ICAI and its members

The Ethical Standards Board of ICAI has considered some ethical issues which have been published in C.A. Journal for September, 2011, at page 380. Some of these issues are as under:

(i) Issue: If a member has passed any additional course of the ICAI, is he permitted to print such qualification on visiting cards, letter heads and other stationery?

Under Clause (7) of Part I of the First Schedule to the C.A. Act, a member is permitted to print such qualification on the visiting cards, letter heads and other stationery like a degree of a University established by law in India or recognised by the Central Government or a title indicating membership of the ICAI or of any other Institution that has been recognised by the Central Government or may be recognised by the Council.

(ii) Issue: Whether a member in practice can use the designation (District Governor) in his rotary visiting card along with the term ‘Chartered Accountant’?

The member who is in practice cannot use the designation of ‘District Governor’ in his rotary visiting card along with the term ‘Chartered Accountant’.

(iii) Issue: Whether public notice published in the newspaper by a Chartered Accountant individually or jointly with an Advocate in respect of acquirement of land by their client is permitted?

In terms of the Guidelines under Clause (7) of Part I of the First Schedule to the C.A. Act, as appearing in the Code of Ethics, the public notice published in the newspaper in respect of acquirement of land by their client is permissible.

(iv) Issue: Whether it is obligatory for the auditor appointed to conduct a special audit u/s.233A of the Companies Act to communicate with the previous auditor who has conducted the regular audit for the period covered by the special audit?

Council direction under Clause (8) of Part I of the First Schedule to the C.A. Act prescribes that it is not obligatory for the auditor appointed to conduct a special audit u/s.233A of the Companies Act to communicate with the previous auditor who has conducted the regular audit for the period covered by the special audit.

(v) Issue: Whether a Chartered Accountant in practice can accept audit in case the audit fee of the previous auditor remains unpaid?

In case the undisputed audit fees for carrying out the statutory audit under the Companies Act, or various other statues have not been paid, the incoming auditor should not accept the appointment unless such fees are paid. In respect of other dues, the incoming auditor should in appropriate circumstances use his influence in favour of his predecessor to have the dispute as regards the fees settled.

(vi) Issue: Whether a Chartered Accountant firm can accept branch audit of a bank when a partner has taken loan from any other branch of the same bank?

Independence of Auditors can neither be diluted nor any scope be left for dilution in the eye of stakeholders. The term ‘indebtness’ must continue to be in relation to an entity and not in relation to a branch. Thus if a partner has taken loan from any branch of a bank, the firm is not allowed to do the audit of other branch of that bank.

2. Opinion on financial statements when there is substantial interest

The Council has revised the existing guidelines on the above subject w.e.f. 28-6-2011 as under.

“A member of the Institute shall not express his opinion on financial statements of any business or enterprise in which one or more persons who are his ‘Relatives’ within the meaning of Accounting Standard (AS-18) has/have, either by themselves or in conjunction with such member, a substantial interest in the said business or enterprise.

Explanation — For this purpose and for the purpose of compliance of clause (4) of Part I of the Second Schedule of the Chartered Accountants Act, 1949, the expression ‘Substantial Interest’ shall have the same meaning as is assigned thereto under Appendix (9) of the Chartered Accountants Regulations 1988.”

It may be noted that para 10.9 of AS-18 defines ‘Relative’ to mean ‘in relation to an individual, means the spouse, son, daughter, brother, sister, father and mother who may be expected to influence or be influenced by that Individual in his/her dealing with the reporting enterprise.’ (Refer pages 488-489 of C.A. Journal for September, 2011).

3. Answer Books of ICAI Examination
In a recent decision of the Supreme Court of India, in a dispute under the Right to Information Act, it is held that ICAI must disclose, if requested by a candidate in its examination, the standard criteria relating to moderation employed by it for the purpose of making revision. The submission of ICAI that it had copy right over question papers and, therefore, this cannot be disclosed even after the tests was rejected by the Court. Further, the submission to the effect that if this criteria is disclosed, the workload on the Institute will increase and it will be difficult to handle this workload in view of the large number of candidates who may demand this information, the Supreme Court has said that “Additional workload is not a defence. If there are practical insurmountable difficulties, it is open to the examining bodies to bring them to the notice of the Government for consideration, so that any changes to the Act can be deliberated upon. Examining bodies like ICAI should change their old mindsets and tune them to the new regime of the disclosure of maximum information. Public authorities should realise that in an era of transparency, previous practices of unwarranted secrecy have no longer a place”.

4. K.Y.C. Norms
The Council has formulated the following Know Your Client Norms (KYC norms) which shall be recommendatory in nature, and apply only in case of attest function by members in practice w.e.f. 13-7-2011.

K.Y.C. Norms

The financial services industry globally is required to obtain information of their clients and comply Know Your Client Norms (KYC norms).

Keeping in mind the highest standards of Chartered Accountancy profession in India, the Council of ICAI thought it necessary to recommend such norms to be observed by the members of the profession who are in practice.

In light of this background, the Council of ICAI approved the following KYC Norms. However, these norms are recommendatory in nature and every Chartered Accountant carrying out attest function is encouraged to follow them.

1. Entity Information
(i) General Information — (a) Name of the Entity, (b) Type of Entity and (c) Business Description

(ii) Corporate Structure — (a) Name of ultimate parent company, (b) Name of parent company and (c) Name of Affiliates

(iii) Regulatory Information — (a) Company PAN No., (b) Company Identification No., (c) Directors’ Identification No., (d) Directors’ Name & Addresses and (e) Name(s) and Addresses of Companies, in which above person is director

2. Other information
a) Entities financial information, (b) Name of the ultimate parent Auditor and (c) Any known violation of any Law/Regulations

5. EAC Opinion

ESOP Accounting on Account of Revision of the Exercise Price

Facts:
A listed manufacturing company had granted stock options to its employees (‘ESOP’) in August, 2007. Total number of options granted originally was 10,000 to be vested over a period of 4 years i.e., 25% each year. Market price of shares of the company on the date of ESOP grant was Rs.2,800 per share and exercise price was Rs.2,000 per share.view of AS-16.

The company decides to revise the exercise price as Rs.1,800 per share in 2009 on account of reduction in market price of company’s share which was Rs.2,000 per share in that year.

The company has raised the following questions.

(i)    Whether any additional charge is to be taken to the profit and loss account under employee cost on revision of exercise price in 2009. If yes, what will be the amount to be charged as employee cost on revision of the exercise price from 2009 onwards?

(ii)    Whether the extra charge in 2008 will be adjustable in subsequent charge to the profit and loss account in the remaining vesting period, consequent upon reduction in the number of ESOPs eligible for exercise in 2009.

(iii)    What will be the treatment of the amount credited to the ESOP Outstanding Account against original grant, i.e., Rs.800 per share (Rs.2,800 less Rs.2,000) at the time of exercise of options?

Opinion

The Committee has noted that ICAI has issued a ‘Guidance Note on Accounting for Employee Share – based Payments’. It is also noted that SEBI has also issued the “Securities And Exchange Board of India (Employee Stock Option Scheme and Employee Stock Purchase Scheme). The Committee has noted that while accounting for modification of terms of stock option is not addressed in SEBI Guidelines, the same is addressed in ICAI Guidance Note.

After detailed consideration of the above guidance notes, the committee has given the following opinion.

(i)    Incremental cost on account of revision of exercise price is required to be accounted for in respect of outstanding options on the basis of difference between the exercise price measured immediately before and after the revision. As regards the amount to be charged from 2009 onwards as employee cost on account of revision of the exercise price, it should be the sum of the amount chargeable as per original plan plus the relevant portion of the incremental cost to be expensed. The basis of amortisation of the incremental cost should be same as adopted for amortisation of the original cost as per SEBI Guidelines.

(ii)    Extra charge in 2009 will be the net result of accounting for lapses and accounting for incremental cost expensed as explained in paragraph 15 of the opinion.

(iii)    At the time of exercise of the option, amount in ESOP Outstanding Account, to the extent that it is related to the options exercised, should be debited along with the consideration received against them (viz. cash/bank account), while Share Capital and Share Premium account should be credited as explained in para 16 of the opinion.

(Refer pages 416 to 419 of C.A. Journal for September, 2011)

6.    Unique Document Identification (UDIN)
Time and again, various authorities across the country have reposed their faith in chartered accountants as professionals realising the work of their attributes like integrity, excellence and independence. Based on the same, they are relying on various certifications being issued by chartered accountants in practice in the normal course of business. They look upto chartered accountants as reliable source of authentic information and to ensure compliance with various rules, regulations, procedures stipulated under different statues.

However, many instances have been brought to the attention of ICAI wherein financial statements and certificates issued by non -members or members not holding Certificate of Practice have been relied upon by authorities as true statements and certificates. It needs no reiteration that a certificate issued by a practising chartered accountant binds him to its accuracy and subject him to disciplinary proceedings of the Institute, in case a complain in that regard is filed with the Institute by the concerned authorities or any affected party.

To ensure the authenticity of various statements and documents being certified/attested by Chartered Accountants, ICAI has introduced the new concept of Unique Document Identification Number. The said scheme is available at the link http:/www.icai.org/uid

Clarifications on various issues relating to UDIN are given on pages 504 and 505 of C.A. Journal for September, 2011.

7.    CA Profession and Women Empowerment
In the CA students Journal for September, 2011, a write-up on this topic states that CA is one profession which, of late, is witnessing a significant spurt in the number of girls enroling and qualifying in C.A. examination and also figuring prominently in the top 50 Merit List. Some noteworthy information in the write-up is as under.

(i)    Ms. Shirin K. Engineer became the first woman CA 1933. She was followed by Ms. R. Shivabhogam in 1947 and Ms. Nilima Chatterjee in 1954.

(ii)    In November, 1983, Ms. Nandita P. (Shah) Parekh got the honour of becoming the first lady candidate to secure the first rank in C.A. Final Examination. She was followed by Ms. C. V. Sakunthala who secured first rank in May, 1984, Final Examination. Both these girls were awarded special prizes by our Prime Minister late Mrs. Indira Gandhi at a special function organised by the Institute. During the years 1989 to 2011, 14 girl candidates have secured the first rank in Final Examination. In May, 2011 Final Examination all the first three ranks have been secured by girls viz. Ms. Maitreyee Rajaput (Pune), Arti Jain (Bikaner) and Charmy Sheth (Mumbai).

(iii)    The membership of women in C.A. profession in the span of 16 years from 1995 to 2010 has increased from 5.21% in 1995 to 18% in 2010. The women membership increased from 3697 in 1995 to 29491 in 2011. The increase of women in part-time practice was from 541 to 1387, (b) full-time practice 1569 to 9139 and (c) not in practice 1587 to 18965.