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Draft of Disclosures required in Tax Audit Report on ICDS (Income Computation and Disclosure Standards) notified by CBDT
FA-2018 has amended Income Tax Act-1961 in various sections so as to ensure that ICDS is in accordance with the provision of IT Act-1961. As a result, effects of Judgment by Delhi High Court in the case of Chamber of Tax Consultants stands nullified and the Chartered Accountants across the country are required to comply with the ICDS.
I – Accounting Policies
II – Valuation of Inventories
III – Construction Contracts
IV – Revenue Recognition
V – Tangible Fixed Assets
VI – Effects of changes in foreign exchange rates
VII – Governments Grants
VIII – Securities
IX – Borrowing Costs
X – Provisions, contingent liabilities and contingent assets
The list of ICDS vis a vis AS by ICAI is as under:
|Accounting policies (ICDS I)
||Disclosure of Accounting Policies (AS 1)
|Valuation of inventories (ICDS II)
||Valuation of Inventories (AS 2)
|Construction contracts (ICDS III)
||Construction Contracts (AS 7)
|Revenue recognition (ICDS IV)
||Revenue Recognition (AS 9)
|Tangible fixed assets (ICDS V)
||Accounting for Fixed Assets (AS 10)
|Effects of changes in foreign exchange rates (ICDS VI)
||The Effects of Changes in Foreign Exchange Rates (AS 11)
|Government grants (ICDS VII)
||Accounting for Government Grants (AS 12)
|Securities (ICDS VIII)
||Accounting for Investments (AS 13)
|Borrowing costs (ICDS IX)
||Borrowing Costs (AS 16)
|Provisions, contingent liabilities and contingent assets (ICDS X)
||Provisions, Contingent Liabilities and Contingent Assets (AS 29)
The following proposed ICDS for which drafts were circulated have not yet been notified:
- Events occurring after the end of previous year
- Prior period expense
- Intangible Asset
It may be important to mention here that though ICDS has to be complied with by the taxpayer, the responsibility has been casted on the CA to make the report there is any deviation in the accounts books vis a vis ICDS.
Now, members signing the tax audit report are not only required to report the effect of changes in ICDS but also other disclosure in the audit report which are not making effect over profit. This is also a time to recall that the auditors liability has been widened and the department has been empowered to impose a fine of Rs. 10,000/- for error in the audit report.
Here is a general & draft format of disclosure the members may refer for disclosure & for complying with the provisions of ICDS.
ICDS I-Accounting Policies:
- The significant accounting policies are duly incorporated in the notes on accounts forming the part of the financial statements.
- There is no change in the accounting Policies
There is change in Accounting Policy which is as under:
(Not only disclosure, but quantification is also important)
3. Assessee has not followed following fundamental assumptions:
[Reporting is required only if the fundamental assumptions are not followed.
Fundamental assumptions includes
i) Going Concern (if company, it requires disclosure under the Companies Act as well)
ii) Accural ( It may be noted that the ICDS is applicable only if the accrual system ofaccounting is flowed and not if assessee is following cash system of accounting)]
ICDS II-Valuation of Inventories
If in service Industry
Assessee is in to the business of banking and hence don’t carry any stock and resultantly ICDS 2 is not applicable.
If not in service Industry
i. Assessee is following the inventory at cost price
Assessee is following the inventory at Net realizable value
Assessee is following the inventory at lower of (a) cost price or (b) Net realizable value
Method of Valuation of inventory and accounting policies thereof is duly incorporated in the notes on accounts forming the part of the financial statements
ii. Classification & quantum of inventory is as per clause No. 35(a ) / 35(b) to this Tax Audit Report
ICDS – III – Construction Contracts
If Assessee is not in to construction contract:
Assessee is not in to the activities of construction contracts, hence this ICDS is not applicable and hence no disclosure required.
If Assessee is in to construction contract:
i. Assessee is engaged in to the activities of construction activities. Amount of Rs. _______ as contract revenue has been recognized during the year following Percentage Completion Method.
ii. In context of Contract in progress at reporting date:
(a) amount of Rs.__________& _____ is cost incurred and recognized profits (less recognized losses) respectively up to the reporting date
(b) the amount of Rs. _____________is advances received;
(c) the amount of Rs. ______________,is retention money
ICDS – IV- Revenue Recognition
i. None of the transaction involving sale of goods is there which has not been recognized as revenue during the previous year for lack of reasonable certainty about its ultimate collection.
ii. Assessee has not undertaken any service transactions, thus there is no disclosure requirements under para 13(b), 13(c) and 13(d) of this ICDS.
(a) Assessee has undertaken service transactions. Rs. ________ as revenue from Service transaction recognized during the year.
(b) Revenue on Service Contracts for less than 90 days has been recognized as per Project Completion Method whereas service contract for 90 days or more has been ascertained at percentage completion method
(c) Revenue on Service Contracts with indeterminate no of acts for a particular period has been recognized as per Straight Line Method
(d) For Service contract in progress at the end of previous year, costs incurred is Rs____________, Recognized profits (less recognized losses) is Rs. __________, Amount of advance received is Rs. ______________ The amount of retention is Rs. _____________.
ICDS V-Tangible Fixed Assets:
All the requirements of this ICDS are duly done in Clause No. 18 to Tax Audit Report.
(a) Disclosure at to description of the block of assets, rate of depreciation, actual cost or written down value, depreciation allowable and written down value at the end of the year in respect of the tangible fixed assets are incorporated in point/clause No. 18 to this form 3CD.
(b) Additions or deductions during the year with dates, in case of any addition of an asset, date put to use including adjustments on account of CENVAT claimed, change in rate of currency and subsidy or grant or reimbursement, are stated as per schedule 8 of annexed financial statements and as per Addition Details (From Point No. 18) to this form 3CD.
ICDS VII-Governments Grants:
If no Grant received:
1. Since Assessee has not received any government grant during the previous year, no disclosure required under this ICDS
If Grant received:
1. The nature and extent of Govternment Grants recognized during the previous year by way of deduction from the actual cost of the asset or assets or from the written down value of block of assets during the previous year is as under:
2. Nature and extent of Government Grants recognized during the previous year as income is as under:
3. Nature & extent of Government Grants not recognized during the previous year by way of deduction from the actual cost of the assets or assets or from the written down value of block of assets and the reason thereof is as under;
4. Nature and extent of Government Grants not recognized as income and reason thereof is as under:
ICDS VIII – Securities:
This ICDS deals with securities held as stock-in-trade. Securities held as stock in trade is correctly valued as per the requirements of this ICDS
ICDS IX Borrowing Costs
(a) Accounting policy followed by the Assessee for treatment of borrowing costs is incorporated in the notes on accounts attached with the financial statements.
(b) Assessee is not carrying any inventory that require a period of 12 months or more to bring them to a saleable condition hence no borrowing costs has been accounted for in the costs of such inventory.
(c) Assessee is not required to capitalize any borrowing costs during the previous year.
The assessee has capitalized amount of Rs.______________ as borrowing cost during the year.
ICDS X – Provisions, Contingent Liabilities and Contingent Assets
There is no Contingent Liabilities which has been recognized & required disclosure as per para 21(1) of ICDS-X.
The provisions for contingent liability towards _________________ for Rs. ________ is done during the year.
The provision for continent liabilities is incorporated in the Notes on accounts attached with the financial statements.