The Hindu Business Line : ICAI clarifies on norms for consolidated financial statements

THE Institute of Chartered Accountants of India (ICAI) has clarified that unrealised profits and losses on transactions between a parent and its subsidiaries entered during accounting periods commencing on or before March 31, 2001 need not be necessarily eliminated during the preparation of consolidated financial statements (CFS).

"After recognising that it may not be feasible to eliminate unrealised profits and losses in respect of some of the transaction entered prior to March 31,2001, we are clarifying that elimination of all unrealised profits and losses is not a must while preparing CFS," sources said.

The Accounting Standard (AS-21) on `Consolidated Financial Statements', which came into effect in respect of accounting periods on or after April 1, 2001, is mandatory from this date if an enterprise presents CFS. Para 16 of AS-21 requires that intra-group balances and intra-group transactions and resulting unrealised profits should be eliminated in full. It further provides that unrealised losses resulting from intra-group transactions should be eliminated unless cost cannot be recovered.

Likewise, the ICAI has now held that this position (elimination of unrealised profits or losses not being mandatory) also applies in respect of AS-23, accounting for investments in associates in consolidated financial statements and AS-27, financial reporting of interests in joint ventures while applying `equity method' and `proportionate consolidation method' respectively.