NFRA Observation w.r.t Unbilled Revenue in Financial Reporting Quality Review Report

National Financial Reporting Authority (NFRA) raised a few observations in the Financial Reporting Quality Review Report of ISGEC Heavy Engineering Limited vide Report No NF- 20011/12/2021 dt. 20.07.2022 containing instances of non-compliances or errors in Ind AS financial statements, wherein, one such observation relates to non-provisioning of impairment loss allowance by the company against the outstanding amount of unbilled revenue.

The contracts where the aggregate of contract cost incurred to date plus recognised profits (or minus recognised losses as the case may be) exceeds the progress billing, the surplus is shown as contract asset and is termed here as “Unbilled revenue”.

In accordance with Ind AS 109, Financial Instruments, an entity shall assess a contract asset for impairment. An impairment of a contract asset is measured, presented and disclosed on the same basis as a financial asset that is within the scope of Ind AS 109.

But, NFRA observed that the company lacked clarity on the provision of expected credit loss on unbilled revenue as the replies provided by the company made it clear that the company has not recognised expected credit loss (ECL) as required by Ind AS 109.

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