Non-recognition of curiosity legal responsibility on accrual foundation merely on expectation of a mortgage getting the tag of a non performing asset by the lender is a violation of accounting norms by corporations, audit watchdog Nationwide Monetary Reporting Authority (NFRA) stated on Friday.
NFRA stated in a press release that it has seen that a number of corporations have violated accounting norms referring to recognition in monetary statements of the curiosity legal responsibility on loans turning dangerous.
Citing one explicit occasion during which the audit watchdog took disciplinary motion in opposition to a chartered accountant, NFRA stated that the corporate had in its FY20 monetary statements discontinued recognition of curiosity expense on its financial institution borrowings, which had been reportedly categorized as non-performing asset (NPA) by the lender banks and for which the corporate was negotiating one time settlement.
This accounting remedy, NFRA stated, was in contravention of the provisions of relevant accounting normal, as these borrowings as properly the curiosity payable on that continued to be the monetary liabilities of the corporate and have been required to be accounted for as amortized price in accordance with the necessities of Indian Accounting Customary 109 coping with monetary devices. Related violations have been noticed in respect of a number of different corporations too, NFRA stated.
“Mere classification of the corporate’s borrowings as NPAs by the lender banks doesn’t relieve the borrowing firm from its legal responsibility in direction of fee of curiosity and/or the principal. It might be related to notice that the RBI tips additionally require the banks to keep up a Memorandum File of accrued Curiosity on the loans categorized as NPAs clearly reflecting the truth that the financial institution has not but legally launched the debtors from their contractual legal responsibility to pay curiosity on their borrowings from the financial institution,” NFRA said.
On this context, discontinuation of curiosity expense recognition on financial institution borrowings solely based mostly on the borrowing firm’s expectations of possible waiver/concession by the lender banks within the fee of curiosity or principal with out proof of the legally enforceable contractual paperwork leads to inaccurate presentation of economic efficiency and monetary place of the borrowing
NFRA stated that it has issued a round to make sure that such violations don’t happen and monetary statements of corporations current a real and truthful view of the corporate’s affairs. Firm secretaries have been suggested to attract consideration of the Board of Administrators of their corporations to the round, NFRA stated.
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