Provisions, Contingent Liabilities and Contingent Assets Accounting Policy disclosed by Bajaj Finance Limited

Ind AS 1 was amended with effect from 1 April 2023 to replace the requirement to disclose significant accounting policy with disclosure of material accounting policy information. The amendment also provided the principles for assessing whether an accounting policy is material accounting policy. This post compares the accounting policy on Provisions, Contingent Liabilities and Contingent Assets disclosed by Bajaj Finance Limited in the financial statements before and after the amendment.

Provisions, Contingent Liabilities and Contingent Assets Accounting Policy disclosed in Financial Statements for the year ended 31 March 2023:
The Company creates a provision when there is present obligation as a result of a past event that probably requires an outflow of resources and a reliable estimate can be made of the amount of the obligation.

A disclosure for a contingent liability is made when there is a possible obligation or a present obligation that may, but probably will not, require an outflow of resources. The Company also discloses present obligations for which a reliable estimate cannot be made as a contingent liability. When there is a possible obligation or a present obligation in respect of which the likelihood of outflow of resources is remote, no provision or disclosure is made.

Analysis for Material Accounting Policy Information:
Primary condition – Accounting policy relates to material transaction, other event or condition:
The company has recognised provisions for only employee benefits. The company has disclosed contingent liabilities in notes. Therefore, the primary condition is met for contingent liabilities.

Secondary conditions – Any one of these need to be met:
1. The company changed its accounting policy during the reporting period and this change resulted in a material change to the information in the financial statements – No. The company cannot change its accounting policy on provisions, contingent liabilities and contingent assets as there has been no amendment to Ind AS 37 in this regard.
2. The company chose the accounting policy from one or more options permitted by Ind AS – No. Ind AS 37 does not provide accounting policy choice.
3. Accounting policy was developed in accordance with Ind AS 8, Accounting Policies, Changes in Accounting Estimates and Errors – No. Ind AS 37 specifically applies to Provisions, Contingent Liabilities and Contingent Assets. Therefore, in accordance with paragraph 7 of Ind AS 8, the company shall apply the requirements of Ind AS 37.
4. The accounting policy relates to an area for which an entity is required to make significant judgements or assumptions in applying an accounting policy, and the company discloses those judgements or assumptions in accordance with paragraph 122 and 125 of Ind AS 1. – Yes. The company has disclosed provisions and contingent liabilities in its note on critical accounting estimates and judgements.
5. The accounting is complex such that the company applies more than one Ind AS to a class of material transactions – No. Provisions, contingent liabilities and contingent assets requires application of only Ind AS 37.
6. The disclosure of accounting policy is required by a standard. – No. Ind AS 37 does not require disclosure of accounting policy on provisions, contingent liabilities and contingent assets

Conclusion:
As both the primary and secondary condition is met, the company shall disclose the policy on provisions, contingent liabilities and contingent assets in its material accounting policy information. However, the policy only duplicates standardised information. Therefore, it is recommended that the company does not disclose the policy if only such duplicated information is to be given.

Comments on Accounting Policy disclosure in Financial Statements for the year ended 31 March 2025:
The company has continued disclosure of the accounting policy on provisions, contingent liabilities and contingent assets as it was disclosed previously. The company has scope to remove standardised information from the accounting policy and make it company specific.