DCA to monitor accounting standards for dotcom firms

Our Corporate Bureau

New Delhi, Aug 14: Union minister for law, justice and company affairs Arun Jaitley has stated that the Department of Company Affairs (DCA) will monitor the accounting standards for dotcom companies as laid down by the Institute of Chartered Accountants for India (ICAI).

The minister also stated that the Securities and Exchange Board of India (Sebi) has made it mandatory for all listed companies to adhere to the guidance note on accounting by dotcom companies issued by the ICAI.

He was replying to a question in the Parliament. The guidance note on accounting by dotcom companies submitted to the DCA contains standard accounting treatment, dealing with various significant aspects such as measurement and recognition of revenue and expenses. The stipulation prescribed for dotcom companies includes entities engaged in e-commerce.

The regulation recognises membership and subscription, merchandising activities, advertising and other services like web hosting and content selling as the main source of revenue for dotcom companies.

Dotcom companies hosting auction sites earn auction revenues from listing fees and transaction fees and should be considered as sources of revenue.

A dotcom company receives listing fees from a seller for a listing to be maintained over a period of time whereas transaction fees is claimed for facilitating transactions and generally constitute a per cent of the revenue earned by the seller from online sale.

For dotcom companies bundling services, the accounting standards require unbundling. Simply put, if a dotcom company hosts another company’s website and also provides web maintenance service, then revenue accruals should not be shown as composite service.

The guideline requires different elements of a multiple business profile to be disclosed in the financial statement of the company.