1. Code of Ethics:
The Ethical Standards Board of ICAI has given answers to some ethical issues raised by our members. These are published on pages 388 to 390 of C. A. Journal for September, 2013. Some of these issues are as under:
Issue:
Can a Chartered Accountant in practice allow any person to practice in his name as a Chartered Accountant?
No, clause (1) of Part-I of the First Schedule to the CA Act prohibits a Chartered Accountant in practice to allow any person to practice in his name as a Chartered Accountant unless such person is also a Chartered Accountant in practice and is in partnership with or employed by him.
Issue:
Can a Chartered Accountant in practice pay to any person any share, commission or brokerage in the fees or profits of his professional business?
No, clause (2) of Part-I of the First Schedule to the CA Act prohibits a Chartered Accountant from paying or allowing any share, commission or brokerage in the fees or profits of his professional business, to any person other than a member of the Institute or a partner or a retired partner or the legal representative of the deceased partner or a member of any other professional body or with such other persons having such qualifications as may be prescribed, for the purpose of rendering such professional services from time to time in or outside India.
Issue:
Can a Chartered Accountant in practice share his fees with the Government in respect of Government Audit?
The Council considered the issue and while noting that the Government is asking auditors to deposit such percentage of their audit fee for recovering the administrative and other expenses incurred in the process, the Council decided that as such there is no bar in the Code of Ethics to accept such assignment wherein a percentage of professional fees is deducted by the Government to meet administrative and other expenditure.
Issue:
Can goodwill of a Chartered Accountant firm be purchased?
Yes. The Council of the Institute considered the issue whether the goodwill of a proprietary firm of a Chartered Accountant can be sold/transferred to another eligible member of the Institute, after the death of the proprietor concerned and came to the view that the same is permissible. Accordingly, the Council passed the Resolution that the sale/transfer of goodwill in the case of a proprietary firm of Chartered Accountants to another eligible member of the Institute, shall be permitted.
Issue:
Can a practicing Chartered Accountant secure any professional business through the services of a person who is not his employee or partner?
No, clause (5) of Part-I of the First Schedule to the C. A. Act prohibits a practicing Chartered Accountant from securing any professional business, either through the services of a person who is not an employee of such Chartered Accountants or who is not his partner.
Issue:
Can a practicing Chartered Accountant solicit clients or professional work by advertisement?
No. Clause (6) of Part-I of the First Schedule to the CA Act prohibits a practicing Chartered Accountant from soliciting clients or professional work either directly or indirectly by circular, advertisement, personal communication or interview or by any other means.
However, there are the following exceptions to it:
(i) A member can respond to tenders or enquiries issued by various users of professional services or organisations from time to time and securing professional work as a consequence.
(ii) A member may advertise changes in partnerships or dissolution of a firm, o r of any change in the address of practice and telephone numbers, the advertisement being limited to a bare statement of facts and consideration given to the appropriateness of the area of distribution of the newspaper or magazine and number of insertions.
(iii) A member is permitted to issue a classified advertisement in the Journal/Newspaper of the Institute intended to give information for sharing professional work on assignment basis or for seeking professional work on p a r t n e r s h i p basis or salaried employment in the field of accounting profession provided it only contains the accountant’s name, address, telephone, fax number and e-mail address.
Issue:
Whether member in practice is permitted to respond to announcement for empanelment for allotment of audit and other professional work and quote fees on enquiries being received?
It has been clarified by the Council under proviso (ii) to clause (6) of part-I of the first schedule of the CA Act that if announcements are made for empanelment by the Government, Corporations, Courts, Cooperative Societies, Banks and other similar institutions, members may respond to such announcements provided the existence of the panel is within their knowledge. The Council has further clarified that the quotations of fees can be sent, if enquiries are received by the members in this regard.
Issue:
Can a member in practice indicate in a book or an article, authored/contributed/published by him, his association with any firm of Chartered Accountants?
No, as per Para (e) under Clause(6) of Part I of First Schedule to the CA Act as appearing in the Code of Ethics, 2009, a member is not permitted to indicate in a book or an article, authored/contributed/ published by him, the association with any firm of Chartered Accountants.
EAC Opinion:
Amortisation of Land Right of Way:
Facts:
A company (hereinafter referred to as ‘the company’) is a Government company within the meaning of section 617 of the Companies Act, 1956. The shares of the company are listed with recognised stock exchanges. The company is engaged in the business of refining of crude oil and marketing of petroleum products. It has two refineries and lube blending/ filling plants. The company also has depots, installation and LPG plants across India, besides having administrative offices at Delhi, Chennai, Kolkata, Mumbai and other major cities.
The company owns pipelines for movement of petroleum products from one location to another for the purpose of stock transfer/sale. These pipelines are underground pipelines having sectionalising valve stations/intermediate pigging stations/ booster pumping stations in between. Products are pumped through these pipelines as and when movement of product is required and at any point of time, the pipeline is filled with the product. For the purpose of laying the pipelines, the company acquires ‘right of way’, i.e., right of use in land (ROU) under which such pipeline is to be laid. The right is acquired under the Petroleum and Minerals Pipelines (Acquisition of Right of User in a Land) Act, 1962, and vests absolutely with the company free from all encumbrances.
Though the ownership of the land under which the pipeline is laid continues with the land owner, the pipeline remains the property of the company. The company also has perpetual and absolute right to enter the land under which pipeline has been laid for the purpose of maintaining, examining, repairing, altering or removing any such pipeline or for doing any other acts necessary for any of the aforesaid purposes or for the utilisation of such pipeline. This enables the company to lay one or more pipelines. The land owner cannot construct any permanent structure or plant any tree having deep roots on this piece of land, though he can raise crops. According to the company, the ROU is an independent fixed asset as this right is absolute and perpetual as per the Petroleum and Minerals Pipelines (Acquisition of Right of User in Land) Act, 1962.
Query
In view of the above, the company has sought the opinion of the EAC on the issues: (i) Whether the current practice of the company not to amortise the land right of way as it is perennial in nature is correct; (ii) In case it is not correct, what should be the useful life to be considered for computing the amortisation in view of the fact that the right of way is perennial in nature?
Opinion
The Committee notes from the facts of the case and the Petroleum and Minerals Pipelines (Acquisition of Right of User in Land) Act, 1962 that the user’s right is restrictive for laying down and maintaining the pipelines and not unlimited for any purpose. Further, after considering AS–26 “Intangible Assets” particularly paragraph 68, the Committee is of the view that the useful life of an intangible asset is always finite, howsoever long and indefinite it may be. AS 26 does not justify non-amortisation; it only requires disclosures where the useful life is considered more than 10 years. It stipulates that the life has to be determined on a prudent and rational basis. The Committee also does not agree with the view of the company that the useful life of land right of way is infinite. In the view of the Committee, the useful life of the land right of way may be determined considering various technical, legal and economic factors, such as, useful life of petroleum reserves from which the petroleum products are being produced and then transported, technological changes in the transportation modes, alternative resources of energy, etc. The Committee is further of the view that as per the Standard, the useful life of the land right of way may be indefinite but it is not finite and, accordingly, the depreciable amount should be allocated on a systematic basis over the best estimate of its useful life. Therefore, the Committee is of the view that the current practice of the company not to amortise the land right of way is not correct. The Committee also wishes to point out that in case useful life of the intangible assets is determined to exceed more than 10 years, the company should provide reasons for such presumption as per the requirements of paragraph 94 of AS 26.
ICAI News:
The result of the Chartered Accountants Intermediate (IPC) Examination was declared on 31st July, 2013. The details of percentage of candidates passed in the said examinations are given below:
New Publications of ICAI
1. Handbook of Auditing Pronouncements 2013 Edition
2. Revised–Guidance Note on Report under Section 92E of the Income-tax Act, 1961 (Transfer Pricing)
3. Trends and patterns in Public Finance: Theoretical and Empirical Aspect.
4. Technical Guide on Auditing Waste Management.
