By P. N. Shah
H. N. Motiwalla
Chartered Accountants
1. Know your ethics :
The Ethical Standards Board of ICAI has discussed some of the ethical issues at page 232 of C.A. Journal for August, 2010 as under :
(i) Whether a member who is carrying out statutory audit and also rendering management consultancy services to his auditee clients can receive fees for such other services, which are in excess of the audit fees ?
A. In exercise of the powers conferred by Clause (1) of Part II of the Second Schedule to the CA Act, the Council of the Institute has issued Guidelines which specify that a member of the Institute in practice shall be deemed to be guilty of professional misconduct, if he accepts the appointment as statutory auditor of Public Sector Undertaking/Government Company/Listed Company and other Public Company having turnover of Rs.50 crore or more in a year and accepts any other work or assignment or service in regard to the same Undertaking/Company on a remuneration which in aggregate exceeds the fee payable for carrying out the statutory audit of the same Undertaking/Company.
Provided that in case appointing authority/regulatory body specify more stringent condition/restriction, the same shall apply instead of the conditions/restrictions specified under the Guidelines.
Explanation :
1. The above restrictions shall apply in respect of fees for other work or service or assignment payable to the statutory auditors and their associate concern put together;
2. For the above purpose,
The term ‘other work’ or ‘service’ or ‘assignment’ shall include Management Consultancy and all other professional services permitted by the Council pursuant to S. 2(2)(iv) of the C.A. Act, but shall not include :
(a) Audit under any other statute;
(b) Certification work required to be done by the statutory auditors; and
(c) Any representation before an authority.
(ii) The term ‘associate concern’ means any corporate body or partnership firm which renders the Management Consultancy and all other professional services permitted by the Council, wherein the proprietor and/or partner of the statutory auditor firm and/or their ‘relative’ is/are director or partner and/or jointly or severally hold ‘substantial interest’ in the said corporate body or partnership;
(ii) Is there any ceiling on the number of tax audit assignments that can be taken up by a member in practice ?
A. In exercise of the powers conferred by Clause (1) of Part II of the Second Schedule to the C.A. Act, the Council of the Institute of Chartered Accountants of India has issued General Guidelines, 2008 which specify that a member of the Institute in practice shall be deemed to be guilty of professional misconduct, if he accepts, in a financial year, more than the specified number of tax audit assignments u/s.44 AB of the Income-tax Act, 1961. The number specified for tax audit is 45.
(iii) Whether the audits conducted u/s.44AD, u/s. 44AE and u/s.44AF of the Income-tax Act, 1961 shall be taken into account for the purpose of reckoning the specified number of tax audit assignments ?
A. No. Please refer Chapter VI of Council General Guidelines, 2008 (P. 316 of Code of Ethics, 2009).
2. Opinion of EAC :
Determination of depreciation in case of revaluation and revision in the useful life of land and buildings :
Facts :
A nationalised bank purchased freehold land and building in the year 1950 costing Rs.50 lakh (land Rs.20 lakh and building Rs.30 lakh) and accounted for the same separately as ‘freehold land’ and ‘bank’s own premises’, respectively. On ‘bank premises’ component, the bank is charging depreciation @ 5% on written-down value basis. In the year 2008, the property has been revalued at Rs.100 lakh (land Rs. 80 lakh and building Rs.20 lakh) and the revaluation reserve has been created for Rs.60 lakh towards land and Rs.18.50 lakh towards building, assuming the written-down value of building at Rs.1.5 lakh. The valuer has estimated the useful life as 25 years.
The bank also purchased a leasehold land in the year 1990 with lease period of 99 years and paid Rs.99 lakh. The bank subsequently constructed building thereon in June, 1992 costing Rs.50 lakh. The cost of land is debited to ‘leasehold land’ and construction cost to ‘the bank’s own premises’. The bank is amortising lease rent at Rs.1 lakh per annum and charging depreciation @ 10% on building since 31-3-1993 on written-down value basis. The property has been revalued at Rs.140 lakh (land Rs.100 lakh and building Rs.40 lakh).
The bank has also informed that the bank owns more than 200 properties purchased in different years and all the properties have been revalued in the year 2008.
Query :
On these facts, the bank has sought the opinion of the Expert Advisory Committee on the following issues :
(i) What should be the applicable rate of depreciation in respect of building purchased in 1950 ?
(ii) What should be the applicable rate of depreciation on both original cost and revalued portion, in respect of property constructed in 1992,
(a) If the valuer has estimated the remaining useful life as 40 years ?
(b) If the valuer has not given any useful life and the management, as a policy, is not determining the useful life of the land and buildings ?
(iii) Whether different rate of depreciation will be applicable on the 200 properties purchased in different years and revalued in the year 2008. If yes, what is the mechanism to be followed for implementation ?
Opinion :The Committee, after considering the introduction paragraph and the definition of the term ‘depreciable assets’ as contained in Accounting Standards (AS-6) ‘Depreciation Accounting’, has observed that as per the GAAPs prevalent in India, freehold land is considered to be having an unlimited life and, therefore, cost thereof is not depreciated. In the context of the leasehold land which is recognised as a fixed asset by the bank, keeping in view of the existing practice of reflecting leases of land in the balance sheets of the lessees, as such leases are scoped out of Accounting Standard (AS-19), ‘Leases’, the Committee noted that the land in question has a lease period of 99 years. Thus, it has a limited useful life for the bank. Accordingly, the upfront amount of Rs.99 lakh paid by the bank for the same should be amortised over its useful life i.e., 99 years, on a systematic basis. The Committee also noted that in this case, the life of the leasehold land is predetermined by the lease agreement, therefore, there is no question of revision of its estimated useful life unless the lease agreement is renewed or the lease terms undergo a change.
Further, after considering AS-6, the Committee opined that :
In respect of property purchased in 1950 the rate of depreciation on building should be determined on the basis of the depreciable amount and its remaining useful life. In case the building has been revalued, the depreciable amount would be the value assigned to the building upon revaluation less its estimated residual value, provided revaluation has been done in accordance with AS-10. The useful life of a depreciable asset is a matter of estimation and is normally based on various factors, including experience with similar types of assets. In case of building constructed on the leasehold land, the useful life of the building cannot exceed the remaining lease period of land.
With respect to the depreciable amount of an asset, the Committee is of the view that ordinarily, the depreciable amount would be the cost thereof less the estimated residual value. In the context of revaluation of buildings the depreciable amount after revaluation would be revalued amount less the estimated residual value of buildings.
(ii) In respect of property constructed in 1992 with respect to determination of rate of depreciation of the building constructed on leasehold land, the principle stated in (i) above would apply. The cost of the leasehold land acquired on lease for 99 years should be amortised over its lease term on a systematic basis.
The rate of depreciation of a building depends on the depreciable amount of the building and its expected useful life. The useful life may vary in case of each building. The depreciable amount may also vary depending on its cost of purchase/construction of its revalued amount, as the case may be, and its estimated residual value. Accordingly, the rate of depreciation may vary for each of the buildings and therefore, should be determined individually for each property.
[Refer pages 266 to 268 of C.A. Journal of August, 2010]
3. ICAI News :
(Note : Page Nos. given below are from C.A. Journal for August, 2010)
i) Special Placement Programme — June, 2010 (page 346) :
Special Placement Programme for new CA Members was organised by ICAI at major centres from 22nd to 26th June. Following was the response.
|
l (a)
|
No. of candidates reported
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1148
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|
(b) No. of organisations who
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|
|
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participated
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39
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|
(c)
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No. of interview teams
|
65
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(d)
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No. of jobs offered
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198
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(e)
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No. of jobs accepted
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184
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|
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and
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(f)
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Percentage
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16.3
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Highest salary offered :
— International posting — Rs.21 lacs p.a.
— Indian posting — Rs.12 lacs p.a.
Minimum salary offered :
— Fresh C.A. — Rs. 5 lacs p.a.
— Experienced C.A. — Rs. 6 lacs p.a.
Average salary offered :
— Rs. 7 lacs p.a.
ii) Transfer or Termination of Articleship (page 354) :
Regulation 56(1) of C.A. Regulations has been modified as under :
a. Transfer/Termination of Articles is permitted without any restriction during the first year of articles.
b. During rest of the articleship period on satisfying any one or more of the conditions as stated below :
Medical grounds requiring discontinuance of articles for a minimum period of three months, on production of a medical certificate issued by a government hospital.
Transfer of parent(s) to another city.
Misconduct involving moral turpitude.
Other justifiable circumstances/reasons.
iii) ICAI publications :
a) A study on Foreign Contribution Regulation Act, 1976.
b) GST in India & Role of Chartered Accountants.
iv) New Branch in Western Region :
ICAI has opened a new branch in Western Region at Latur w.e.f. 1-7-2010 (P. 358).
(v) e-Journal :
New Hi–Tech Journal has been launched by ICAI. In this Journal one can ‘listen’ the contents of C.A. Journal every month (P. 9).
C.A. Examination results :
CPT (June, 2010) :
|
|
A
|
P
|
%
|
|
|
|
|
|
|
Boys
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83,664
|
21,218
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25.36
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|
|
|
|
|
|
Girls
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43,979
|
13,950
|
31.72
|
|
|
|
|
|
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Total
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1,27,643
|
35,168
|
27.55
|
|
|
|
|
|
PEE-II, PCE AND IPCE (May, 2010) :
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|
|
PEE-II
|
|
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PCE
|
|
|
IPCE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A
|
P
|
%
|
A
|
P
|
%
|
A
|
P
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Both Groups
|
4,338
|
85
|
1.96
|
44,687
|
6,065
|
13.57
|
20,135
|
2,473
|
12.28
|
|
|
|
|
|
|
|
|
|
|
|
|
Gr. I
|
6,912
|
819
|
11.84
|
11,384
|
2,442
|
21.45
|
52,923
|
8,730
|
16.49
|
|
|
|
|
|
|
|
|
|
|
|
|
Gr. II
|
9,357
|
841
|
8.98
|
17,774
|
6,024
|
33.89
|
22,416
|
3,804
|
16.97
|
|
|
|
|
|
|
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Final (May 2010) :
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Final
(Old course)
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Final (New course)
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|
|
|
|
|
|
|
|
|
|
A
|
P
|
%
|
A
|
P
|
%
|
|
|
|
|
|
|
|
|
|
Both Groups
|
13,242
|
458
|
3.46
|
7,424
|
487
|
6.56
|
|
|
|
|
|
|
|
|
|
Gr. I
|
20,049
|
2,897
|
14.45
|
8.840
|
1,166
|
13.19
|
|
|
|
|
|
|
|
|
|
Gr. II
|
26,517
|
2,552
|
9.62
|
8,670
|
683
|
7.88
|
|
|
|
|
|
|
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The pass percentage in Final Examination (old course) in previous years was as under :
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Both Groups
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Gr. I
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Gr. II
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|
|
|
|
|
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May 2010
|
3.46
|
14.45
|
9.62
|
|
|
|
|
|
|
Nov. 2009
|
7.86
|
19.87
|
10.11
|
|
|
|
|
|
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June 2009
|
13.85
|
32.42
|
15.03
|
|
|
|
|
|
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Nov. 2008
|
20.27
|
27.82
|
24.15
|
|
|
|
|
|
From the above, it is evident that the trend of pass percentage in Final (old course) is declining in successive examinations. This is a grave cause for concern when Nov. 2010 is the last chance for students appearing under the old course. If this trend continues, over 50,000 students who have studied under the old course will have to appear from May, 2011, for Final examination under the New Course.
