The Hindu Business Line : ICAI norms to govern leased assets of banks

LEASED assets of banks will now be governed by the Institute of Chartered Accountants of India (ICAI)'s standard on `impairment' of value under Accounting Standards (AS) 28.

In addition to leased assets, a bank's fixed assets would also be covered under these norms, as per the RBI guidelines on compliance with AS by banks.

In a circular issued to scheduled commercial banks, the RBI said, ICAI's accounting standard on value impairment would, however, not apply to a bank's investments, inventories and financial assets such as loans and advances .

The country's largest bank, State Bank of India for instance, has leased assets amounting to Rs 750 crore and the overall fixed assets to the tune of Rs 2,388 crore as on the financial year ended March 31, 2003. According to the ICAI standard, an `impairment loss' should be recognised as an expense in the statement of profit and loss account immediately.As per the RBI's latest guidelines, banks are now prohibited from declaring dividend until any expenditure not represented by tangible assets is carried in the balance sheet.Intangible assets recognised and carried in the balance sheet of banks will attract provisions of Section 15 (1) of the BR Act, RBI has clarified.

The AS, will however, not apply to intangible assets before the effective date of this standard which has come into force from the accounting period commencing April 1, 2003. But such assets will, however, be governed by the transition provisions contained in the standard. The relevant accounting standard alsorequires that an intangible asset should be measured initially at cost and that internally generated goodwill should not be recognised as an asset.

RBI has said that although it may be difficult to estimate the useful life of computer software, which has been customised for the bank's use and is expected to be in use for some time, the detailed recognition and amortisation principle in respect of computer software prescribed in the Standard, adequately addresses these issues and has suggested that this may be followed by banks.

RBI has further said that merger or closure of branches of banks by transferring the assets and liabilities to other branches of the same bank may not be deemed as a discontinuing of operation under AS 24 of the ICAI.

The apex bank has emphasised that disclosures would be required under the Standard only when the discontinued operation is substantial in its entirety.

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