Classification of Restricted Funds Collected on Behalf of the Client Under Financial Statements

A project management consultancy company executes several projects on a “Deposit Work” basis on behalf of clients with the help of contractors. The client deposits upfront money with the company, and the company in turn deposits the same in a designated bank account. The company uses the amount which is kept in a designated bank account to make payment to the contractors. However, the clients’ funds are not freely available for normal business activities of the company.

To make users of the financial statements understand that the Company is keeping funds on behalf of clients, the accountant of the company uses the suffix ‘client fund’ while representing ‘cash and cash equivalents’ in the financial statements.

However, the auditor of the company has a different view regarding the disclosure of “cash and cash equivalents – client funds”. As per the auditor, fund related to the client’s money for various projects which are earmarked for respective projects has been incorrectly shown under the “cash and cash equivalents- client fund” instead of “other bank balances –client fund” as per Ind AS 7.

To resolve this conflict, the management of the company has approached the Expert Advisory Committee (EAC) for its opinion. To know the opinion of the Committee.

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