1. Code of ethics
The Ethical Standards Board of ICAI has considered some of the ethical issues. These are published in C.A. Journal of January 2012, at pages 1002 and 1004. Some of these issues are as under.
(i) Issue: Can a member publish a change in partnership or change in the address of practice and telephone numbers?
A member can publish a change in partnership or change in the address of practice and telephone numbers. Such announcements should be limited to a bare statement of facts and consideration given to the appropriateness of the area of distribution of the newspaper or magazine and number of insertions.
(ii) Issue: Can the details of a student passing examination be published in local press?
It is for local papers to publish details of the examination success of local candidates. Some biographical information is often included. The candidate’s name and address, school and local background, examination passed with details of any prize or place gained, the name of the principal, firm and town in which the principal practices may be published.
(iii) Issue: Can a concurrent auditor of a bank also undertake the assignment of quarterly review of the same bank?
The concurrent audit and the assignment of quarterly review of the same entity cannot be taken simultaneously as the concurrent audit is a kind of internal audit and the quarterly review is a kind of statutory audit. It is prohibited in terms of the ‘Guidance Note of Independence of Auditors’.
(iv) Issue: Is a member holding certificate of practice entitled to own agricultural land and continue agricultural activity?
A member holding certificate of practice can own and hold agricultural land and continue agricultural activity through hired labour.
(v) Issue: Can a member act both as tax auditor and internal auditor of an entity?
A tax auditor of an entity cannot act as internal auditor of that entity for the same F.Y. Similarly, an internal auditor cannot accept tax audit assignment of the same entity in the same F.Y.
(vi) Issue: Can a member in practice have a branch office/additional office/temporary office?
A member can have a branch office. In terms of section 27 of the CA Act, if a Chartered Accountant in practice or a firm of Chartered Accountants has more than one office in India, each one of such offices should be in the separate charge of a member of the Institute. Failure on the part of a member or a firm to have a member in charge of its branch and a separate member in case of each of the branches, where there are more than one, would constitute professional misconduct.
However, exemption has been given to members practising in Hill Areas, subject to certain conditions.
It may be clarified that a chartered accountant in charge of the branch of another firm should be associated with him or with the firm either as a partner or as a whole-time employee. However, a member can be in charge of two offices if they are located in one and the same accommodation.
2. Chartered Accountants (Amendment) Act, 2010
The above Act has been passed by both Houses of Parliament in December 2011. It amends the CA Act, 1949 and the amendments shall come into force when the Central Government issues the notification to this effect. Some of the important amendments in the CA Act made by this Amendment Act are as under.
(i) A firm of Chartered Accountants has now been defined to include (a) a sole proprietorship concern, (b) a partnership firm defined in the Indian Partnership Act, 1932 and (c) a limited liability partnership (LLP) as defined in the Limited Liability Partnership Act, 2008.
(ii) For the above purpose —
(a) The proprietor of a sole proprietorship concern should be a chartered accountant in practice.
(b) So far as a partnership firm or LLP is concerned it should have at least one partner who is a chartered accountant in practice and other partners may be members of other recognised professions as may be prescribed.
(iii) Similar provisions are made by amendments in the Cost & Works Accountants Act and the Company Secretaries Act. Therefore, if the councils of ICAI, Cost Accountants and Company Secretaries pass requisite regulations, it will be possible for one or more Chartered Accountants in practice to enter into partnership (including LLP) with Cost Accountants and Company Secretaries in practice. Incidentally, it may be mentioned that the name of the ‘Institute of Cost and Works Accountants of India’ has now been changed to ‘Institute of Cost Accountants of India.’
(iv) At present, the number of partners in a firm cannot exceed 20. The Companies Bill, 2011, which is before the Parliament, has removed this limit when professionals form a firm. Therefore, if this Companies Bill is passed, there will be no limit on the number of partners in a professional firm. Similarly, the LLP Act also provides that there is no limit on the number of partners in a LLP.
3. EAC opinion
Facts
Company ‘A’ Limited, a wholly-owned subsidiary of ‘B’ Ltd., is not a company in which public is substantially interested. ‘B’ Ltd. owns 15% shares in ‘C’ Ltd. With a view to acquire central over ‘C’ Ltd., the balance 85% shares of ‘C’ Ltd. were acquired by ‘A’ Ltd. from the other shareholders of ‘C’ Ltd. These shares were purchased in F.Y. 2010-11 at a value which was less than the prescribed value under Rule 11(UA) of the Income-tax Rules. Since the prescribed value was more than the purchase value of shares of ‘C’ Ltd. and the difference was more than Rs.50,000, the excess of the aggregate difference in value was liable to tax under the head ‘Income from Other Sources.’ ‘A’ Ltd. has paid tax on this deemed income determined u/s.52 (2)(viia). In addition to the above, the company has also incurred expenses on account of stamp duty, franking and bank charges in connection with the said acquisition of shares.
According to the company, the payments of income-tax u/s.56(2)(viia) has arisen out of the transaction of acquisition of shares and the company would not have incurred such an expense otherwise. Therefore, the said cost would be directly associated with purchase of such shares. Had the acquisition of these shares not been made, the company would not have incurred such costs.
On the basis of the above, the company sought the opinion of the Expert Advisory Committee (EAC) whether the payments of tax u/s.56(2)(viia) would qualify to be treated as part of the cost of investment in the balance sheet of the company in view of the explanation provided in paragraph 9 and 43 of Ind AS 39 read along with paragraph AG13 of Appendix to Ind AS 39.
Opinion
The Committee noted that although Ind ASs have been placed on the website of the Ministry of Corporate Affairs, these Standards have not yet been notified by the Ministry. Accordingly, till the Ind ASs are notified by the Ministry, the existing notified Accounting Standards would be applicable. Therefore, in the case of the company, the Committee is of the view that the transaction of acquisition of investment in shares would be governed by the existing notified AS-13.
With regard to accounting for the tax levied u/s.56(2)(viia) of the Income-tax Act, the Committee has considered AS-13, which provides that the cost of an investment ‘includes acquisition charges such as brokerage, fees and duties’. Keeping in view the nature of the item of acquisition charges mentioned in AS- 13, the Committee is of the view that the cost of acquisition should include only those direct charges which are incurred ‘on’ acquisition of investment, i.e., the expenses, without the incurrence of which, the transaction could not have taken place, such as, share transfer fees, stamp duty, registration fees, etc. The Committee has noted that tax paid u/s.56(2)(viia) is levied when consideration paid for acquisition of investment is lower than its fair market value for an amount exceeding Rs.50,000 and such lower consideration paid is deemed to be income of the assessee. Thus, this tax is not a tax ‘on’ acquisition of shares, rather it is a tax on ‘deemed income’ under the Income-tax Act. Accordingly, the Committee is of the view that such tax expense is not a cost incurred ‘on’ acquisition of investment, rather it is incurred after the transaction of the acquisition of investment. In other words, it is not a means of acquiring such investments; rather it is a result of such acquisition. Accordingly, such tax cannot be considered as acquisition-related cost and, therefore, cannot be capitalised as cost of investment. The Committee is further of the view that such tax paid should be treated as normal tax and charged off to profit and loss account in the year in which it is incurred.
The Committee, after considering the proposal Ind AS 39, is of the view that only those transaction costs that are directly attributable to the acquisition of investment can be capitalised with the investment. The Committee is of the view that although the tax levied u/s.56(2)(viia) may be considered as an incremental cost of acquisition of investment, it cannot be considered as ‘a directly attributable cost’.
(Please refer pages 1035 to 1037 of CA Journal, January 2012)
4. ICAI News
(Note: Page Nos. given below are from C.A. Journal for January 2012)
(i) General Amnesty Scheme for Members
The Executive Committee of the ICAI Council has, at its recent meeting, considered the question of putting a General Amnesty Scheme in place for members whose names have been removed on account of non-payment of membership fee with a view to facilitating such members restore their names with retrospective effect. The Committee has recommended to the Council that the members whose names stood removed in the past due to non-payment of membership fee be given an opportunity, by way of a General Amnesty Scheme, to restore their names, irrespective of the period of such removal, retrospectively on payment of applicable membership fees for the years during which the names were removed and for the current year i.e., 2011-2012. For this purpose, application should be made together with fee(s) of the intervening years(s), along with Form ‘9’ and the additional (restoration) fee of Rs.1,200.
The Committee has recommended that the above General Amnesty Scheme be kept in force up to 31st March 2012. (Page 993)
(ii) Empanelment of C.A. firms for audit of PSUS for 2012-13
The C & AG has issued the following Circular which is at page 1101.
Applications are invited from the firms of Chartered Accountants who intend to be empanelled with C & AG for appointment as auditors of Government companies/Corporations for the year 2012-2013. The format of application will be available on our website: www.cag.gov.in from 1st January to 15th February 2012. Chartered Accountant firms can apply/update the data showing the status of their firm as on 1st January 2012 and generate online acknowledgement letter for the year. They are also required to submit related documents (to be notified in this office website) to this office before 28th February 2012. Only the Chartered Accountant firms who have generated online acknowledgement letter for the year 2012-2013 and submitted the documents before the due dates will be considered for empanelment.
Any changes in the constitution of the firm oc-curring after the cut-off date of 1st January 2012 should continue to be updated in the website which will be available throughout the year. However, the changes in the firm occurring after 1st January 2012 till the time of preparing the panel that will lead to a reduction in rank of the applicant firm shall only be taken into account for ranking the CA firms.
(iii) New ICAI publications
(a) Compendium of Auditing Standards — up-dated to 1-10-2011
(b) Compendium of Guidance Notes on Auditing — updated to 1-10-2011
(c) Study Report on Accounting on Food, Fertilisers and Oil subsidy (page 1101)
(d) Compilation of Registration Provisions under VAT Laws of different States (page 995)
(e) Technical Guide on Internal Audit of Mutual Fund Industry (page 995)
(f) Guidance Note on Revised Schedule VI of Companies Act.
