1. Code of ethics:
The Ethical Standards Board of ICAI has considered some ethical issues which are published in the C.A. Journal of April, 2011, at page 1472. Some of these issues are as under:
(i) Issue: Whether a member in practice is permitted to undertake the management of NRI funds?
Response: A member in practice is not permitted to undertake such services, as it is not covered under ‘Management Consultancy and other Services’ specified by the Council.
(ii) Issue: Can a chartered accountant in practice provide ‘Portfolio Management Services’?
Response: As the ‘Management Consultancy and other Services’ expressly bars the activities of broking, underwriting and portfolio management, this is not permitted.
(iii) Issue: Can a chartered accountant in practice work as a ‘collection agent’?
Response: A chartered accountant in practice cannot work as a ‘collection agent’, as the ‘Management Consultancy and other Services’ specified by the Council, do not permit such engagement.
(iv) Issue: Whether the auditor of a Subsidiary Company can be a Director of its Holding Company?
Response: The auditor of a Subsidiary Company cannot be a Director of its Holding Company, as it will affect the independence of the auditor.
(v) Issue: Whether a member can take up AMFI (Association of Mutual Funds in India) Course and become a Member of the Association?
Response: Members from industry as well as from practice can pursue the AMFI Course. However, as to the question whether a member can be registered with it so as to take the role of Financial Intermediary, it has been decided that members in Industry, not in practice, can obtain the membership by registering them with a mutual fund/ Association, whereas members in practice (whether holding full-time COP or part-time COP) cannot do so.
(vi) Issue: Whether the permission of Council is necessary for a chartered accountant in practice to engage in share trading?
Response: Engagement by a member, in practice, in the business of buying and selling shares amounts to be ‘any business’ within the meaning of Clause (11) of Part-I of the First Schedule to the CA Act and hence prior permission of the Council is required.
(vii) Issue: Whether concurrent auditor of a bank can also undertake quarterly review of the same bank?
Response: Concurrent audit and the assignment of quarterly review of the same entity cannot be taken simultaneously, as the concurrent audit being a internal audit and the quarterly review being a kind of statutory audit undertaken simultaneously are prohibited under the provisions of ‘Guidance Note on Independence of Auditors’.
(viii) Issue: Whether a firm of Chartered Accountants can print special words ‘celebrating 75 years in the profession’ on the letterheads and envelopes?
Response: Publishing a book by a firm containing its history for the purpose of distributing to clients, associates, friends and well-wishers and printing of the words ‘Celebrating 75 years in the profession’ on special letterheads and envelopes will lead to solicitation of professional work, hence not permissible as per the provisions of Clauses (6) and (7) of Part of the First Schedule to the Chartered Accountants Act, 1949.
2. Revised Schedule VI of the Companies Act, 1956:
The Ministry of Corporate Affairs has notified a Revised Schedule VI of the Companies Act, 1956. This Revised Schedule VI is applicable for the Balance Sheet and Profit & Loss Statement to be prepared for the financial year commencing on or after 1-4- 2011. The horizontal form of old Schedule VI is now withdrawn. Now, all companies will have to prepare the Balance Sheet and Profit & Loss Statement in the vertical form. Some of the general instructions are as under.
(i) The disclosure requirements specified in Part I and Part II of this Schedule are in addition to and not in substitution of the disclosure requirements specified in the accounting standards prescribed under the Companies Act, 1956. Additional disclosures specified in the accounting standards shall be made in the notes to accounts or by way of additional statement, unless required to be disclosed on the face of the financial statements. Similarly, all other disclosures as required by the Companies Act shall be made in the notes to accounts in addition to the requirements set out in this Schedule.
(ii) Notes to accounts shall contain information in addition to that presented in the financial statements and shall provide where required (a) narrative descriptions or disaggregations of items recognised in those statements and (b) Information about items that do not qualify for recognition in those statements.
(iii) For the purpose of this Schedule, the terms used herein shall be as per the applicable accounting standards.
The above instructions will show the importance of accounting standards in the preparation and presentation of financial statements after the new Schedule VI comes into operation.
3. Opinion of EAC
Disclosures in segment report under consolidated financial statements:
Facts:
A company is engaged, through its subsidiaries, joint ventures and associates, in generation of power, development of expressways, airport infrastructure facilities in special economic zones, etc. It is a public company and is listed on the Bombay Stock Exchange (BSE) and National Stock Exchange (NSE).
The company has about 100 subsidiaries/associates/ JVs. It prepares its stand-alone financial statements and also consolidated financial statements. The consolidated financial statements (CFS) include the accounts of the company (stand-alone) and its subsidiaries, associates and joint ventures. According to the company, the CFS are prepared in accordance with historical cost convention and comply in all material respects with the applicable accounting principles in India, the notified accounting standards and other relevant provisions of the Companies Act.
The company believes that under CFS, segment report of the company and its subsidiaries, associates and joint ventures is prepared considering business segment as the primary segment and geographic segment as the secondary segment. The company has identified the business segments as power, roads, airport, engineering, procurement & construction (EPC) and others. Others include the operations like real estate development, investment company which do not qualify for separate disclosure as segments as per the threshold limit prescribed under Accounting Standard (AS) 17, ‘Segment Reporting’.
According to the company, each of the SPVs prepares its stand-alone annual accounts and has specifically identifiable timing differences for the computation of deferred taxes and specific allowances and disallowances for the computation of current tax. Also, each of the SPVs is individually discharging its tax liability and the books of account of each of these entities also carries the tax assets/provisions (net) distinctly. Hence, for the preparation of consolidated financial statements, the company is of the view that the tax assets/ expenses are part of the respective segments only, as the same are distinctly identifiable and directly attributable to those respective sectors/ segments. The company has prepared the consolidated segment report accordingly by classifying the tax assets/expenses under each of the respective segments. However, the same is not acceptable to the auditors who are of the view that the same should be disclosed as an unallocated items in segment report included in consolidated accounts. The auditors are also of the opinion that interest expenses relating to loans borrowed by the SPVs for their projects, overdrafts and other operating liabilities including loans identi
