1. Attendance by Directors at Board Meetings through video conference:
By a General Circular No. 28/2011, dated 20-5-2011, the Ministry of Corporate Affairs has now permitted directors of companies to attend meetings of the Board of Directors or Committee thereof through electronic mode. Some of the procedural requirements are as under:
(i) Electronic mode means video conference facility i.e., audio-visual electronic communication facility employed which enables all persons participating in that meeting to communicate concurrently with each other without an intermediary, and to participate effectively in the meeting.
(ii) Every director of the company must attend the meeting of Board/Committee of directors personally at least one meeting in a financial year of the company.
(iii) The chairman of the meeting and secretary have to ensure to (a) safeguard the integrity of the meeting via video conferencing, (b) ensure proper video conference equipment/facilities, (c) prepare the minutes of the meeting, and (d) ensure that no one other than concerned director or other authorised participants are attending the meeting through electronic mode.
(iv) The notice of the meeting must inform directors regarding availability of participation through video conference, and provide necessary information to enable directors to access the available facility of video conferencing.
(v) The notice of the meeting shall also seek confirmation from the director as to whether he will attend the meeting physically or through electronic mode and shall also contain the contact number(s)/e-mail addresses of the secretary/designated officer to whom the director shall confirm in this regard.
(vi) In the absence of any confirmation from the director, it will be presumed that he will physically attend the Board meeting.
(vii) There are some other procedural requirements which are of a routine nature.
2. Appointment of Cost Auditors by companies:
By a General Circular No. 15/2011, dated 11-4-2011 the Ministry of Corporate Affairs has changed the procedure for appointment of Cost Auditors u/s. 233B of the Companies Act. At present, such appointment requires prior approval of the Central Government. Now the revised procedure, briefly stated, is as under:
(i) The Audit Committee will have recommend to the Board the name of the Cost Auditors for such appointment and for their remuneration.
(ii) The Company has to file its application in Form 23C for such appointment with Board resolution proposing such appointment and other prescribed annexures within 90 days of commencement of the financial year.
(iii) If the Government does not object within 30 days of filing Form 23C, the company can issue formal letter of appointment to the Cost Auditors. In other words, specific order of the Central Government is not required for appointment of Cost Auditors.
3. Scope of Cost Audit enlarged:
By a Notification dated 3-6-2011, the Ministry of Corporate Affairs has enlarged the requirement for maintenance of Cost Records and Cost Audit to all large companies. The earlier Cost Accounting Rules have been now superseded by this Notification. Briefly stated the Notification provides as under:
(i) The new (Cost Accounting Records) Rules, 2011, shall come into force on the date of its publication in the Official Gazette.
(ii) These Rules apply to every company (including a foreign company) engaged in production, processing, manufacturing or mining activities if the net worth of the company as on the last day of the immediately preceding financial year exceed Rs.5 crore or if the total turnover of the company in the immediately preceeding financial year exceed Rs.20 crore. Further, if the company is a listed company or is in the process of listing, either in India or outside India, these Rules will apply irrespective of its net worth or turnover limits, if it is engaged in the manufacturing, production, processing or mining activities.
(iii) These Rules will not apply to a company engaged in manufacturing, production, etc. of (a) bulk drugs, (b) formulations, (c) fertilisers, (d) sugar, (e) industrial alcohol, (f) electricity industry, (g) petroleum industry and (h) telecommunications. The existing Rules for each of these industries will continue to apply to them.
(iv) The companies to which these Rules apply will have to maintain cost records as stated in this new Rule.
(v) These companies will have to appoint Cost Auditors and file Cost Audit Report with the Government for each year commencing on or after 1-4-2011 in the prescribed form within 180 days of the close of the financial year.
From the above it will be noticed that statutory Auditors of all such companies will have to ensure that these requirements of maintenance of Cost Accounting Records and Cost Audit are complied with in all such companies.
4. EAC Opinion
Revenue recognition in high-sea sale contracts:
Facts:
A public sector undertaking in the field of telecommunications is engaged in manufacturing and supply of various telecom products, providing network solution, manufacturing of mobile infrastructure equipment, etc. The company is having manufacturing facilities at various locations. The supplies and services of the company are mainly to customers such as public sector telecommunication enterprises, defence, railways, etc. All the supplies and services to them are executed through purchase orders, which are generally based on tenders. Most of the tenders call for quotes which are all inclusive (inclusive of freight, insurance, etc.)
The company has stated that it received a Purchase Order (P.O.) from a public sector telecommunication enterprise for supply and installation, testing and commissioning of cellular mobile phone network. Customer P.O. price is inclusive of all levies and taxes, packing, forwarding, freight and insurance, etc. The scope of P.O. includes supply of equipment (which shall be imported and supplied on high-sea sales basis), installation and commissioning of the equipment, maintenance during warranty period and Annual Maintenance Contracts (AMC) after warranty period. Customer’s P.O. contains itemised rates for supply, testing, installation, etc.
The company has further stated that before the materials reached Indian territory, high-sea sales agreement was entered into with the customer and the sale is effected in favour of the customer’s designated sites. Based on the high-sea sales agreement, the documents during the course of transit are endorsed in favour of the customer.
According to the company, as soon as the highsea sales agreement is entered into, the company recognises revenue for the sale value of the equipment (as per separate value given in the customer’s P.O.) During the financial year 2008- 09, the company made supplies and revenue was recognised in the accounts to that extent. However, this accounting treatment was not acceptable to the Government Auditors on account of the following:
(i) Materials which were supplied on high-sea sales basis on March 30, 2009 were received by customer after the accounting year 2008- 09.
(ii) As per P.O., delivery to the ultimate site in satisfactory condition will remain supplier’s responsibility.
(iii) Delivery of materials and services, its instal- lation and commissioning shall be made by the supplier in accordance with the terms and conditions specified in schedule of requirements and special conditions of the contract and the goods shall remain at the risk of the supplier until delivery of the network as a turnkey job has been completed even if there is a transfer of title of the goods earlier on account of high-sea sales.
Query:
In view of the above, the company has sought the opinion of the Expert Advisory Committee (EAC) as to whether accounting for the sale value of equipment immediately on entering into high-sea sales agreement and endorsement of the documents of title without linking to the date of receipt of equipment by customer and also before completion of activity of installation and commissioning of the equipment is in order and in accordance with Accounting Standard (AS) 9, ‘Revenue Recognition’.
Opinion:
The Committee is of the view, after considering the Accounting Standard (AS) 9, ‘Revenue Recognition’, that the company recognises revenue for the sale value of the equipment immediately on entering into the high-sea sales agreement and endorsement of the documents of title. It is also noted that as per clause 16.2 of the customer’s P.O. “Delivery of the goods and services, its installation and commissioning shall be made by the supplier in accordance with the terms and conditions specified in the schedule of requirements and special conditions of the contract and the goods shall remain at the risk of the supplier until delivery of the network as a turn-key job has been completed even if there is a transfer of title of the goods/materials earlier on account of high-sea sales”. Thus, the Committee is of the view that risks and rewards of ownership of the goods under high-sea sales are not transferred at the time of entering into such an agreement or endorsement of the documents of title. Accordingly, the accounting policy followed by the company in this respect is not appropriate.
5. Transfer/Termination of articleship:
Articled assistants are allowed to seek transfer/ termination of articleship only on permissible grounds and the articled assistants are advised to get the consent of the Institute before getting Form 109 signed by the principal in their own interest. ICAI has noticed that some articled assistants are submitting Form 109 signed by the principal along with the application for transfer/ termination of articleship. It is now decided that issuance of Form 109 prior to formal approval of the Institute for transfer will not be taken on record. Therefore, the principal and articled assistant should now forward Form 109 duly signed by both only after obtaining prior permission of the Institute for such Transfer/Termination. (CA Journal for June 2011 P. 1889)
6. ICAI News:
(Note: Page Nos. given below are from C.A. Journal for June, 2011)
(i) Recommended fees structure for C.A. Professionals:
In the last issue of BCA Journal for May, 2011 (Page 360) reference was made to the fees structure recommended by ICAI. Some figures were given in that issue. Now C.A. Journal for June, 2011, contains complete details about the fees structure on pages 1894 to 1898.
(ii) Amendment to Accounting Standard (AS-11):
The Ministry of Corporate Affairs (MCA) has issued a Notification on 11-5-2011. By this Notification the MCA has extended option for the enterprises to capitalise the exchange differences arising on reporting of long-term foreign currency monetary items till 31-3-2012 instead of 31-3-2011. (CA Student’s Journal, June 2011, P. 26)
(iii) NBFC cannot join partnership firms as a partner:
RBI has issued a Circular on 31-3-2011 clarifying that no NBFC can join any partnership firm as a partner. This restriction will apply if any NBFC wants to join any LLP as a partner. (Page 1788)
