1.23  Query:  

Write-off of debts in respect of which suits have been filed.

1. A corporation wrote-off an aggregate amount of Rs. 505.02 lacs on account of loans and advances not recoverable while finalising the accounts for the year 1990-91. The above amount includes an amount of Rs.52.62 lacs in respect of which suits have been filed. In the opinion of the CAG, the fact that suits have been filed should have been disclosed by way of a note. The observations made by the CAG in this regard are reproduced hereunder:

                        “Irrecoverable amount written-off Rs. 505.02 lacs.

The above includes Rs. 52.62 lacs being the amounts written-off although suits have been filed. The fact should have been disclosed by way of a note.”

2. The querist is of the view that such a note is not necessary as filing of suits is one of the measures taken for recovery of the dues. Such measures are taken by all financial institutions as a matter of course. The reply given to the CAG, by the corporation is as follows:

“Filing of suits is only one of the measures for making an effort to recover dues. We do not consider it necessary to specially disclose this or any other measures taken for recovery of dues in respect of amounts written-off as irrecoverable as such measures are taken by all financial institutions as a matter of course.”

3. The querist has sought the opinion of the Expert Advisory Committee whether separate note in respect of suit-filed cases out of the amount written-off as irrecoverable is necessary for ‘true and fair’ disclosure in the accounts?

                                                           Opinion                                 October 7, 1992

1. The Committee is of the view that the disclosure of a particular information in the financial statements of an entity will depend on, besides other things, the relevance of the information concerned. “Information has the quality of relevance when it influences the economic decisions of users…” [International Accounting Standards Committee, Framework for the Preparation and Presentation of Financial Statements (para 26)]. Thus, the non-disclosure of such information may affect the true and fair view of the financial statements if the information is relevant to the users of such financial statements for the purpose of decision making.

2. The Committee is of the view that disclosure of the suit-filed loans, which have been written-off, would be relevant if there is a reasonable probability of recovery thereof, as only then it could influence the users’ decision making as far as this item is concerned. However, if there had been such a probability, the loans would not have been written-off in the first place.

3. The Committee is, therefore, of the opinion that non-disclosure of suit-filed loans which have been properly written-off is not likely to affect the true and fair view of the financial statements in the facts and circumstances of the case.

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