The Ethical Standards Board of ICAI has given answers to some of the Ethical Issues on pages 888-889 of the CA Journal of December, 2012. Some of these issues are as under:-
(i) Issue: Can a Chartered Accountant in Service accept or agree to accept any part of fees, profits or gains from a lawyer, a Chartered Accountant or broker engaged by such company, firm or person or agent or customer of such company, firm or person by way of commission or gratification?
Comment: Clause (2) of Part II of First Schedule to the CA Act prohibits a member in service from accepting or agreeing to accept any part of fees, profits or gains from a lawyer, a Chartered Accountant or broker engaged by such company, firm or person or agent or customer of such company, firm or person by way of commission or gratification.
(ii) Issue: Whether a member of the Institute shall be deemed to be guilty of professional misconduct, if he includes in any statement, return or form to be submitted to the Council any particulars knowing to be false?
Comment: As per Clause (3) of Part III of the First Schedule to the CA Act, a member of the Institute, whether in practice or not, shall be deemed to be guilty of professional misconduct if he includes in any statement, return or form to be submitted to the Council, any particulars knowing them to be false.
(iii) Issue : Whether a member of the Institute shall be deemed to be guilty of professional misconduct, if he does not supply the information called for, or does not comply with the requirements asked for, by the Institute?
Comment: A member of the Institute shall be deemed to be guilty of professional misconduct if he does not supply the information called for, or does not comply with the requirements asked for by the Institute. (As per clause 2 of part-III of the First Schedule to the CA Act)
(iv) Issue: Whether a joint auditor will be responsible for the work done by other joint auditor?
Comment : Council direction under Clause (2) of Part 1 of the Second Schedule to the CA Act prescribes that in respect of audit work divided among the joint auditors, each joint auditor is responsible only for the work allocated to him, whether or not he has prepared a separate report on the work performed by him. On the other hand, all the joint auditors are jointly and severally responsible:-
(a) in respect of the audit work which is not divided among the joint auditors and is carried out by all of them;
(b) in respect of decisions taken by all the joint auditors concerning the nature, timing or extent of the audit procedures to be performed by any of the joint auditors. It may, however, be clarified that all the joint auditors are responsible only in respect of the appropriateness of the decisions concerning the nature, timing or extent of the audit procedures agreed upon among them; proper execution of these audit procedures is the separate and specific responsibility of the joint auditor concerned;
(c) in respect of matters which are bought to the notice of the joint auditors by any one of them and on which there is an agreement among the joint auditors;
(d) for examining that the financial statements of the entity comply with the disclosure requirements of the relevant statute; and
(e) for ensuring that the audit report complies with the requirements of the relevant statute.
(v) Issue : Whether the member in practice can permit his name or the name of his firm to be used in connection with an estimate of earnings contingent upon future transactions, in a manner which may lead to the belief that he vouches for the accuracy of the forecast?
Comment : Under Clause 3 of Part-I of the Second Schedule of the CA Act, a member in practice cannot permit his name or the name of his firm to be used in connection with an estimate of earnings contingent upon future transactions, in a manner which may lead to the belief that he vouches for the accuracy of the forecast. However, the Council has decided that a Chartered Accountant can participate in the preparation of profit or financial forecasts and can review them, provided he indicates clearly in his report the sources of information, the basis of forecasts and also the major assumptions made in arriving at the forecasts and so long as he does not vouch for the accuracy of the forecasts.
2. Employee Benefits- (AS-15) – FRRB Comments on Non-compliances
Financial Reporting Review Board (FRRB) of ICAI has reviewed published accounts of certain companies. It has noticed non-compliances by some companies with regard to disclosure requirements under AS-15. These comments are at Page 999 of CA Journal for December, 2012. Some of these comments are as under.
(i) Enterprises often state in their accounting policies that “Provision for gratuity is made in the accounts, considering the balance sheet date as the notional date of retirement”. It was noted that as per AS 15, the provision for gratuity should be determined through actuarial valuation which should be based on assumptions that are not excessively conservative and should reflect the economic relationship considering the factors such as inflation, salary increase, the return on plan and discount rates. It was viewed that the stated policy indicates that provision for gratuity is determined by the company based on the assumption that all its employees retire on the balance sheet date, which is an excessively conservative assumption. Since it does not consider actuarial risk, it was viewed that actuarial valuation is not followed by the company while valuing its liability towards gratuity, which is against AS 15.
(ii) Accounting policy on termination benefits of a company states that payments under Voluntary Retirement Scheme are recognised in the profit and loss account of the year in which such payments are effected. It was viewed that considering the provision given under paragraph 134 of AS 15, an enterprise is required to provide for termination benefits on accrual basis. Accordingly, the stated accounting policy is observed to be against the requirements of AS 15 as well as Section 209(3) (b) of Companies Act, 1956.
(iii) Certain companies have adopted an accounting policy on employee benefits under which any payment to defined contribution scheme is charged as expense, as they fall due. It was viewed that as per paragraph 45 of AS 15, the expense of defined contribution plan should be recognised for each period of service rendered by the employees. However, the accounting policy states that such expense has been recognised by the enterprise when it falls due. It was viewed that such policy does not clearly indicate as to whether the contribution so made, is the appropriate accrual of liability or not. It is essential because the contribution in excess of what is due is to be recognised as an asset and contribution falling short is to be recognised as liability.
3. Empanelment of CA Firms for 2013-14
The following Notification issued by C and AG office is published on P. 1005 of CA Journal of December, 2012.
Applications are invited online from the firms of Chartered Accountants who intend to be empanelled with C & G office for appointment as auditors of Government Companies/Corporations for the year 2013-2014. The format of application will be available on C & G website: www.cag.gov. in from 1st January, 2013 to 15th February, 2013. Chartered Accountant firms can apply/update the data showing the status of their firm as on 1st January, 2013 and generate online acknowledgement letter for the year. They are also required to submit related documents (to be notified in this office website) to this office by 31st March, 2013. Only the Chartered Accountant firms who have generated online acknowledgement letter for the year 2013 -2014 and submitted the documents before the due date will be considered for empanelment.
4. Tax Accounting Standards
The committee appointed by CBDT to formulate Accounting Standards for the purposes of Notification u/s. 145(2) of the Income tax Act has submitted its report on 26-10-2012. This committee has recommended Accounting Standards on the following 14 issues. These Accounting Standards will be called “Tax Accounting Standards” (TAS). The committee has recommended that TAS, as notified u/s. 145(2), will apply only to the computation of Taxable Income and the assessee will not be required to maintain books of accounts in accordance with the requirements of TAS. This will mean that the assessee will have to follow Accounting Standards issued by ICAI for preparing the financial statements and TAS for computing Taxable Income under the Income tax Act. If there is a conflict between ICAI issued AS and TAS, it is stated that TAS will apply for computing the Taxable Income. The committee has also recommended that for ensuring compliance with the provisions of TAS, Tax Audit Report u/s. 44AB will be modified and it will be the duty of the Tax Auditor to certify that the computation of taxable income has been made by the assessee in accordance with the provisions of TAS. In other words, the Tax Auditor will have to certify the correctness of taxable income. This will place additional responsibility on practicing Chartered Accountants when these TAS are notified u/s. 145(2).
List of Recommended TAS
