 31,000
gross
carrying
amount at
default
Lifetime 20 200 50 270
expected
credit loss
Customer
financing
Expected 0.20% 3% 8%
credit loss
rate
Estimated 30,000 15,000 2,000 47,000
gross
carrying
amount at
default
Lifetime 60 450 160 670
expected
credit loss

43
 Part I – Financial Information

56. Derecognition of investments in equity instruments

Observation(s) What should one remember?
In some cases, it was Para 11B of Ind AS 107 states If an entity
viewed that the entity derecognized investments in equity
derecognized investment in instruments measured at fair value
the equity instruments through other comprehensive income
measured at fair value during the reporting period, it shall
through other disclose:
comprehensive income a) the reasons for disposing of the
during the reporting period investments.
but failed to give the
b) the fair value of the investments at
necessary disclosures
the date of derecognition
required by Ind AS 107.
c) the cumulative gain or loss on
disposal
Further, Para 11A(d) of Ind AS 107
requires the entity to disclose dividends
related to investments derecognised
during the reporting period separately from
the dividends recognized during the
period.
Further, Para 20(a)(viii) of Ind AS 107
requires the entity to disclose (in the
statement of profit and loss or in the
notes) the amount reclassified upon
decrecognition from accumulated other
comprehensive income to profit or loss for
the period separately from the amount of
net gains or net losses on financial assets
measured at fair value through other
comprehensive income.

57. Reclassification of financial assets

Observation(s) What should one remember?
It was observed in some Para 12B of Ind AS 107 states that an
cases from the statement of entity shall disclose if, in the current or

44
Commonly Found Errors in Reporting Practices

profit and Loss that a loss previous reporting periods, it has

was disclosed on account of reclassified any financial assets in
reclassification of financial accordance with paragraph 4.4.1 of Ind AS
assets from amortized cost 109. For each such event, an entity shall
to fair value. Later, a disclose:
change in the business a) the date of reclassification.
model has been made by
b) a detailed explanation of the change in
the company, consequently
the business model and a qualitative
financial instruments which
description of its effect on the entity’s
were otherwise valued at
financial statements.
amortized cost, now valued
at fair value through other c) the amount reclassified into and out of
comprehensive income. each category.
Accordingly, it was viewed
that the company should
have made the appropriate
disclosure in line with
paragraph 12B of Ind AS
107 giving details of such
reclassification.

58. Assets held for disposal

Observation(s) What should one remember?
In cases, where the entity Paragraph 15 of IND AS 105 specifically
had assets held for deals with assets held for disposal and
disposal, such assets were states: ‘An entity shall measure a non-
not separately presented in current asset (or disposal group) classified
the financial statements. as held for sale at the lower of its carrying
Further they were presented amount and fair value less costs to sell.’
at net book value. Paragraph 38 of IND AS 105 requires: ‘an
2. It was observed that entity shall present a non-current asset
company have not specified classified as held for sale and the assets
the reasons for assets of a disposal group classified as held for
classified as held for sale. sale separately from other assets in the
3. It was observed that the balance sheet.’
assets classified as held for Ensure that assets held for disposal are
sale continued to be separately presented at values specified

45
 Part I – Financial Information

presented at same value in as per above paragraphs.

the balance sheet over the 2. Para 30 of Ind AS 105 requires the
years without any specified entity to present and disclose information
reason. that enables users of the financial
statements to evaluate the financial
effects of discontinued operations and
disposals of non-current assets (or
disposal groups).
Further, Para 41 of Ind AS 105 states
that an entity shall disclose the
following information in the notes in the
period in which a non-current asset (or
disposal group) has been either
classified as held for sale or sold:
(a) a description of the non-current
asset (or disposal group);
(b) a description of the facts and
circumstances of the sale, or
leading to the expected disposal
and the expected manner and
timing of that disposal…..
3. Para 9 of Ind AS 105 states that
“Events or circumstances may extend the
period to complete the sale beyond one
year. An extension of the period required
to complete a sale does not preclude an
asset (or disposal group) from being
classified as held for sale if the delay is
caused by events or circumstances
beyond the entity’s control and there is
sufficient evidence that the entity remains
committed to its plan to sell the asset (or
disposal group). This will be the case
when the criteria in Appendix B are met.”
Further, as per Appendix B of Ind AS 105,
an exception to the one-year requirement
in paragraph 8 shall therefore apply in the

46
Commonly Found Errors in Reporting Practices

following situations in which events or

circumstances arise:
(a) at the date an entity commits itself to a
plan to sell a non- current asset (or
disposal group) it reasonably expects
that others (not a buyer) will impose
conditions on the transfer of the asset
(or disposal group) that will extend the
period required to complete the sale,
and:
(i) actions necessary to respond to
those conditions cannot be
initiated until after a firm purchase
commitment is obtained, and
(ii) a firm purchase commitment is
highly probable within one year.
(b) an entity obtains a firm purchase
commitment and, as a result, a buyer
or others unexpectedly impose
conditions on the transfer of a non-
current asset (or disposal group)
previously classified as held for sale
that will extend the period required to
complete the sale, and:
(i) timely actions necessary to
respond to the conditions have
been taken, and
(ii) a favourable resolution of the
delaying factors is expected.
(c) during the initial one-year period,
circumstances arise that were
previously considered unlikely and, as
a result, a non- current asset (or
disposal group) previously classified
as held for sale is not sold by the end
of that period, and:

47
 Part I – Financial Information

(i) during the initial one-year period

the entity took action necessary to
respond to the change in
circumstances,
(ii) the non-current asset (or disposal
group) is being actively marketed
at a price that is reasonable, given
the change in circumstances, and
(iii) the criteria in paragraphs 7 and 8
are met.
Therefore, company should disclose the
events or circumstances due to which the
extension beyond one year is taken for
assets classified as held for sale.

59. Qualifying Assets

Observation(s) What should one remember?
In certain cases, it was IND AS 23 permits capitalization of
observed that the borrowing costs only when they relate to
accounting policy disclosed qualifying assets as specified in paragraph
with respect to borrowing 8: “An entity shall capitalize borrowing
costs states: “Finance costs costs that are directly attributable to the
relating to acquisition of acquisition, construction or production of a
property, plant & equipment qualifying asset as part of the cost of that
are also included to the asset. An entity shall recognize other
extent they relate to the borrowing costs as an expense in the
period till such assets are period in which it incurs them.”
ready for intended use”. Para 5 of Ind AS 23 defines the qualifying
Such accounting policy asset as follows: “A qualifying asset is an
gives an impression that asset that necessarily takes a substantial
finance costs on acquisition period of time to get ready for its intended
of all such assets are use or sale.”
capitalized rather than just
qualifying assets.

48
Commonly Found Errors in Reporting Practices

60. Date of cessation

Observation(s) What should one remember?
In certain cases, it was The requirement of IND AS 23 is to ensure
observed that the that borrowing costs are capitalized only
accounting policy with till the time substantially all the activities
respect to borrowing costs, necessary to prepare the qualifying asset
specified that borrowing for its intended use or sale are complete
costs attributable to (paragraph 22). Consequently, the
qualifying assets were reference to ‘completion’ of assets is not
capitalized up to the date of the correct wording as per the requirement
‘completion’ of the assets. of the standard.

61. Disclosure of Borrowing cost

Observation(s) What should one remember?
In most cases, it was Paragraph 26 of IND AS 23 requires the
observed that borrowing disclosure of ‘the amount of borrowing
costs on qualifying assets costs capitalized during the period & the
were capitalized and an capitalization rate used to determine the
accounting policy for the amount of borrowing costs eligible for
same was also disclosed. capitalization.’
However, the amount of
borrowing costs capitalized
during the year was not
disclosed.

62. Non-Disclosures of Discount Rate(s)

Observation(s) What should one remember?
It was observed that Disclosure for an individual asset
companies have not (including goodwill) or a cash-generating
disclosed the discount unit, for which an impairment loss has
rate(s) used in computing been recognized or reversed during the
the value in use or fair period:
values less costs of  Para 130(f)(iii) of Ind AS 36 requires
disposal as required under that if the recoverable amount is fair
Ind AS 36. Companies have

49
 Part I – Financial Information

just disclosed that “it was value less costs to disposal and fair
computed on the basis of value measurements categorized
appropriate discounting within Level 2 and Level 3 of the fair
factor”. value hierarchy, the entity shall
disclose the discount rate(s) used in
the current measurement and
previous measurement if fair value
less costs of disposal is measured
using a present value technique.
 Para 130(g) of Ind AS 36 requires that
if recoverable amount is value in use,
the entity shall disclose the discount
rate(s) used in the current estimate
and previous estimate (if any) of value
in use.
Disclosure for each cash ash-
generating unit (group of units) for
which the carrying amount of goodwill
or intangible assets with indefinite
useful lives allocated to that unit
(group of units) is significant in
comparison with the entity’s total
carrying amount of goodwill or
intangible assets with indefinite useful
lives:
 Para 134(d)(v) of Ind AS 36, if the
unit’s (group of units’) recoverable
amount is based on value in use, the
entity shall disclose the discount
rate(s) applied to the cash flow
projections.
 Para 134(e)(v) of Ind AS 36, if the
unit’s (group of units’) recoverable
amount is based on fair value less
costs of disposal and it is not
measured using a quoted price for an
identical unit (group of units), the

50
Commonly Found Errors in Reporting Practices

entity shall disclose the discount

rate(s) applied to cash flow
projections.
Therefore, instead of mentioning that
appropriate discounting factor was used,
company should disclose the specific
discount rate which was actually used in
the computation.

63. Valuation of inventories

Observation(s) What should one remember?
It has been observed, in With regard to measurement, Para 9 of
some cases, that the IND AS 2 requires that “Inventories should
accounting policy relating to be valued at the lower of cost and net
valuation of inventories realizable value.”
specified that certain Inventories refer to all categories of
categories of inventories, inventories and requirements apply to all
usually raw materials stores categories of inventories including raw
or work in progress, were materials, finished goods, etc.
valued only at cost with no The accounting policy should be in line
reference to net realizable with the requirements of IND AS and
value. In certain other actual treatment/accounting done for each
cases, it was observed that class of inventory.
the accounting policy refers
2. Company should disclose the
to lower of cost or market
components of cost appropriately with
value rather than net
respect to raw materials, stores & spares,
realizable value.
work-in-progress and finished goods
2. It was observed that the irrespective of the fact that whether the
company have not disclosed valuation is based on net realizable value.
the cost value where the Further, Para 9 of Ind AS 2 states that the
company have mentioned inventories shall be measured at the
that the inventories are lower of cost and net realizable value,
valued at net realizable therefore it is necessary to describe both
value. i.e., cost, and net realizable value in the
3. It was observed that the accounting policy.
companies have not 3. Para 10 of Ind AS 2 states that the
covered all the components

51
 Part I – Financial Information

of cost while disclosing the cost of inventories shall comprise all costs
accounting policy for of purchase, cost of conversion and other
inventory such as costs incurred in bringing the inventories
apportioned overheads e.g. to their present location and condition.
depreciation on factory Further, Para 12 of Ind AS 2 states that
buildings was not covered in the cost of conversion of inventories
cost of finished goods. include costs directly related to the units
of production, such as direct labour. They
also include a systematic allocation of
fixed and variable production overheads
that are incurred in converting materials
into finished goods.
The illustrative disclosure for cost
component is as follows:
 Cost of raw materials and stores and
spares includes cost of purchase and
other costs incurred in bringing the
inventories to their present location
and condition.
 Cost of finished goods and work-in-
progress include all costs of
purchases, conversion costs and
other costs incurred in bringing the
inventories to their present location
and condition. It includes the
appropriate portion of overheads.

64. Disclosure of Cost formula

Observation(s) What should one remember?
It was observed that most Paragraph 36 of IND AS 2 specifically
companies did not disclose requires disclosure of “The accounting
the cost formula as required policies adopted in measuring inventories,
by IND AS 2 including the cost formula used.”
The cost formula used should be included
in the accounting policy of inventories (For
example, FIFO, weighted average method,
etc.)

52
Commonly Found Errors in Reporting Practices

65. Nature of Government Grant

Observation(s) What should one remember?
In certain cases, it was The requirement of IND AS 20 is to
noticed that the accounting account for grants based on their nature,
policy for government viz., grants related to assets, grants
grants was generic without related to income. Accordingly, both the
specifying the nature of the nature of grant as well as the consequent
grants leading to ambiguity accounting treatment will need to be
in terms of appropriateness provided in the accounting policy in order
of the accounting treatment. to give a complete understanding.
For example, a policy read The illustrative accounting policy for grants
as under: “Government is as follows:
grants are recognized in the
“Government grants and subsidies are
profit and loss account in
recognized when there is reasonable
accordance with the related
assurance that the Company will comply
scheme and in the period in
with the conditions attached to them and
which these are accrued.
the grants / subsidy will be received.
Government grants whose primary
condition is that the Company should
purchase, construct or otherwise acquire
capital assets are presented by deducting
them from the carrying value of the assets.
The grant is recognized as income over
the life of a depreciable asset by way of a
reduced depreciation charge.

66. Different Accounting policies

Observation(s) What should one remember?
In some cases, it was As per Ind AS 110 para B87 states that if
observed that there is no a member of the group uses accounting
disclosure of appropriate policies other than those adopted in the
adjustments in the financial consolidated financial statements for like
statements of the group transactions and events in similar
member’s accounting circumstances, appropriate adjustments
policies other than those are made to that group member’s financial

53
 Part I – Financial Information

adopted in preparing statements in preparing the consolidated

consolidated financial financial statements to ensure conformity
statements with the group’s accounting policies

67. Intragroup transactions

Observation(s) What should one remember?
It was observed, in some Paragraph B86 of IND AS 110 requires:
cases, that the intragroup ….c. “eliminate in full intragroup assets
balances & transactions and liabilities, equity, income, expenses
were not eliminated as and cash flows relating to transactions
required by the standard. between entities of the group (profits or
losses resulting from intragroup
transactions that are recognized in assets,
such as inventory and fixed assets, are
eliminated in full). Intragroup losses may
indicate an impairment that requires
recognition in the consolidated financial
statements. Ind AS12, Income Taxes,
applies to temporary differences that arise
from the elimination of profits and losses
resulting from intragroup transactions.”

68. Change in ownership interest in an associate or a

joint venture
Observation(s) What should one remember?
It was observed that in As per Ind AS 28 para 25 states that If an
some cases there is entity’s ownership interest in an associate
change in ownership is reduced, but the entity continues to
interest in an associate, but apply the equity method, the entity shall
the entity didn’t transfer the reclassify to profit or loss the proportion of
equivalent profit form other the gain or loss that had previously been
comprehensive income to recognized in other comprehensive
Profit or loss account as income relating to that reduction in
required by Ind AS 28. ownership interest if that gain or loss
would be required to be reclassified to
profit or loss on the disposal of the related
assets or liabilities.

54
Commonly Found Errors in Reporting Practices

69. Disclosure of Place of incorporation and proportion

of ownership interest
Observation(s) What should one remember?
It was observed that in Para 17 (b) of Ind AS 27 states that when
some cases there are a parent (other than a parent covered by
investment in subsidiaries paragraphs 16-16A) or an investor with
and Joint ventures, place of joint control of, or significant influence
incorporation and proportion over, an investee prepares separate
of ownership interest has financial statements, the parent or investor
not been disclosed hence shall identify the financial statements
requirements of Ind AS 27 prepared in accordance with Ind AS 110,
have not been complied Ind AS 111 or Ind AS 28 to which they
with in preparation and relate. The parent or investor shall also
presentation of the financial disclose in its separate financial
statements. statements:
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.

70. Weighted average number of shares

Observation(s) What should one remember?
In certain cases, it was As per para 70 of Ind AS 33, ….(b) “An
observed that the disclosure entity shall disclose the weighted average
of reconciliation of number number of ordinary shares used as the
of weighted average denominator in calculating basic and
number of equity shares diluted earnings per share, and a
used as denominator in reconciliation of these denominators to

55
 Part I – Financial Information

calculating the basic and each other. The reconciliation shall include
diluted earnings per share the individual effect of each class of
was not made. instruments that affects earnings per
share”.

71. Disclosure regarding the amount used in the

numerator
Observation(s) What should one remember?

It was observed that while As per para 70(a) of Ind AS 33, An entity
calculating basic and diluted shall disclose the amounts used as the
EPS, entities fail to disclose numerators in calculating basic and diluted
the amount used in earnings per share, and a reconciliation of
numerator. Also, in some those amounts to profit or loss attributable
cases, reconciliation of to the parent entity for the period. The
numerator with the profit/ reconciliation shall include the individual
loss attributable is not effect of each class of instruments that
disclosed. affects earnings per share.
2. It was observed that 2. Para 10 of Ind AS 33 states that basic
while calculating dilutive earnings per share shall be calculated by
earnings per share, dividing profit or loss attributable to
companies had used the ordinary equity holders of the parent entity
incorrect terminology ‘profit (the numerator) by the weighted average
or loss attributable to number of ordinary shares outstanding
ordinary equity holders’ (the denominator) during the period.
instead of using the Further, Para 31 states that for the
terminology ‘numerator for purpose of calculating diluted earnings per
calculating dilutive earnings share, an entity shall adjust profit or loss
per share’. attributable to ordinary equity holders of
the parent entity, and the weighted
average number of shares outstanding, for
the effects of all dilutive potential ordinary
shares.
If the company has used the term ‘profit or
loss attributable to equity holders’ in
calculating Basic EPS, then the same
terminology shall not be used for

56
Commonly Found Errors in Reporting Practices

calculating Diluted EPS. Company should

use the term ‘numerator for calculating
Diluted EPS’. Further, in view of Para
70(a), company should disclose the
amount used as numerator and present
the reconciliation between numerator and
profit or loss attributable to equity holders.

72. Bonus shares not considered for calculation of

Earnings per share
Observation(s) What should one remember?

It was noted in some cases Paragraph 64 of Ind AS 33 states that “If

that bonus shares were the number of ordinary or potential
issued by the company ordinary shares outstanding increases as
during the year and same a result of a capitalization, bonus issue or
has, although, been share split, or decreases as a result of a
considered for calculation of reverse share split, the calculation of basic
basic and diluted earnings and diluted earnings per share for all
per share for current periods presented shall be adjusted
financial year but the same retrospectively. If these changes occur
is not considered for after the reporting period but before the
calculation of EPS of financial statements are approved for
previous year. Accordingly, issue, the per share calculations for those
it was viewed that and any prior period financial statements
requirements of paragraph presented shall be based on the new
64 of Ind As 33 have not number of shares. The fact that per share
been complied. calculations reflect such changes in the
number of shares shall be disclosed. In
addition, basic and diluted earnings per
share of all periods presented shall be
adjusted for the effects of errors and
adjustments resulting from changes in
accounting policies accounted for
retrospectively”.

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 Part I – Financial Information

73. Dividend on cumulative preference shares

Observation(s) What should one remember?
In certain cases, it was Paragraph 14 of IND AS 33 specifically
observed that the dividend requires that the after-tax amount of
on cumulative preference preference dividends that is deducted from
shares was not adjusted profit or loss is:
while determining earnings b.” the after-tax amount of the preference
for the period. dividends for cumulative preference
shares required for the period, whether or
not the dividends have been declared. The
amount of preference dividends for the
period does not include the amount of any
preference dividends for cumulative
preference shares paid or declared during
the current period in respect of previous
periods.”
Where the company has cumulative
preference shares, adjustment of dividend
on such preference shares should be
ensured while determining earnings for the
period.

74. EPS for Continuing and Discontinued Operation

Observation(s) What should one remember?
It was observed that Schedule III of the Companies Act, 2013
companies have not requires the company to disclose the
disclosed the EPS following in the Statement of Profit and
separately for continuing Loss:
operations and discontinued  Earnings per equity share (for
operations or the cumulative continuing operation)
one.
 Basic
 Diluted
 Earnings per equity share (for
discontinued operation)

58
Commonly Found Errors in Reporting Practices

 Basic
 Diluted
 Earnings per equity share (for
discontinued & continuing operations)
 Basic
 Diluted

75. Foreign currency transactions: Monetary assets and

liabilities
Observation(s) What should one remember?
It was observed that the As per Para 23 of IND AS 21” (a) foreign
accounting policy in relation currency monetary items shall be
to foreign currency translated using the closing rate.”
transactions stated that The requirement of translation as per IND
“current assets and current AS 21 is with regard to monetary assets
liabilities” denominated in and liabilities and not with respect to
foreign currencies as at the current assets and current liabilities.
balance sheet date are
translated at the rate of
exchange prevailing at the
year-end” rather than
referring to “monetary
assets and monetary
liabilities”

76. Segment reporting

Observation(s) What should one remember?
It was observed that in It was viewed that although the company
some cases companies was engaged in a single reporting
made disclosures that Ind segment yet paragraph 31 of Ind AS 108
AS 108 is not applicable to is applicable to it, and therefore, details
them because the company required under paragraphs 32 to 34 of Ind
had only one reportable AS 108 should have been disclosed by the
segment, therefore the company.
requirements of Ind AS 108 It was further viewed that the segment

59
 Part I – Financial Information

have not been complied. disclosures are not accounting policies

therefore should not have been disclosed
under note on “significant accounting
policies” rather than same should have
been disclosed as part of “Notes to
account’.

77. Segment disclosures made in consolidated financial

statements
Observation(s) What should one remember?
Where companies opted to As per paragraph 4 of IND AS 108, “If an
present segment entity’s financial report contains both the
disclosures only in the consolidated financial statements of a
consolidated financial parent that is within the scope of this Ind
statements, it was observed AS as well as the parent’s separate
that no reference to this fact financial statements, segment information
was made in the standalone is required only in the consolidated
financial statements. financial statements.”
However, it would be appropriate to
disclose the fact in the standalone
financial statements that the required
disclosures are being made, in the
consolidated financial statements.

78. Employee share-based payments - disclosures

Observation(s) What should one remember?
It was observed in some cases that Disclosure requirements for share
one or more of the following based payment arrangements are
disclosures were not found like: specified under paragraphs 44 to
• weighted average share price 52 of IND AS 102 which need to be
for stock options exercised complied with in its entirety.
during the period
• the range of exercise prices
and weighted average
remaining contractual life for
share options outstanding

60
Commonly Found Errors in Reporting Practices

• effect of employee share based

plans on the entity’s profit or
loss for the period and on its
financial position

79. Statement of Changes in Equity

Observation(s) What should one remember?
It was noted that the Note on The presentation and disclosure of
Equity Share Capital and Note on “statement of changes in equity”
other Equity have been shown should be in line with the Guidance
separately instead of disclosing Note on Division II- Ind AS
them as sub-head under Schedule III to the Companies Act,
“Statement of Changes in equity”, 2013 which states as under:
hence requirements of Division II- Paragraph 4.2 states the following:
Ind AS Schedule III to the “Financial statements include the
Companies Act, 2013 have not Balance Sheet, Statement of
been complied with in preparation Changes in equity for the period,
and presentation of the financial Statement of Profit and Loss for the
statements. period and Notes. Cash flow
statement shall be prepared in
accordance with the requirements
of the relevant Ind AS”.
Paragraph 8.2 (Equity and
liabilities) states the following:
Equity
Under this head, following line
items are to be disclosed on the
face of the Balance Sheet
(a) Equity Share Capital
(b) Other Equity
Ind As Schedule III, part I- format
of Balance Sheet includes not only
the format of balance Sheet but
also includes the format of
‘Statement of Changes in Equity”
comprising
(A) Equity Share Capital and
(B) Other equity.

61
 Part I – Financial Information

80. Share application money received pending

allotment / calls received in advance
Observation(s) What should one remember?
It was observed that share Schedule III has a specific
application money received requirement for disclosure of share
pending allotment was included in application money pending
equity capital disclosed on the face allotment to the extent not
of the balance sheet. The note on refundable shall be shown under
share capital disclosed the share the head Equity.
application money separately as In the format of statement of
being added to the share capital. changes in equity, under other
equity, a separate column for
Share application money pending
allotment is given, wherein such
amount to be mentioned.
Also, share application money to
the extent refundable shall be
separately shown under ―Óther
current liabilities.

81. Employee Stock Options outstanding

Observation(s) What should one remember?
In a few cases, where the The requirement of the Schedule III is to
company had outstanding disclose: shares reserved for issue under
employee stock options, no options and contracts/commitments for the
disclosure was made sale of shares or disinvestment, including
regarding outstanding the terms and amounts.
options in the note on share Where a company has options such as
capital. employee stock options or options under a
shareholder’s agreement, disclose such
options in the note relating to share
capital.

62
Commonly Found Errors in Reporting Practices

82. Equity Share Capital disclosures

Observation(s) What should one remember?
It was noticed in some Para 6 D (I) (d) (e) of General Instructions
cases from the note on for preparation of Balance sheet of
share capital that amount of Division II- Ind AS schedule III to the
authorized, issued, companies Act, 2013
subscribed & paid-up capital “D. Equity
has been disclosed
I. Equity Share Capital
however the details of the
number of shares for (d) A reconciliation of the number of shares
Current and previous have outstanding at the beginning and at the end
not been disclosed also of the reporting period.
reconciliation of the number (e) The rights, preferences and restrictions
of shares outstanding at the attaching to each class of shares including
beginning and at the end of restrictions on the distribution of dividends
the period has also not and the repayment of capital.
been disclosed as per the
requirement of Schedule III
of the companies Act, 2013.

83. Movement in reserves

Observation(s) What should one remember?
It was observed, in some The requirement of Schedule III is:
cases, that the balances for ‘Additions and deductions since last
current and previous year balance sheet to be shown under each of
were different for certain the specified heads’
reserves; however When there has been a change in the
movement of the reserves balance of any reserve as compared to the
was not given. last year, the movement in reserves should
be disclosed.

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 Part I – Financial Information

84. Debentures: Terms of redemption / conversion

Observation(s) What should one remember?
It has been observed in The requirement of Schedule III is:
a few cases that the ‘Bonds/debentures (along with the rate of
disclosures are interest and particulars of redemption or
incomplete – either conversion, as the case may be) shall be
terms of redemption/ stated in descending order of maturity or
conversion or the dates conversion, starting from farthest redemption
of redemption / or conversion date, as the case may be.’
conversion were not In cases, where bonds/debentures are
disclosed in descending redeemable by instalments, the date of
order. maturity for this purpose must be reckoned as
the date on which the first instalment becomes
due.
Illustrative format for presenting maturity
profile of bonds/ debentures is as follows:
Rate of Non-Current Current
Interest 2025- 2024- Total 2023-
26 25 24
8.00 %
8.25%
9.50%
Total

85. Disclosure of nature of security

Observation(s) What should one remember?
In some cases, it was noted The requirement of Schedule III is: ‘The
that the nature of security nature of security shall be specified
was not disclosed for all separately in each case’
secured loans.
The nature of security should be disclosed
in case of each loan from every source.

64
Commonly Found Errors in Reporting Practices

86. Borrowings
Observation(s) What should one remember?
It was observed that where Whether quarterly returns or statements of
the company has current assets filed by the Company with
borrowings from banks or banks or financial institutions are in
financial institutions on the agreement with the books of accounts and
basis of security of current if not, summary of reconciliation and
assets, adequate reasons of material discrepancies, if any
disclosures as per schedule to be adequately disclosed.
III of companies act 2013
were not provided.

87. Borrowings not used for specified purposes

Observation(s) What should one remember?
It was noticed that if a Where the Company has not used the
company has taken borrowings from banks and financial
borrowings from banks and institutions for the specific purpose for
financial institutions for which it was taken at the Balance Sheet
specified purpose and not date, the Company shall disclose in notes
used for the purposes for to accounts the details of where they have
which borrowings were been used.
obtained the same has to
be disclosed as per
schedule III of the
Companies act, 2013

88. Loan to Subsidiaries

Observation(s) What should one remember?
It was observed that in case As per Section 186(4) of companies Act
of certain companies’ loans 2013: “The company shall disclose to the
have been granted to three members in the financial statement the full
of the subsidiary particulars of the loans given, investment
companies, however the made, or guarantee given, or security
purpose for which such provided and the purpose for which the
loans were given has not loan or guarantee or security is proposed

65
 Part I – Financial Information

been disclosed by the to be utilized by the recipient of the loan or

company anywhere in the guarantee or security.
financial statements, hence
the requirements of Section
186(4) have not been
complied with in preparation
and presentation of
Financial Statement’s.

89. Loans and advances

Observation(s) What should one remember?
In some cases, it was Schedule III requires the following
noticed that loans disclosures relating to loans receivables:
receivable were not • Loans Receivables considered good
bifurcated based on – Secured,
whether they are secured, • Loans Receivables considered good
unsecured, impaired etc. – Unsecured,
• Loans Receivables which have
significant increase in Credit Risk,
and
• Loans Receivables – credit impaired

90. Disclosures for Loans or advances granted to

promoters, directors and the related parties
Observation(s) What should one remember?
It was noticed that As per amendments made in Schedule III
companies are required to of the Companies Act, 2013 requires
give disclosures for loans company to give disclosures where Loans
or advances granted to the or Advances in the nature of loans are
promoters, directors and granted to promoters, directors, KMPs and
the related parties while the related parties (as defined under
presenting their financial Companies Act, 2013,) either severally or
statement. jointly with any other person, that are:
(a) repayable on demand or
(b) without specifying any terms or period
of repayment

66
Commonly Found Errors in Reporting Practices

Company required to mention:

Type of Amount of Percentage
Borrower loan or to the total
advance in Loans and
the nature Advances
of loan in the
outstanding nature of
loans
Promoter
Directors
KMPs
Related
parties

91. Contingent liabilities and commitments

Observation(s) What should one remember?
It was noted that the As per Division II, Schedule III of
disclosures made by the Companies Act, 2013 (point no. H
company for contingent “Contingent Liabilities and Commitments”
liabilities and commitments of General Instructions for preparation of
is not in the format balance sheet) require,
prescribed in Division II of H. Contingent Liabilities and
Schedule III of Companies Commitments: (to the extent not provided
Act, 2013. for)
(i) Contingent Liabilities shall be
classified as-
(a) claims against the company not
acknowledged as debt;
(b) guarantees excluding financial
guarantees; and
(c) other money for which the
company is contingently
liable.

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 Part I – Financial Information

(ii) Commitments shall be classified as-

(a) estimated amount of contracts
remaining to be executed on capital
account and not provided for;
(b) uncalled liability on shares and other
investments partly paid; and
(c) other commitments (specify nature).

92. Cryptocurrency or Virtual Currency

Observation(s) What should one remember?
It was observed that As per amendment made in Schedule III
organizations dealing in Where the Company has traded or
virtual currency fails to give invested in Crypto currency or Virtual
appropriate disclosures as Currency during the financial year, the
per amendment made in following shall be disclosed:
schedule III of the
(a) profit or loss on transactions involving
companies act 2013.
Crypto currency or Virtual Currency,
(b) amount of currency held as at the
reporting date
(c) deposits or advances from any person
for the purpose of trading or investing
in Crypto Currency or virtual currency.

93. Details of Title deeds of Immovable Property not

held in name of the Company
Observation(s) What should one remember?
It was noticed that the As per amendment made in Schedule III :
company has not provided The company shall provide the details of
all the details for the all the immovable property (other than
Immovable property whose properties where the Company is the
title deed is not in the name lessee and the lease agreements are duly
of the company as per executed in favor of the lessee) whose title
amendment made in deeds are not held in the name of the
Schedule III of the company in format prescribed in the law

68
Commonly Found Errors in Reporting Practices

Companies Act, 2013 in the and where such immovable property is

required format. Further, it jointly held with others, details are
was observed that required to be given to the extent of the
companies have not company’s share.
disclosed the reason for the The tabular format as prescribed should
same, rather companies be followed for proper reporting. Further
have disclosed the status as the company should provide the exact
on reporting date for the reason instead of disclosing the present
same, for example, situation in relation with the title deeds of
company has disclosed the these properties.
following reason, “lease
deed execution is under
process”.

94. Capital-Work-in Progress (CWIP)

Observation(s) What should one remember?
It was observed that As per Schedule III of the Companies act
companies failed to give 2013 requires company to disclose CWIP
appropriate disclosures for aging schedule as an additional regulatory
Capital- Work-In-Progress information in the format prescribed.
as per schedule III of the Further the company should disclose the
Companies act, 2013. reasons if any projects has exceeded the
Further, it was observed cost or completion time in comparison to
that companies have failed its original plan.
to disclose the reasons for If there is no project whose completion is
projects whose completion overdue or has exceeded its cost
is overdue or has exceeded compared to its original plan, then
its cost compared to its company should give positive affirmation
original plan. in this regard in the notes to accounts as a
best reporting practice.

95. Shareholding pattern of promoters

Observation(s) What should one remember?
It was observed that As per general instructions for preparation of
in case of some balance sheet given in Schedule III of the
company’s promoters Companies Act, 2013 A company is required to

69
 Part I – Financial Information

are holding shares in disclose the shareholding pattern of the

the company but the promoters with the following information:
disclosure about Shares held by promoters at the end of the %
shareholding pattern year Change
is missing. during
the
year
S. Promoter No. of %of
No name Shares total
shares
Total

96. Disclosure of Shareholding

Observation(s) What should one remember?
It was observed that in As per Schedule III of Companies Act
some companies’ 2013, Number of shares held by each
stakeholder information is shareholder holding more than 5 percent
missing. Further shares in the company needs to be
Shareholding of the disclosed.
shareholder holding more Also, such shareholding pattern need to
than 5% of share not found. be disclosed on the website of the
company as per Regulation 46 of SEBI
Listing (Obligations and Disclosure
Requirements) Regulations 2015.

97. Disclosure of Ratios

Observation(s) What should one remember?
1. It was observed that 1. Ratio analysis compares line-item
in many cases following data from a company's financial
ratios were not disclosed statements to reveal insights regarding
like Gross Profit ratio, Price profitability, liquidity, operational efficiency,
earnings ratio, Trade and solvency. Ratio analysis can mark
payable ratio, trade how a company is performing over time,
receivable ratio, Debt equity while comparing a company to another
ratio, return on capital within the same industry or sector. An
employed etc. entity must disclose mandatory ratio of
Schedule III and CARO 2020 along with

70
Commonly Found Errors in Reporting Practices

other ratios like Gross profit ratio, Price

Earnings Ratio, EBDITA, Debt Equity
Ratio, Return on Capital Employed etc.
and explanatory statements should be
given by management with brief
comparative analysis for better
understanding and reporting.
2. It was observed in 2. As per Annexure B of GUIDANCE
some companies they did NOTE ON DIVISION II - IND AS
not provide the formulae of SCHEDULE III TO THE COMPANIES
ratios or the formulas given ACT, 2013 ((Revised January, 2022
are incorrect. Edition), entity should disclose the
following along with ratios:
 Description of formulae
 Reasons for variations in comparative
analysis should be provided wherever
change is more than 25%. Further as
an excellence practice, the entity can
provide even at places where there is
no regulatory requirement.

98. Revaluation of property

Observation(s) What should one remember?
It was observed that As per Schedule III of the Companies Act,
organisations failed to give 2013 The reconciliation of gross and net
the disclosure regarding carrying amount of both intangible and
reconciliation of gross and tangible assets at the beginning and end
net carrying amount of both of the reporting period, along with other
intangible and tangible separate disclosures related to additions,
assets at the beginning and disposals, acquisitions through business
end of the reporting period. combinations, depreciation, impairment,
reversal etc.
The company is required to disclose
amount of change due to revaluation,
where there is a change of at least 10% in
aggregate of the net carrying amount of
each class of the asset.

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 Part I – Financial Information

99. Trade Payables ageing schedule

Observation(s) What should one remember?
1. It was noticed 1. As per schedule III of the Companies Act,
that some 2013 requires the company to provide ageing of
companies failed to trade payables due for payment as on the balance
give trade payables sheet date.
ageing schedule Particular Outstanding for following periods Tota
which is required as s from due date of payment l
per Schedule III of
<1 1-2 2-3 >3
the Companies act,
Yea Year Year Year
2013.
r s s s

MSME

Others
2. In another case,
it was noticed Disputed
dues –
classification given
MSME
in below format:
Disputed
Classification
dues -
presented by Others
company:
It shall be provided for all trade payable due for
(a) MSME
payment whether or not the due date of payment is
(b) Others specified on the bill. In such case, date of the
 Acceptance transaction shall be used.
 Other than 2. Classification prescribed in Schedule III:
acceptance  MSME
(c) Disputed dues  Others
– Others
 Disputed dues- MSME
(d) Accrued
 Disputed dues-Others
expenses

100. Trade Receivables ageing schedule

Observation(s) What should one remember?
1. It was noticed that 1. As per schedule III of the Companies
companies failed to give Act 2013 companies are required to give

72
Commonly Found Errors in Reporting Practices

trade receivables ageing disclosure for trade receivables

schedule which is required outstanding.
as per Schedule III of the The ageing schedule of trade receivables
Companies act, 2013. shall be provided in the form of less than 6
months, 6 months-1 year, 1–2-years, 2-3
years and more than 3 years for
 Undisputed Trade Receivables –
considered doubtful
 Undisputed Trade Receivables –
which have significant increase in
credit risk
 Undisputed Trade Receivables –
credit impaired
 Disputed Trade Receivables-
considered good
 Disputed Trade Receivables – which
have significant increase in credit risk
 Disputed Trade Receivables– credit
impaired
Similar information shall be given where
no due date of payment is specified in that
case disclosure shall be from the date of
the transaction and Unbilled dues shall be
disclosed separately.
2. It was noted in another 2. As per Division II of Schedule III of
case, that the company has Companies Act, 2013, trade receivables
presented the trade ageing schedule is to be presented on the
receivables ageing basis of due date of payment. In case,
schedule, but it is not where due date of payment is not
mentioned whether it has specified, separate ageing schedule to be
been prepared on the basis presented on the basis of date of the
of due date of payment or transaction.
date of transaction. In the given case, the company should
have specified the date of ageing
considered.

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 Part I – Financial Information

101. Basis of ageing schedule for Trade Receivables and

Trade Payables
Observation(s) What should one remember?
It was observed that the As per Division II of Schedule III of
company has disclosed the Companies Act, 2013, trade receivables
trade receivables and trade and trade payables ageing schedule is to
payables ageing schedule be presented on the basis of due date of
from the date of payment and where due date of payment
transaction. It indicates that is not specified, disclosure shall be from
the due date of payment is date of the transaction.
not specified in none of the Company should present the ageing
invoices, which does not schedule in two parts i.e. where due date
seem to be realistic. of payment is specified, ageing on the
basis of due date of payment and where
due date of payment is not specified,
ageing on the basis of date of transaction
to comply with the provisions of
Companies Act, 2013.

102. Relationship with Struck off Companies

Observation(s) What should one remember?
It was noted that company As per schedule III of the Companies Act
has entered into the 2013. Where the company has any
transactions with companies transactions with companies struck off
struck off under section 248 under section 248 of the Companies Act,
of the companies act 2013 2013 or section 560 of Companies Act,
and failed to give the 1956, the Company shall disclose the
required disclosures as per following details: -
schedule III. 1. Name of struck off Company
2. Nature of transactions with struck-off
Company
3. Balance outstanding
4. Relationship with the Struck off
company, if any, to be disclosed

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Commonly Found Errors in Reporting Practices

103. Investor Education and Protection Fund

Observation(s) What should one remember?
It was noticed in some As per Section 124(5) of Companies Act,
cases that there is a delay 2013, Any money transferred to the
in transferring amounts, Unpaid Dividend Account of a company
required to be transferred, which remains unpaid or unclaimed for a
to the Investor Education period of seven years from the date of
and Protection Fund by the such transfer shall be transferred by the
Bank. company along with interest accrued, if
any, thereon to the IEPF Fund established
under Section 125(1) and the company
shall send a statement in the prescribed
form of the details of such transfer to the
authority which administers the said Fund
and that authority shall issue a receipt to
the company as evidence of such transfer.
Further, as per Section 124(6) of
Companies Act, 2013, All shares in
respect of which dividend has not been
paid or claimed for seven consecutive
years or more shall be transferred by the
company in the name of Investor
Education and Protection Fund along with
a statement containing such details as
may be prescribed.

104. Consistency of Information

Observation(s) What should one remember?
It was observed, on one It is confusing for the stakeholders if
hand, company is disclosing consistency is not maintained across the
that the borrowings are financial statements and the other parts
unsecured and on the other of the annual report.
hand, company has
disclosed in the notes that it
is secured and charges

75
 Part I – Financial Information

information is given as
follows:
In the notes of borrowings,
company has presented the
“Short-term loan from
banks (Unsecured)”.
Whereas, in the notes,
company has disclosed that
the “for secured loans,
charges created by way of
….”.

105. Impact of amendments in accounting standards

Observation(s) What should one remember?
On March 31, 2023, The Company has mentioned it is
Ministry of Corporate evaluating the impact of such
Affairs issued the amendments. In place, the company
Companies (Indian should analyse the impact of such
Accounting Standards) pronouncements till the approval of
Amendment Rules, 2023 financial statements and should describe
which have amended the impact thereof in the annual report.
certain existing standards. Further, if the company concludes that
Company has disclosed there is no significant impact of such
this under the heading amendments on its financial statements,
‘Recent Pronouncements’ then the company should specifically
and have mentioned that disclose it.
‘The company is evaluating Illustrative disclosure is as follows: “Based
impact of above on preliminary assessment, the Company
amendments in its financial does not expect these amendments to
statements’. have any significant impact on its
standalone financial statements.”

106. Cross Referencing

Observation(s) What should one remember?
It was noticed that cross  Cross-referencing avoids unnecessary
reference to the notes to repetition; and demonstrates the

76
Commonly Found Errors in Reporting Practices

accounts were not given in cohesion of the work as a whole.

some cases, which makes it  In both printed and online, cross-
difficult to understand referencing are important because
whether the related they form a network structure of
disclosures are made. relations existing between different
parts of data.

107. Rounding Off

Observation(s) What should one remember?
 In some cases, it was The specific rule for rounding off as per
observed that the Schedule III based on ‘Total Income’ is:
financial statements did  Less than Rs.100 crore: to the nearest
not include any hundreds, thousands, lakhs or
reference regarding millions, or decimals thereof
‘rounding off’ adopted  Rs.100 crore or more: to the nearest
by the company (For lakhs, millions or crores, or decimals
example, Rs. in ‘00s, thereof
‘000s, etc)
Once a unit of measurement is used, it
 Further, in some cases, should be used uniformly in the Financial
it was observed that Statements
different rounding off
Mention the rounding off convention
was adopted in different
adopted – at the beginning or on each
places (For example,
page of the balance sheet, statement of
the figures were
profit and loss, statement of cash flows
rounded off to millions
and other notes (For example, Rs. in
in balance sheet and
hundreds, Rs.’000s, etc.). It could be
statement of profit and
placed at the top right-hand corner of the
loss, but there was no
page.
rounding off at all in the
Ensure consistency across the financial
notes
statements and the other parts of the
annual report.
Where the numbers to be disclosed are
smaller than the rounding off adopted by
the company, the best practice may be to
lower the level of rounding off to that of
material items.

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 Part I – Financial Information

108. Disclosure of registered valuer as per Companies

Act, 2013
Observation(s) What should one remember?
It has been noted that, in As per Section 247(1) of the Companies
certain instances where Act 2013, “Where a valuation is required
valuation is necessary, to be made in respect of any property,
there is a lack of disclosure stocks, shares, debentures, securities or
regarding whether the goodwill or any other assets (herein
valuer engaged is a referred to as the assets) or net worth of a
registered valuer or not in company or its liabilities under the
terms of Companies Act, provision of this Act, it shall be valued by
2013. a person having such qualifications and
experience, registered as a valuer and
being a member of an organization
recognized, in such manner, on such
terms and conditions as may be
prescribed and appointed by the audit
committee or in its absence by the Board
of Directors of that company.”
Stating this that the valuer is registered in
terms of companies Act, 2013, that will
add value to the level of credibility.

109. Disclosure of Investment made in Subsidiaries and/

Joint venture or Associates
Observation(s) What should one remember?
It was noted that the As per the Division II of Schedule III of
company has disclosed the Companies Act, 2013, investment in
‘Investment in Subsidiaries subsidiaries, associates, joint ventures or
and Associates’ separately structured entities shall be presented
from the ‘Financial Assets’ under the sub-head ‘Investments’ of head
on the face of balance ‘Financial Assets’
sheet.

78
Commonly Found Errors in Reporting Practices

110. Nomenclature for presentation of Quarterly Results

Observation(s) What should one remember?
1. It was observed that the 1. SEBI vide circular
company has used incorrect CIR/CFD/FAC/62/2016 dated July 05,
nomenclature in the 2016 have stated that the formats for
presentation of quarterly Unaudited/Audited quarterly financial
results. results i.e. Statement of Profit and Loss
The nomenclature used and the Unaudited/Audited Half Yearly
was ‘Statement of Balance Sheet to be submitted by the
Unaudited Standalone Listed Entities, with the stock exchanges,
Financial Results’ instead of shall be as per the formats for Balance
‘Statement of Profit and Sheet and Statement of Profit and Loss
Loss’ and ‘Statement of (excluding notes and detailed sub-
Unaudited Standalone classification) as prescribed in Schedule
Assets and Liabilities’ III to the Companies Act, 2013.
instead of ‘Balance Sheet’.
2. It was noted that the 2. As per Regulation 33(3)(g) of SEBI
company have used the LODR, “The listed entity shall also
incorrect nomenclature i.e., submit as part of its standalone and
‘Cash Flow Statement’ consolidated financial results for the half
instead of ‘Statement of year, by way of a note, statement of cash
Cash Flows’. flows for the half-year.”

111. The Code on Social Security, 2020

Observation(s) What should one remember?
It was observed that the  Social security means the measures of
organizations fail to give protection afforded to employees,
disclosure with respect to inclusive of unorganized workers, gig
the recent pronouncements workers and platform workers to
made in Code on Social ensure access to health care and to
Security 2020. Although it is provide income security, particularly in
not mandatory but can be cases of old age, unemployment,
considered as a good sickness, invalidity, work injury,
reporting practice. maternity or loss of a breadwinner by
means of rights conferred on them and
schemes framed, under the Code on

79
 Part I – Financial Information

Social Security, 2020

 The Code on Social Security ,2020
subsumes nine central labour
legislations.ie., The Employees’
Compensation Act, 1923, The
Employees’ State Insurance Act,
1948,The Employees’ Provident Funds
and Miscellaneous Provisions Act,
1952, The Employment Exchanges
(Compulsory Notification of Vacancies)
Act, 1959, The Maternity Benefit Act,
1961, The Payment of Gratuity Act,
1972, The Cine Workers Welfare Fund
Act, 1981, The Building and Other
Construction Workers Welfare Cess
Act, 1996 and the Unorganized
Workers' Social Security Act 2008.
 The objective of the Code on Social
Security, 2020 is to amend and
consolidate the existing labour laws
relating to social security with the
wider goal of extending social security
benefits to all employees and workers
irrespective of belonging to the
organised or unorganised sector. The
Code on Social Security, 2020 brings,
within itself the self-employed workers,
home workers, wage workers, migrant
workers, the workers in the
unorganised sector, gig workers and
platform workers for the purpose of
social security schemes, including life
insurance and disability insurance,
health and maternity
benefits, provident fund.

80
 PART II-
Non-Financial Information
112. Statement on Vision and Mission
Observation(s) What should one remember?
It was observed that A Mission Statement defines the
sometimes companies company's business, its objectives, and its
failed to give vision and approach to reaching those objectives. A
mission statements or a Vision Statement describes the desired
general statement is future position of the company.
provided on vision and It provides stakeholders about company's
mission statement . purposes, goals and values which adds
value and considered a good reporting
practice.

113. Strategic Objectives

Observation(s) What should one remember?
It was observed that some Strategic objectives of the organization
entities has not presented should be aligned with organization’s
the strategic objectives vision and mission. While presenting the
adequately. strategic objectives, following should also
be included:
 Focus areas that defines the strategic
objective
 KPIs to measure the achievement
against strategic objectives
 Goals of the organization against the
KPIs

114. Organization and Group Structure

Observation(s) What should one remember?
It was observed that the Organization/ governing structure defines
 Part II – Non-Financial Information

entities have not presented the hierarchy of management in the

the organization and group organization and group structure provides
structure in the annual the overview of relationships among group
report. entities.
Since the shareholders do not participate
in routine business activities, it is
important for them to know about the
workflow of managerial decisions and
group entities. Therefore, entity should
present the governing structure and group
structure in the chart form for better
presentation.

115. Management discussion & analysis

Observation(s) What should one remember?
It was observed that As per Regulation 34(2)(e) of SEBI (Listing
sometimes companies have Obligations & Disclosure Requirements),
not provided sufficient 2015, The annual report shall contain the
information under management discussion and analysis
Management discussion & report – either as a part of directors report
analysis section which is a or addition thereto.
very relevant part from Further, Regulation 34(3) states that the
stakeholder’s perspective. annual report shall contain any other
Further, it was observed disclosures specified in Companies Act,
that if the companies have 2013 along with other requirements as
provided the information in specified in Schedule V of these
other sections of the report regulations.
which was required to be
provided in MD&A section,
Para B of Schedule V stipulates the
companies have not
matters which should be part of MD&A
provided the same
section such as Industry structure and
information in MD&A
developments, Outlook, Internal control
section and neither any
systems and their adequacy, Risks and
cross referencing is given in
concerns, etc.
the MD&A section, for
example, risk and concerns Therefore, the listed entities should cover
information was given only all the matters in MD&A section as

82
Commonly Found Errors in Reporting Practices

under the integrated required under SEBI (LODR).

reporting. Nowadays, entities are providing number
of non-financial information contained in
integrated reporting, sustainability
reporting or any other additional
information, due to which various
information required to be provided in
MD&A section are reported in these
additional information sections. However,
it should be noted that the reporting of
MD&A section is a statutory requirement
by virtue of SEBI (LODR). Therefore,
companies are required to provide the
information in MD&A section irrespective
of the fact that the information is provided
in any other section. If the required
information is already provided in any
other section, then company may give
cross-referencing of such information in
MD&A section.

116. Board Report

Observation(s) What should one remember?
It was noticed that Following disclosures are required in
companies are not Board’s Report as per Section 134(3) of
disclosing some of the Companies Act, 2013:
relevant information i.e., the a) the web address, if any, where annual
disclosure which is required return referred to in sec. 92(3) has
by law while preparing and been placed
presenting their annual b) number of meetings of board
report. c) director's responsibility statement
d) details in respect of frauds reported by
auditors under sec. 143(12) other than
those which are reportable to the
central government
e) statement on declaration given by
independent director under section

83
 Part II – Non-Financial Information

149(6)
f) company’s policy on director’s
appointment and remuneration
including criteria for determining
qualifications, positive attributes,
independence, of a director and other
matters provided under sec. 178(3)
g) explanations or comments by the
board on every qualification,
reservation or adverse remark or
disclaimer made by the auditor in his
report and by the company secretary
in practice in his secretarial audit
report
h) particulars of loan, guarantees or
investments under section 186
i) particulars of contracts or
arrangements with related parties
referred to in sec. 188(1) in the
prescribed form
j) the state of the company's affairs
k) the amounts, if any, which it proposes
to carry to any reserves
l) the amount, if any, which it
recommends should be paid by way of
dividend
m) material changes and commitments, if
any, affecting the financial position of
the company which have occurred
between the end of the financial year
of the company to which the financial
statements relate and the date of the
report
n) the conservation of energy,
technology absorption, foreign
exchange earnings and outgo
o) a statement indicating development

84
Commonly Found Errors in Reporting Practices

and implementation of a risk

management policy for the company
including identification therein of
elements of risk, if any, which in the
opinion of the Board may threaten the
existence of the company
p) the details about the policy developed
and implemented by the company
incorporate social responsibility
initiatives taken during the year
q) in case of a listed company and every
other public company having such
paid-up share capital as may be
prescribed, a statement indicating the
manner in which formal annual
evaluation of the performance of the
Board, its Committees and of
individual directors has been made
Other Disclosures required under the
Companies Act, 2013:
a) Appointment of independent director
b) Disqualification of Director under
section 164
c) Change in the composition of the
Board
d) Redemption of shares/debentures
e) Disclosure about the composition of
audit committee under section 177(8)
and also the recommendation of audit
committee
f) Details of establishment of vigil
mechanism [section 177(9)].
g) Policies by the nomination and
remuneration committee
h) Secretarial report given by a company
secretary in practice.

85
 Part II – Non-Financial Information

117. Credit Rating in Board of Directors Report

Observation(s) What should one remember?
It was observed that in As per SS-4, the disclosure shall include
some companies no Credit the following:
rating was given in the (a) credit rating obtained in respect of
annual report or various securities;
comparative presentation of
(b) name of the credit rating agency;
credit rating facility wise
was not provided. (c) date on which the credit rating was
obtained;
(d) revision in the credit rating;
(e) reasons provided by the rating agency
for a downward revision, if any.
However, the scope of the standard allows
recommendatory compliance.
Credit ratings can be considered a
reflection of a company's financial health
and stability. As such, they can positively
influence various aspects of best reporting
practices, including stakeholder trust,
access to capital, regulatory relationships,
and the overall market perception of the
organization.
Therefore, as a best reporting practice,
disclosure of credit rating facility wise with
comparative statement should be part of
the annual report

118. Chairman’s Statement/Speech

Observation(s) What should one remember?
It was observed that some Following should be part of an ideal
of the organizations are not Chairman's speech:
providing Chairman’s  Corporate activities, strategies,
statement which is an research, labour relations, main
important part to know achievements, focuses on future

86
Commonly Found Errors in Reporting Practices

organization’s performance goals, growth etc.

or in case provided it do not  Statement relating to corporate ethics,
contain adequate values and risk management.
information such as
 Highlights of financial results.
forward-looking statement
and details on future  Comments in case of qualification,
outlook. reservation or adverse remark or
disclaimer in auditors’ report and
secretarial audit report.
 Any other important information

119. Contribution to national exchequer

Observation(s) What should one remember?
It was observed that Corporate contributions to national
companies have not exchequer is significant in terms of
provided details about payment of excise duties, income tax and
“Contribution to national other rates and taxes to the government as
exchequer” details in India’s goal of becoming a $5 trillion
chairman’s economy, with a contribution of $3 trillion
speech/director’s report. and over $1 trillion from the services and
manufacturing sector respectively,
requires accelerated investments from the
companies.

120. Risk Management and Mitigation measures

Observation(s) What should one remember?
1. It was observed that the Risk mitigation is a strategy to prepare for
organizations have not and lessen the effects of threats faced by
disclosed the risk a business. Risk mitigation takes steps to
management framework reduce the negative effects of threats and
appropriately. disasters on business continuity (BC).
1. The risk management system should
be dealt with in great details and depth
explaining the plans, categorization, and
mechanism that the company is
undertaking for the purpose of risk

87
 Part II – Non-Financial Information

management on various levels and even

assigning risk owners.
Entity should disclose the comprehensive
risk management framework including
following:
 Role of Board and Committees
 Process to identify the various
principal risks
 Criteria to adjudge relevant risks for
the organization
 Description of risks identified
(including impact of such risk) and
mitigation process & measures
 Co-relation of risk management
framework with integrated reporting
2. Further, it was noted that 2. The entity should specify the standard
the organizations has not risk management framework, ithas
disclosed about the adopted/benchmarked in company’s RMF,
benchmark/ standard for example, GRCA 2.0, COSO 2017.
adopted for risk
management framework.
3. Further, it was noted that 3. Entities are required to publish their
the risk management risk management policy on their website.
framework defined in the Entity should ensure that the risk
annual report was not in management framework has been
alignment with the risk prepared in alignment with the risk
management policy, for management policy published on the
example, the risks identified website.
in the annual report were
not given in the risk
management policy.

88
Commonly Found Errors in Reporting Practices

121. Human Resource policies

Observation(s) What should one remember?
It was observed that The implementation of strong HR policies
organizations failed to give can help an organization demonstrate,
appropriate description of both internally and externally, that it meets
the company’s policy the requirements for diversity, ethics, and
relating to human resource training required in today’s workplace, and
engagement, training, meets its commitments regarding
development, information regulation and corporate governance of
on measures taken by the employees.
company to meet its HR policies set out obligations, standards
obligations and of behavior and document disciplinary
responsibilities towards procedures (among many other things).
employees. Their specific function can vary widely,
including but not limited to:
 Providing clear communication
between an organization and its
employees regarding their condition of
employment
 Forming a basis for treating all
employees fairly and equally.
 Communicating the organization’s
goals and values.
 Creating a common and healthy
working environment.
An organization should have the following
HR Policies for better functioning and
increase in productivity of the
organization: At-Will Employment Policy,
Anti-Harassment and Non-Discrimination
Policy, Sexual Harassment Policy,
Employment Classifications Policy, Leave
and Time-Off Benefits Policy, Meal and
Break Periods Policy, Timekeeping and
Pay Policy, Safety and Health Policy,
Employee Conduct, Attendance, and
Punctuality Policy.

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 Part II – Non-Financial Information

122. Internal Control System

Observation(s) What should one remember?
It was observed that the Entity should provide the information
entities have not adequately about the steps taken to maintain the
presented the steps taken credibility of internal control system such
to maintain the credibility of as
internal control system.  Effectiveness of standard operating
procedures and risk control matrix
 Audit of various functions by the third
party etc.

123. Information systems audit

Observation(s) What should one remember?
It was observed that  IS audit being a systematic process
organizations to whom of objectively obtaining and
Information system audit is evaluating evidence/ information
applicable failed to give regarding the proper implementation,
disclosure whether operation and control of information
Information system audit is and the Information System
carried or not. resources. IS audit could be
considered a part of Financial Audit.
The lack of physical procedures,
which can be easily verified and
evaluated, injects a high degree of
complexity into IS audit. Therefore, a
logical framework for conducting an
audit in the IT environment is critical
to help the auditor identify all
important processes and data files.
 IS Audit being one of the major
controls for monitoring management
activities in the banks and financial
institutions. In a computerized
environment, IS audit is a very
effective and necessary activity.

90
Commonly Found Errors in Reporting Practices

Usually, the IT implementation in the

banking and financial organizations is
done by adopting a mix of different
methodologies – internal
development and deployment and
third-party product development and
deployment.
 In case of internally developed and
deployed IT systems, IS audit will
require to be done by a team of
specially trained internal or external
auditors. However, it is preferable to
have the IS audit conducted with the
help of suitable external agencies
with the required skills and expertise
to ensure the independent nature of
audit.
 In the case of development and
deployment of the IT systems by third
parties, the IS audit requires to be
conducted by trusted auditor/s with
skills and expertise, required for the
purpose. IS audit assuming greater
significance because a large number
of critical and strategic financial
operations in the banking and
financial sector are wholly or partly
being handled by the computerized
systems.

124. CSR – Impact Assessment Report

Observation(s) What should one remember?
1. It was observed that 1. Since the entities are spending money
some entities not carried on corporate social responsibility, it is
out an impact important for the stakeholders to know
assessment of CSR about the impact created by entity through
initiatives through any CSR initiatives and whether the entity is

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 Part II – Non-Financial Information

third party or achieving its CSR goals or not.

independent agency. As per Rule 8(3)(a) of The Companies
(Corporate Social Responsibility Policy)
Rules, 2014, Every company having
average CSR obligation of ten crore
rupees or more in pursuance of
subsection (5) of section 135 of the Act, in
the three immediately preceding financial
years, shall undertake impact
assessment, through an independent
agency, of their CSR projects having
outlays of one crore rupees or more, and
which have been completed not less than
one year before undertaking the impact
study.
So, companies whose average CSR
obligation is ten crore rupees or more in
three immediately preceding financial
years are required to undertake the
impact assessment for all those projects
having outlay of one crore rupees or more
and which have completed at least one
year before undertaking the impact study.
It is to be noted that the impact
assessment study to be undertaken
project-wise. However, for remaining
projects, the company may voluntarily
undertake the impact assessment study.
Further, companies which are not covered
under the above-mentioned rule should
undertake the impact assessment study of
CSR projects as the best governance
practice so that users can better
understand the impact created for the
society by the company through CSR
projects.
The impact assessment report should be

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Commonly Found Errors in Reporting Practices

annexed in annual report or the company

may provide the website link of impact
assessment report in the annual report.
2. In some cases, it was 2. The impact assessment report for the
observed that for the current year is required under the above-
current year no assessment mentioned rules. Therefore, company
undertaken, but previous should provide the impact assessment
years report link is given. report of the current year.

125. Corporate Social responsibility

Observation(s) What should one remember?
1. In was noticed that the 1. CSR is a way of conducting business,
CSR expenditure of by which corporate entities visibly
companies are not contribute to the social good.
presented appropriately like Accordingly, the proper disclosure of the
usage of infographics is same at relevant places is must for the
missing stakeholders information purpose. As a
good disclosure, the information of total
CSR expenditure during the year can be
given in MD&A section of the annual
report..
2. Disclosures as per Sec 2. As per Section 135 of the Companies
135 of the Companies Act, Act, 2013, Schedule VII of the Act and
2013 were not adequate. It Companies (CSR Policy) Rules, 2014
was observed that some As per Schedule III, Where the company
companies not disclosing covered under section 135 of the
reason for shortfall, nature companies act, the following shall be
of CSR activities etc. disclosed with regard to CSR activities:-
(a) amount required to be spent by the
company during the year,
(b) amount of expenditure incurred,
(c) shortfall at the end of the year,
(d) total of previous years shortfall,
(e) reason for shortfall,

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 Part II – Non-Financial Information

(f) nature of CSR activities,

(g) 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,
(h) 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 should be shown
separately.

126. Corporate Governance Report

Observation(s) What should one remember?
It was observed that the Corporate governance report includes
companies at large fail to  a statement of corporate governance
report the information procedures and compliance,
required to be disclosed in
 information on board composition,
the corporate governance
report.  statements on the company's
performance, and
 information about compliance and
conformance with best practices
 It should also disclose the principles
and codes that guide the company's
procedures.
 Information about committees and
sub-committees, their roles and any
delegated powers and duties for good
corporate governance.

127. Corporate Governance Compliance Certificate

Observation(s) What should one remember?
It was observed that the As per Para E of Scheule V of Securities
organizations fail to obtain and Exchange Board of India (Listing

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Commonly Found Errors in Reporting Practices

Corporate Governance Obligations and Disclosure Requirements)

Compliance Certificate Regulations, 2015, Compliance certificate
which is to be attached from either the auditors or practicing
along with corporate company secretaries regarding
governance report in the compliance of conditions of corporate
annual report. governance shall be annexed with the
directors’ report.

128. Date of Audit Committee Meetings

Observation(s) What should one remember?
It was noted that the Regulation 34(3) of SEBI LODR states
company has disclosed the that “The annual report shall contain any
number of meetings of other disclosures specified in Companies
audit committee, however Act, 2013 along with other requirements
the date of meetings were as specified in Schedule V of these
not disclosed. regulations.”
Part C of Schedule V states the
requirement of additional disclosures in
the corporate governance section of the
annual report. Following disclosures are
required for Audit Committee:
(a) brief description of terms of
reference;
(b) composition, name of members and
chairperson;
(c) meetings and attendance during the
year.

129. Composition of Directors as per SEBI LODR

Observation(s) What should one remember?
1. It was observed in case of 1. As per Regulation 17(1)(a) of SEBI
financial service sector (Listing Obligations and Disclosure
entities that company has not Requirements) Regulations, 2015, the
complied with the mentioned composition of board of directors of the
provision. listed entity shall be as follows: board of

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 Part II – Non-Financial Information

2. In case of public sector directors shall have an optimum

entities, it was observed that combination of executive and non-
company has not complied executive directors with at least one-
with the requirement of having woman director.
at least half of the Board of 2. As per Regulation 17 (1)(b) of SEBI
Directors as independent. (Listing Obligations and Disclosure
Requirements) Regulations, 2015,
“where the chairperson of the board of
directors is a non-executive director, at
least one-third of the board of directors
shall comprise of independent directors
and where the listed entity does not
have a regular non-executive
chairperson, at least half of the board of
directors shall comprise of independent
directors:”
Provided that where the regular non-
executive chairperson is a promoter of
the listed entity or is related to any
promoter or person occupying
management positions at the level of
board of director or at one level below
the board of directors, at least half of
the board of directors of the listed entity
shall consist of independent directors.”

130. Compliance with the Ethics & Business Conduct for

Board & Senior Management
Observation(s) What should one remember?
It was observed in some As per Schedule V of Securities and
companies that CEO Exchange Board of India (Listing
declaration on compliance Obligations and Disclosure Requirements)
with the Ethics & Business Regulations, 2015, the annual report shall
Conduct for Board & Senior contain the following additional
Management is not found. disclosures:
Declaration signed by the chief executive

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Commonly Found Errors in Reporting Practices

officer stating that the members of board

of directors and senior management
personnel have affirmed compliance
with the code of conduct of board of
directors and senior management.

131. Shares held by Directors & their Relatives

Observation(s) What should one remember?
It was observed that some As per good reporting practice, the
entities have not disclosed "Shares Held by Directors & their
the shares held by their relatives" should be disclosed for greater
directors & specifically transparency & as a good corporate
relative of theirs. governance measure.

132. Investors Presentation

Observation(s) What should one remember?
1. It has been observed 1. As per amendment made in SEBI
that companies are not (LODR) (Second Amendment)
publishing the investor’s Regulations, 2023 w.e.f 15 July, 2023,
th

presentation on the the regulation 46(2)(o) of SEBI (LODR),

website and not making 2015 states that the listed entity shall
the adequate disclosures disseminate the schedule of analysts or
to stock exchange(s). institutional investors meet at least two
working days in advance (excluding the
date of the intimation and the date of the
meet) and presentations made by the
listed entity to analysts or institutional
investors on its website.
Further, Para A(15) of Part A of Schedule
III of SEBI (LODR) states that the listed
entity shall make the following
disclosures to stock exchange(s) without
any application of guidelines of
materiality as specified in regulation
30(4):
 Schedule of analysts or institutional

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 Part II – Non-Financial Information

investors meet 436[at least two

working days in advance (excluding
the date of the intimation and the
date of the meet)] and presentations
made by the listed entity to analysts
or institutional investors.
 Audio or video recordings and
transcripts of post earnings/quarterly
calls, by whatever name called,
conducted physically or through
digital means, simultaneously with
submission to the recognized stock
exchange(s), in the following manner:
 the presentation and the
audio/video recordings shall be
promptly made available on the
website and in any case, before
the next trading day or within
twenty-four hours from the
conclusion of such calls,
whichever is earlier.
 the transcripts of such calls shall
be made available on the
website within five working days
of the conclusion of such calls.
2. In another case, it was 2. Companies should prepare their
observed that the quarterly highlights in a presentation
company’s have not format to effectively communicate the
covered all the aspects in performance of the business to
the investor’ presentation stakeholders. As listed entities are
such as impact made on disclosing their quarterly results in line
the ESG components or with the requirements of SEBI (LODR), so
management commentary. presenting quarterly highlights in easily
understandable format becomes
important for them.
Further, Regulation 4(1)(j) of SEBI
(LODR), 2015 states that Periodic filings,

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Commonly Found Errors in Reporting Practices

reports, statements, documents and

information reports shall contain
information that shall enable investors to
track the performance of a listed entity
over regular intervals of time and shall
provide sufficient information to enable
investors to assess the current status of a
listed entity. Therefore, following should
be covered in investors presentation:
 the current picture of the company
 track record (for a significant period,
say 10 years) on the standalone and
consolidated basis
 financial highlights (standalone and
consolidated) including comparison
over the periods
 statement of assets and liabilities
 debtors and creditors position
 key ratios (such as EPS, dividend
yield, PE ration, market
capitalization, debt equity ratio)
 major highlights for the period
 steps taken towards sustainability
and its impact
 management commentary
3. In some cases, it was 3. Para C (8) of Schedule V of SEBI
observed that companies (LODR), 2015 prescribes the additional
are not disclosing the disclosures with respect to ‘Means of
investors presentation in Communications’ in corporate
the annual report. governance section of the annual report.
It prescribes presentations made to
institutional investors or to analysts as
one of the essential means of
communication.

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 Part II – Non-Financial Information

133. Value Creation Model

Observation(s) What should one remember?
It was observed that the Value creation model provides an
value creation model is insight about the organization’s
not presented business model and how it transforms
adequately. the inputs into outputs through the
organization’s operating activities. As
per IIRC framework recommended for
integrated reporting by SEBI through its
circular no.
SEBI/HO/CFD/CMD/CIR/P/2017/10
dated Feb 06, 2017, six forms of
capitals are categorized which help the
organization in creating value.
For the better understating of value
creation model, following is expected in
the diagram of value creation model:
 Inputs of each capital
 Value creation process of each
capital which transforms the inputs
into outputs
 Outputs/ outcomes from each
capital
 Key products or services
 Risk addressed in each capital
 Impact on sustainable development
goals

134. Integrated Reporting

Observation(s) What should one remember?
It was observed that today  An integrated report aims to provide
an investor seeks both concise communication about how an
financial as well as non- organization’s strategy, governance,
financial information to take performance, and prospects create value

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Commonly Found Errors in Reporting Practices

well-informed investment over time.

decisions. Organizations  The purpose of integrated reporting is
can use integrated reporting to provide shareholders and interested
to communicate clearly and stakeholders with relevant information that
concisely about how its is useful for making investment decisions.
strategy, governance,
 In this regard the International
performance, and prospects
Integrated Reporting Council (IIRC) has
– in the context of its
prescribed following Guiding Principles
external environment – lead
which underpin the preparation of an
to the creation, preservation,
integrated report, specifying the content of
or erosion of value over
the report and how information is to be
time. However, in many
presented:
cases it was observed that
the annual reports (a) Strategic focus and Future Orientation:
presented as integrated An integrated report should provide
annual report are non- insight into the organization’s strategy
compliant with IIRC and how it relates to the organization’s
framework requirements ability to create value in the short,
such as non-disclosure of medium, and long term, and to its use
Six capitals. of and effects on capital.

Further, it was noted the (b) Connectivity of information: An

companies have considered integrated report should show a
only the ESG areas while holistic picture of the combination of
presenting the materiality interrelatedness and dependencies
matrix. In other cases, the between the factors that affect the
companies are not providing organization’s ability to create value
the materiality matrix. over time.
Further, it was noted that the (c) Stakeholder relationships: An
inputs and outputs of six integrated report should provide insight
capitals were not into the nature and quality of the
appropriately quantified, and organization’s relationships with its key
six capitals were not linked stakeholders, including how and to
with the entity’s business what extent the organization
model. understands takes into account and
responds to their legitimate needs and
interests.
(d) Materiality: An integrated report
should disclose information about

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 Part II – Non-Financial Information

matters that substantively affect the

organization’s ability to create value
over the short, medium, and long term.
(e) Conciseness: An integrated report
should be concise.
(f) Reliability and completeness: An
integrated report should include all
material matters, both positive and
negative, in a balanced way and
without material error.
(g) Consistency and comparability: The
information in an integrated report
should be presented: (a) on a basis
that is consistent over time; and
(h) (b) in a way that enables comparison
with other organizations to the extent it
is material to the organization’s own
ability to create value over time.
 All organizations depend on various
forms of capitals for their success. It is
important that all such forms of capital are
disclosed to stakeholders to enable
informed decisions making. IIRC has
categorized the forms of capital as follows:
1. Financial capital
2. Manufactured capital
3. Intellectual capital
4. Human capital
5. Social and Relationship capital
6. Natural capital
In view of Integrated Reporting Framework
prescribed by the International Integrated
Reporting Council (IIRC) as recommended
by SEBI vide its Circular No.
SEBI/HO/CFD/CMD/CIR/P/2017/10 dated

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Commonly Found Errors in Reporting Practices

Feb 06, 2017, entity should cover all the

material topics (financial and non-financial
including ESG) while presenting the
materiality matrix. For a business, material
topics may be of financial in nature or non-
financial in nature. Entity have to prioritize
key internal and external stakeholders with
the most impact and influence on the
business.
Entity should quantify the inputs and
outputs of each capital to make it easier to
understand the resources used in the value
creation process and what value has been
created. For example, in the manufactured
capital, inputs may be number of plants,
investments in capex, etc. and output may
be units of production.

135. Value added statement

Observation(s) What should one remember?
It was observed that no The very purpose of preparing Value
value-added statement is added statement is to give a true & fair
prepared as statement picture of entity’s earning and its
reflects the income of the distribution to its interest groups i.e.,
company as an entity and providers of debt, employee benefits,
how that is divided between providers of equity capital, contribution to
the people who have society, , contribution to national
contributed to its creation. exchequer and retained by the entity.
The illustrative pictorial presentation is
given as below:

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 Part II – Non-Financial Information

136. Performance Analysis for past years

Observation(s) What should one remember?
It was observed that A company's financial performance tells
companies are not investors about its general well-being. It's
presenting performance a snapshot of its economic health and the
analysis for past years as job its management is doing—providing
they act as tools for both insight into the future: whether its
corporate insiders (like operations and profits are on track to grow
management and board and the outlook for its stock.
members) and outsiders A financial performance analysis examines
(like research analysts and the company at a specific period—usually,
investors) to analyze how the most recent fiscal quarter or year.
well the company is doing—
Financial performance analysis can focus
especially regarding
on different areas. Types of analysis can
competitors—and identify
include a specific examination of a firm:
where strengths and
weaknesses lie.  Working capital: the difference
between a company’s current assets,
such as cash, accounts receivable
(customers’ unpaid bills), and
inventories of raw materials and
finished goods, and its current
liabilities

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Commonly Found Errors in Reporting Practices

 Financial structure: the mix of debt

and equity that a company uses to
finance its operations
 Activity analysis: the factors involved
in the cost and pricing of goods and
services
 Profitability analysis: how much
money the business clears, after
expenses and taxes

137. orizontal/Vertical Analysis

Observation(s) What should one remember?
It was observed from the  Horizontal analysis is a financial
annual reports of various analysis technique used to evaluate a
entities that companies are company's performance over time. By
not presenting their financial comparing prior-period financial results
information in the form of with more current financial results, a
horizontal/ vertical analysis company is better able to spot the
which enables the direction of change in account
stakeholders to spot the balances and the magnitude in which
changes in account that change has occurred.
balances.  Horizontal analysis, also known as
trend analysis, is used to spot financial
trends over a specific number of
accounting periods. Horizontal analysis
can be used with an income statement
or a balance sheet.
 Vertical analysis is a method of
financial statement analysis in which
each line item is listed as a percentage
of a base figure within the statement.
Vertical analysis is focused on the
relationships between the numbers in a
single reporting period, while horizontal
analysis spans multiple reporting periods.
As a best reporting practice, entity
should present the horizontal and vertical
analysis for at least 5 years.

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 Part II – Non-Financial Information

138. Sustainability Reporting

Observation(s) What should one remember?
o In sustainability In the current scenario, there is an
reporting, following were increased focus of investors and other
observed: stakeholders seeking businesses to be
o Entities have failed to responsible and sustainable towards the
disclose the entity’s environment and society, so as a good
approach towards governance practice, entities should
sustainability reporting present the sustainability report in the
annual report such as BRSR, ESG, etc.
o Sustainability
reporting lacked In India, SEBI through a notification No.
integration with Integrated SEBI/LAD-NRO/GN/2021/22 dated 5 th
reporting. Information was May, 2021 has made amendments to
presented in a subjective certain provisions of the SEBI (Listing
manner rather than an Obligations and Disclosure
objective one, and in Requirements) Regulations, 2015
certain reports, data from (LODR).
the corresponding Among various amendments, one relates
previous year was not to discontinuance of the requirement of
included in the submitting Business Responsibility
sustainability reporting. Report (BRR) by listed companies after
FY2021-22.
As per the notification, companies would
be required to submit a new report on
ESG parameters, namely Business
Responsibility and Sustainability Report
(BRSR) in the following manner:
o Mandatory from FY2022-23: For top
1,000 listed entities by market
capitalization
o Voluntary for FY2021-22: For top
1,000 listed entities by market
capitalization
o Voluntary for remaining listed
entities including the entities which have
listed their specified securities on the

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Commonly Found Errors in Reporting Practices

SME Exchange
Additionally, SEBI vide Circular
SEBI/HO/CFD/CMD-2/P/CIR/2021/562
dated May 10, 2021 prescribed the
format of the BRSR along with the
guidance note to enable the companies
to interpret the scope of disclosures
required to be made in the report.
1. In pursuance of regulatory
requirement, entities are disclosing
BRSR in three sections, namely, General
Disclosure, Management and Process
Disclosures and Principle wise
Performance Disclosure. Along with it,
entity should also disclose the entity’s
approach towards sustainability in all the
three sections which will enables the
stakeholders to understand better about
entity’s commitment towards the
sustainability.
2. Since entities are presenting
Integrated reporting as well as
Sustainability reporting, entity should
present the interlinkage amongst them
such as impact of sustainability on six
forms of capital, materiality and
stakeholders.
Further, entity should provide the
information in quantifiable form in
sustainability reporting along with
corresponding previous year figures
which will enables the stakeholders to
better assess the steps taken towards
the sustainability and its impact.
It is important to note that as a best
reporting practice and in line with the
global benchmark, entity should provide

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 Part II – Non-Financial Information

the disclosures in line with the

requirements of IFRS S1 and S2
(effective from 1 st January 2024) for
qualitative sustainability reporting.

139. Index of the annual report

Observation(s) What should one remember?
It was observed that the For easy navigation and convenient
company has not provided dragging, company should provide
the hyperlinking of index to hyperlinking of index to the main
the main sections of sections of the report.
report.

140. Colour scheme

Observation(s) What should one remember?
It was observed that there While presenting standalone and
is no colour differentiation consolidated financial statements
adopted by the companies companies should adopt a different
while their standalone and color scheme, so that user can easily
consolidated financial identify the changes.
statements.

141. More use of Graphs, Charts etc.

Observation(s) What should one remember?
It was noticed that the  Graphs, charts and tables in annual
companies while reports are typically used to present
presenting their financial and communicate financial data.
information in the annual  Graphs and charts are effective
report are not giving visual tools because they present
emphasis on graphical information quickly and easily for
presentation. investors.
 Data can be better understood when
presented by a graph than by a table
because the graph can reveal a
trend or comparison.

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Commonly Found Errors in Reporting Practices

142. Website Disclosures

Observation(s) What should one remember?
It was observed that As per companies Act 2013, following
there are certain disclosures are required on the website
disclosures which are of the company:
mandated by the  Section 135(4)(a): The Company
Companies Act 2013 on shall disclose contents of CSR Policy
the website of the in Board’s report and also place it on
company but companies its website.
fail to give the required
 Sec 124(2) The Company, making
disclosures.
any transfer of an amount to the
Unpaid Dividend Account, shall
prepare a statement containing the
names, their last known address and
unpaid dividend to be paid to each of
the person and place it on the
website of the Company and any
other website approved by the
Central Government for this purpose,
within 90 days of making such
transfer.
 Section 230(3): Where a meeting is
proposed to be called in pursuance
of an order of the tribunal under
section 230(1), a notice of such
meeting accompanied by a
statement disclosing the details of
the compromise or arrangement, a
copy of the valuation report and
explaining their effects shall be
placed on the website of the
company.
 Section 101 read with Rule 18 of the
Companies (Management and
Administration) Rules, 2014: In case
notice of the general meeting is sent

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 Part II – Non-Financial Information

through electronic means, such

notice shall be simultaneously placed
on the website of the company.
 Rule 26(1) of the Companies
(Incorporation) Rules, 2014: Every
company which has a website for
conducting online business or
otherwise, shall disclose/ publish its
name, address of its registered
office, the Corporate Identity
Number, Telephone number, fax
number if any, email and the name of
the person who may be contacted in
case of any queries or grievances on
the landing/ home page of the said
website.
 Section 115 read with rule 23(4) of
the Companies (Management and
Administration) Rules 2014 : Where
it is not practicable to give the
Special Notice in the same manner
as it gives notice of any general
meetings, the notice shall be
published in English language in
English newspaper and in vernacular
language in a vernacular newspaper,
both having wide circulation in the
State where the registered office of
the Company is situated and such
notice shall also be posted on the
website, if any, of the Company.
 Section 91 read with rule 10(1) of the
Companies (Management of
Administration) Rules 2014: A
company closing the register of
members or the register of debenture
holders or the register of other

110
Commonly Found Errors in Reporting Practices

security shall give at least seven

days previous notice and publish the
notice on the website as may be
notified by the Central Government
and on the website, if any, of the
Company.
 Section 108 read with rule 20 of
Companies (Management of
Administration) Rules, 2014, A
company which provides the facility
to its members to exercise voting by
electronic means shall comply the
following:
o notice of the meeting shall also
be placed on the website, if any,
of the company and of the
agency forthwith after it is sent to
the members
o the results declared along with
the report of the scrutinizer shall
be placed on the website of the
company, if any, and on the
website of the agency
immediately after the result is
declared by the Chairman
 Section 136: All listed Company shall
also place its financial statements
including consolidated financial
statements, if any, and all other
documents required to be attached
thereto, on its website, which is
maintained by or on behalf of the
company. Further, Every Listed
Company having subsidiary or
subsidiaries shall place separate
audited accounts in respect of each
subsidiary on its website, if any.

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 Part II – Non-Financial Information

143. Website disclosures for public companies

Observation(s) What should one remember?
It was observed that there As per Companies Act 2013, following
are certain disclosures disclosures are required on the website
which are mandated by the of the public company:
Companies Act 2013 on  Section 13(8) read with Rule 32 of
the website of the public the Companies Incorporation) Rules,
company but companies 2014: A Company which has raised
fail to give the required money from public through
disclosures prospectus and still has any
unutilized amount out of the money
so raised, shall not change its object
for which money so raised through
prospectus unless a special
resolution is passed by the
Company. The details of such
resolution shall be placed on the
website of the Company.
 Section 73 read with Rule 4(3) of the
Companies (Acceptance of deposits)
Rules, 2014: Every company inviting
deposits from the public shall upload
a copy of the circular issued to the
members on its website, if any.

144. Website disclosure under SEBI (Listing Obligations

and Disclosure Requirements) Regulations, 2015
Observation(s) What should one remember?
It was observed that the As per the Regulation 46 of SEBI (Listing
SEBI has mandated Obligations and Disclosure
certain disclosures for Requirements) Regulations, 2015, the
organizations which they listed entity shall maintain functional
fail to be complied with. website and it shall disseminate the
following information under a separate
section on its website:

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Commonly Found Errors in Reporting Practices

 details of its business

 terms and conditions of appointment
of independent director
 composition of various committee of
board of directors
 code of conduct of board of director
and senior management personnel
 details of establishment of vigil
mechanism/ whistle blower policy
 criteria of making payments to non-
executive directors, if the same has
not been disclosed in the annual
report.
 policy on dealing with related party
transactions
 policy on determining ‘material’
subsidiaries
 details of familiarization programmes
imparted to independent directors
including the following details: -
o number of programmes attended
by independent directors (during
the year and on a cumulative
basis till date),
o number of hours spent by
independent directors in such
programmes (during the year
and on cumulative basis till
date), and
o other relevant details
 the email address for grievance
redressal and other relevant details
 contact information of the designated
officials of the listed entity who are
responsible for assisting and

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 Part II – Non-Financial Information

handling investor grievances

 financial information including:
o notice of the meeting of the
board of directors where financial
results shall be discussed.
o financial results, on conclusion of
the meeting of the board of
directors where the financial
results were approved.
o complete copy of the annual
report including balance sheet,
profit and loss account, directors
report, corporate governance
report etc.
 shareholding pattern
 details of agreements entered into
with the media companies and/or
their associates, etc.
 schedule of analysts or institutional
investors meet at least two working
days in advance (excluding the date
of the intimation and the date of the
meet) and presentations made by the
listed entity to analysts or institutional
investors
 audio or video recordings and
transcripts of post earnings/ quarterly
calls, by whatever name called,
conducted physically or through
digital means, simultaneously with
submission to the recognized stock
exchange(s)
 new name and the old name of the
listed entity for a continuous period of
one year, from the date of the last
name change.

114
Commonly Found Errors in Reporting Practices

 Items in sub-regulation (1) of

regulation 47
 All credit ratings obtained by the
entity for all its outstanding
instruments, updated immediately as
and when there is any revision in any
of the ratings.
 separate audited financial statements
of each subsidiary of the listed entity
in respect of a relevant financial year,
uploaded at least 21 days prior to the
date of the annual general meeting
which has been called to inter alia
consider accounts of that financial
year
 secretarial compliance report as per
sub-regulation (2) of regulation 24A
of these regulations
 disclosure of the policy for
determination of materiality of events
or information required under clause
(ii), sub-regulation (4) of regulation
30 of these regulations
 disclosure of contact details of key
managerial personnel who are
authorized for the purpose of
determining materiality of an event or
information and for the purpose of
making disclosures to stock
exchange(s) as required under sub-
regulation (5) of regulation 30 of
these regulations
 disclosures under sub-regulation (8)
of regulation 30 of these regulations
 statements of deviation(s) or
variation(s) as specified in regulation

115
 Part II – Non-Financial Information

32 of these regulations
 dividend distribution policy by listed
entities based on market
capitalization as specified in sub-
regulation (1) of regulation 43A
 annual return as provided under
section 92 of the Companies Act,
2013 and the rules made thereunder.

145. Website disclosure under SEBI (Prohibition of

Insider Training) Regulations, 2015.
Observation(s) What should one remember?
It was observed that As per Regulation 8 of SEBI (Prohibition
companies falling under of Insider Trading) Regulations, 2015,
Regulation 8 of SEBI The board of directors of every company,
(Prohibition of Insider whose securities are listed on a stock
Training) Regulations, exchange, shall formulate and publish on
2015 fail to comply with its official website, a code of practices
the said regulation. and procedures for fair disclosure of
unpublished price sensitive information
that it would follow in order to adhere to
each of the principles set out in Schedule
A to these regulations, without diluting
the provisions of these regulations in any
manner.

116
 PART III –
Industry Specific Observations
BANKING SECTOR
146. Compliance of RBI’s Circular – Write-Off
Observation(s) What shoul one remember?
It was observed that bank As per Annex III (Disclosures in
have write-off the loans, financial statements – ‘Notes to
however there is no Accounts’) of RBI’s Master Direction on
disclosure whether the Financial Statements – Presentation
same is certified by the and Disclosures dated August 30,2021
statutory auditors. (Updated as on October 25, 2023),
“Technical or prudential write-off is the
amount of non-performing loans which
are outstanding in the books of the
branches but have been written-off
(fully or partially) at Head Office level.
Amount of Technical write-off should be
certified by statutory auditors. (Defined
in our circular reference
DBOD.No.BP.BC.64/21.04.048/2009-10
dated December 1, 2009 on
Provisioning Coverage for Advances)”.

147. Compliance of RBI’s Circular – Liquidity Coverage

Ratio
Observation(s) What should one remember?
It was noted that bank has As per Annex III (Disclosures in
not disclosed the number financial statements – ‘Notes to
of data points used in Accounts’) of RBI’s Master Direction on
calculating the average Financial Statements – Presentation
figures of liquidity and Disclosures dated August 30,2021
coverage ratio. (Updated as on October 25, 2023),
 Part III –Industry Specific Observations

regarding Liquidity coverage ratio,

“Data must be presented as simple
averages of daily observations over the
previous quarter (i.e. the average is
calculated over a period of 90 days).
Banks must publish the number of data
points used in calculating the average
figures in template.”

148. Mandatory Compliance with Reserve Bank of India

Act, 1934 (RBI Act) that govern the banking industry
in India
Observation(s) What should one remember?
The Non - compliances with The key statutes and regulations that
the Directions, Circulars govern the banking industry in India are
etc. of Reserve bank of the Reserve Bank of India Act, 1934 (RBI
India is noticed at some Act), the Banking Regulation Act, 1949
places as a result penalty is (BR Act), and the Foreign Exchange
charged on the banking Management Act, 1999 and the rules and
companies. regulations issued thereunder (FEMA)
Reserve Bank of India 1992 SCC 343,
wherein it has been held that the Circular
and Guidelines issued by the RBI has the
binding effect on the Banks.
Reserve Bank of India is authorized to
issue directives to banks under Section 21
of Banking Regulation Act, 1949 in the
interest of depositors, members of public
or banking policy.
Few areas, where scope for improvement
exist:
1. As per RBI Circular DOR (PCB).
BPD.Cir.No.7/13.05.000/2019-20 dated
December 27, 2019 on "Reporting of
Large Exposures to Central Repository
of Information on Large Credits (CRILC)

118
Commonly Found Errors in Reporting Practices

- UCBs":
Banks are advised to take utmost care
about data accuracy and integrity while
submitting the data on large credits to the
Reserve Bank of India, failing which penal
action would be undertaken.
2. Compliance with the directions
contained in ‘Reserve Bank of India
(Frauds classification and reporting by
commercial banks and select FIs)
directions 2016’
Banks should ensure that the reporting
system is suitably streamlined so that
delays in reporting of frauds, submission
of delayed and incomplete fraud reports
are avoided. Banks must fix staff
accountability in respect of delays in
reporting fraud cases to RBI.
Banks should strictly adhere to the
timeframe fixed in the circular for reporting
of fraud cases to RBI failing which they
would be liable for penal action prescribed
under Section 47(A) of the Banking
Regulation Act, 1949.
3. As per RBI Master Direction
(DOR.ACC.REC.No.45/21.04.018/2021-
22) (Updated as on October 25, 2023),
Chapter II Annex I , format of balance
sheet is as follows:
Form A
Form of Balance Sheet
Balance Sheet of ___________________
Balance as on 31st March (Year)
It was observed that the Bank has not
followed this. Also, for P&L A/c no form
name mentioned.

119
Part III –Industry Specific Observations

4. As per RBI Master Direction

(DOR.ACC.REC.No.45/21.04.018/2021-
22) (Updated as on October 25, 2023),
Chapter V Annex IV CFS, Schedule 2A
minority interest has to be disclosed.
It was observed that bank has not
disclosed the same.
5. As per RBI Master Direction
(DOR.ACC.REC.No.45/21.04.018/2021-
22) (Updated as on October 25, 2023),
Chapter V Annex IV CFS , Schedule 10
For the Fixed Assets words to be used
are "At cost as on 31st March of the
preceding year " whereas it was
observed bank has used at cost
/revalued as at beginning of the FY.
6. As per RBI Master Direction
(DOR.ACC.REC.No.45/21.04.018/2021-
22) (Updated as on October 25, 2023),
Chapter V Annex IV CFS , Schedule 16,
Operating expenses, following to be
disclosed: (a) Depreciation on bank's
property other than Leased Assets (b)
Depreciation on Leased Assets.
It was observed that Bank has not
reported accordingly.
7. As per RBI Master Direction
(DOR.ACC.REC.No.45/21.04.018/2021-
22) (Updated as on October 25, 2023),
Chapter II Annex I, Schedule 2 Reserve &
Surplus words as per format to be used
are "Additions during the year, Deductions
during the year"
Bank has not mentioned words “during
the year”.
8. As per RBI Master Direction

120
Commonly Found Errors in Reporting Practices

(DOR.ACC.REC.No.45/21.04.018/2021-
22) (Updated as on October 25, 2023),
Chapter V Annex IV CFS, format of P&L is
as follows (extract):
Particulars Schedule
I. Income
II. Expenditure
Share of earnings/
loss in Associates
Consolidated Net
profit/(loss) for the
year before
deducting
Minorities’ Interest
Less: Minorities’
Interest
Consolidated
profit/(loss) for the
year attributable to
the group
Add: Brought
forward
consolidated
profit/(loss)
attributable to the
group
Bank has not reported accordingly.
148. As per RBI Master Direction
(DOR.ACC.REC.No.45/21.04.018/20
21-22) (Updated as on October 25,
2023), Chapter II Annex I, Schedule
2, for Reserve & Surplus words to be
used are "Opening Balance"

121
 Part III –Industry Specific Observations

It was Observed that bank has used "As

per last balance sheet" in place of
opening balance.
149. As per RBI Master Direction
(DOR.ACC.REC.No.45/21.04.018/20
21-22) (Updated as on October 25,
2023), Chapter V Annex IV CFS,
accounts are to be prepared in
"crores".
It was observed that bank has prepared
the financial statements in "000".
11. As per RBI Master Direction
(DOR.ACC.REC.No.45/21.04.018/2021-
22) (Updated as on October 25, 2023),
Chapter IV Annex III, Capital disclosure
format is as below:
1. Regulatory Capital
a) Composition of Regulatory Capital\
It was observed that Bank has not
disclosed Point "a" accordingly.

149. Investment by Banking Company

Observation(s) What should one remember?
It was observed that the Compliance with the Section 19(2) of the
banking company have Banking Regulation Act, 1949 is required
hold the shares of a which says-
company exceeding the Save as provided in sub-section (1), no
limit as prescribed in banking company shall hold shares in any
Banking Regulation Act, company, whether as pledgee, mortgagee
1949. or absolute owner, of an amount
exceeding thirty per cent. of the paid-up
share capital of that company or thirty per
cent. of its own paid-up share capital and
reserves, whichever is less
Provided that any banking company which

122
Commonly Found Errors in Reporting Practices

is on the date of the commencement of

this Act holding any shares in
contravention of the provisions of this sub-
section shall not be liable to any penalty
therefor if it reports the matter without
delay to the Reserve Bank and if it brings
its holding of shares into conformity with
the said provisions within such period, not
exceeding two years, as the Reserve Bank
may think fit to allow.

150. Implementation of Ind AS is deferred on banking

industry
Observation(s) What should one remember?
It was observed that the RBI vide Circular
RBI requires all banks to DBR.BP.BC.No.29/21.07.001/2018-19
submit Proforma Ind AS dated March 22, 2019 has deferred the
financial statements every implementation of Ind AS till further
half year but no specific notice.
disclosure regarding the However, RBI requires all banks to
preparedness for IND AS submit Proforma Ind AS financial
implementation was statements every half year. A statement
provided. in regard to its preparation and
submission should have been provided.

151. Utilisation of Floating Provisions

Observation(s) What should one remember?
It was observed at some RBI vide Circular
places that the floating DBOD.NO.BP.BC.89/21.04.048/2005-
provision not utilized 06 dated June 22, 2006 prescribes the
properly. prudential norms on creation and
utlisation of floating provisions.
Para 2(i) of the circular states “The
floating provisions should not be used

123
 Part III –Industry Specific Observations

for making specific provisions as per the

extant prudential guidelines in respect
of non-performing assets or for making
regulatory provisions for standard
assets. The floating provisions can be
used only for contingencies under
extraordinary circumstances for making
specific provisions in impaired accounts
after obtaining board’s approval and
with prior permission of RBI. The boards
of the banks should lay down an
approved policy as to what
circumstances would be considered
extraordinary.”
Specific permission by RBI vide
Circular
DOR.STR.REC.10/21.04.048/2021-22
dated May 5, 2021
In order to mitigate the adverse impact
of COVID 19 related stress on banks,
as a measure to enable capital
conservation, it has been decided to
allow banks to utilise 100 per cent of
floating provisions held by them as on
December 31, 2020 for making specific
provisions for non-performing assets
with prior approval of their Boards. Such
utilisation is permitted with immediate
effect and upto March 31, 2022.

152. Disclosure of Sale and Transfers to/ from HTM

Category
Observation(s) What should one remember?
It was noticed that the As per Para 8(viii) of RBI’s Master
disclosure is not provided Direction DOR.MRG.42/21.04.141/2021-
as per RBI guidelines on 22, If the value of sales and transfers of

124
Commonly Found Errors in Reporting Practices

sales and transfer of securities to / from HTM category exceeds

securities to / from HTM 5 per cent of the book value of
category exceeding 5 per investments held in HTM category at the
cent of the book value of beginning of the year, bank should
investments held in HTM disclose the market value of the
category at the beginning investments held in the HTM category and
of the year. indicate the excess of book value over
market value for which provision is not
made.
This disclosure is required to be made in
‘Notes to Accounts’ in banks’ audited
Annual Financial Statements.
The 5 per cent threshold referred to above
will exclude the one - time transfer of
securities to / from HTM category with the
approval of Board of Directors permitted to
be undertaken by banks at the beginning
of the accounting year and sales to the
Reserve Bank of India under pre-
announced OMO auctions.

153. Provisioning pertaining to Fraud Accounts

Observation(s) What should one remember?
It was observed in some As per RBI Circular
cases that the provisioning DBR.No.BP.BC.92/21.04.048/ 2015-16
for fraud cases is not in dated April 18, 2016 on Provisioning
accordance with the RBI pertaining to Fraud Accounts
guidelines. Banks should normally provide for the
entire amount due to the bank or for which
the bank is liable (including in case of
deposit accounts), immediately upon a
fraud being detected. While computing the
provisioning requirement, banks may
adjust financial collateral eligible under
Basel III Capital Regulations - Capital
Charge for Credit Risk (Standardised

125
 Part III –Industry Specific Observations

Approach), if any, available with them with

regard to the accounts declared as fraud
account.
However, to smoothen the effect of such
provisioning on quarterly profit and loss,
banks havethe option to make the
provisions over a period, not exceeding
four quarters, commencing from the
quarter in which the fraud has been
detected.
Where the bank chooses to provide for the
fraud over two to four quarters and this
results in the full provisioning being made
in more than one financial year, banks
should debit 'other reserves' by the
amount remaining un-provided at the
end of the financial year by credit to
provisions. However, banks should
proportionately reverse the debits to ‘other
reserves’ and complete the provisioning by
debiting profit and loss account, in the
subsequent quarters of the next financial
year.

154. Basel III Framework on Liquidity Standards – Net

Stable Funding Ratio (NSFR) – Final Guidelines
Observation(s) What should one remember?
It was observed that in As per RBI Circular
some cases banks DBR.BP.BC.No.106/21.04.098/2017-18 dated
have not complied with May 17, 2018 on Basel III Framework on
NSFR Guidelines that Liquidity Standards - Net Stable Funding Ratio
came into effect from (NSFR)-Final Guidelines (‘NSFR Guidelines’)
October 1, 2021 which
require banks to have
Net Stable Funding
Ratio at least 100% on The above ratio should be equal to at least

126
Commonly Found Errors in Reporting Practices

an ongoing basis. 100% on an ongoing basis.

Further the requisite The NSFR Guidelines has come into effect
disclosure on website from October 1, 2021 vide RBI Circular
was not found. DOR.No.LRG.BC.40/21.04.098/2020-21 dated
February 05, 2021.

155. Enhancement in family pension of employees of

banks - Treatment of additional liability
Observation(s) What should one remember?
It was observed that the As per S.No.14(i) of Annex III of RBI’s
accounting policy followed Master Director
in this regard was not DOR.ACC.REC.No.45/21.04.018/2021-22
appropriately disclosed in (updated as on 25.10.23) on Financial
the ‘Notes to Accounts’. Statements- Presentation and Disclosures,
Banks may take the following course of
action to provide for additional liability on
account of revision in family pension
consequent to the 11th Bipartite
Settlement and Joint Note dated
November 11, 2020.
(a) The liability for enhancement of family
pension shall be fully recognised as
per applicable accounting standards.
(b) The expenditure, if not fully charged to
the Profit and Loss Account during the
financial year 2021-22, be amortised
over a period not exceeding five years
beginning with the financial year
ending March 31, 2022, subject to a
minimum of 1/5th of the total amount
involved being expensed every year.
(c) Appropriate disclosure of the
accounting policy followed in this
regard shall be made in the ‘Notes to
Accounts’ to the financial statements.
Banks shall also disclose the amount

127
 Part III –Industry Specific Observations

of unamortised expenditure and the

consequential net profit if the
unamortised expenditure had been
fully recognised in the Profit & Loss
Account.

156. Share issue expenses debited to Share premium

account
Observation(s) What should one remember?
It was observed that the As per Para 19 of RBI’s Master Director
banks have not disclosed DOR.ACC.REC.No.45/21.04.018/2021-22
its accounting policy for the (updated as on 25.10.23) on Financial
utilization of share premium Statements- Presentation and Disclosures,
account for meeting share Subject to compliance with applicable
issue expenses. laws, banks, without prior approval of
Reserve Bank of India, can utilize the
share premium account for meeting share
issue expenses like registration and other
regulatory fees, amounts paid to legal,
accounting and other professional
advisers, printing costs and stamp duties
to the extent that such expenses are
incremental costs directly attributable to
the transaction that otherwise would have
been avoided. The share premium account
shall not be utilized for writing off the
expenses relating to the issue of debt
instruments.
Further, as per Sec. 52(2) of Companies
Act, 2013, securities premium account
may be applied by the company— in
writing off the expenses of, or the
commission paid or discount allowed on,
any issue of shares or debentures of the
company.

128
Commonly Found Errors in Reporting Practices

INSURANCE SECTOR
157. Format prescribed by IRDA
Observation(s) What should one remember?
1. It was noted in some 1. As per Schedule A of The IRDA
cases that Form A-PL and (Preparation of Financial Statements and
A-BS on Profit & Loss A/c Auditor's Report of Insurance Companies)
and Balance Sheet are not Regulations, 2002, Form A-PL & Form A-
mentioned by company. BS has to be mentioned on Profit & loss
A/c and Balance Sheet respectively.
2. It was observed that the 2. As per Schedule A of The IRDA
company has not mentioned (Preparation of Financial Statements and
this on the revenue account, Auditor's Report of Insurance Companies)
profit & loss account and Regulations, 2002, Format of Revenue A/c,
balance sheet. Profit & loss A/c and Balance Sheet
requires the disclosure of following:
Name of the Insurer:
Registration No. and Date of Registration
with the IRDA.
3. Company has not 3. As per the format prescribed in
reported any "Other income" Schedule B of The IRDA (Preparation of
on the Face of Form B-PL Financial Statements and Auditor's Report
whereas company is of Insurance Companies) Regulations,
reporting "other income” 2002, Other Income is to be disclosed
head in segmental revenue separately in the profit and loss account.
and performance report as
part of operating profit.

158. Nomenclature prescribed by IRDA

Observation(s) What should one remember?
It was noted that the As per Schedule A of The IRDA
company has used the term (Preparation of Financial Statements and
‘Cash flow statement’ as a Auditor's Report of Insurance Companies)
heading whereas it should Regulations, 2002, the term used shall be
have used the term Receipts and Payments Account for Cash
‘Receipts & Payments Flow Statement.
Account’.

129
 Part III –Industry Specific Observations

159. Insurance Companies -Disclosure of Encumbrances

Observation(s) What should one remember?
It has been observed that As per Part II of Schedule A of The IRDA
some companies have not (Preparation of Financial Statements and
disclosed the Auditor's Report of Insurance Companies)
encumbrances to assets of Regulations, 2002, company shall
the company by way of disclose the encumbrances to assets of
notes to the Balance Sheet. the company in and outside India by way
of notes to the Balance Sheet.
In case, such charges does not exist, the
company should mention that there exist
no charges on assets of company in and
outside India.

160. Disclosure of ‘Ageing of claims’

Observation(s) What should one remember?
It was observed that the IRDA's Master circular on Preparation of
company has disclosed only Financial Statements: General Insurance
the average settlement time Business (Circular No.
during the preceding five IRDA/F&L/CIR/F&A/231/10/2012, Dated
years. It has not disclosed 5-10-2012) prescribes the following
the information as required format for disclosure of ‘Ageing of claims
in the format. indicating the trends in average claim
settlement time during the preceding five
years’:
*Segment wise
Period No. of Amount
Claims Involved
30 days
30 days to 6
months
6 months to 1
year

130
Commonly Found Errors in Reporting Practices

1 year to 5
years
5 years and
above

161. Computation of Managerial Remuneration-

Disclosure
Observation(s) What should one remember?
It was observed that As per Part II of Schedule A of The IRDA
'Computation of managerial (Preparation of Financial Statements and
remuneration' not disclosed Auditor's Report of Insurance Companies)
by notes to account of Regulations, 2002, 'Computation of
balance sheet. managerial remuneration' shall be
disclosed by way of notes to the balance
sheet.

162. Compliance with Accounting standards- Insurance

Companies
Observation(s) What should one remember?
1. It was noted that the 1. As per Para 53 of AS 10, “ Property
Company has not disclosed Plant & Equipment “, the residual value
its policy regarding at which and the useful life of an asset should be
interval the company is reviewed at least at each financial year
reviewing the residual value end and, if expectations differ from
and useful life of an asset. previous estimates, the change(s) should
be accounted for as a change in an
accounting estimate in accordance with
AS 5, Net Profit or Loss for the Period,
Prior Period Items and Changes in
Accounting Policies.
2. It was observed that the 2. As per Para 78 of AS 26, “Intangible
Company has not disclosed Assets”, “The amortisation period and the
its policy regarding at which amortisation method should be reviewed
interval the company is at least at each financial year end. If the
reviewing the amortization expected useful life of the asset is

131
 Part III –Industry Specific Observations

period and amortization significantly different from previous

method. estimates, the amortisation period should
be changed accordingly. If there has been
a significant change in the expected
pattern of economic benefits from the
asset, the amortisation method should be
changed to reflect the changed pattern.
Such changes should be accounted for in
accordance with AS 5, Net Profit or Loss
for the Period, Prior Period Items and
Changes in Accounting Policies.”

163. Insurer Prohibited for investment of funds outside

India
Observation(s) What should one remember?
It was noticed that no As per Sec. 27E of The Insurance Act,
declaration is made by the 1938, Prohibition for investment of
insurance company in this funds outside India — No insurer shall
regard. directly or indirectly invest outside India
the funds of the policyholders.

164. Accounting and Disclosure of Unclaimed Amount of

Policy holders
Observation(s) What should one remember?
It was noticed that the As per IRDAI’s Master circular Reference
required disclosures are not No: IRDA/F&A/CIR/Misc/282 /11/2020
given with regard to dated 18/11/2020 on Unclaimed Amounts
Unclaimed Amount of of Policyholders,
Policyholders. Insurers shall maintain a single
segregated fund to manage all unclaimed
amounts and the sum of such fund shall
be invested in money market instruments,
Liquid Mutual Funds and /or fixed deposits
of scheduled banks or such other

132
Commonly Found Errors in Reporting Practices

instruments as may be permitted by

Authority.
All insurers shall disclose the amount
representing the unclaimed amounts as a
separate line item in the specified Notes or
Schedules to the Balance Sheet. The age-
wise analysis of unclaimed amounts shall
also be disclosed in the Notes to Accounts
as per the specified format, Form A,
Schedule — I and shall form part of the
Annual Report of all insurers.
All insurers shall disclose the income
credited during the year on the Unclaimed
Amounts, in the notes to accounts in the
Financial Statements.

165. Segment Reporting as per IRDAI guidelines

Observation(s) What should one remember?
It was noticed that the As per IRDAI’s Master Circular No.
segment results are not IRDA/F&L/CIR/F&A/231/10/2012 dated 5-
disclosed separately as 10-2012 on Preparation of Financial
required by the IRDAI Statements: General Insurance Business,
guidelines. Accounting Standard 17 (AS 17)- Segment
Reporting, shall apply to all insurers
irrespective of the requirements regarding
listing and turnover mentioned therein.
All general insurers are required to
prepare separate revenue accounts for
fire, marine and miscellaneous business.
Further, separate Schedules are required
to be prepared for Marine Cargo and
Marine – Others.
In addition, in respect of miscellaneous
business, separate Schedules shall be
furnished for 1. Motor- Motor Own
Damage, and TP, 2. Workmen’s

133
 Part III –Industry Specific Observations

Compensation/Employer’s liability, 3.
Public/Product Liability, 4. Engineering, 5.
Aviation, 6. Personal Accident, 7. Health
insurance and 8. Others.
Any other sub-segment contributing more
than 10% of the total premium of the
insurer shall be shown separately.
The Authority requires the segments to be
reported on the basis of line of business,
and on the basis of business within and
outside India. While giving the segment
details previous year’s figures should also
be given for all the segments.

166. Risk Management Disclosures

Observation(s) What should one remember?
The risk management The Insurance Regulatory and
disclosures given were not Development Authority (Preparation of
adequate as per the Financial Statements and Auditor's Report
requirement of The of Insurance Companies), Regulations,
Insurance Regulatory and 2002 prescribes the manner of preparation
Development Authority of financial statements by the insurers.
(Preparation of Financial S.No.8 of Part IV of Schedule A
Statements and Auditor's (applicable on insurers carrying on life
Report of Insurance insurance business) requires the following
Companies), Regulations, disclosure in Management Report,
2002. “Disclosure with regard to the overall risk
exposure and strategy adopted to mitigate
the same.”
S.No.7 of Part IV of Schedule B
(applicable on insurers carrying on general
insurance business) requires the following
disclosure in Management Report,
“Disclosure with regard to the overall risk
exposure and strategy adopted to mitigate
the same.”

134
Commonly Found Errors in Reporting Practices

NBFC SECTOR
167. Ratios Disclosure
Observation(s) What should one remember?
It was observed that As per Division III of Schedule III of the
companies are not Companies Act 2013, following ratios to
disclosing all the ratios be disclosed:
which are mandatory to (a) Capital to risk-weighted-assets ratio
disclose as specified here. (CRAR)
(b) Tier I CRAR
(c) Tier II CRAR
(d) Liquidity Coverage Ratio

168. Contingent Liability Disclosure

Observation(s) What should one remember?
It was observed that in As per Division III of Schedule III of the
some cases the format of Companies Act 2013, the contingent
contingent liability is not in liabilities and commitments are to be
line with format prescribed disclosed as follows:
by Division III of Schedule (i) Contingent Liabilities shall be
III. classified as:
(a) Claims against the company not
acknowledged as debt;
(b) Guarantees excluding financial
guarantees; and
(c) Other money for which the company
is contingently liable
(ii) Commitments shall be classified as:
(a) Estimated amount of contracts
remaining to be executed on capital
account and not provided for;
(b) Uncalled liability on shares and other
investments partly paid;
(c) Other commitments (specify nature).

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 Part III –Industry Specific Observations

169. Loans to Directors, Senior Officers and relatives of

Directors
Observation(s) What should one remember?
It was observed that As per Division III of Schedule III of the
companies not companies act 2013, following disclosures
disclosing proper shall be made where Loans or Advances are
format as per Schedule granted to promoters, directors, KMPs and
III specifically the related parties:
“Percentage to the total
Type of Amount of Percentage
Loans and Advances in
borrower loan or to the total
the nature of loans”.
advance in Loans and
the nature Advances
of loan in the
outstanding nature of
loans
Promoter
Directors
KMPs
Related
Parties

170. Audit Fees- Disclosure

Observation(s) What should one remember?
It was observed that in As per Division III of Schedule III of the
some cases audit fees is Companies Act 2013, ‘Auditor’s fees and
included in legal and expenses’ to be disclosed as separate
professional expenses. sub-head under the head ‘Other
Expenses’.

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Commonly Found Errors in Reporting Practices

NPOs
171. Disclosure about Sources and Uses of Funds
Observation(s) What should one remember?
It was observed that NPOs The disclosure about sources and uses of
have not given the funds in a Non-Profit Organization (NPO)
disclosure of full annual report serves as a critical
information about the end component of financial transparency and
use of resources including accountability. This information provides
an analysis of percentage stakeholders, including donors, members,
of funds spent on and the general public, with a detailed
organization’s understanding of how the organization
infrastructure, manpower acquires and allocates its financial
etc. and percentage spent resources. By delineating the sources of
on beneficiaries; corrective funds, such as grants, donations, or other
action recommended on income streams, the NPO offers
imbalance in fund transparency about its financial
utilization, if any. sustainability and the diverse channels
through which it receives support.

172. Separate set of accounts and records for The

Foreign Contribution
Observation(s) What should one remember?
It was observed that the As per Rule 11 of Foreign Contribution
NPOs, which are receiving (Regulation) Rules, 2011, Every person
foreign contribution, are not who has been granted registration or prior
disclosing about the permission under section 12 of the Foreign
separate set of accounts Contribution (Regulation) Act, 2010 shall
and records exclusively for maintain a separate set of accounts and
the foreign contributions. records, exclusively, for the foreign
contribution received and utilized.

173. Disclosure about Budget & its utilization

Observation(s) What should one remember?
It was noted that NPOs The disclosure of information about

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 Part III –Industry Specific Observations

were not providing approved budgets and their utilization,

information about the including explanations for any under or
approved budget and its over-utilization, plays a pivotal role in
utilization including the enhancing transparency and accountability
reasons for under/ over within Non-Profit Organizations (NPOs).
utilization. By including this detailed financial
information in the annual report, NPOs
provide stakeholders, including donors,
members, and the public, with a
comprehensive view of their financial
management practices.

174. Revenue Recognition for NPO’s

Observation(s) What should one remember?
It was observed that NPOs As per Para 14 of AS 9 (Revenue
have not disclosed the Recognition), “In addition to the
circumstances in which disclosures required by Accounting
revenue recognition has Standard (AS) 1, “Disclosure of
been postponed or Accounting Policies”, an enterprise should
circumstances when also disclose the circumstances in which
revenue may be revenue recognition has been postponed
recognized. pending the resolution of significant
uncertainties.

175. Disclosure of Use of Fund Based Accounting

Observation(s) What should one remember?
It was observed that the Implementing Fund-Based Accounting and
NPOs have not provided disclosing such information in an NPO's
any information about the annual report is crucial for providing
Use of Fund Based stakeholders with a clear and detailed
Accounting in the annual insight into financial management and
report. allocation of resources. Fund accounting
allows Non-Profit Organizations (NPOs) to
categorize their financial activities into
different funds based on purposes,
restrictions, or sources of funding. By

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Commonly Found Errors in Reporting Practices

disclosing this in the annual report, the

organization communicates a transparent
picture of how its financial resources are
segregated and utilized according to the
specific objectives for which they were
designated.

176. Government’s policy in relation to initiatives of the

organization
Observation(s) What should one remember?
It was observed that Disclosing information about government
organization have not policies related to a Non-Profit
disclosed about the Organization's (NPO) initiatives and the
information as regards to involvement of government or
government’s policy in governmental bodies in its activities in the
relation to initiatives of the annual report is a good sign for fostering
organization and transparency and demonstrating the
involvement of government/ organization's collaboration with the
governmental bodies in government for the welfare of the general
activities of the public.
organization.

PUBLIC SECTOR UNDERTAKINGS

177. Information about CSR common theme
Observation(s) What should one remember?
It was noted that As per the Department of Public
organization have not Enterprises Office Memorandum No.
disclosed the information CSR-08/0002/2018-Dir (CSR) dated 10 th
pertaining to CSR December 2018, a common theme may
expenditure on common be identified for each year for undertaking
theme as required by the CSR by CPSEs.
guidelines issued by the Accordingly, the Department of Public
Department of Public Enterprises issues a separate office
Enterprises (Ministry of memorandum each year for the common
Heavy Industries and Public

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 Part III –Industry Specific Observations

Enterprises, Government of theme for that year.

India). Central Public Sector Enterprises
(CPSEs) should disclose about the
common theme applicable for that year in
its annual report.

178. CSR expenditure on common theme

Observation(s) What should one remember?
It was noted that the As per the Department of Public
organizations have not Enterprises Office Memorandum No.
specified the CSR amount CSR-08/0002/2018-Dir (CSR) dated 10 th
spent on the common December 2018, CSR expenditure for
theme as required by the thematic programme should be around
guidelines issued by the 60% of annual CSR expenditure of
Department of Public CPSEs.
Enterprises. Therefore, CPSEs should disclose
specifically the amount of expenditure
incurred on thematic programme as
applicable for the year.

179. Allocation of funds for CSR

Observation(s) What should one remember?
It was noted that the in the As per the Department of Public
CSR policy, while defining Enterprises Office Memorandum No.
allocation of funds, CSR-08/0002/2018-Dir (CSR) dated 10 th
organization have not December 2018, CSR expenditure for
complied with the common thematic programme should be around
theme identified by the 60% of annual CSR expenditure of
Department of Public CPSEs.
Enterprises for the financial Further, as per Department of Public
year 2022-23. Enterprises Office Memorandum F.No.
8/0002/2018-Dir (CSR) dated 5 th April
2022, ‘Health and Nutrition’ is the

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Commonly Found Errors in Reporting Practices

common theme for CSR activities by

CPSEs for the financial year 2022-23.
CPSEs should allocate around 60% CSR
funds for projects related to common
theme (as may be applicable for the year)
in its CSR policy.

180. Preference to Aspirational Districts for CSR

Observation(s) What should one remember?
It was noted that the As per the Department of Public
organizations have not Enterprises Office Memorandum No.
given the preference to CSR-08/0002/2018-Dir (CSR) dated 10 th
Aspirational Districts for December 2018, “Aspirational Districts
CSR as suggested by the may be given preference. (A list of 112
Department of Public Aspirational Districts as identified by NITI
Enterprises. Further, some Aayog is attached at Annexure-I).”
organizations have not Therefore, CPSEs should give the
disclosed whether preference to Aspirational Districts for
organizations have given CSR and it should disclose it in the annual
the preference to report and its CSR policy.
Aspirational Districts neither
in the annual report nor in
the CSR policy.

181. Composition of Board of Directors

Observation(s) What should one remember?
It was noted that the As per Para 3.1.4 of Department of Public
composition of board was Enterprises Office Memorandum No.
not in line with the 18(8)/2005-GM dated 14 th May 2010, In
guidelines issued by the case of a CPSEs listed on the Stock
Department of Public Exchanges and whose Board of Directors
Enterprises. is headed by an Executive Chairman, the
number of Independent Directors shall be
at least 50% of Board Members; and in
case of all other CPSEs (i.e. listed on
Stock Exchange but without an Executive

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 Part III –Industry Specific Observations

Chairman, or not listed CPSEs), at least

one-third of the Board Members should be
Independent Directors.

182. Roles and Responsibilities of Board and Directors

Observation(s) What should one remember?
It was noted that there is no As per Para 3.5 of Department of Public
information about the Board Enterprises Office Memorandum No.
Charter which defines the 18(8)/2005-GM dated 14 th May 2010, A
roles and responsibilities of clear definition of the roles and the
the Board and individual division of responsibilities between the
directors. Board and the Management is necessary
to enable the Board to effectively perform
its role. The Board should have a formal
statement of Board Charter which clearly
defines the roles and responsibilities of
the Board and individual Directors.

183. Review of information by audit committee

Observation(s) What should one remember?
It was noted that the As per Para 4.5 of Department of Public
organization have not made Enterprises Office Memorandum No.
the disclosure about review 18(8)/2005-GM dated 14 th May 2010, the
of information by the audit audit committee shall review the following
committee. information:
(i) Management discussion and analysis
of financial condition and results of
operations;
(ii) Statement of related party
transactions submitted by
management;
(iii) Management letters / letters of
internal control weaknesses issued
by the statutory auditors;
(iv) Internal audit reports relating to

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Commonly Found Errors in Reporting Practices

internal control weaknesses;

(v) The appointment and removal of the
Chief Internal Auditor shall be placed
before the Audit Committee; and
(vi) Certification/declaration of financial
statements by the Chief
Executive/Chief Finance Officer.
Organization should disclose it the
corporate governance report about which
information has been reviewed by the
audit committee during the year.

184. Representation of holding company on board of

subsidiary company
Observation(s) What should one remember?
It was noted that As per Para 6.1 of Department of Public
information about the Enterprises Office Memorandum No.
representation of holding 18(8)/2005-GM dated 14th May 2010, At
company on the board of least one Independent Director on the
subsidiary company is not Board of Directors of the holding company
given in the annual report. shall be a Director on the Board of
Directors of its subsidiary company.
Further, as per Explanation to Chapter 6,
For the purpose of these guidelines, only
those subsidiaries whose turnover or net
worth is not less than 20% of the turnover
or net worth respectively of the Holding
company in the immediate preceding
accounting year may be treated as
subsidiary companies.

185. Composition of audit committee

Observation(s) What should one remember?
It was noted that the As per Para 4.1.1 of Department of Public
composition of audit Enterprises Office Memorandum No.

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 Part III –Industry Specific Observations

committee was not in line 18(8)/2005-GM dated 14th May 2010, The
with guidelines issued by Audit Committee shall have minimum
the Department of Public three Directors as members. Two-thirds of
Enterprises. the members of audit committee shall be
Independent Directors.
Further, as per Para 4.1.2, the chairman
of the Audit Committee shall be an
Independent Director.

186. Composition of remuneration committee

Observation(s) What should one remember?
It was noted that the As per Para 5.1 of Department of Public
composition of Enterprises Office Memorandum No.
remuneration committee 18(8)/2005-GM dated 14th May 2010,
was not in line with Each CPSE shall constitute a
guidelines issued by the Remuneration Committee comprising of at
Department of Public least three Directors, all of whom should
Enterprises. be part-time Directors (i.e. Nominee
Directors or Independent Directors). The
Committee should be headed by an
Independent Director.

187. Disclosure of remuneration of directors

Observation(s) What should one remember?
It was noted that the As per Para 7.4.2 of Department of Public
remuneration of directors Enterprises Office Memorandum No.
are not disclosed 18(8)/2005-GM dated 14th May 2010, the
appropriately in line with following disclosures on the remuneration
guidelines issued by the of directors shall be made in the section
Department of Public on the Corporate Governance of the
Enterprises. Annual Report:
(a) All elements of remuneration package
of all the directors i.e. salary,
benefits, bonuses, stock-options,
pension, etc.

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Commonly Found Errors in Reporting Practices

(b) Details of fixed component and

performance linked incentives, along
with the performance criteria.
(c) Service contracts, notice period,
severance fees.
(d) Stock option details, if any – and
whether issued at a discount

188. Declaration of compliance with code of conduct

Observation(s) What should one remember?
It was noted that the annual As per Para 3.4.2 of Department of Public
report did not contain the Enterprises Office Memorandum No.
declaration signed by the 18(8)/2005-GM dated 14th May 2010, All
CEO to the effect that all Board members and senior management
the board members and personnel shall affirm compliance with the
senior management code on an annual basis. The Annual
personnel have affirmed Report of the company shall contain a
compliance with the code of declaration to this effect signed by its
conduct. Chief Executive.

189. Disclosure of compliance with corporate

governance guidelines
Observation(s) What should one remember?
It was noted that the annual As per Para 8.2.2 of Department of Public
repot did not contain the Enterprises Office Memorandum No.
Chairman’s speech carrying 18(8)/2005-GM dated 14th May 2010,
a section on compliance Chairman’s speech in Annual General
with corporate governance Meeting (AGM) should also carry a
guidelines/ norms. section on compliance with Corporate
Governance guidelines/norms and should
form part of the Annual Reports of the
concerned CPSE.

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 Part III –Industry Specific Observations

190. Quorum in audit committee meetings

Observation(s) What should one remember?
It was noted that the As per Para 4.4 of Department of Public
quorum in the meetings of Enterprises Office Memorandum No.
audit committee was not in 18(8)/2005-GM dated 14 th May 2010, in
accordance with the the meeting of audit committee, the
guidelines issued by the quorum shall be either two members or
Department of Public one third of the members of the audit
Enterprises. committee, whichever is greater, but a
minimum of two independent members
must be present.

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January | 2024 | P3559 (New)