Consequences for Non Provision for Taxation

Spectator · 07-28-2009, 08:03 PM

A listed company failed to provide for taxation for Rs. 2 million and declared dividend, after which it has un-appropriated reserve is left only Rs. 1.3 million. My question is that if in future the company creates liablity for provision for taxation then its un-appropriated profit will be converted into a loss figure. What will be the consequences for this ?

I m new to this forum & hoping good responses.
Thnx in advance.

faisal_desperado · 07-28-2009, 09:16 PM

Dear,

This is seems to be a controversial query as to why company has failed to do so?
However, if company has failed to have adequate provision with regards to the taxation under the said section, then it would create a qualification in the Audit Report*.
The said decision must have been taken by the Board Of Directors, accordingly, they shall be required to disclose the facts in the directors' report as to why provision has not been made.
However, if the matter is being disputed due to a valid reason, and a stay order has been obtained from the coart then the liablity should be disclosed as a contingent liablity.

* If the amount of liablity is significant and a valid reason has been provided by the Directors to satisfy the Auditor, then an emphasis with regards to the said matter be included in the Audit Report without qualifying the opinion.

In case of any ambiguity, queries may be raised

Best Regards,

Spectator · 07-29-2009, 04:03 PM

I appreciate your reply Mr. Faisal .
Thank you for such a nice explanation.

Yasir