Accounting Treatment of Administrative and Establishment Expenses in Infrastructure Development Projects

This document provides an in-depth analysis of the Expert Advisory Committee’s (EAC) opinion on the controversial reclassification of administrative and establishment expenses. Initially recorded as revenue expenditures in the Income and Expenditure Account over several years, these costs were retrospectively transferred to Capital Work in Progress (CWIP) as part of a single infrastructure project.

The retrospective adjustment raised significant concerns, particularly from the Comptroller and Auditor General (C&AG), who argued that these expenses were general administrative overheads not directly attributable to construction activities. This adjustment led to an overstatement of CWIP, distortion of comparative financial figures, and non-compliance with Accounting Standard 10 (AS 10).

The document also explores the implications of treating this reclassification as a prior period error under AS 5, emphasizing the need for proper financial statement adjustments to maintain transparency and accuracy in reporting.

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