Expert Advisory Committee

1.3 Query:

Issues relating to audit and accounts of a Provident Fund Trust.

1.A company does not come under the purview of the provisions of Provident Fund Act. However, the company has voluntarily started, for the benefit of its employees, Provident Fund Scheme through creation of the Provident Fund Trust which is recognised by the Commissioner of Income-tax (CIT).

2. The recognition issued by the CIT requires the company to file the audited accounts with him every year.

3.The querist has referred the following issues for the opinion of the Expert Advisory Committee:

(i) What will be the prescribed, suggested or appropriate format for the accounts and audit report?

(ii) Whether the auditors are required to certify:

(a) the accuracy of extracted final accounts, and/or

(b) compliance with the accounting principles, and/or

(iii) What is the extent to which the auditor will be responsible/liable for non-compliance, if any, of the provisions of the Provident Fund and Income-tax Law?

(iv) As the Trust does not legally come under the purview of the Provident Fund Act, whether it is obligatory for it to comply with all the applicable provisions of the Act?

(v) Is there any guide/statement issued by the Institute in this regard?

Opinion June 14, 1991

1.The Committee notes that Part A of the Fourth Schedule to the Income-tax Act, 1961, contains rules regarding recognised provident fund. The Committee notes rule 3 and rule 12 of Part A of the aforesaid schedule which are reproduced below:

“According and withdrawal of recognition

3(1) The Chief Commissioner or Commissioner may accord recognition to any provident fund which, in his opinion, satisfies the conditions prescribed in rule 4 and the rules made by the Board in this behalf, and may, at any time, withdraw such recognition if, in his opinion, the provident fund contravenes any of these conditions…….

Accounts of recognised provident funds

12(1) The accounts of recognised provident fund shall be maintained by the trustees of the fund and shall be in such form and for such periods, and shall contain such particulars, as the Board may prescribe.

(2) The accounts shall be open to inspection at all reasonable times by income tax authorities, and the trustees shall furnish to the Assessing Officer such abstracts thereof as the Board may prescribe.”

2. The Committee also notes that Part XII of the Income-tax Rules, 1962 also contains rules relating to recognised provident funds. Rule 74 of the aforesaid rules deals with accounts of a provident fund and accounts of employees participating in a provident fund and Rule 67 of the aforesaid rules lays down provisions relating to investment of fund moneys.

3.The Committee notes that the Central Board of Direct Taxes has not prescribed any format for annual accounts an auditors’ report in case of a provident fund trust. No such format is prescribed in the Income-tax Act, 1961 and Income-tax Rules, 1962.

4.The Committee notes that since no format for accounts and audit report has been prescribed, the annual accounts should be drawn up in accordance with the generally accepted accounting principles. The annual accounts should give an adequate and fair disclosure. The balance sheet should disclose assets and liabilities and the income and expenditure account should enumerate various items of income and expenditure. By way of an illustration, a format of the accounts is enclosed in the Annexure. The annual accounts should be drawn keeping in view the –

a) Trust deed.

b) Rules of the fund.

c) Conditions imposed by Commissioner.

d) Fourth Schedule to the Income-tax Act, 1961.

e) Part XII of the Income-tax Rule, 1962.

f) Instructions issued by the Board from time to time.

5. In the auditors’ report, the following aspects should be dealt with:

(a) Averment as to obtaining the information and explanation required.

(b) Report on the proper maintenance of books of account and records.

(d) Report on the truth and fairness of the balance sheet and the income and expenditure account.

(e) Non-compliance with any conditions laid down in the Trust deed, rules of the fund, conditions imposed by Commissioner of Income-tax, instructions issued by CBDT, Fourth Schedule to the Income-tax Act, 1961 and Part XII of the Income-tax Rules, 1962.

(f) Non-compliance with generally accepted accounting principles.

6.The Committee is of the following opinion in respect of the issues raised in para 3 of the query:

(a) The accounts may be drawn as suggested in para 4 above. The audit report should be as suggested in para 5 above.

(b) Please refer to para 5 above.

(d) It may not be obligatory for the trust to comply with the provisions of the Provident Fund Act if it does not come under its purview. However, it is advisable to follow the provisions of Provident Fund Act.

(e) The Institute has not yet issued any guide/statement on this subject.

ANNEXURE

Balance Sheet ‘X’ Provident Fund Trust as at 31^st March, 19-

Previous year	Liabilities	Current year	Previous Year	Assets	Current Year
	Employees Contribution A/c			Investments (At Cost)
	Balance as per last Balance Sheet			A. Quoted Investments*
	Add: Contributions during the year			B. Unquoted Investments*
	Add: Interest credited during the year			Cash & Bank Balances***
	Less: Payments made during the year
	Less: Non-refundable loan
	Employers Contribution A/c.
	Balance as per last Balance Sheet
	Add: Contribution during the year
	Add: Interest credited during the year
	Less: Payments during the year
	Less: Amount forfeited transferred to Lapses Forfeiture A/c.
	Less: Non-refundable loan
	Lapses & Forfeiture A/c
	Balance as per last Balance Sheet
	Add: Amount transferred from Employers Contribution A/c.
	Less: Transferred to Income/Exp. A/c
	Income & Expenditure A/c.
	Balance as per last Balance Sheet
	Add: Excess of income over expenditure during the year
_______		______		_____________	______
_______		______		_____________	______

‘X’ PROVIDENT FUND TRUST Income and Expenditure Account for the Year ended 31^st March, 19_

Previous Year	Expenditure	Current Year	Previous Year	Income	Current Year
	To Interest credited to: -			By Interest
	Employees Contribution A/c			On Government Securities (Gross)
	Employers Contribution A/c			On Post Office deposits
	To interest paid on purchase of G.P. Notes			On Bank Account
	To net loss on maturity of investments			On Special deposit scheme
	To excess of income over			By Lapses and
	expenditure carried down			Forfeiture A/c
______		_____		______________	_____
______		_____		______________	_____
	To balance			By excess of income over
	carried forward			expenditure brought down
				By balance brought forward from last year
______		_____		_______________	_____
______		_____		_______________	_____

_____________________

*Give details of investments held

**Give details of bank balance