Provision for doubtful debts

Here, it will be at the discretion of the management to provide for bad debt looking into the merits of the case. As per AS-4 and AS-1.

However, normally what companies do is, if the amount is significant, they disclose in the directors' report the fact that the arbitration proceedings are going on. They normally don't provide for bad debts. Because if they provide, normally it will only weaken their case in the recovery proceedings as it may be taken as deemed acceptance of the debtor's arguement that he doesn't owes any money to the company. So normally, they dont calim the loss in the books.

Thank you very much Mr. Parth.....

As an Auditor, will there be any responsibility regarding the disclosure as it impacts the profit of the company.....

There is no prescribed standard to deal with this matter, It will depend uopn judement of Auditor depending uopn Status of the case in the court. Auditor will have to communicate with the advocate of the co. and take their openion into consideration. However, auditor has responsible to use his judgement & expertise before making any provision. Auditor, has to state this fact in notes to accounts. Further, Materiality will also govern this and no provision could be made if amount is not so material

My dear friends, Loss will be provided as per AS 29 and not as per AS 4.

Regards, CA Shakuntala Chhangani

Yes, i would agree with shakuntala it should be under AS 29

you can refer AS 29 here

/forum/as-29-provisions-contingent-liabilities-and-contingent-asse-87521.asp

No adjustment to the carring amount of the assets is accounted for as per the AS 4 only and not as per AS 29

All AS at one place

Dear Hemal, as asked by Dharmaraju, the matter is already under arbitation. It is a present condition the outcome of which is not known.  if the loss is probable then a provision is required to be made as per AS 29.

Regards, CA Shakuntala Chhangani

But m'am AS 29 defines a provison as a liability, while in the given case, it is not a liability. And also the standard specifically says that adjustments to carrying amount of assets are not addressed in this AS. So, will AS 29 apply??I think AS4 is the relevant AS. Please clarify me...

Dear Shakuntalaji

Plz explain the difference for the provision as per AS 4 and AS 29. As per my knowledge there is no difference in the definition of the provision in both. However AS 4 deals with the provisions for the carring amount of the assets while for any other AS 29 is applied.

AS 29 defines provision as a "liability which can be measured only by using substantial degree of estimation." Conceptual framework for preparation of financial statements also defines provision as above.

Liability is defined as "Present obligation arising out of past events the settlement of which is expected to result in an outflow of resources embodying economic benefit....

this is what  AS 29 says..

My dear friends,after introduction of AS 29, the provisions of AS 4 to the extent it dealt with treatment of "contingencies" stood withdrawn w.e.f. 1.4.2004. The same is to be dealt with as per AS 29 "provisions, contingent liabilities and contingent assets".

It clearly means that AS 4 now covers only events occuring after the Balance Sheet date. Here, if any event occurs after the balance sheet date (i.e. arbitrator's decision) relating to a situation existed on balance sheet date (i.e. debtor), it will be called as an adjusting event. 

However, in the given situation, arbitrator's decision is pending. So there is no adjusting event and it will, therefore, not be covered under AS 4. Further, there is a contingency about decision. If the loss is PROBABLE then only provision is required to be made under AS 29. If it is reasonably possible then just a disclosure is required to be made. In case it is remote, just ignore it.

As somebody replied that the loss will be provided for under AS 4, I simply made the correction that it will be provided for under AS 29 as there is nothing giving rise to ADJUSTING event.

If u hv any further doubt, revert back to me. I will put my VIEWPOINT in that regard.

Regards, CA Shakuntala Chhangani

But if provision is required for any item of assets then is it is to be dealt with AS 4.