1. Some Ethical Issues
The Ethical
Standards Board of ICAI has given answers to some Ethical Issues on
pages Page 610 to 612 of C A. Journal for Novemberg 2014. Some of these
issues are as under:
(i) Issue:
Whether sponsorship or prizes be instituted in the name of a Chartered Accountant or a firm of Chartered Accountants?
An
individual Chartered Accountant or firm of Chartered Accountants can
institute or sponsor prizes, provided that the designation ‘Chartered
Accountant’ is not appended to the prize and the Clause (6) of Part I of
the First Schedule to the C. A. Act, regarding advertisement and
publicity is complied with.
(ii) Issue
Can a Chartered
Accountant in practice give the date of setting up the practice or date
of establishment on the letterheads and other professional documents,
etc.?
Council direction under Clause (7) of Part I of the
First Schedule to the C. A. Act, prescribes that the date of setting up
of the firm on the letterheads and the professional documents etc.
should not be mentioned. However, in the website, the year of
establishment can be given on a specific “pull” request.
(iii) Issue
Can
a Chartered Accountant in Practice accept original professional work
emanating from a client introduced to him by another member?
The
first schedule Part 1 Clause (6) (J) of C.A. Act prescribes that a
member should not accept the original professional work emanating from a
client introduced to him by another member. If any professional work of
such client comes to him directly it is his duty to ask the client that
he should come through the member dealing with his original work.
(iv) Issue
Can a Chartered Accountant in practice also practice as an Advocate?
Under
the first schedule Part I Clause(7) of the C.A. Act, the council has
prescribed that a practicing C.A. who is otherwise eligible may practice
as an Advocate subject to permission of the Bar Council. In such a
case, he should not use the designation ‘Chartered Accountant’ in
respect of the matters involving the practice as an Advocate. In respect
of other matters, he can use the designation ‘Chartered Accountant’ but
he should not use the designation ‘Chartered Accountant’ and ‘Advocate’
simultaneously.
2. EAC Opinion
Disclosure of the Revenue as per AS 9
Facts:
A
company is primarily engaged in the business of owning and running
hotels and resorts. The company receives bookings for the hotel and
resort rooms and related facilities from individuals, corporates and
travel agents.
The company has a tariff card (rate list) for all
the room types which is inclusive of all taxes. Ideally, when a
customer approaches the company, he is offered the tariff rate. However,
the company has been using various marketing strategies to attract
guests. As a strategy, the company offers discounts to the guest
discretionally, based on various factors. The company has observed that
when the guest is given a discount, he feels happy about it and becomes a
loyal customers of the resort. This strategy has given to the company
an edge over its competitors and thereby helped the company to increase
its turnover year on year.
The Company has further stated that it is currently recognising revenue at tariff rate and is treating discount as an expense.
Query:
The
Company has requested the EAC to clarify how disclosure of the revenue
would be in compliance with the disclosure required in AS9 (Revenue
Recognition).
Opinion:
The Committee notes that the
basic issue raised by the Company is the accounting treatment of the
discount(s) allowed by the company and its presentation in the statement
of Profit and loss as per AS 9.
After considering the
definitions of ‘cash discount’ and ‘trade discount’ as given in the
Guidance Note on Terms used in Financial Statement issued by ICAI, the
committee is of the view that trade discount is not encompassed within
the definition of revenue since it represents a reduction of cost and
accordingly, the revenue is determined and recognised after deducting
the trade discount. Further, the Committee after considering the
definition of ‘Revenue’ given in Accounting Standard (AS 9) ‘Revenue
Recognition’ is of the view that the revenue is the charge made to
customers which in case of trade discount is the amount of net of
discount. Accordingly, the Committee is of the view that the
presentation by the company to present the revenue on gross basis and
then to present the trade discount as expense is not correct and is not
in accordance with the requirements of AS 9.
[Pl. Refer page nos. 643 to 645 of C. A. Journal – November, 2014]
3. Financial Reporting Review Board (FRRB)
ICAI
has published a “Study on Compliance of Financial Reporting
Requirements”. Some of the observations in this publication relating to
compliance with Accounting Standard (AS) 5 are given below for the
information of Members.
(i) Treatment of Foreign Exchange Loss / Gain (P.43)
It
was noticed that one of the Notes to Accounts given in the Financial
Statements stated that the company has opted to capitalise the Foreign
Exchange Loss/Gain on reporting of Long Term Foreign Currency monetary
items used for depreciable assets retrospectively w.e.f. 01-07-2007 in
view of GSR 225(E) dated 31-03-2009 issued by the Central Government as
regards AS-11, Consequently Rs.xxx lakh (including Rs.xxx lakh relating
to previous years) has been added to the cost of depreciable assets.
Observation of FRRB
Referring
to Para 32 of AS.5 (Net Profit and Loss for the period, prior period
Items and changes in Accounting Policies) it was evident that there are
two distinct aspects for dealing with the situation. The first requires
disclosure of change in the accounting policy which has a material
effect and the second aspect requires the disclosure of the impact of
such changes on the financial statements. In the case of company the
above note indicated that there was a change in an accounting policy but
the impact of such change was only partly disclosed. In this case such a
change had two fold impact due to write back of exchange difference of
earlier years viz., the aggregate impact due to the write back and
additional depreciation thereon on the profit or loss for the year. The
above note only discloses aggregate impact but does not disclose the
impact on the profit or loss of the current year. To this extent
requirement of AS-5 has not been complied with.
(ii) Disclosure of Extra – Ordinary Items (P.45)
In one of the Financial Statements, there is the following note in the Notes to Accounts:-
“FCCB
were considered as non-monetary liability during the previous period,
but keeping in view the provisions of AS-11 and the principle of
prudence as enunciated in AS-1, the foreign exchange loss of Rs.xxx
million arising out of revaluation in respect of outstanding FCCB of USD
xxx million as on 31.03.2008 has been recognized and charged to Profit
and Loss Account of the year as an extra ordinary item”.
Observation of FRRB
Referring
to Para 4.1 and 4.2 of AS-5, it was observed that the foreign exchange
gain or loss arising on outstanding balance of FCCB is an ordinary
activity since FCCB is taken by the company as a part of its business
only. Therefore, classification of the gain or loss on such foreign
exchange fluctuations as extra – ordinary item amounts to non–compliance
with the requirements of AS-5
(iii) Adjustment of earlier year’s provision against general Reserve (P. 46)
In the case of a company excess depreciation charged in earlier years and Leave Encashment liability of earlier years was adjusted against credit balance of General Reserve.
Observation of FRRB
Referring to Para 15 of AS-5, FRRB has observed that the Prior Period items should have been accounted in the Profit and Loss Account instead of adjusting them against the general reserve. Further, it was also noted that no disclosure has been made with regard to such adjustments either in the related schedules or in the notes to the accounts explaining the reasons for such adjustment against the General Reserve.
4. ICAI news
(Note: Page Nos. given below are from C.A. Journal of November 2014)
(i) National Advisory Committee on Accounting Standards (NACAS)
This Committee has been recently reconstituted by the Government under the Chairmanship of C.A. Amarjit Chopra (Former President of ICAI). This committee will advise the Government on Accounting Standards as con- verged with International Financial Reporting Standards which are to be adopted in India from next year (2015-16) on a voluntary basis by companies in India. These stan- dards will become mandatory in 2016-17 (P. 598)
(ii) ICAI initiative in E- learning
The following 10 hi-tech initiatives have been launched.
(a) ICAI Mobile App – Information about all announce- ments, photo gallery, videos, news and other infor- mation about ICAI.
(b) Flexi Working Portal for Women Members- To help women members to find suitable opportunities Part-time/Flexi-Hours Jobs and Jobs with work- from-Home option.
(c) ICAI Knowledge Portal – Offers access of latest publications, announcements, articles, journals etc.
(d) ICAI Video Podcast – Consists of audio, video, PDF, and ePub files that can be subscribed to and downloaded or streamed on line.
(e) ICAI cloud campus – For students in India and abroad who can get education and training at their doorsteps.
(f) ICAI Publications Online – ICAI Publications, ICAI stationery items and ICAI E-learning CDs can be delivered at your home.
(g) ICAI E-learning – This is available to members, students and non-members. It is a self-paced, in- teractive and captivating learning experience.
(h) ICAI Digital Library – This is a repository of various digital Publications, E-books, Journals etc.
(i) ICAI Embraces Social Media – You can follow ICAI on Facebook, Twitter, You Tube and Google to catch up on the latest news, important announcements, press releases and updates.
(j) ICAI TV – you can hear the President’s latest speech, lectures by professionals and important announcements through DTH Service (P. 640-641)
(iii) Get C.A. Journal at your Residence
Members can apply to Editorial Board to get C.A. Journal at Residential Address (P. 652)
(iv) ICAI News Publications.
(a) Handbook of Auditing Pronouncements Compendium of Engagement and Quality Control Standards (As on 1st October,2014) Volume 1.A
(b) Compendium of Statements on Auditing (VoL 1.B)
(c) Compendium of Guidance Notes (VoL – II) ( P. 727– 728)
