1. Tax audit provision :
(i) The threshold limit of total sales/turnover/gross receipts for the purposes of tax audit u/s.44 AB in case of business has been increased from `40 lac to `60 lac from A.Y. 2011-12. In case of the profession, the said limit has been increased from `10 lac to `15 lac.
(ii) The Direct Tax Code Bill, 2010, proposes to provide in S. 88 that the threshold limit of total sales/turnover/gross receipts for business for tax audit shall be increased from `60 lac to `1 crore. In case of the profession, the said limit is proposed to be increased from `15 lac to `25 lac. The new provision will come into force from F.Y. 2012-13 if the DTC Bill is passed by the Parliament with the above provision.
(iii) U/s.314(86) of DTC, 2010, the due date for filing the return of income by an assessee, who does not have business income, is proposed to be advanced from the existing 31st July to 30th June. Similarly, the due date for filing the return in cases of companies and other assessees is proposed to be advanced from 30th September to 31st August. Therefore, from 2013 the Tax Audit Report will have to be given by 31st August, 2013.
(iv) S. 271B provides for levy of penalty for non-compliance with the provisions of S. 44AB at the rate of ½% on total sales, turnover or gross receipts. The maximum penalty has been increased from `1 lac to `1.50 lac from A.Y. 2011-12.
(v) Proposed S. 232 of the Direct Tax Code Bill, 2010, provides that the minimum penalty shall be `1 lac and the maximum penalty will be `2 lac w.e.f. F.Y. 2012-13 for non-compliance with the provisions of S. 88 to get the tax audit report before the due date.
2. Know your ethics :
The Ethical Standards Board of ICAI has discussed some ethical issues at page 394 of September, 2010, issue of C.A. Journal as under :
(i) Whether a member of the Institute in practice is liable for professional misconduct if he does not follow the direction given by the Council or an appropriate Committee or on behalf of any of them, to the incoming auditors not to accept the appointment as auditors, in the case of unjustified removal of the earlier auditors ?
Ans. : In exercise of the powers conferred by Clause (1) of Part II of the Second Schedule to the CA Act, the Council of ICAI issued General Guidelines, 2008 which specify that a member of the Institute in practice shall follow the direction given by the Council or an appropriate Committee or on behalf of any of them, to him being the incoming auditor(s) not to accept the appointment as auditor(s), in the case of unjustified removal of the earlier auditor(s).
(ii) Can the auditor revise his audit report ?
Ans. : The Council has issued a ‘Guidance Note on Revision of the Audit Report’ in booklet form. The auditor can revise his audit report in the situations and circumstances mentioned therein.
(iii) What is the status of a Chartered Accountant who is a salaried employee of a Chartered Accountant in practice or a firm of such Chartered Accountants ?
Ans. : An associate or a fellow of the Institute who is a salaried employee of a Chartered Accountant in practice or a firm of such Chartered Accountants shall, notwithstanding such employment, be deemed to be in practice for the limited purpose of the training of article assistants. He may hold Certificate of Practice, but he is not entitled to perform attest functions w.e.f. 1-4-2005.
(iv) Can a member in practice be Promoter/Promoter Director of a company ?
Ans. : There is no bar to a member in practice becoming a promoter/signatory to the Memorandum and Articles of Association of any company. For becoming such promoter/signatory, members are not required to obtain specific permission of the Council.
(v) Can such a Promoter/Promoter Director of a company be Director Simplicitor of that company ?
Ans. : There is also no bar for such a Promoter/Signatory becoming Director Simplicitor of that company, irrespective of whether the objects of the company include areas which fall within the scope of the profession of Chartered Accountants. In this case also, specific permission of the Council is not required.
(vi) Can a member in practice be a sleeping partner in a family business concern ?
Ans. : He cannot perform the audit although he can apply for Certificate of Practice.
(viii) What should be the size of the signboard for the office ?
Ans. : With regard to the size of the signboard for his office that a member can put up, it is a matter in which the members should exercise their own discretion and good taste. The size of the signboard should be reasonable. Use of glow signs or lights on large-sized boards as is used by traders or shopkeepers would not be proper. A member can have a name board at the place of his residence with the designation of a Chartered Accountant, provided it is a name plate or name board of an individual member and not of the firm.
3. EAC Opinion: Treatment of liquidated damages payable for delay in commissioning of plant :
Facts :
A limited company having its registered office in India is a group member of a transnational player in the global gases and engineering industry. The company’s gases division is engaged in the manufacture and sale of industrial, medical and special gases to customers across industries.
The company has entered into one such Long Term Agreement (LTA) dated 31st May, 2006 for supply of industrial gases to a customer by installing an air separation plant (the plant) at the customer’s steel works premises on Build-Own-Operate (BOO) basis. As per one of the clauses of the ‘general conditions’ of the agreement, the company is liable to pay ‘late start liquidated damages’ to the customer if there is a delay in the commencement of gas supply from the plant after the target commencement date due to the company’s fault and the customer is ready to consume gas at its expanded steel-making facility.
As per the agreement, the target commencement date was 31st March, 2008, being the date on which the company estimated that it would be able to start fulfilling its obligation to supply gas from the plant. However, due to delay by the main equipment supplier of the plant and other related problems at site, the company was not ready to commission the plant and commence supplies on the target commencement date and instead, was ready for supply for gases only in November 2008. At this stage, due to the economic downturn, the customer requested to further delay the start-up of the plant which was finally commissioned in February 2009.
The company is now in the process of negotiating a settlement with the customer for the delays in plant commissioning on both its own as well as on the customer’s part. As a result of such negotiation, the company will have to pay ‘late start liquidated damages’ to the customer for the delayed commissioning of the plant due to its inability to have the plant ready for supply of gases on the appointed target commencement date of 31st March, 2008.
Query:
Based on the facts stated above, the querist has sought the opinion of the Expert Advisory Committee, on the following issue:
“Whether the amount to be paid by the company on account of liquidated damages due to delay in commencement of supply of gases to the customer consequent upon delay in bringing the plant to its working condition on the appointed target commencement date can be capitalised in its books of account as additional cost attributable to the project (capitalised in March 2009) in accordance with the provisions of AS-10 and any other related Accounting Standard or statute, or whether the liquidated damages payable can be treated as deferred revenue expenditure to be amortised over a period of 3 to 5 years after the commencement of commercial production, or whether the company can charge off the amount of liquidated damages as an expense in the profit and loss account?”
Opinion:
The Committee noted that the basic issue raised in the query relates to the treatment of liquidated damages payable by the company for delay in the commissioning of the plant.
After considering paragraphs 9.1, 20 and 21 of Ac-counting Standard (AS) 10 — Accounting for Fixed Assets, the Committee noted from the facts of the case that the ‘late start liquidated damages’ are payable by the company on account of delay in the commencement of gas supply from the plant on the target commencement date. The Committee is of the view that such expenditure cannot be said to be attributable to bringing the plant to its working condition for its intended use. Such expenditure is not attributable to construction activity. It is also not in the nature of price adjustment on account of which cost of a fixed asset may undergo a change subsequent to its construction. The Committee is of the view that the liquidated damages are of the nature of a penalty resulting from non-fulfilment of the terms of the agreement, in this case, the target date of commencement of gas supply. The amount of liquidated damages is compensation to the customer for loss of revenue on account of non-supply of gas by the company. Accordingly, the Committee is of the view that such expenditure cannot be capitalised and should be expensed by way of charge to the profit and loss account as no future benefit is expected from the same.
[Refer pages 418 to 420 of C.A Journal of September, 2010]
4. Important announcements for PE-II and PCC
Students:
The following important announcement is made by the President, ICAI, in his communication on page 386 of C.A. Journal for September, 2010.
The Council has considered the case of PE-II stu-dents especially in order to mitigate their hardship vis-à -vis their joining the CA course through PCC/IPCC route. PE -II students having joined the course through all streams can now commence articled training in case they have passed any of the groups of PE-II examination instead of earlier requirement of passing both the groups. They will also be eligible to appear in the final examination during the last 12 months of articled training. In addition, such students shall be exempted from undergoing the Orientation Programme, on switching over to IPC course. Further, they shall not be charged any fee for switching over to IPC course, except `1,500 to cover the cost of study material and administrative charges, instead of `4,000 at present.
With a view to bringing overall uniformity, students registered for Professional Competency Course (PCC) shall now be eligible to appear in the final examination during the last six months of the three and a half year period of articled training as against the earlier requirement of appearing in the final examination after completion of articled train-ing. Further, realising the difficulties faced by the students to complete the Information Technology Training (ITT) and Orientation Programme before appearing at the examination, it has now been decided that all students would now be permitted to submit proof of their successful completion of ITT to the Examination Section before the commencement of the article training, instead of earlier requirement of submitting the said proof before appearing in the examination. However, this would not be applicable to the PCC students. However, it has also been observed that many students are withdrawing their registration from ITT centres and they wish to complete the ITT and Orientation Programme before the commencement of the article training. All such students are advised to undergo ITT and Orientation Programme as early as possible, because this would not only help them in solving the questions posed in examinations in the IT paper but also release the pressure on the training centres.
5. ICAI News:
(Note: Page Nos. given below are from September, 2010, issue of C.A. Journal)
(i) ICAI job portal:
The ICAI job portal has been developed to provide a platform for industry to fill their vacancies for Chartered Accountants and Accounting Technicians. The recruiting organisations as well as experienced Chartered Accountants and Accounting Technicians can avail the benefit of this job portal. For this purpose, they can contact the Secretary to CMII by E-Mail placements@icai.org or ssuneja@icai.org (Tel No. 011-30110450/491) (refer page 498).
ii) ICAI publication:
a) Accounting Reforms in India — A Bird’s-eye View.
b) Technical Guide on Internal Audit of Sugar Industry
(pages 499-500)
iii) Peer review of audit firms of listed companies:
The Peer Review Board of ICAI is in the process of updating the status of the firms. Accordingly, the Peer Review Board has desired to know the status regarding whether your firm has been peer reviewed in the past or whether the peer review certificate has already been issued to your firm for updation of the latest position regarding the status due to the migration of firms from the Stage II to Stage I and vice-versa. In view of this, it is requested that the latest status of your firm may kindly be sent at email id peerreviewboard@icai.org so as to expedite the peer review of the firms doing the audit of the listed companies which has been mandatory as per the Circular dated April 5, 2010 issued by SEBI. Further, the firms doing the audit of the listed companies who’s peer review process is not initiated by the Board may also send a request for voluntary peer review to the Peer Review Board. (pages 501-502)
iv) Assurance Reports on Contacts at a Service Organisation:
Auditing and Assurance Standards Board has issued an Exposure Draft of Standard on Assurance Engagements (SAE) 3402 of ‘Assurance Reports on Control at a Service Organisation’ for comments by Members. (Refer pages 507 to 522)
v) Status of convergence with IFRS:
The latest position of finalisation of Accounting Standards after convergence with IFRS is explained by the President of ICAI in his communication (page 383).
vi) Training for members for ICAEW membership:
Members of ICAI who desire to become members of the Institute of Chartered Accountants England and Wales have to appear in one paper on Advanced Case Study (4-hour final paper) and undergo training. The ICAI has made arrangements for this training as stated in the President’s Communication. (page 385)
vii) Disciplinary cases:
It is reported that since February, 2010, onwards the Disciplinary Committee has passed orders u/s. 21D in 60 cases and u/s.21B in 20 cases. Further, 10 old disciplinary cases have also been completed. So far as Board of Discipline is concerned, it has disposed of 34 cases u/s.21A. It is understood that prior to February, 2010, several other similar cases have been decided by the Disciplinary Committee as well as Board of Discipline. (page 385)
However, the ICAI has not published decisions taken by these two committees under the new provisions and therefore, members of ICAI are not aware as to what are the decisions of these two committees on various provisions of the two Schedules of the CA Act.
