The Institute of Chartered Accountants of India has dismissed the Crisil report of July 2001 that highlighted overstatement of profits by blue chip companies and suggested that corporates were following the letter of the law but not its spirit.
The institute has told the department of company affairs that there is nothing wrong with the accounts of these companies.
Ashok Chandak, president, ICAI told Business Standard that the Accounting Standards Board, which has representatives from the Reserve Bank of India and the Securities and Exchange Board of India had taken a decision that the companies had followed all norms.
The Crisil report had stated that the profits of 226 companies as calculated by it were in variance with the profits reported by the companies in 2000-01. The report, however, said there was no violation of accounting norms.
The DCA had subsequently asked ICAI to give its opinion on the Crisil report. The institute had convened a special meeting of its accounting standards board and discussed the Crisil report threadbare.
Chandak said, "What the companies did was within the framework of the law and the Companies Act." The ASB, he pointed out, had 50 per cent of its members who were not chartered accountants.
Chandak said the institute has submitted its report to the DCA and further given its clarification on the various accounting aspects which the Crisil report had highlighted.
These, he said, included the ICAI's opinion on whether designs, drawings, marketing know-how, moulds, etc be treated as tangible or intangible assets, whether projects under sale should be accounted as fixed or current assets and treatment of incentive from the state government.
The Crisil report had stated that companies like Reliance, Chordia Foods and Explochem had capitalised on the incentives from the state government in terms of the sales tax deferrals.
Wipro, it said, transferred land from fixed assets to current assets at the market price and adjusted the excess value under capital reserves instead of revaluation reserves.
While Spic capitalised borrowing costs on advances given to its subsidiary, Bombay Dyeing routed some of its expenses directly through its reserves, the Crisil report said.
According to ICAI, if the incentive from state government is of the nature of promoter's contribution, it would be a capital subsidy. If it is related to revenue, it would be recognised as income as per Accounting Standard 12.
As far as transferring land from fixed to current assets is concerned, the institute has said in case where the asset was originally classified as fixed and is being changed to current, the excess can be transferred to a capital reserve instead of revaluation reserve.
On companies which issued secured premium notes and wrote off redemption premium directly from reserves, the ICAI said that it can written off against securities premium but not against general reserves or other similar reserves.
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