ICAI and its Members

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The Ethical Standards Board of ICAI has considered some ethical issues which have been published in C.A. Journal for October, 2011, at pages 528-530. Some of these issues are as under:

(i) Issue : 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 ?

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 section 190(1) of the Companies Act. 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 section 190(1), undoubtedly, is the original meeting.

(ii) Issue : Whether a Chartered Accountant or a firm of Chartered Accountants can charge or offer to charge professional fees based on a percentage of turnover ?

In terms of Clause (10) of Part I of First Schedule to the CA Act, a Chartered Accountant or a firm of Chartered Accountants is not permitted to charge fees on a percentage of turnover, except in the circumstances provided under Regulation 192 of CA Regulations. This Regulation permits fees to be charged based on a percentage of profits or based upon the findings, or results of such work in the following cases :

(a) In the case of a receiver or a liquidator, the fees may be based on a percentage of the realisation or disbursement of the assets;

(b) In the case of an auditor of a co-operative society, the fees may be based on a percentage of the paid-up capital or the working capital or the gross or net income or profits; and

(c) In the case of a valuer for the purposes of direct taxes and duties, the fees may be based on a percentage of the value of the property valued.

(iii) Issue : Can a practising Chartered Accountant accept a position as auditor previously held by some other Chartered Accountant in such conditions as to constitute undercutting ?

Prior to the amendment in the CA Act in 2006, undercutting was not permitted under Clause (12) of Part-I of the First Schedule to the CA Act. After the 2006 amendment, this provision has been repealed, and hence, it is not violative for a practising Chartered Accountant to accept a position as auditor at a fee below the fee earlier charged by the previous auditor.

(iv) Issue : Whether a member of the Institute shall be deemed to be guilty of professional misconduct if he does not supply the information called for, or does not comply with the requirements asked for, by the Institute ?

A member of the Institute shall be deemed to be guilty of professional misconduct if he does not supply the information called for, or does not comply with the requirements asked for, by the Institute [As per Clause (2) of Part III of the First Schedule to the CA Act].

2. Disciplinary case

In the case of CA P. Ramkrishna, ICAI decided to remove the name of the member for a period of 5 years for professional misconduct in the matter of audit of Global Trust Bank Ltd. This disciplinary case was started by ICAI on the basis of information received by it prior to amendment of the C.A. Act in 2006. When the matter was referred to the Delhi High Court for confirmation of the penalty, the member argued that ICAI had no jurisdiction to decide an information case started before amendment of the C.A. Act after the amendment made in that Act. The Single Judge of the High Court decided the matter in favour of the member on this technical ground. On appeal by ICAI before the Division Bench of the High Court, the appeal was decided in favour of ICAI. The High Court held that the changes in the procedure for conducting disciplinary cases by amendment of C.A. in 2006, were only meant to fine-tune certain technical issues and this amendment did not take away the jurisdiction of ICAI to award punishment in a case where disciplinary proceedings were started before the amendment in an Information case. Thus, the recommendation of ICAI to remove the name of the member for a period of 5 years was approved by the High Court.

3. EAC opinion

Segment reporting

Facts
A public limited company is engaged in the business of manufacturing products on contract basis. The company manufactures engineering products, castings, etc. as per the design, engineering standards and specifications prescribed by the customers. The company manufactures industrial valves under brand name of its customer in the USA. The company also manufactures castings, both machined and unmachined, and supplies the same to tractor and auto sector.

The geographical distribution of the sales of the company is restricted to one country/region. For example, more than 95% of valves are supplied to the USA. Castings are sold in India with a small portion of export.

The financial statements presented and reviewed by the Board is for the company as a whole without any segmentation. Bank facilities are also arranged based on the financials of the company as a single-segment organisation. Banks have accepted this position.

Query
On the facts and circumstances stated above, the company has sought the opinion of the Expert Advisory Committee as to whether it is in order to continue the present practice of treating the business as a single segment, i.e., contract manufacturing.

Opinion

After considering the provisions of Accounting Standard (AS)17, ‘Segment Reporting’, the committee is of the view that to identify business and geographical segments, the enterprise needs to evaluate whether the risks and returns of the different components are different as per the factors stated in the definitions of the terms ‘business segment’ and ‘geographical segment’. The organisational structure of an enterprise and its internal reporting system are normally the basis for identifying the segments.

From the facts of the case, the committee is of the view that the information about whether the risks and returns associated with the various products in which the company deals in, are different, is not clear.

In the company’s case, some of the products manufactured by the company, for example, in the case of valves, sales are restricted to a single customer and accordingly, the risks and returns in such cases where the company is relying on a single customer may be different from the risks and returns of a product where the company is not relying on a single customer. Similarly, risks and returns in case of products manufactured by machines may be different from the products which are hand-made. Therefore, considering the nature of the products produced, production processes involved in manufacturing and type or class of customers, the company should evaluate whether there can be different business segments in the present case.

Further, the Committee is also of the view that there may be different pricing strategies, credit risks and exchange control regulations involved for domestic and international sales. In such a case, the risks and returns in different geographical regions may be different and accordingly, the different geographical regions may be considered as different geographical segments. Thus, geographical segments may also be identified by segregating its total turnover into domestic sales and international sales, irrespective of the nature or kind of the products being sold.

In view of the above, if it is concluded that there is neither more than one business segment, nor more than one geographical segment, segment information is not required to be disclosed. The fact that there is only one ‘business segment’ and ‘geographical segment’ should be disclosed by way of a note as per the requirements of Explanation to paragraph 38 of AS-17.

[Please see pages 561 to 564 of C.A. Journal, October 2011].

4.    Result of campus placements of members
 Campus placement programme for new members was organised in major cities in August-September, 2011. Brief summary of the placement programme is given below:

(i)	No. of candidates registered	—	10317
(ii)	No. of interview teams	—	177
(iiii)	No. of participating organisations	—	74
(iv)	No. of jobs offered (12.23%)	—	1262
(v)	Highest salary offered fordomestic
	posting (Rs. lakh p.a.)	—	13.93
(vi)	Minimum salary offered	—	3.75
	(Rs. lakh p.a.)
(vii)	Average salary (Rs. lakh p.a.)	—	6.25

Out of 1262 jobs offered, 1098 candidates have accepted the job offers.

(For details please refer pages 623-624 of C.A. Journal for October, 2011)

5.    ICAI News

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

(i)    Peer Review Board
The Peer Review Board has issued a Notification in August, 2011, stating that the cost of the peer review for stages I, II and III, including honorarium and TA/DA for reviewer and his qualified assistant, shall be as under:

Total revenue from attestation service	Cost
clients of practice unit (Per Annum)	(Rs.)
Less than Rs.10 lakh p.a.	15,000
From Rs.10 lakh to 50 lakh p.a.	25,000
From Rs.50 lakh to 1 crore p.a.	40,000
From Rs.1 crore to 3 crore p.a.	60,000
From Rs.3 crore to 5 crore p.a.	75,000
Above Rs.5 crore p.a.	1,00,000
(Refer page 632)

(ii)    Statutory audit of banks
At present, an audit firm can take up statutory central audit of one PSB, four private sector banks and four foreign banks simultaneously each year. ICAI has reviewed these guidelines and it has been decided that an audit firm which takes up statutory central bank audit assignment in private and foreign banks will not qualify to take up statutory audit in public sector banks during that particular year. The revised guidelines will come into effect from 2012-13.    (page 632)

(iii)    ICAI-ROC
ICAI has arranged a MCA-21 compliance software viz. ICAI-ROC for members in practice and CA firms. ICAI-ROC software was launched on 1-7-2011. Salient features of this software are given in page 633.

(iv)    ICAI — Tax Suite
A Tax compliance software for members in practice and CA firms has been developed by ICAI in the name of Tax Suite. Members in practice and CA firms can make use of this software which was launched on 1-7-2011. Salient features of this software are at page 634.

(v)    Group term insurance for members
ICAI has tied-up with LIC for special scheme for insuring life of its members and their spouses. This scheme is open for all the members of the Institute. The details about the premium and other conditions are at page 635.

(vi)    Developing website for CA firms
ICAI had launched an exclusive website www.icai.org.in to enable the members in practice and CA firms to create their own websites and upload details of their firms in order to get network and get better visibility. So far, 1699 firms have created their websites. (page 519)

(vii)    List of members
List of members as on 1-4-2011 has been prepared and hosted on the website of the Institute. The members can review the list on the website. CDs of the members’ list will also be released by ICAI. (page 519)

(viii)    Number of Tax Audit Assignments
ICAI has clarified that Audit conducted u/s.44AD, 44AE and 44AF of the Income-tax Act will not be included in the specified number of Tax Audit Assignments conducted by the members of the Institute. (page 519)