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Audit regulator NFRA has found certain instances of companies not complying with Indian Accounting Standards (Ind AS) on accounting policies for recognition as well as measurement of revenue from contracts with customers.
Non-compliance has also been noticed on the accounting policy around trade receivables, NFRA said in a circular.
Many companies are erroneously stating that the trade receivables are initially recognised (or measured) at fair value, which is contrary to the requirements of Ind AS 109, NFRA has said. Further, there have also been instances of inconsistency between the accounting policy for initial measurement of trade receivables and the accounting policy for measurement of corresponding revenue leading to misleading and confusing information to the users of the financial statements.
Erroneous accounting policy
The audit regulator has also highlighted the example of erroneous accounting policy adopted by a large listed company in respect of revenue recognition. The company concerned had measured revenue at the fair value of consideration received or receivable when actually the right policy would have been to measure revenue towards satisfaction of a performance obligation at the transaction price (net of variable consideration) allocated to that performance obligation, NFRA highlighted.
About ten companies have been found by NFRA where there is discrepancy in adoption of right accounting policy around revenue measurement, sources said.
Such instances of wrong accounting policies by a few companies reflect inadequate understanding of the measurement and disclosure requirements of the relevant Ind AS, NFRA has said. The audit regulator has now directed all listed companies and other entities falling within the domain of NFRA to comply with provisions of Ind AS 115 and Ind AS 109. The auditors of these companies have been directed to ensure strict compliance, in the performance of their audits, with the provisions of the Ind AS.
Also, company secretaries of these companies have been requested to bring this NFRA circular to the notice of the Board of Directors.
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