ICAI and its members

The Ethical Standards Board of ICAI has given answers to some Ethical Issues on pages Page 760 to 762 of the C. A. Journal for December, 2014. Some of these issues are as under:

i) Issue:
Whether a member can appear on television/Radio or give lectures at Forums?

Response:
Council direction under Clause(7) of Part I of the First Schedule to the C.A. Act prescribes that a member may appear on television/Radio or give lectures at forums and may give his name and describe himself as chartered accountant. Special qualifications or specialised knowledge directly relevant to the subject matter of the programme may also be given. But no reference should be made, in the case of practicing member to the name and address or services of his firm. What he may say or write must not be promotional of him or his firm but must be an objective professional view of the topic under consideration.

(ii) Issue: Whether a Chartered Accountant in practice can use expression like Income tax Consultant, Cost Accountant, Company Secretary, Cost Consultant or a Management Consultant?

Response:
Council direction under Clause (7) of Part I of the First Schedule to the C.A. Act prescribes that it is improper for a Chartered Accountant to state on his professional documents that he is an Income tax Consultant, Cost Accountant, Company Secretary, Cost Consultant or a Management Consultant, whereas it is permitted to mention his degrees.

(iii) I ssue: Whether a Chartered Accountant/Firm is permitted to use logo on letter-heads, stationery, etc.?

Response:
The use of logo/monogram of any kind/form/style/design colour etc whatsoever on any display material or media e.g. paper stationery, documents, visiting cards, magnetic devices, internet, signboard by the Chartered Accountant, firm of Chartered Accountants is prohibited. Use or printing of member/firm name in any other manner tantamounting to logo /monogram is also prohibited. However, a common CA logo has been allowed to the members, provided it is used in the correct manner within terms of the Council guidelines.

(iv) Issue:

Whether a Chartered Accountant in practice can engage in any business or occupation other than the profession of Chartered Accountancy?

Response:
In terms of Clause (11) of Part I of First Schedule to the C.A. Act a Chartered Accountant in practice is not permitted to engage himself in any business or occupation other than the profession of Chartered Accountants.

However, there are the following exceptions to it: (i) A Chartered Accountant can be a Director of a Company (not being a Managing Director or Whole – Time Director), provided he, or any of his partners or the firm in which he is a partner is not Auditor of such Company.

(ii) A Chartered Accountant in practice may engage in any business or occupation with the permission granted in accordance with a Resolution of the Council. Appendix-9 of the Chartered Accountants Regulations, 1988 contains the above resolutions under two heads (A) permission granted generally and (B) permission to be granted specifically.

(v) Issue:
If a member is a partner in more than one firm, is it permissible to print the names of all the firms on visiting cards, letter-heads, stationery etc.?

Response:
There is no violation under Clause (7) of Part I of the First Schedule to the C.A. Act.

2. EAC Opinion Determination of Stage of Completion in Construction Contracts

Facts:
A company incorporated under Companies Act, 1956, is a state public sector undertaking (PSU) and is a wholly owned by the Government of Odisha. The company is an unlisted public company.

The company has stated that since the company has been incorporated specifically for execution of projects of Home Department of the Government of Odisha, it does not participate in tender for obtaining orders from various Government departments.

Further, the company has stated that the revenue is recognised on the basis of contracts executed by the company, which are in the nature of fixed price contracts. Since the company is executing more than 2,000 projects at a time, it is not practically possible for the company to estimate the contract cost to complete the balance work and calculate the stage of contract completion as on the balance sheet date. Furthermore, since there is no correlation between the estimated cost and actual cost of execution, it is not practically feasible to derive the outcome of such huge number of projects unless and until the projects are completed and handed over to the user departments.

Query:
On the basis of the above, the company has sought the opinion of the EAC as to whether the accounting procedure followed by the company for recognition of revenue and expenditure, which is as per Para 31(a), 31(b) and 32 of AS 7 is in conformity with AS 7 or not.

EAC Opinion:
The Committee notes from the Facts of the Case that the company, on the basis of inquiry received from the various Government departments, submits estimates for each project separately as per Odisha Public Works Department (OPWD) Schedule of Rates (SoR). The estimates are submitted after including cost of materials, labour, other overheads and supervision charges which includes its profit margin.

The Committee further notes from the Facts of the Case that the Company has stated two reasons for it not being able to measure the outcome of the project reliably. Firstly, it is stated that the company is executing large number of projects due to which it is not practically possible to estimate the contract cost to complete the balance work and calculate the state of completion as on the balance sheet date. Secondly, it is stated that since there is no correlation between the estimated cost and actual cost of execution due to estimates being based on SoR, it is not practically feasible to derive the outcome of such huge number of projects unless these are completed and handed over to the user departments.

As far as the first reason for not measuring the outcome of the project reliably due to practical difficulties of having large number of projects is concerned, the Committee notes that AS 7 identifies certain situations/conditions wherein, in fixed price contracts, it can be stated that the outcome of the project cannot be estimated reliably. The Committee notes that as per AS 7 in case of fixed price contracts, ordinarily, the company would be able to estimate the outcome of the contract reliably.

Therefore, it should recognise the contract costs and revenue based on stage of completion of the contract. The Committee also notes that as per the provisions of AS 7, stage of completion of a contract can be determined either by reference to the contract costs incurred or by reference to physical completion of the contracts using survey of work performed or completion of a physical proportion of the contract work method. The Committee is of the view that only practical problems due to large number of projects cannot be considered as a ground for not being able to estimate the outcome of the contract reliably as even in large number of projects where the stage of completion is being determined by reference to contract cost incurred, the company, on the basis of estimates of various costs, such as, labour, materials, etc. would generally be able to reasonably estimate the outcome of various projects. However, for this purpose, in order to overcome the practical difficulties, due to number of projects, the company should develop an effective reporting system from all the projects to obtain the data for determining the stage of completion as per AS 7.

As far as the second reason of no correlation between the estimated cost and actual cost of execution of the contract, the Committee is of the view that although for submission of an estimate for a project to the Government departments, it might be essential for the company to use the rates given in Sor, for the purposes of implementation of AS-7, estimates should be based on the costs expected to be incurred on the project and should also be revised from time to time depending on the changes in the circumstances. The Committee is of the view that for this purpose, the company should develop an effective budgeting system so as to have the reliable data available for estimating the outcome of the contracts at any stage and for determining the stage of completion. the Committee is of the view that a proper budgeting and reporting system is not only required from the angle of implementation of aS 7 but it also necessary to effectively manage various contracts.

The  Committee further  notes that the company has  stated that the amount of surplus or deficit in a particular project is not included in the revenue of that project, during a particular year, unless and until the project is completed and handed over to the user departments. On the basis of above, the Committee is of the opinion that accounting procedure followed by the company is not in accordance with the requirements of aS 7.

[Pl. refer page nos. 791 to 797 of the C. a. journal – december, 2014]

3 ICAI news
(Note:  Page numbers given below are from the C.A. journal for december, 2014)

(a)    ICAI geared up for IFRS convergence new/revised ind aS converged with ifrS will be notified by December end by the Ministry of Corporate Affairs. ICAI has already started a nation wide exhaustive exercise to train the members in the new indian accounting Standards and foresee a global demand of indian Cas with IFRS expertise. New ind as can be applied voluntarily from 2015-16 and will be made compulsory from 2016-17 (P. 746-747)

(b)    Guidance Note on reporting on internal financial Controls would be available shortly at offices of Regional Councils of ICAI. However, on a representation made by ICAI, the MCA  has amended rules for Chapter 10 (audit and auditors)  of  the  Companies act,  2013  and  reporting on internal financial Control  u/s. 143(3)(i) has been deferred for one year i.e., upto 31st march,2015. (P.747)

(c)    Report on Campus Placement Programme – August – September – October, 2014

Brief summary of the Campus Placement Programme _ august – September – october, 2014.

Top CTC offered for domestic posting

Highest Salary offered for international Posting was rs. 24,00,000/- (p.a) to 4 Candidates. (P. 866-877)

(d)    Secretary of ICAI

Shri T. Karthikeyan who served the iCai for 37 years retired as Secretary on 31-10-2014. our best wishes to Shri Karthikeyan for a healthy and peaceful retirement.

Shri V. Sagar has been appointed as acting Secretary of iCai. our best wishes to him for a successful term in office (P.749)

(e) ICAI President elected as Member of IFAC Board: Shri  K.  Raghu,  ICAI  President  has  been  elected  as  a member of the Board of international federation of accountants (IFAC) on 7th november, 2014. He will hold this office for a period of 3 years. Our Greetings and best wishes to Shri K. raghu for this achievement.   We wish him a successful term of office. (P.750).