Provision for gratuity

1].  A company is required to assess it’s provision of gratuity each year on the basis of the employees strength & make the provision accordingly.  So in this case the Company Auditor will have to qualify his Auditor’s Report by stating that ‘No Provision has been made in the accounts for gratuity for the year under consideration.  Also the co has not mentioned the facts in its Notes to Accounts

2]. In this case the co is mentioning the fact about the non-provison of gratuity in its accounts.  Hence the auditor will have to interact with the management that why the provision is not being made in the accounts & should analyse the base for this fact.  If the auditor is satisfied with the managements explanation then he may not qualify his report else he may qualify the report.

3].  If the co is following the ‘Pay as you Go’ method as per AS15 Employee Retirement benefits then the auditor has to verify if the procedure as laid down in the said AS is correctly followed.  Else he may qualify his Audit Report.

agreed with giridhar ji...

I am not able to agree with Mr Giridhar .

As per As-15,read with Sec 209 of Companies Act,1956,you ahve to follow accrual method of accounting.

So in all the cases it is a departure from Statute,hence should come in CARO.

kkm

Hello everyone,

We are Private Limited Company and did not make any provision for Gratuity and consequently, Auditors have qualified in their report mentioning "No Provision has been made in the accounts for gratuity for the year under consideration"

Please guide me how to reply to Auditors qualification in Directors' Report ?

Kindly reply soon.

Kind Regards

Gaurav Mishra

09963647609

My question is how to make this provision i books:

as per my view I calculated actual liability of Gratuity as on 31st March & make provision for that is this correct or any other methods for that calculations??? 

Accrual method of provision envisages that the company should get the gratuity liability be valued by an approved valuer for considering for provision in accounts.

kkm

Gratuity liability should be valued as per actuarial method using Projected Unit Cost method as prescribed under Revised AS 15. No cash method/ non provision of gratuity should be permitted if gratuity is applicable to the company based on No. of employees working.