1. Disciplinary Cases.
The Disciplinary Committee (DC) of ICAI has decided the following cases and held the concerned members as guilty of professional misconduct. These cases are reported in the publication of ICAI “Disciplinary Cases” which has been published for the information of Members only. The names of the Members are not given in order to maintain Confidentiality.
(i) Case of Mr. A.C.
In this case, the Firm of Mr. ‘A.C’ audited the accounts of ST Pvt. .Ltd. It was reported by R.B.I. that the Company carried on the business of NBFC without obtaining NBFC registration from RBI. This contravention of NBFC Regulations was not reported by the auditors. On inquiry, the D.C. found the member guilty of professional misconduct under clause (7) of Part I of Second Schedule to C.A. Act. In its order dated 12-09-2011, the Disciplinary Committee has Reprimanded the member
(ii) Case of Mr. M.J.
In this case the member was statutory auditor of a Nationalised Bank. He also conducted the Revenue Audit of the same Bank. When this fact was brought to the notice of ICAI, inquiry was made by the D.C. After a detailed enquiry, the D.C. held that the member was guilty of professional misconduct under clause (4) of Part I and clause (3) of Part II of the second schedule to the C.A. Act. After considering the facts of the case and submissions of the member the D.C. decided on 12-09-2011 to issue a “letter of caution” to the member advising him to be more careful in future in complying with Code of Ethics of the Institute.
(iii) Case of Mr. M.K.
In this case the member was a partner of C.A. firm ANA. He had ceased to be a partner w.e.f. 01-07- 2007. But, he continued to sign several official documents of the C.A. firm after his resignation from the firm. He also conducted statutory audit of one of the clients of the C.A. firm after his resignation and collected Audit Fees from the client in his personal name. On complaint by a partner of the C.A. firm, the D.C. after inquiry, held the member guilty of professional misconduct under clause (2) of Part IV of first Schedule to C.A. Act. By its order dated 12- 09-2011, considering the facts and submissions, the D.C. has “Reprimanded” the member.
2. Some Ethical Issues
The Ethical Standards Board of ICAI has given answers to some Ethical Issues as under, on pages 858 – 860 of C.A. Journal of December, 2013.
(i) Issue No. 1:
Whether the office of a Chartered Accountant is permitted to go in for ISO 9001-2000 certification or other similar certifications?
There is no bar for a member to go in for ISO 9001- 2000 certification or other similar certifications. However, the member cannot use the expression like “ISO Certified” on his professional documents, visiting cards, letter-heads or sign boards etc.
(ii) Issue No. 2:
Whether communication with previous auditor is necessary in case of appointment as statutory auditor by nationalised and other Banks?
Clause (8) of Part I of the First Schedule to the CA Act is equally applicable in case of nationalised and other Banks and also to Government agencies.
(iii) Issue No. 3:
Whether communication by the incoming auditor is mandatory with the previous auditor in respect of various audit assignments, like the concurrent audit, revenue audit, tax audit and special audits etc?
The requirement for communicating with the previous auditor would apply to all types of audits viz. statutory audit, tax audit, internal audit, concurrent audit or any other kind of audit. The Council has laid down detailed guidelines in this regard and the same are appearing in the Code of Ethics, 2009 edition.
3. EAC Opinion:
Recognition of Free of Cost Equipment Provided by a Contractee to the Contractor.
Facts:
A company is a defence public sector undertaking under the Ministry of Defence and is engaged in the construction of Warships and Submarines. For a particular class of ship construction, the company entered into an agreement with the buyer for the construction and delivery of 3 ships. The company has agreed for construction of 3 ships on ‘Fixed Price’ basis with variable component in respect to certain items.
The buyer intimated to the company that certain equipments, out of variable cost items, will be supplied by him at ‘free of cost’ for installation on board of ship. There are certain equipments for which orders are directly placed and also paid by the buyer. These equipments are known as “Buyer Furnished Equipment” (BFE) and are delivered to the company ‘free of cost’ for installing in the ship. The labour cost of installation is included in the fixed price component of the contract.
Query:
From the above, the company has sought the opinion of the EAC on the following issues: (i) Whether the Buyer Furnished Equipment’s (BFE’s) cost can be considered as inventory (simultaneously creating liability to the buyer) and then on issue to ship can be taken in WIP, so that accretion to WIP will be recognised as revenue (ii) Whether BFE’s value can be considered as a part of sale value in the year of delivery.
Opinion:
The Committee has noted before any item can be recognised as an inventory, it should meet the definition of ‘asset’ as given in paragraph 49 of the Framework for the Preparation and Presentation of Financial Statements issued by ICAI i. e. “An asset is a resource controlled by the enterprise as a result of past events from which future economic benefit are expected to flow to the enterprise”.
The Committee has also noted from the Facts of the Case that orders in respect of BFEs are directly placed by the buyer and also payment in respect of them is made by the buyer. These are then supplied to the company for installing in the ship and the buyer pays installation charges which are included in the contract price. Thus, the company has neither incurred any cost on BFEs nor any amount is recoverable on account of such equipment except installation charges. Accordingly, the EAC is of the view that such equipments are not ‘assets’, that may be a considered as a part of its contract workin- progress. In fact, after installation in the ship, BFEs are returned to the buyer after completion of the ship. Thus, these are only held by the company in the capacity of a bailee. Since, these cannot be considered as ‘asset’, therefore, these can neither be considered as ‘inventory’ nor as work-in-progress.
Accordingly, these cannot also be considered as a part of sale value or revenue of the company as no consideration would be receivable in respect of the cost of such equipments. (Refer pages 886-888 of C.A. Journal for December, 2013).
4. The Financial position of ICAI
The Summarised Audited Income and Expenditure Account for 2012-13 and Balance Sheet as at 31.3.2013, as published with 64th Annual Report of the Council, is as under.
There are following three Notes to Accounts which are significant.
“(i) The Institute is registered under section 12A of the Income Tax Act, 1961 and eligible for exemption of income under section 11 of the Act. In financial year 2009-10, the assessing Officer denied Exemption u/s 11 of the Act and raised demand of Rs. 51.70 crore. The Institute had filed appeal against the said Order of Assessing Officer before CIT (A) who allowed the Appeal vide Order dated 12.09.2013.
(ii) The Institute has filed SLPs before the Hon’ble Supreme Court against the Orders of the Hon. Delhi High Court, in the Writ Petition filed by the Institute for the financial year 2006-07 against the Orders passed by DGIT(E) denying exemption U/s 10(23C) (iv) of the Income Tax Act, wherein the High Court held that the activities of the Institute fall under the category of “advancement of any other object of general public utility” within the meaning of Charitable Purpose” as defined in section 2(15) of the Income Tax Act, 1961. The Hon’ble Court also observed in the same Orders that the Institute is also engaged in the educational activities as it conducts various Post Qualification Professional courses for its Members. It has been pleaded that the main activities of the Institute are Educational Activities and other activities carried on by the Institute will only fall under the category of “advancement of any other object of general public utility”. The Income Tax department has also filed a SLP against the order of the Delhi High Court for the financial year 2006-07. The Apex court has tagged the said matter along with the Institute’s SLP and granted leave to appeal.
(iii) In respect of the proposed Nagpur Centre of Excellence, during the financial year 2012-13, a sum of Rs. 9.75 CRORE was paid to M/s. Luxora Infrastructure Pvt. Ltd. towards Centre of Excellence project at Nagpur through two separate – principal and supplementary agreements. Supplementary agreement has since been cancelled by executing deed of cancellation. A total refund of Rs. 5.87 crore out of Rs. 9.75 CRORE has been received till the finalization of Accounts. For balance sum due amounting to Rs. 3.88 crore, a cheque dated 07- 10-2013 has been received from the vendor. The cancellation of principal agreement shall be done after credit of the balance amount. The net effect of this transaction shall be accounted for on receipt of balance consideration and stamp duty”.
5. ICAI News:
(Note: Page Nos. given below are from C.a. Journal for december, 2013)
(i) Companies Act, 2013 not Applicable for May 2014 Examinations:
The Companies Act, 2013 notified in the Official Gazette on August 30,2013. (with partial enforcement of only 98 sections of the Companies Act, 2013 from 12TH September, 2013) shall not be applicable to the May, 2014 examinations of both Intermediate (IPC) and Final Courses. (Page No: 855)
(ii) DVD of 61 years of C.A. Journal
DVD containing 61 years of C.A. Journal has been released. This contains Journal Issues for July, 1952 to June 2013 in searchable mode. Readers can search the contents through key words relating to Accounting, Auditing, Taxation etc. besides searching by month, year, category, author etc. This DVD will be available for sale by the Institute on 1st January, 2014 onwards. (Page No: 832).
