1. Disciplinary case :
Case of ICAI v. Shri Deepak Parti and Anr. is reported on page 1424 of C.A. Journal for March, 2010. In this case, the complainant alleged that the member, in his capacity as Vice-Chairman, promoted an NBFC (M/s. Schematic Finance Ltd.). The complainant and her son were regularly investing funds in this NBFC. The NBFC used to give post-dated cheques for redemption money and interest. One of the deposits for Rs.6.70 lacs was made and NBFC gave post-dated cheque for this amount and interest due. This cheque when deposited in the bank, was returned unpaid. On inquiry, the complainant found that the NBFC company had closed its office. The matter was referred to the Company Law Board. The CLB fixed dates for repayment in instalments, but the CLB order was not complied with.
When the matter was referred to the disciplinary committee, it held that the member was guilty of ‘other misconduct’. The Council accepted this finding and referred the matter to the High Court with a recommendation that the name of the member be removed from the Register of Members for a period of six months.
The member did not appear before the Delhi High Court. On consideration of the report of the disciplinary committee and the finding of the Council, the High Court held that the name of the member be removed from the Register of Members for a period of six months.
2. Some ethical issues :
The Ethical Standards Board has considered some ethical issues and given its views on page 1406 of CA Journal for March, 2010. Some of the issues as decided by ESB are as under :
(i) Whether communication with previous auditor is necessary in case of appointment as statutory auditor by nationalised and other banks ?
Ans. : Clause (8) of Part I of the First Schedule to the CA Act is equally applicable in case of nationalised and other banks and also to Government agencies and, therefore, such communication is necessary.
(ii) Whether communication by the incoming auditor is mandatory with the previous auditor in respect of various audit assignments, like the concurrent audit, revenue audit, tax audit and special audits, etc. ?
Ans. : The requirement for communicating with the previous auditor would apply to all types of audits viz., statutory audit, tax audit, internal audit, concurrent audit or any other kind of audit. The Council has laid down detailed guidelines in this regard and the same are appearing at pages 166–168 of the Code of Ethics, 2009.
(iii) Whether a Chartered Accountant will be deemed to be guilty of professional misconduct if he accepts his appointment as an auditor immediately after intimating his appointment over the phone to the previous auditor ?
Ans. : The member would be held guilty of professional misconduct for the following reasons :
(a) That he had failed to communicate with the retiring auditor in writing; and
(b) That he did not wait for a reasonable length of time for a reply to be received from him.
(iv) Whether a Chartered Accountant can accept an appointment as auditor of a company without first ascertaining from it whether the requirements of S. 225 of the Companies Act, 1956 in respect of such appointment have been duly complied with ?
Ans. : As per clause (9) of Part I of the First Schedule to the CA Act, a Chartered Accountant in practice shall be deemed to be guilty of professional misconduct if he accepts an appointment as auditor of a company without first ascertaining from it whether the requirements of S. 225 of the Companies Act, 1956 in respect of such appointment have been duly complied with. In this regard, the Council has laid down detailed guidelines that are appearing at pages 188–196 of the Code of Ethics, 2009.
(v) Whether a statutory auditor can be appointed in the adjourned meeting in place of existing statutory auditor where no special notice for removal or replacement of the retiring auditor is received at the time of the original meeting ?
Ans. : If any annual general meeting is adjourned without appointing an auditor, no special notice for removal or replacement of the retiring auditor received after the adjournment can be taken note of and acted upon by the company, since in terms of S. 190(1) of the Companies Act, 1956, special notice should be given to the Company at least fourteen clear days before the meeting in which the subject matter of the notice is to be considered. The meeting contemplated in S. 190(1) is undoubtedly the original meeting.
(vi) Whether a Chartered Accountant in practice is entitled to accept teaching assignment ?
Ans. : A Chartered Accountant in practice is allowed to accept teaching assignment in university, affiliated colleges, educational institution, coaching organisation, private tutorship under a specific permission of the Council, provided the direct teaching hours devoted to such activities taken together do not exceed 25 hours a week.
3. Treatment of preliminary expenses incurred on incorporation of a company:
i) Facts:
A company was incorporated in May, 2008 as a wholly-owned subsidiary of a Government of India enterprise under the administrative control of the Ministry of Oil & Natural Gas to implement city gas distribution by participating in the bidding process of the Petroleum & Natural Gas Regulatory Board (PNGRB) and also to set up CNG stations across the National Highway Corridor. The company spent an amount of Rs.1.26 crore towards incorporation expenses (preliminary expenses) during the period May 27, 2008 to March 31, 2009.
As the company had not started the commercial production, the ‘Statement of Incidental Expenditure During the Construction’ (IEDC) had been prepared instead of profit and loss account, complying with the specific requirements of Part II of Schedule VI to the Companies Act, 1956, giving suitable disclosure of specific items of expenditure.
The company had also incurred other pre-operative expenses. It had shown the preliminary expenses and pre-operative expenses in the statement of IEDC. The expenditure under the head IEDC was allocated to capital work-in-progress to be capitalised in future as part of Fixed Assets (AS-10). The company was of the view that the ‘start-up’ cost included expenses incurred for formation expenses of the company (preliminary expenses) as per para 56 of AS-26.
ii) Query:
The question before the Expert Advisory Committee (EAC) was whether the accounting treatment of pre-liminary expenses adopted by the company was in compliance with existing Accounting Standards and other generally accepted accounting principles?
iii) EAC opinion:
The committee, after considering paragraph 56 of AS-26 — ‘Intangible Assets’ and paragraph 9(3) of AS-10
— ‘Accounting for Fixed Assets’, came to the conclusion that the start-up costs of the nature of incorporation expenses (preliminary expenses) incurred for bringing the enterprise into existence in its corporate form cannot be said to be attributable to bringing an asset/project into existence. The requirements of AS-26 would apply to the expenditure incurred on incorporation of the company and not the requirements of AS-10. Accordingly, in accordance with AS-26, such preliminary expenditure should be expensed by way of a charge to the profit and loss account in the period in which these are incurred. Therefore, the committee was of the view that for this purpose profit and loss account will have to be prepared by the company even before the commencement of commercial operations. Since, the company has treated incorrectly the said expenditures in the year of incurrence, it should rectify this mistake in the next year as prior period items in accordance with AS-5. “Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting Policies”.
(Please refer pages 1425–1426 of C.A. Journal of March 2010)
4. New Committees of the Council:
The Council of ICAI has formed 6 statutory commit-tees and 28 non-statutory committees on 12-2-2010 for one year. Names of chairmen and vice-chairmen of these committees are as under:
i) Statutory Committees:
a) Chairman and Vice-Chairman of Executive, Examination, Finance and Disciplinary Committee (under old regulation) are
Shri Amarjit Chopra (President) and Shri G. Ramaswamy (Vice-President), respectively.
b) Board of Discipline —
Chairman Shri Amarjit Chopra
Disciplinary Committee (Under New S. 21B)— Chairman Shri G. Ramaswamy.
ii) Non-Statutory Committees — (Some Names)
a) Accounting Standards Board
CA Manoj Fadnis (C) and CA S. Santhanakrishnan (VC)
b) Auditing & Assurance Standards Board
CA Abhijit Bandyopadhaya (C) and CA R. S. Adukia (VC)
c) Audit Committee
Shri K. P. Shashidharan (C) and CA S. K. Agarwal (VC)
d) Board of Studies
CA Vinod Jain (C) and CA V. Murali (VC)
e) Direct Taxes Committee
CA J. P. Gokhale (C) and CA M. Devaraja Reddy (VC)
f) Indirect Taxes Committee
CA Bhavana Doshi (C) and CA M. N. Hiregange (VC)
g) Ethical Standards Board
CA Jaydeep Shah (C) and CA K. Raghu (VC)
h) Expert Advisory Committee
CA S. K. Maheshwari (C) and CA Anuj Goyal (VC)
i) International Taxation Committee
CA M. P. Sarda (C) and CA Dhinal A. Shah (VC)
j) Professional Development
CA Pankaj Jain (C) and CA C. S. Nanda (VC)
(For details please refer P. 1493-1497 of C.A. Journal for March, 2010)
5. Auditing Standards:
a) The following Revised Standards on Auditing (SA) have been published in C.A. Journal for March, 2010 at pages stated below. They will apply to Financial Statements for periods beginning on or after 1-4-2010.
i) SA 200 (Revised) — Overall objectives of the Independent Auditors and the Conduct of Audit in Accordance with Standards on Audit-ing (P. 1508–1520).
ii) SA 220 (Revised) — Quality Control for Audit of Financial Statements (P. 1521–1527).
iii) SA 501 (Revised) — Audit Evidence — Specific Considerations for Selected Items (P. 1528– 1530).
iv) SA 505 (Revised) — External Confirmations (P. 1531–1535).
v) SA 520 (Revised) — Analytical Procedures (P. 1536–1539).
vi) SA 620 (Revised) — Using the Work of an Auditor’s Expert (P. 1540-1545)
b) The following Exposure Draft is published on Standard on Assurance Engagements (SAE) 3000:
Assurance Engagements other than Audits or Reviews of Historical Financial Information (P. 1546– 1553).
6. ICAI News:
(Note : Page Nos. given below are from C.A. Journal for March, 2010)
i) New Branches of ICAI:
The following new Branches have been opened by ICAI on 13-1-2010 (P. 1505–1506):
a) Tirupati (SIRC)
b) Bhavnagar (WIRC)
c) Pali (CIRC)
d) Shri Ganga Nagar (CIRC)
e) Ratlam (CIRC)
ii) ICAI New Publications (P. 1498-1500):
a) e-learning CD on Windows, Network & Wi-Fi Security — An Intro.
b) e-learning CD on IS Security, Cyber Threats & Review — An Intro.
c) Technical Guide on IT Migration Audit.
d) Study on Compliance of Financial Reporting Requirements.
e) Technical Guide on Internal Audit of Treasury Functions in Banks.
iii) CA Examinations (P. 1501-1502):
a) PE II, PCE, IPCE and Final Examinations — 3rd to 17th May, 2010.
b) CPT — 20th June, 2010.
