ICAI And Its Members

    In the case of ICAI vs. Y.M. Mansuri, the Commissioner of Income tax filed a complaint alleging that, in his statement u/s. 131, the member admitted that the audit u/s. 44 AB of the Income- tax Act in his clients’ case was conducted in January/February but the audit report in Form 3CB was backdated i.e., 30th October to avoid penalty in his clients’ case u/s. 271 B. It was noticed that there were no markings in the books of accounts of the assessee and it was found that the books and other records were not verified and that audit report u/s. 44 AB was given without conducting the audit.

    The Disciplinary Committee as well as the Council of ICAI found the member guilty of professional misconduct and recommended that the name of the member be removed from the Register of Members for a period of six months.

    The Gujarat High Court has accepted the above findings of the Disciplinary Committee and the Council of ICAI. The defence of the member was that there was no loss of Government revenue. The High Court has observed, “Though, in financial terms, the member may be correct in stating that there is no loss of revenue, but the said contention is bereft of any substance when the underlying idea of obtaining tax audit report is considered”. The High Court has also observed, “Once statutory obligation is cast on a person and such statutory obligation provides for a period of limitation within which a particular document is required to be submitted, failure to do so within prescribed period of limitation is, by itself, liable to be visited with penalty, unless explained by a reasonable cause.” In conclusion the High Court has accepted the recommendation of the Council of ICAI to remove the name of the member from the Register of Members for six months (C.A. Journal, May 2009, page 1879).

2. Accounting for expenditure on development of corporate portal

    The Expert Advisory Committee (EAC) of ICAI has given the following opinion in the case of a Government company at Pages 1882-83 of C.A. Journal for May, 2009.

(i) Facts

(a) During the year 2005-06, the company had awarded a contract for design and development of corporate portal of the company to M/s. XYZ Ltd. at Rs.32.20 lacs. The corporate portal is leveraging the web/Internet technologies/tools for dissemination of information and allows a familiar, easy to use web. The portal is being accessed through Internet and/or Intranet. The portal is facilitating the users throughout the enterprise to access a wide variety of information, e.g., company’s announcements, tender calendar, etc. Also employees of the company can view human resource details. Portal is also helping in the speedy and efficient dissemination of information.

(b) The company has stated that an amount of Rs.32.20 lacs was incurred on development of the web portal. As per the accounting policy adopted by the company, the amount incurred on development of the web portal was capitalised along with the computer/server. A disclosure in this regard was given in the notes to the accounts.

(c) During the course of audit, the C & AG suggested that Rs.32.20 lacs should be separately shown as an Intangible Asset as required under AS -26 dealing with ‘Intangible Assets’. According to the company it was clarified that in its case AS-10 dealing with ‘Accounting for Fixed Assets’ was applicable.

(ii) Issue before EAC

The company sought opinion of EAC on the question as to whether AS-10 or AS-26 applied in such a case.

(iii) Opinion of EAC

    EAC has observed in para 11 of its opinion as under :

    “11. The Committee notes from the facts of the case that the company has capitalised the application software internally developed by the company along with the web application server and data-based server for which the reason is stated to be that the application software is an integral part of the web application server and data-based server and that the said computer machines were not supposed to be operated as stand-alone machines. In this regard, the Committee notes that application software is a software program running on the top of the operating system that has been created to perform a specific task for a user. The said computer machines can still be run through the operating system without the application software, though not for the desired tasks. Thus, the Committee is of the view that the application software cannot be treated as an integral part of the related machines and cannot be capitalised along with the said computer machines. Accordingly, in the view of the Committee, the computer software under consideration should be treated as separate internally developed intangible asset, provided it meets the requirements of AS-26.”

3. Peer review of audit firms of listed companies

    An important announcement of ICAI on this issue is at page 1991 of C.A. Journal for May, 2009. This reads as under :

“The Council of ICAI accepted the recommendation of SEBI that for appointment as an auditor of listed companies for accounting periods commencing on or after April 1, 2009 the auditor firms/practice units must have a certificate from the Peer Review Board of the Institute. Further, the Council also accepted the recommendation of SEBI that the financial statement of an unlisted company coming out with an initial public offer (IPO) should also be certified by the audit firms/practice units who have been issued a certificate from the Peer Review Board. The firms who have already been selected for peer review and their review is in progress at different stages may gear up their peer review process and ensure that their final report is submitted by the reviewer to the Board at the earliest. In order to complete the peer review exercise timely and smoothly, all the practice units and reviewers are hereby requested to expedite their peer review process. Firms who are interested in getting themselves peer reviewed may contact the Peer Review Board by emailing their request at peerreviewboard@icai.org. The mail should also indicate whether the firm is undertaking audit of listed companies as of now. For any further queries you may contact CA. K. Raghu, Chairman, Peer Review Board at kraghu9999@gmail.com.”

4. Internal auditor cannot be tax auditor– Clarification by ICAI

The Council in its 281st meeting held from 3rd to 5th October, 2008 decided that an internal auditor of an assessee, whether working with the organisation or an independently practising Chartered Accountant being an individual chartered accountant or a firm of chartered accountants, cannot be appointed as its tax auditor.

The said decision came into force from December 12, 2008. As per the decision an internal auditor cannot carry out tax audit on or after December 12, 2008. Subsequently, representations have been made pointing out the hardship being caused by the above said decision in respect of those internal auditors who have been appointed as tax auditors for the financial year 2008-09 on or before December 12, 2008. The Council considering this hardship has decided that the decision taken by the Council at its meeting between 3rd to 5th October, 2008 shall be applicable to all appointments as tax auditor made on or after December 12, 2008 and accordingly those internal auditors whose appointments have been made as tax auditors before December 12, 2008, can carry out the tax audit of the financial year ending on March 31, 2009, i.e., Assessment Year 2009 – 10 only.

5. ICAI move to check dummy articleship

a) The coaching classes shall not continue after 9.30 a.m./or start before 5.30 p.m. so as to enable the articled/ audit assistants to concentrate wholly on practical training.

b) Members of the Institute who are engaged in coaching be advised not to undertake coaching  between 9.30 a.m. and 5.30 p.m.

c) An articled assistant should undergo practical training in accordance with the guidelines of the Institute between 10.30 a.m. and 5.30 p.m. During the period an articled assistant shall not be permitted to attend colleges / other institutions for graduation or any other course.

d) Every articled/ audit assistant shall submit once in a year a specific declaration duly countersigned by the principal to the effect that he is regularly attending training and his college hours do not clash with his articles timings and that no coaching is undertaken by him between 9.30 a.m. and 5.30 p.m. on any working day. In the event of breach of these guidelines and not taking permission as required, the articles already undergone shall be derecognised for such period as the Institute may decide.

e) Every articled/audit assistant shall be required to maintain mandatorily the Work Diary in the form to be prescribed by the Board of Studies.

f) The Institute to call for at random training report along with attendance record and stipend details and also Work Diary maintained by articled / audi t assistant from any member / firm in respect of any articled assistant at any point of time during the period of practical training for verification.

g) In case an articled  assistant  is found  not undergoing articles in the manner prescribed, he shall be debarred from appearing in the exam up to 3 consecutive exams besides cancellation of such period of articles. The concerned member who allowed such an articled assistant be subject to punitive action besides withdrawing either partly or fully his eligibility to train articled assistant. In Peer review, the reviewer be required to verify whether training is imparted to the articled assistant in the manner prescribed.

h) No request for termination of articles is entertained from any articled assistant in general and more particularly during the first six months and also during the last twelve months of articles except as provided in the Regulations. In the event of termination, his articles shall not be registered in the same city.

i) No request of an articled assistant for termination (transfer) of articleship shall be considered unless his/her working parent(s) is/are transferred from the city / place where the articled assistant is receiving training to another city and a copy of transfer order/proof is submitted to the principal in proof thereof. On such
termination the articled assistant concerned shall join articles training in and around the place of posting of his/her parent (s) and shall not re-register articles in the same city or within 50 kms radius of the city where he/she has undergone articles prior to such termination.

j) If the articled assistant is not able to serve the articleship for specified genuine medical reasons, thereby opting to discontinue the CA course for a period of at least three months, the termination of articles be permitted, provided that the medical grounds are such that warrant termination of articleship.

k) In the event of misconduct  involving moral turpitude, gross negligence or unsatisfactory performance of the articled assistant, his articles shall be liable to be terminated by his principal besides being cancelled or extended for such period as may be decided by the Institute. Board of Studies to decide and enumerate the acts constituting misconduct.

l) Termination of articles be permitted on such other justified circumstances as my be deemed genuine by the Council.

m) While forwarding the Form No.109 the principal shall state specifically the clause (the relevant clause mentioned above) under which the articles have been terminated.

6. ICAI News

(Note:    Page Nos. given below  are from C. A. Journal  for May, 2009).

i) Working hours of articled assistants

In May, 2009, issue of BCA Journal some details on the above issue were given from a communication of the secretary dated 3.4.2009. Now detailed guidelines on the subject are published on page 1989.
 
ii) Amendment   of Form  3 CD u/s. 44 AB

In Form 3 CD after item No.17, item No.17 A as under is added-

“17A. Amount of interest inadmissible under Section 23 of the Micro, Small and Medium Enterprises Development Act, 2006”. (Refer page 1876).

iii) Panel  of arbitrators

ICAI is maintaining a panel of arbitrators. The names of the members who have undergone the Certificate Course successfully as stated on page 1932 is included in the panel.

iv) Guidelines   for network

The guidelines for network amongst the firms of Chartered Accountants have been revised. The revised guidelines are published at pages 1964-1969.

v) Perspective  Planning  Committee

The Perspective Planning Committee of ICAI has submitted its Survey Report in February 2009. Detailed findings of this survey can be obtained from ICAI website’ Announcements’ page dated 6.2.2009. Synopsis of this report is published at pages 1974-1977.

vi) Membership   fees  for 2009-10

The membership fees for 2009-10 are due on 1.4.2009. Announcement for this purpose is at page 1988.

(vii) Formation of CPE Study Circles for members in industry

ICAI has developed the norms for formation of CPE study circles which will cater the needs of members in industry – Details of these norms are published on pages 1992-1995.

(viii)Advisory for Multipurpose Empanelment Form for 2009-10

The last date for submitting of applications for Empanelment Form in 15.6.2009. This Form has been simplified and the same has been published on pages 1996-2000.

ix) Accounting Standard (AS-11)

In May 2009 issue of BCAS Journal the issue relating to amendment of AS-ll dealing with ‘The Effects of Changes in Foreign Exchange Rates’ has been discussed. ICAI has now clarified that this amendment is applicable to corporates registered under the Companies Act, 1956. In other words, AS-ll as issued by ICAI will apply to all entities other than companies. It may be noted that by this amendment of AS-II, para 46 is added in AS-11 by Government Notification. Para 46 gives option to follow the revised procedure to all enterprises. Therefore, it is difficult to understand how the amendment can be restricted to only companies. Let us hope that ICAI reconsiders its view.

x) New  publications   of ICAI

a) Technical Guide on Information Systems Audit (P.1982).

b) Technical Guide on Systems Audit of Stock Brokers (P.1982).

c) Technical Guide on Share Valuation (P.1984).

d) Technical Guide on Revenue Recognition for Software (P.1984).

e) Technical Guide on Accounting for Micro-Finance Institutions (P.1985).

f) Technical Guide on Internal Audit of StockBrokers (P.1986).