ICAI and its members

Ethical Standards Board of ICAI has considered some ethical issues which are published in the C.A. Journal of March, 2011 at P. 1344. Some of the these issues are as under.

(i) Issue: Can a Chartered Accountant in practice share his fees with the Government in respect of Government Audit?

Response: In respect of the Government Audit, the Institute has come across certain Circulars/Orders issued by the Registrar of various State Co-operative Societies wherein it has been mentioned that certain amount of audit fee is payable to the concerned State Government and the auditor has to deposit a percentage of his audit fee in the State Treasury by a prescribed challan within a prescribed time of the receipt of the audit fee. In view of the above, the Council considered the issue and while noting that the Government is asking auditors to deposit such percentage of their audit fee for recovering the administrative and other expenses incurred in the process, the Council decided that as such there is no bar in the Code of Ethics to accept such a assignment wherein a percentage of professional fees is deducted by the Government to meet the administrative and other expenditure.

(ii) Issue: Can a Chartered Accountant in practice use/fix a monogram of the Institute on any column/wall located inside the office or on professional documents ?

Response : In view of the directions under Clause (7) of Part I or the First Schedule to the CA Act, a Chartered Accountant in practice is not permitted to use/fix a monogram of the Institute on any column/wall located inside the office or on any professional document.

(iii) Issue: Whether a member in practice is allowed to become a whole-time director of a company?

Response: A member in practice may become a Managing Director or a whole-time Director of a body corporate within the meaning of the Companies Act, 1956, subject to guidelines of corporate practice. However, w.e.f. 1-4-2005, he is not entitled to do attest functions.

(iv) Issue: Can a Chartered Accountant working in a CA firm hold CoP?

Response: A Chartered Accountant working in a C.A. firm can hold CoP. He is not entitled to do any attest function.

2. Accounting for rescheduling of lease rentals:

Facts:
A non-listed company (Company) is a subsidiary of a listed public company. It is an NBFC registered with the RBI. The company has a network of branches over a large part of India to carry on its business. Hence, it takes on lease various properties for its branches. The company is not in the business of leasing and renting.

The company has entered into a lease agreement which has the following main features:

(i) The lease agreement is for a period of nine years.

(ii) The rent for the first three years is at market rate on the date of lease agreement and has an escalation clause applicable after every three years.

(iii) The lessee has the option to exit from the agreement by giving three months’ notice.

The company has stated that in current scenario, the real estate rates in India as well as abroad have undergone various changes due to global financial meltdown and the fall in the equity markets. The property rates have gone down substantially in the range of 30% to 40% and are expected to go down further. Consequently, the rent agreed initially has turned to be substantially high with respect to the current circumstances. The company has been successful in renegotiating the lease rentals of its premises downwards. The company has accounted for lease rentals since the inception of the lease on straightline basis with respect of original lease terms. The company has also stated that in its case, the lease term would be the entire nine-year period as the entity has already decided the same at inception.

Further, the company has also stated that in current scenario, since it has been able to successfully renegotiate the rent, it can be reasonably assumed that the rent actually paid by it reflects the benefit that accrues to the entity and accordingly, the rents actually paid should be debited as expense to the profit and loss account. Further, the company feels that the current scenario is such that the terms in the lease deed have a very high probability of being renegotiated in future. Thus, in view of the company the aforesaid agreed rentals in the agreement are likely to be renegotiated as a further fall is expected.

Query: On these facts, the company has sought the opinion of the Expert Advisory Committee (EAC), whether the principle of recognising lease rentals over the lease term on straight-line method is correct ? and whether the monthly rental should be accounted for at the value of actual lease rent paid in such a case.

EAC opinion: The basic issue raised in the query relates to accounting for lease rentals in the case of operating lease. After considering paragraph 23 of AS-19 the EAC is of the view that as per the principles of AS-19 any departure from the straight-line basis of recognisation of lease expenses under an operating lease must reflect the time pattern of the user’s benefit and therefore it should be considered from any angle of use of the leased asset in physical terms, rather than the benefit derived from the angle of market rate of lease property. Since the leased property in the instant case would be used by the lessee throughout the lease term on a consistent basis, even though the lease rentals have been reduced due to economic slow-down, the Committee is of the view that the lease rent should be recognised on a straight-line basis.

Hence, the revised lease rentals should be taken into account for determining the charge to the profit and loss account over the lease period of nine years. Accordingly, the lease rentals paid under the original lease deed and revised lease rentals payable over the remaining period of the lease as per the supplementary lease deed, should be considered for determining the amount of annual charge on account of lease rentals on straight-line basis. Any resultant adjustments on account of lease rent already recognised in past should be recognised in the current year’s profit and loss account. (Page Nos. 1364 of C.A. Journal of March, 2011)

3. New Accounting Standards: The Govt. has notified new Accounting Standards after convergence with IFRS on 25-2-2011. There are 35 Standards which are called ‘IndAS’. These will be implemented in a phased manner over the next 3 or 4 years. The date for implementation of the Phase No. 1 is not yet notified.

4. New Committees of the Council: The Council of the ICAI has formed seven standing committees and thirty-three non-standing committees on 12th February, 2011 for one year. It may be noted that these include five new committees viz. Public Interest Advisory, Members in Entrepreneurship and Public Services, IFRS Implementation, Co-operatives and NGOS and Disciplinary — Satyam Bench. Names of the Chairman and the Vice-Chairman of these committees are as under :

(i) Standing & Other Committees: Chairman and Vice-Chairman of the Executive, Examination, Finance and Disciplinary Committee (U/s.21D), are Shri G. Ramaswamy (President) and Shri Jaydeep N. Shah (Vice-President), respectively, and Chairman of Board of Discipline (u/s.21A), Disciplinary Committee (u/s.21B), and Disciplinary Committee — Satyam Bench (u/s.21B) is Shri G. Ramaswamy (President).

(ii) Non-standing Committees — Chairman

(Refer Page Nos. 1428 to 1433 of C.A. Journal of March, 2011)

    5. ICAI News:

(Note : Page Nos. given below are from C.A. Journal for March, 2011)

    i) Amendment of Schedule VI to Companies Act:

The Government has modified the existing Schedule VI giving Form of Balance Sheet and Profit and Loss A/c. by a notification. The new format applies to all audited financial statements for the year 2010-11 and onwards. Therefore, the financial statements for 2010-11 and onwards will have to be prepared and published in the new form of Schedule VI.

    ii) New buildings of ICAI:

Foundation stones for new ICAI Bhavans at Ahmedabad, Patna and Saharanpur Branches have been laid by our President. (Page 1316)

    iii) Action Plan for 2011:

Our new President has announced his Action Plan during the term of his office in 2011-12. This includes actions to be taken about new initiatives for Branding ICAI, Members in Practice and Industry, Students and International Relations. (Pages 1320-1322)

    iv) 61st Annual Function of ICAI:

61st Annual Function of ICAI was held at New Delhi on 11-2-2011. Details of the Function are at Pages 1334-1343.

    v) Insurance against Professional Indemnity:

ICAI has arranged insurance protection for our members in practice and for C.A. Firms providing Professional Indemnity. ICAI has signed MOU with New India Assurance Co. Ltd. under which the insurance company will provide insurance scheme to our members at a heavily discounted premium. Under this scheme the insurance company will provide professional indemnity to our members and their firms. (Pages 1316 and 1436)

    vi) Guidance Note on Audit of Property, Plant and Equipment:

The above guidance note has been issued by the Auditing and Assurance Standards Board of ICAI. This guidance note should be read with the ‘Preface to the Standards on Quality Control, Auditing, Review, Other Assurance and Related Services’ issued by ICAI. Full text of the Guidance Note is published on Pages 1442-1448.

    vii) Scholarship for C.A. Students:

Board of Studies of ICAI is granting monthly scholarship to deserving students on following basis.

Campus Placement for Articled Assistants:
Board of Studies of ICAI has introduced campus placement scheme for selection of Articled Assistants by C.A. Firms. This is in addition to the Online Placement Service already available at http://bosapp. icai.org The campus placement will be held between 15th and 30th April, 2011 in cities viz. Ahmedabad, Mumbai, Nagpur, Pune, Bangalore, Chennai, Ernakulam, Hyderabad, Kolkata, Indore, Jaipur, Kanpur, Ghaziabad, Chandigarh and New Delhi.

(Refer C.A. Students Journal for March, 2011, Page 33)