'Many top cos fail to make adequate PF provisions'

NEW DELHI: Many Indian companies have not made adequate provisions for employee provident fund (EPF) and pension fund, a survey conducted by consulting firm Mercer reveals.

The survey showed that 88% of top Indian companies have not made the required provisions for defined benefit PF scheme, which is mandatory according to ICAI accounting standards.

In simple terms, a defined benefit scheme is where employee benefits are based on a formula using factors such as salary history and duration of employment. Companies either set up their own trust, which manages the money deposited from employees��� PF, or parks it with the employees provident fund organisation (EPFO), the body which controls and regulates all PF trusts in the country.

The money deposited with the trust earns interest over a period of time and has to confirm to returns prescribed by EPFO. If the trust earns lower returns, then, the company has to cover the gap and make a provision in its accounts for such a liability.

The Mercer survey, which studied 34 top Indian companies spread across sectors such as automobiles, banking, energy and power, engineering and manufacturing, FMCG, IT, petrochemical, pharma and telecom, shows only 12% of the companies have made adequate provisions for provident fund in their accounts.

Moreover, 40% of the companies, which did not make provisions, indicated that it is practically not possible to measure the liability associated with such schemes.

���Non-disclosure of liabilities arising out of employee benefits or not creating adequate provisions can have serious implications, especially in case of shrinking profits or collapse of businesses,��� said Mercer India business leader for retirement, risk and finance management Gautam Kakar.

ICAI prescribes accounting standards and guidelines for treatment of employee retirement benefits under AS-15. The Mercer survey looked into practices followed by top Indian companies in providing these benefits and their compliance to the accounting standards which were revised in 2005.