Accounts-provision for wage revision

In a public sector company, the wage revision is due from 01-09-2011. As at 31st March 2012, the Management has almost concluded the wage settlement with the Trade unions representing the employees and a consensus on the percentage of revision of wages from 01-09-2011 has been arrived at. After this, the Agreement is to be entered into between the Management and the Trade Unions in the presence of the Labour Commissioner and there after approval by the Board and is to be placed before the Government for final approval, after which this is to be implemented.

In the Accounts for the year 2011-12, theCompany following the conservative principles of accounting and as per the applicable accounting standards, has provided the arrear amount in the Accounts, also based on the views of the statutory auditors. Also, no separate disclosure has been made in the Accounts regarding this, being of routine nature.

Similarly DA has been revised by the Central Government with effect from 01-01-2012, whereas the implementation has not been done as the related approval by the Board and Government Orders have not been issued as at 31-03-2012. In this case also the arrears have been provided, as per para 2 above.

The AG Auditors on their supplementary audit u/s 619(4)have taken a view that these amounts need not be provided as there is no contractual or legal obligation as on 31-03-2012 and as there is no approval by the Board or the Government as on 31-03-2012.

Request for an Expert view for placing before the C&AG.

It does not appear that theres any contractual liability as on 31-03-12 but the fact that management has almost concluded the wage settlement with the Trade unions representing the employees and a consensus on the percentage of revision of wages from 01-09-2011 needs to be taken into consideration. There are indications as on balance sheet date and its highly probable that there will be change in wage rate. Means this can very well be an adjusting event.

But to recognize it in accounts, proper estimates are required and since it s.b.t govt. approval that is it may or may not approve or maybe modify it w.r.t rates or any other aspect(if), its not possible to make proper estimate ,except in the case where there is virtual certainity of govt. approving it w/o modification Therefore it can be said that no liability has crystalized as on balance sheet date.

In my opinion Contingent Liability should be created and amount should not be recognized in the books of account.

If management believes that its virtually certain/ more likely than not that government will approve it but there might be some modifications then PROVISION can be made on the basis of managements estimates and with a note.

If lateron it is approved by the government and the order are issued then the liability has crystalized and books need to be adjusted.

Supplemantary audit is being conducted means that audit has not concluded yet. It will be deemed to be completed only when its completed by CAG even if statutory auditors have submitted their report and if any adjustment is required then books of accounts can be reopened there should not be any problem if any adjustment is required then we can make it

Books of accounts can be re-opened after the issuance of report and even after filing of report if any adjustment is required for complaince under any law

I'd like to know what other opines