By P. N. Shah
H. N. Motiwalla
Chartered Accountants
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Code of ethics
The Ethical Standards Board of ICAI has considered some ethical issues which are published in C.A. Journal for July, 2011, at pages 129-130. Some of these issues are as under:
(i) Issue: Can a Chartered Accountant advertise his professional attainments or services?
After amendment of the C.A. Act in 2006, it is not possible to issue any advertisement soliciting clients under para (6) of the Part I of Schedule I. However, other advertisements about professional attainments or services under para (7) of Part I of Schedule I are permitted. This is subject to the guidelines issued by the Council of ICAI. Detailed guidelines issued by ICAI are given on pages 129-130.
(ii) Issue: Whether a member can arrange business for Insurance companies?
In May, 2011 (page 1653) of C.A. Journal it was stated that this is not possible. It is now clarified that “A member is permitted to render Insurance Financial Advisory Services.” (page 130)
LLP of our members can be statutory Auditors
In the message from our President at P. 9 of C.A. Journal for July, 2011, it is stated that practising Chartered Accountants can now form Limited Liability Partnership (LLP). The Ministry of Corporate Affairs (MCA) has clarified in its Circular No. 30/2011, dated 26-5-2011 that an LLP of Chartered Accountants will not be treated as a Body Corporate u/s.2(7)(c) of the Companies Act. Therefore, such LLP of our practising members can now be appointed as statutory Auditors of a Limited company.
However, there is no clarification on the following issues:
(i) Whether such LLP of our members can be appointed as tax auditors under the Income- tax Act, State VAT Act, Public Trust Act or other similar legislation.
(ii) Whether such LLP can undertake tax representation work, management consultancy work or any other professional work which a Chartered Accountant is permitted under the C.A. Act.
(iii) Whether the name of such LLP as approved by the Registrar of Companies for registration of LLP will be accepted by ICAI and there will be no requirement for obtaining permission for name of C.A. firm under the C.A. Act and regulations.
(iv) Whether ICAI will give a separate Registration No. to such LLP and what will be the procedure for removal of the existing name of C.A. firm from the Register of Firms maintained by ICAI.
(v) Whether changes in constitution of such LLP which are required to be notified to ROC will also be required to be notified to ICAI.
(vi) If an existing C.A. firm is converted into LLP, there will be tax implications since the provisions similar to section 47(xiii) or section 47(xiii b) of the Income-tax Act have not been made when the I.T. Act was amended in 2010.
There will be some other procedural formalities to be followed by our members once this new concept of recognising LLP of our members for C.A. practice is introduced. Let us hope that ICAI will issue guidelines on these issues as early as possible.
Differences between IFRSs and IND AS
ICAI has issued a Note on pages 117 to 126 of C.A. Journal for July, 2011, explaining the changes made by the Ministry of Corporate Affairs (MCA) in Indian Accounting Standards (IND AS) on the recommendations by the National Advisory Committee on Accounting Standards (NACAS) and ICAI. The details of these changes are available on MCA website. It is clarified that IND AS will come into force when the MCA notifies them u/s.211(3)(c) of the Companies Act.
Certificate Courses offered by ICAI
Details about the following certificate courses offered by ICAI are given on pages 127 and 128 of C.A. Journal for July, 2011: Certificate courses on (i) Arbitration, (ii) Derivatives, (iii) Enterprise Risk Management, (iv) Forensic Accounting and Fraud Detection using IT and CAATs, (v) Forex and Treasury Management, (vi) Indirect Taxes, (vii) Internal Audit, (viii) International Taxation, (ix) Master in Business Finance and (x) Valuation.
EAC Opinion
Treatment of loss arising on sale of underperforming assets and associated liabilities to a group company of the supplier of the assets
Facts
A listed company had purchased 20 windmills. These windmills were installed at the site of the company. The supplier was paid in full at Rs.128 lakh per machine amounting to Rs.2560 lakh at debt: equity ratio of 75:25. The debts were funded by two nationalised banks. The machines installed were under operations and maintenance (O & M) for two years free of charge. The supplier had also executed a bond of performance guarantee of power generation of 5 lakh units per machine annually and individually with effect from the date of commissioning, and to compensate the shortfalls in the power generation at the prevailing State Electricity Board’s rate.
The company has stated that right from the inception, there were several problems in the power generation, land title, encroachment thereof and services. The company intimated the supplier regarding poor revenue generation and performance in respect of the 20 windmills. As per the company the supplier admitted and affirmed about the non-performance and low performance of the machines.
After prolong negotiation the company and supplier entered into a Memorandum of Understanding (MOU) dated 10th July, 2008. Now, one of the group companies of the supplier, after getting the sanction of the term loan for takeover of the assets and liabilities, will take over the assets and liabilities of the company in respect of the aforesaid machineries. On the transfer of assets by the company there will be no cash flows, but the accounts, viz. Windmill Generation Receivable Account, Supplier Account, Term Loan Account and Windmill Assets Account (WDV) will be squared off. This process of squaring off will result in the net loss of Rs.444 lakh (excess debit balance) to the company.
Query
On these facts the company had sought the opinion of the EAC as to whether the said loss of Rs.444 lakh arising out of the aforesaid windmill transaction can be amortised over a period of time or whether the said loss should be fully charged off in the year in which windmills are sold by the company.
Opinion
After considering paragraphs 78 and 96 of the Framework for the Preparation and Presentation of Financial Statements issued by the Institute of Chartered Accountants of India, the Committee has taken the view that an expenditure can be recognised as an asset only if it results into a resource controlled by the entity and some future economic benefits are expected to flow to the enterprise as a result of such expenditure. Since neither of the conditions is met in the case of the loss under consideration, it cannot be recognised as an asset and, therefore there is no question of amortisation thereof. Accordingly, such loss should be fully charged off to the profit and loss account when incurred.
(Refer pages 147 to 149 of C.A. Journal — July, 2011)
Achievements of some of the members of the accounting profession are listed on pages 167 of July, 2011 issue of C.A. Journal
(i) Shri K. S. Aiyar — considered as father of Indian Accountancy and the pioneer of commerce education in India. System of three years Articleship for students of our profession introduced by him.
(ii) Shri Sorab E. Engineer — He was the first Articled student of Shri K. S. Aiyar. Later on Shri Engineer was proclaimed as the Guru of our First President Shri G. P. Kapadia.
(iii) Indian Accountancy Board — constituted in 1932 and was the regulator for ‘Registered Accountants’ (RA) till the C.A. Institute was formed on 1-7-1949. Shri G. P. Kapadia was the first member of C.A. Institute with his membership number as ‘one’.
(iv) Institute Logo — suggested by the great nationalist philosopher Shri Arbindo Ghosh.
(v) Shri A. E. Cama — First Indian to become member of C.A. Institute of England and Wales in 1908.
(vi) Journal of C.A. Institute — Journal started with eight-page Bulletin in January, 1950.
(vii) First C. A. Conference — Called by Chartered Accountants from Mumbai in September, 1951, under the presidentship of Shri G. P. Kapadia.
ICAI News
(Note: Page Nos. given below are from C.A. Journal of July, 2011)
(i) Member-in-charge of office of C.A. Firm — It is clarified that only a partner or a C.A. full-time paid assistant can be appointed as a member-in-charge of office of C.A./C.A. Firm.
(page 9)
(ii) Educational Loan Scheme — ICAI has requested banks to give easy loans to C.A. students for joining C.A. course. Bank of Maharashtra, Oriental Bank of Commerce and IDBI Bank have introduced education loans under priority sector lending scheme. Other banks may give such loans to C.A. students. (page 11)
(iii) Entry Requirement for C.A. course — The Council of ICAI has decided to revise entry requirements to C.A. course. According to this decision, in the following cases exemption from CPT examination will be given and student will be allowed to join C.A. Articleship. (a) Commerce graduate with minimum of 55% and non-commerce graduate with minimum of 60% marks, (b) students who have passed Intermediate examination of ICAI/ICSI will be exempted from CPE examination and join Articleship on passing Gr. 1 of IPCC examination, (c) students who wish to join Accounting Technician Course will be exempted from CPT examination. These provisions will be implemented after approval by the Government. (page 10-11)
(iv) Announcements relating to Articled Assistants/Students
(a) Details about working hours of Articled Assistants are published on pages 176-177.
(b) Fees for obtaining duplicate statements of mark sheets for C.A. exams are increased from Rs.10 to Rs.100 per duplicate statement. (page 177)
(v) Campus Placement Programme
ICAI has organised campus placement for qualified members of the Institute at various places as under (page 177):
(a) Banglore, Chennai, Hyderabad, Kolkata, Mumbai and New Delhi on 16th to 20th August, 2011.
(b) Bhubaneshwar, Coimbatore and Ernakulam on 1st and 2nd September, 2011.
(c) Baroda, Chandigarh, Indore, Kanpur and Nagpur on 2nd and 3rd September, 2011.
(d) Ahmedabad and Jaipur on 5th to 7th September, 2011.
(e) Pune 9th, 10th and 12th September, 2011.
(vi) C.A. Final Examination Results
C.A. Final Results for May, 2011 examination have been announced on 19- 7-2011. It is reported that out of 10816 girls 2368 (21.9%) and out of 21603 boys 4277 (19.8%) have qualified as Chartered Accountants. In this examination Ms. Maitrayee Rajput, Arti Jain and Charmy Sheth have secured the first three top positions. This can be considered as a great achievement for the girl students of our Institute.
