SAIL has agreed to rectify the amount in the current fiscal. In 1997-98, it posted a net profit of Rs 148.59 crore and the figure will not be changed. In 1996-97, SAIL made an adjustment of Rs 13.82 crore following CAG's comments.

The auditors have differed on SAIL's definition of capitalisation and provision for leave encashment. The CAG and statutory auditors said the company should have provided for wage revision and voluntary retirement scheme. They have also reported certain changes in computation of depreciation rates and export incentives.

SAIL maintained that it had taken "justified management decisions" and had made full disclosure in its accounts on the changes in accounting treatment. These changes arebacked by sufficient precedents, practices by other companies as well as accounting and management rationale.

The auditors have also commented on the delayed capitalisation/ non-capitalisation of some modernised units at Durgapur and Rourkela steel plants. The release quoted SAIL finance director V S Jain: "In a continuous process industry like steel, harmonisation of various production facilities, that is availability of desired quality input in required quantities between the various production processes, is a requisite for the attainment of production in commercially feasible quantities and in a commercially practicable manner.

It is a well established accounting principle that an asset is capitalised when it is ready for commercial production. Earlier, SAIL followed an arbitrary trial run period of six months even if the equipment was not fully functional and required to be rectified. The expenditure beyond six months was not capitalised but deferred. This was not as per recognised accountingpractices.

During this year, the treatment has been reviewed and corrected based on independent expert opinions obtained from financial experts. According to the press release, SAIL did not make any provision for wage revision since the issue is under negotiation.

"At the time of finalisation of account and even now, the negotiations are on with employee representatives. The quantum of benefit, modalities and manner of payment, linkage with production and productivity parametres are yet to be discussed and finalised. Keeping in view all these factors, it was considered advisable not to quantify the impact of wage revision. However, adequate disclosure note has been made to this effect," Jain said.

The VRS introduced with effect from March 1, 1998 provided for payment on a monthly basis. Consequently, according to the company's accounting policy, the monthly payments to employees are to be accounted for as and when required, he added.

Regarding non-provision for leave encashment, Jain pointed out in alarge labour intensive company employing nearly 1.8 lakh people it is difficult to provide for full leave liability towards past accumulated leave up to 240 days. Banks are accounting these expenditures on payment basis. However, leave liability has been provided for the leave encashment allowed during the year.

Regarding the auditors' observations for taking benefit of export incentives on accrual basis, Jain said that since export incentives are available based on exports during the year, the benefits earned during the year have been correctly recognised in the accounts.

The auditors stated that the company had not made any provision for outstanding dues from Indian Iron & Steel Company which is under the Board for Industrial & Financial Reconstruction. According to Jain, SAIL provided equity and loan advances to Iisco for more than two decades. The revival package is being considered by the Union government and the accounting treatment is in line with the company's accounting policies.

Jain statedthat on certain assets like earth moving equipment, motor car, bus and furniture, SAIL was following depreciation rates different from those prescribed in Schedule XIV of the Companies Act 1956. Thus it was at a disadvantage compared with other companies in the same sector and has decided to follow the prescribed rates.