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October 2008

ICAI And Its Members

By P. N. Shah, H. N. Motiwalla, Chartered Accountants
Reading Time 9 mins

ICAI and Its Members

1. Disciplinary case :


In the case of ICAI and Shri M. D. Loya, reported on Page 461
of C.A. Journal for September, 2008, ICAI received information against the
member. It was alleged that in the audit report given by the member in the case
of a public trust u/s.12A(b) of the Income-tax Act (in Form No. 10B) it was
certified that no income or property of the trust was used or applied during the
previous year for the benefit of persons referred to u/s.13(3) of the Income-tax
Act. It was, however, found that certain fixed deposit receipts of the trust
were pledged by the trustees with a bank and a loan was obtained on security of
these FDRs by a firm in which some of the trustees were partners.

The matter was referred to the Disciplinary Committee of the
Institute which found that the member was guilty of professional misconduct
under clauses (7) and (8) of Part I of Second Schedule to the C.A. Act. The
Council of ICAI accepted this finding and recommended to the Bombay High Court
that the member be reprimanded.

After hearing the matter, the High Court observed that it was
clear that the member did not seriously challenge the lapse on his part in not
calling for all the FDRs for physical verification before signing the audit
report. The High Court has accepted the view of the ICAI Council that the member
be reprimanded for this lapse on his part and accordingly passed the order of
reprimand.

2. Revision of Guidance Note on Tax Audit

u/s.44AB of Income-tax Act :

Clause 17(L) was added to Form 3CD by a Notification No.
208/2006, dated 10-8-2006. This clause deals with ‘Amount of deduction
inadmissible in terms of S. 14A of the Income-tax Act in respect of expenditure
incurred in relation to income which does not form part of the Total Income’.
ICAI had issued a supplementary Guidance Note for Tax Audit u/s.44AB in
September, 2006, explaining the implications of the requirement of clause 17(L)
in Form 3CD. The Government has now amended the Income-tax Rules and inserted
New Rule 8D which lays down the method for determining the amount of expenditure
to be disallowed u/s.14A. ICAI has revised the Guidance Note on Tax Audit
u/s.44AB in the month of August, 2008. The text of this revised Guidance Note is
available on Institute’s website www.icai.org. Operative part of this Guidance
Note (Para 40.6) reads as under :


“40.6 The method prescribed under sub-rule (2) of Rule 8D
is applicable when the Assessing Officer is not satisfied with the correctness
of the claim of expenditure made by the assessee or with the claim made by the
assessee that no expenditure has been incurred. Normally this situation would
arise at the time of assessment i.e., after the tax audit has been
completed and the return has been filed. Therefore, at the time of tax audit
the tax auditor will have to verify the amount of inadmissible expenditure as
determined by the assessee. The method under sub-rule (2) of Rule 8D does not
mandate that the assessee should necessarily compute the disallowance as per
the method prescribed under sub-rule (2). Therefore, the assessee may or may
not adopt the same.”


Further, in para 40.11, it is stated that the Tax Auditor
should verify the amount of inadmissible expenses as worked out by the assessee.
If he is in agreement with the assessee, he should report the amount with
suitable disclosures of material assumptions. If he is not in agreement with the
assessee, he should suitably qualify his report as stated in the above Guidance
Note.

(Refer P. 461 of C.A. Journal for September 2008)

3. Accounting Standard (AS-2) (Revised) — ‘Inventories’ :


Exposure Draft of this revised standard has been published
for comments of members by 15-11-2008. There is no major difference between this
Exposure Draft and the International Accountancy Standard (IAS-2) dealing with
‘Inventories’.

The major difference between the Exposure Draft of revised
AS-2 and the existing AS-2 is as under :

(i) On the lines of IAS 2, the Exposure Draft deals with
the subsequent recognition of cost/carrying amount of inventories as an
expense, whereas the existing AS-2 does not provide the same.

(ii) The Exposure Draft provides explanation with regard to
inventories of service providers, whereas the existing AS-2 does not contain
such an explanation.

(iii) The Exposure Draft does not apply to measurement of
inventories held by commodity broker-traders, who measure their inventories at
fair value less costs to sell. However, this aspect is not there in the
existing AS-2. Accordingly Exposure Draft defines ‘fair value’ and provides an
explanation in respect of distinction between ‘net realisable value’ and ‘fair
value’.

(iv) The Exposure Draft provides detailed guidance in case
of subsequent assessment of net realisable value. It also deals with the
reversal of the write-down of inventories to net realisable value to the
extent of the amount of original write-down, and the recognition and
disclosure thereof in the financial statements. The existing AS-2 does not
deal with such reversal.

(v) The Exposure Draft excludes from its scope only the
measurement of inventories held by producers of agricultural and forest
products, agricultural produce after harvest, and minerals and mineral
products, though it provides guidance on measurement of such inventories.
However, the existing AS-2 excludes from its scope, such types of inventories.

(vi) The existing AS-2 specifically provides that the
formula used in determining the cost of an item of inventory should reflect
the fairest possible approximation to the cost incurred in bringing the items
of inventory to their present location and condition, whereas the Exposure
Draft does not specifically state so and requires the use of consistent cost
formulas for all inventories having a similar nature and use to entity.

(vii) The Exposure Draft requires more disclosures as
compared to the existing AS-2.


4. CPE requirements for members in Industry and senior citizens :


ICAI President has clarified the position on this subject on Page 406 of CA. Journal for September, 2008, as under:

“As you are aware, the unstructured learning activities have been made applicable from January this year and we have already issued.a Continuing Professional Education (CPE)Advisory in this regard. However, I notice that there is some apprehension among certain members in industry and senior citizens about this requirement. I may clarify that for members in industry and senior citizens it is not necessary to attend regular CPE programmes. These regular CPE programmes such as seminars, study circle meetings, etc. are called structured learning activities and are mandatory for members holding certificates of practice, but they are optional for members in industry and senior citizens. Members in industry not holding a certificate of practice and senior citizens could comply with the new CPE requirement by reading articles in journals, books, etc. They could read those articles at their leisure.

You will be glad to know that taking this important initiative forward, it has been decided to grant one hour CPE Credit each for reading some selected article(s) published in the Institute’s journal as part of unstructured learning activities from the September 2008 issue itself.”

5. Exposure Drafts on Auditing Standards:

The following Exposure Drafts are issued for comments by members:

(i) Auditing Accounting Estimates, including Fair Value Accounting Estimates, and Related Dis-closures [Revised Standard on Auditing (SA) 540]

(Refer pages 536-560 of CA. Journal for September 2008)

(ii) Related Parties [Revised Standard on Auditing (SA) 550]

(Refer pages 561-576 of CA. Journal for September 2008)

6.    ICAI News:

(Note: Page Nos. given below are from CA. Journal for September, 2008)

(i)    Internal  Audit  of Accounts  of Stockbrokers:

By letter dated 22-8-2008, SEBI has advised that all Stockbrokers/Clearing members of Stock Exchange should get Internal Audit of their accounts carried out by independent qualified Chartered Accountants. Similarly, the Insurance Regulatory and, Development Authority has also amended its Regulations to provide that every insurance company having Assets under Management (AUM) of not more than Rs.1000 crore shall get Internal Audit conducted on quarterly basis. Insurance companies with AUM of above Rs.1000 crore should appoint a Chartered Accountant firm for Concurrent Audit (Page 406).

(ii) Certificate Course on IFRS and Valuation:

ICAI has decided to conduct (a) a Certificate Course on ‘International Financial Reporting Standards’, and (b) a Certificate Course on ‘Valuation’. Both the courses are to be launched in September/October 2008. (Page 406)

(iii) Rules  of Arbitration:

ICAI has issued the ‘ICAI Rules of Arbitration’ and also decided to start a Certificate Course on Arbitration for our members. Details are hosted on Institute’s website. (Page 407)

(iv) ICAI Toll-free telephones:

Toll-free telephones for getting services from ICAI are now available as under:

(v)  Examination on alternate days:

To reduce stress of our students, it has been decided that from November 2008, Institute examinations will be held on alternate days. Thus November 2008 examinations will be held from 1st to 16th November 2008. (Refer Pages 408 and 532)

(vi) International Conference at Jaipur in November, 2008:

The above conference for members is to be held from 20th to 22nd November, 2008. The details are on Institutes website. (Page 408)

(vii) Recognition for Ph.D Course:

University of Rajasthan has recognised the CA. Course for the purpose of doing Ph.D from that University. (Page 418)

(viii) Peer review:

Some major deficiencies noticed by reviewers while conducting peer review are published on Page 513.

(ix) Director (Discipline) :

ICAI has appointed CA Smt. Vandana Nagpal, Senior Deputy Secretary, as Director (Discipline) to head the Disciplinary Directorate. This Directorate is for making investigations in respect of information and complaint cases against members.
 
(x) New  publication    of ICAI :

Technical Guide on E-Commerce – Consideration for Audit of Financial Statements. (Page 531)

(xi) Obituary:

(a)    CA P. M. Narielvala, former President of our Institute, passed away on 8-8-2008 at Kolkata. He was our President in 1975-76 and a Council Member of ICAI for two terms for 1967-70 and 1973-76. The accountancy profession in India has lost one of its leading lights. We pay our respectful homage and pray that the departed soul may rest in peace. (Page 418)

(b)    CA S. P. Chhajed, Former President of our Institute passed away on 18-9-2008 at Mumbai. He was our President in 1999-2000 and Council Member of ICAI from 1982 to 2001. Shri Chhajed was a very popular figure in Mumbai and other places. Our profession has lost a leading personality. We pay our respectful homage and pray that the departed soul may rest in peace.

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