28 October 2017
One Case Study One Corporate assesse is having legal litigation with his debtor in which high court has given order in favour of debtor ordering compensation of 5 lakhs plus interest. Corporate Assesse has filled simultaneous claim with MSME in same matter. Debtor in whose favour high court has given decision has informed auditor of Corporate Assesse to make provision in books to tune 5 lakhs plus interest. Corporate Assesse is not willing to make such provision in its book as on 31 March 2017. What shall be responsibility and risk of auditor as per IT Act and Companies Act if such provision is not by Corporate Assesse and also to what extent AS 29 shall apply?
28 October 2017
In above case, the judgement is against the company and there is a possibility of liability to be settled. In such a case there is a present obligation as a result of past event and that there is probable outflow of resources is also satisfied due to judgement given by court. The Auditor should consult with Corporate Lawyer if available or to obtain the satisfactory explanation for why not provision to be created from expert. Filing of appeal or disputing the earlier judgement alone will not be a sufficient reason for not providing a provision unless the certainty of judgement is favorable to the company substantiated by legal counsel or expert. If company is not in a position to create a provision, the Auditor should qualify his report.
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