ICAI and its members

The Ministry of Corporate Affairs has issued a General Circular (F.No.1/10 2012- CL-VI) giving the following clarifications (Refer P.1853 of C.A. Journal for June, 2013).

(i) The provisions of sections 55 and 58 of the LLP Act, 2008 read with Second Schedule thereto, inter-alia provide for requirements in respect of convertion of a single partnership firm into a single LLP. The LLP Act, 2008, does not provide for conversation of two or more firms into a single LLP.

(ii) The provisions of section 58(4) (b) of the LLP Act, 2008 provide that on convertion of a firm into an LLP, as per the provisions of the said Act, all property, assets, interests, rights, privileges, liabilities, obligations relating to the firm and the whole of the undertaking of the firm shall be transferred to and shall vest in the LLP without further assurance, act or deed. Accordingly, if a CA audit firm, being an auditor in a company under the companies Act, 1956, gets converted into an LLP after complying with relevant provisions of the LLP Act, 2008, then such an LLP, in accordance with the provisions of section 58(4)(b) of the LLP Act, 2008 would be deemed to be the auditor of the said company. Reference is also drawn to the notification number SO 1152(E) dated 23rd May, 2011 and General Circular 30A dated 26th May, 2011 of the Ministry in this regard. The relevant appointee company may take note of such change in status of the auditor through a resolution of the Board. The concerned stakeholders, Registrar of Companies, and the appointee companies should take note of the above clarifications and comply accordingly.

In the President’s message to the Members on page 1820 of CA Journal, it is stated that the CA Firms may now convert into LLPs. However, he has not clarified whether under the Companies Act, 1956, a LLP can audit the accounts of a company. In the P. N. Shah H. N. Motiwalla Chartered Accountants icai and its members Companies Bill, 2012, as passed by the Lok Sabha in December, 2012, there is a specific provision in Section 139 that LLP, in which majority of partners are Chartered Accountants, can be appointed as statutory auditor. There is no similar provision in the existing Companies Act.

Further, there is no exemption from Capital Gains Tax if a CA Firm is converted into LLP. Sections 47(xiii) and 47(x iii b) of the Income tax Act provide for exemption in cases of conversion of a Firm into company or conversion of a company into LLP subject to certain conditions. There is no similar provision giving exemption to a Firm converting itself into LLP. Therefore, it is not clear as to how the above notification of MCA can be put into practice.

2. General Management and Communication Skills. ( GMCS)

On page 1821 of CA Journal for June, 2013, ICAI has made the following announcement for students.

ICAI has always been conscious of the fact that the students pursuing CA Course who are potential members of the profession, must undergo the rigorous practical training and also develop an all-round personality so as to meet the contemporary challenges of the economic environment. As a consequence, ICAI had recently implemented the decision to impart GMCS Course in two parts. The Board of Studies has completely revised the syllabus for both the courses and brought out the new training material both for the students and the trainers. A number of programmers are also being organised for the trainers throughout the country. This would also ensure the standardisation in the delivery of the course throughout the country. The GMCS fee has been increased from Rs.4,000/- to Rs.5,500/- per participant per course, to be conducted from 1st July, 2013 onwards.

3. Recognition of Expenditure incurred on Branding and Advertisement.

EAC opinion

Facts :
The company is engaged in the business of news paper publishing and radio broadcasting. The company operates through the different brand names. The company is one of the leading media houses of the country. Being in the media industry, the brand/goodwill of the products of the company is of utmost importance as that is the major driving factor behind the growth. To become successful, it is very important to build the strong goodwill in the market, particularly in the times of slow-down in the economy.

The Company has stated that during the efforts to build the brand/goodwill, the company undertakes various activities. The company incurs substantial amount of expenditure on these activities which are necessary to build the brand in public, which is the key to success in the business. The benefits of such expenses are accrued to the company for a period of more than one year and sometimes, these extend to a longer period. The goodwill/brand developed through these activities also helps the company to attract new customers for long term.

Query :
The company has sought the opinion of the Expert Advisory Committee (EAC) on deferring and amortising the branding expenses over the future years instead of charging the same in the year when these were incurred.

Opinion:
The Committee notes the definition of the term ‘asset’ as contained in paragraph 49 of the ‘Framework for the Preparation and Presentation of Financial Statements’, issued by the Institute of Chartered Accountants of India, and after considering paragraphs 35, 36, 50, 51 and 56 of AS 26, it is of the view that taking into account the specific provisions of the Standard, the said expenditure on branding and advertising cannot be recognised as an asset, though it may be providing future economic benefits to the enterprise. Accordingly, such expenditure should be charged off to the statement of profit and loss of the period in which it is incurred. [Refer Pages 1865 and 1866 of C.A. Journal for June, 2013.]

4. ICAI News

(Note: Page Numbers given below are from CA Journal of June, 2013)

(i) Insurance Protection for Members and CA Fir ms.

ICAI has arranged insurance protection for members in practice/firms in the form of specially designed professional indemnity insurance at a reasonable premium i.e. 85% discount in market rate. The scheme has become effective from 12th March, 2013 for the Members in practice/Firms of the ICAI.

The policy covers all sums which the insured professional becomes legally liable to pay as damages to third party in respect of any error and/or omission on his/her part committed whilst rendering professional service. Legal cost and expenses incurred in defense of the case, with the prior consent of the insurance company, are also payable, subject to the overall limit of indemnity selected.

Only civil liability claims are covered. Any liability arising out of any criminal act or act committed in violation of any law or ordinance is not covered.

(ii) New Branches of ICAI

The following five Branches of ICAI have been established. With this addition, there are 133 Branches of ICAI in India now. (P. 1961-1963)

(a) Kishangarh (Rajasthan) – CIRC.
(b) Jhansi (UP) – CIRC
(c) Chittorgah (Rajasthan) – CIRC
(d) Satara (Maharashtra) – WIRC
(e) Navsari (Maharashtra) – WIRC

(iii) New Publications of ICAI

(a) Guidance Note on Report u/s 92E of the Income tax Act (Revised)
(b) Technical Guide to Audit in a Shared Service Centre Structure (P.1970)
(c) Technical Guide on Internal Audit of Pharmaceutical Industry (P 1971).