Since substantial is too generic a benchmark, it would appear that the disclosure requirements of the standard would apply only when a subsidiary of the bank, a substantial division such as credit card or a mutual fund is spun off.

AS 26, on intangible assets, would apply to banks that customise computer software and spend a fortune on brand equity, and so on. The circular states that it would be difficult for banks to estimate the useful life of computer software which has been customised for bank use and is expected to be in use for some time.

The circular urges banks to follow Appendix A to the AS which elaborates on the recognition, measurement and accounting of internally generated computer software. Another issue which crops up is that intangible assets recognised and carried in the balance-sheet would attract Section 15(1) of the Banking Regulation Act, 1949 which debars banks from declaring any dividend until any expenditure not represented by tangible assets is carried in the balance-sheet.

The circular extrapolates that the intangible assets carried in the balance-sheet of banks would represent standalone items such as computer software and brand equity and would not constitute deferred revenue items such as capital issue expenses, and so on.

In case the bank is carrying any deferred revenue type of items in the balance-sheet, it would have to seek exemption from Section 15(1) from the Government.

AS 28, on intangible assets, has a single point programme — to ensure that assets are carried at no more than their recoverable amount in the balance-sheet. In case this likelihood is there, an impairment loss would have to be recognised. The circular is quick to clarify that this would not apply to investments, inventories and financial assets such as loans and advances.

This is quite natural since banks recognise impairment losses for assets and investments, courtesy the Master Circulars issued by the RBI, and it would be a rarity for a bank to hold inventories save for stationery, stamps, and so on.

By this process of elimination, it appears that this AS would apply only to fixed assets of a bank. The circular states that this AS would apply to financial lease assets and non-banking assets acquired in satisfaction of claims.

Banks may have to burn some midnight oil here in case they take over impaired assets of loan defaulters under the SARFAESI Act.

The circular could have contemplated some situations here. For instance, if a bank acquires an asset and holds it on behalf of a asset reconstruction company for ultimate sale to a third party, courtesy the new-fangled acquire-and-dispose powers given under SARFAESI, would it have to appear on the balance-sheet of a bank in the interregnum?

April-May is balance-sheet season for banks. Some major banks have already declared and published their results while others are almost there. The circular is probably a month too late to be applicable to all banks although complying with the circular should not give banks any sleepless nights.

However, the dream of the RBI that audit reports of banks should be qualification-free would appear to remain that way for some time to come. The differential treatment for exchange rate variances between AS 11 of the ICAI and FEDAI representing the banks still exists.

It appears that both are intending on saying the same things as far as treating exchange variations, but are not bringing their thoughts to the negotiating table.

The audit report on a recently published balance-sheet of a bank had a qualification on the assumptions in segment reporting. The large abyss in inter-bank and inter-branch reconciliation finds its way into the audit report every now and then.

The RBI has some more legwork to do before the era of qualification-free audit reports is here to stay.

(The author is a Hyderabad-based chartered accountant.)

More Stories on : Accounting Standards | Accountancy

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page