Funding topic 10 of 12

Accounting and audit trail

The books must reflect rights and obligations, not the preferred tax outcome.

Choose the applicable framework

First establish whether AS or Ind AS applies. AS 12 addresses government grants; do not automatically apply it to every private or CSR-funded grant. For private support, document an appropriate policy under the applicable framework and contractual substance. Grant source, refund conditions, performance obligations and ownership matter.

Recognition and presentation

For government grants within AS 12, recognition requires reasonable assurance regarding conditions and receipt; asset grants may use permitted cost-deduction or deferred-income treatment. Capital-reserve treatment is confined to qualifying circumstances. Conditional refundable advances may initially be liabilities, but not every restricted receipt stays a liability indefinitely. Reassess at reporting dates.

Keep a project subledger

Track sanctioned amount, receipts, receivables if recognised, expenditure, assets, income recognition, advances, unpaid bills, interest and refund exposure. Reconcile the project ledger to the general ledger and bank. A dedicated bank balance is not necessarily the same as unspent eligible funds because advances and payables differ.

Audit and tax reconciliation

Keep approvals, agreements, vendor evidence, invoices, delivery, bank trail and beneficiary records. Provide the accounting-policy memo and a separate tax-treatment memo to the statutory auditor. Include grant controls in internal audit under section 378ZF and the Articles. An auditor’s report does not retroactively authorise an ineligible expenditure.

Practical questions

Official references

• ICAI: Accounting Standards
• ICAI: AS 12, Accounting for Government Grants
• Companies Act, 2013: Chapter XXIA, section 135 and Schedule VII
• Income Tax Department: Income-tax Act, 2025, amended by Finance Act, 2026