The Hindu Business Line : Guests are seated and the goat is only half-cooked

ONE OF the by-products of election campaigning is the barrage of statements that politicians issue against one another. The electorate, however, is wise enough not to seek much education from the same, though the daily dose of charges and counters provide some entertainment.

Ditto with one of the recent announcements on the Web site of the Institute of Chartered Accountants of India. It reads: "Applicability of AS 4 to impairment of assets not covered by present Indian Accounting Standards". Since it does not say much, or perhaps says too much, one will have to look into the helpfully one-page PDF that lists five paragraphs.

Accounting Standard (AS) 29, for those who don't know, is about provisions, contingent liabilities and contingent assets, and it comes into effect from April this year. AS 29 treads over some of the areas that were covered in an earlier standard AS 4 titled "Contingencies and Events Occurring after the Balance Sheet Date" and so it became necessary to announce withdrawal of a portion of AS 4.

That is, "All paragraphs of AS 4 that deal with contingencies (viz., paragraphs 1(a), 2, 3.1, 4 (4.1 to 4.4), 5 (5.1 to 5.6), 6, 7 (7.1 to 7.3), 9.1 (relevant portion), 9.2, 10, 11, 12 and 16), stand withdrawn."

Now, para 2 of the announcement: "Paragraph 7 of AS 29 provides that this Statement defines provisions as liabilities which can be measured only by using a substantial degree of estimation. It further provides that the term `provision' is also used in the context of items such as depreciation, impairment of assets and doubtful debts: these are adjustments to the carrying amounts of assets and are not addressed in this Statement. In view of this, impairment of assets and doubtful debts are not covered by AS 29." Simply put, AS 29 does not cover impairment of assets and doubtful debts. And that puts in active voice the last sentence, as per Microsoft's advice; so, don't impair your understanding with doubt that can be caused by reading more lines than necessary.

Next para can pose difficulty, so brace up: "It may be noted that the paragraphs of AS 4 dealing with contingencies also cover provision for contingent loss in case of impairment of assets, not covered by other Accounting Standards, such as, AS 2, Valuation of Inventories, AS 10, Accounting for Fixed Assets, AS 13, Accounting for Investments and AS 28, Impairment of Assets (coming into effect from 1-4-2004)."

Don't complain of too many numbers, because `such as' indicates they could have given the whole list if only they had the time and also knew for sure. "Accordingly, AS 4 deals with impairment of certain assets, for example, the impairment of financial assets like receivables (commonly referred to as the provision for bad and doubtful debts)." So, you can say that your `financial assets are impaired' when your debtor is gone missing. Looks like a decent expression, similar to acute myocardial infarction for heart attack.

Para 4 spells out the problem: "As may be noted from paragraph 1 above, pursuant to AS 29 coming into effect, the paragraphs of AS 4 that deal with contingencies stand withdrawn." Don't ask `which paras?' because then they would repeat all those mass of numbers above. "It may further be noted that while impairment of certain assets is covered by some existing Accounting Standards referred to in paragraph 3 above, impairment of financial assets such as receivables, which are not covered by AS 29, is expected to be covered in an Accounting Standard on Financial Instruments: Recognition and Measurement, which is under preparation." A typical case of short-selling where guests are seated and the goat is only half-cooked. You can't turn away the guests, nor give them the work-in-progress.

So, the remedy is in para 5: "In view of the above, it is brought to the notice of the members and others that till the issuance of the proposed Accounting Standard on financial instruments, the paragraphs of AS 4 which deal with contingencies would remain operational to the extent they cover the impairment of assets not covered by other Indian Accounting Standards.

Thus, for instance, impairment of receivables (commonly referred to as the provision for bad and doubtful debts) would continue to be covered by AS 4." Which is why they say you shouldn't empty your recycle bins and kitchen trashcans too fast.

AccountSpeak@thehindu.co.in

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