The Hindu Business Line : ICAI plans rider on accounting of adjustment of losses against reserves

THE Institute of Chartered Accountants of India (ICAI) plans to stipulate that expenses charged to securities premium account or losses adjusted against general reserves of a company should be net of tax benefits from such transactions.

This accounting treatment will give a fair picture of the financial statement of a company for the period in which such an adjustment is made, says an informed ICAI official.

Simply put, a company cannot adjust expenses or losses against its reserves while at the same time take the tax effect of such expenses/losses to the profit and loss account.

The ICAI contends that the main problem with such a practice is that it inflates the book profits of the company as the tax provision made in the books of account are artificially lowered.

Informed sources said the ICAI central council had deliberated on this issue at its recent meeting, and an announcement on this issue is expected shortly. After the announcement is made, the ICAI members will be required to qualify any accounts that are not in conformity with the announcement.

It was pointed out that companies often write off certain expenses against securities premium account. The tax benefits of such expenses/adjustment are, however, carried to the profit and loss account, which is not acceptable to the ICAI.

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