1.
Some Ethical Issues
The Ethical Standards Board of ICAI has given answers to some Ethical Issues as under on Pages 694 and 696.
Issue No.1
Whether the information contained in the website of Chartered Accountants and/or Chartered Accountants’ firm can be circulated on their own or through e-mail or by any other mode or technique?
Response
Sub-paras (3) & (4) of para (m) in the Code of Ethics under commentary to Clause (6) of Part 1 of the first schedule to the C.A. Act prescribes that Chartered Accountants and/or Chartered Accountants’ firms should ensure that none of the information contained in the website be circulated on their own or through E-mail or by any other mode or technique except on a specified “pull” request. ‘Chartered Accountants’ firms would ensure that their websites are run on a “pull” model and not a “push model” of the technology to ensure that any person who wishes to locate the Chartered Accountants or Chartered Accountants’ firms would only have access to the information and the information should be provided only on the basis of specific “pull” request.
(ii) Issue No.2
Can a member put up his photograph on the website?
Response
Revised sub-para (8) of para (m) in the Code of Ethics under commentary to clause (6) of Part 1 of the First Schedule to the C.A. Act provides that display of passport size photograph is permitted.
(iii) Issue No.3
Whether a Chartered Accountant in practice can use expressions like Income Tax Consultant. Cost Accountant, Company Secretary, Cost Consultant or a Management Consultant?
Response
Council direction under Clause (7) of Part 1 of the First schedule to the C.A. Act prescribes that it is improper for a Chartered Accountant to state on his professional documents that he is a Income tax consultant, Cost Accountant , Company Secretary, Cost Consultant, whereas it is permitted to mention his degrees.
(iv) Issue No.4
Can a Chartered Accountant in practice give the date of setting up of the practice or date of establishment on the letterheads and other professional documents, etc.?
Response
Council direction under Clause (7) of Part 1 of the First Schedule to the C.A. Act prescribes that the date of setting up of the firm should not be mentioned on the letterheads and professional documents, etc. However, in the website, the year of establishment can be given on a specific “pull” request.
(v) Issue No.5
Whether a Chartered Accountant in practice can use the designation ‘Corporate Lawyer’?
Response
A Chartered Accountant in practice is not permitted to use the designation ‘Corporate Lawyer’.
2. ICAI Council Affairs
Attention is invited to the following Times of India Newspaper Report of 02-11-2013 from Chennai. Let us hope that the council issues detailed clarification on the issue.
“Holding that all is not well with the functioning of the Institute of Chartered Accountants of India (ICAI)the Madras High Court has decided to hear the CBI and the Chief Vigilance Commission (CVC) before passing Orders on PIL seeking CBI/CVC probe into the irregularities in the establishment of Rs. 97.5 crore centre of excellence at Nagpur.
“The ICAI is supposed to be the apex board to regulate the affairs of the body and monitor the functioning of its members. It also exercises disciplinary jurisdiction over its members. In case the apex body itself violates financial discipline, it is really a serious matter,” observed justice K. K. Sasidharan on Wednesday.
“Records indicate that all is not well with the statutory body. The council members have expressed their strong views and the President and Secretary on account of entering into certain financial dealing without taking the council into confidence. The transaction is not confined to the centre of excellence at Nagpur. There are other land dealings also involving substantial amount,” the judge said.
In his PIL, V. Venkata Siva Kumar wanted the court to order a probe by the CBI or the CVC into the project, and ‘unravel irregularities, conspiracy and criminal breach of trust’ committed by the president and other office bearers of the ICAI.
Minutes of the meeting revealed that the ICAI secretary had told the members that CVC regulations were not applicable to ICAI. The Nagpur land deal was cancelled due to protests by members.”
3. EAC Opinion
Accounting treatment of share application money pending for allotment invested by the holding company in subsidiaries:
Facts:
Consequent to State Electricity Reforms Transfer Scheme 2000. the erstwhile State Electricity Board (SEB) was reorganised into three Corporations namely, State Power Corporation Ltd. (SPCL), State Vidyut Utpadan Nigam Ltd. And State Jal Vidyut Ltd. we.f. 14-01-2000. The City Electricity Supply Area was separated as a subsidiary company of SPCL and christened as the City Electricity Supply Company Limited (CESCO) vide State Transfer of K Zone Electricity Distribution Undertaking Scheme, 2000.
SPCL (hereinafter referred to as ‘the Company’) is dealing with bulk purchase and sale of electrical power in the State and had a turnover of Rs. 12,197.66 crore in the financial year (F.Y)) 2007- 08. It purchases electricity from various power generation utilities. Further, it sells the electrical power to its wholly owned subsidiary companies holding distribution license under the Electricity Act, 2003. The company is a Government company and is holding 100% shares in its subsidiaries, which are also Government companies as ‘Investments’.
The funds received from the State Government are invested by the company in the subsidiary distribution companies as ‘share application money’. The allotment process from share application money to share capital rests with the respective subsidiary distribution companies. Pending allotment of share application money, these subsidiary distribution companies have utilised such amounts in the creation of capital assets.
The subsidiary distribution companies have negative net worth and, accordingly, the auditors advised the company to make suitable provisions in the annual accounts for diminution in the value of investments in accordance with Accountant Standard (AS) 13, “Accounting for Investments” considering that such investments in subsidiary distribution companies was made as long term investment.
Query:
Now, the company has sought the opinion of the Expert Advisory Committee on the issues: (i) Whether share application money is to be considered for making provision for diminution in the value of investments even though the shares for the same are yet to be allotted. (ii) Whether share application money, in respect of which shares are allotted subsequent to the end of the financial year but before the adoption of accounts of the company, should be considered as share capital for the purpose of making the provision for diminution in the value of investments. (iii) For making provision for diminution in the value of investments, whether the company can consider the fact that the revaluation of assets under progress and that the fair market value of assets would be higher than the historical value/cost of assets?
EAC Opinion:
The Committee notes that the erstwhile SEB was restructured into three corporations, one of which is the company. Further, its electricity distribution business has been divested to its wholly owned subsidiary companies. The company as well as its subsidiary companies are Government companies. The company has invested the funds received from the State Government as share application money in subsidiary companies, some of which is pending for allotment. In this regard the issue raised is whether the provision for diminution in the value of investments should made against the share application money, even though the shares for the same are yet to be allotted as on the balance sheet date. The Committee notes the definition of the term ‘Investments’ as defined in AS13, and ‘Advance’ as defined in the ‘Guidance Note on Terms Used in Financial Statements’, issued by ICAI.
After considering the above, the Committee is of the view that although the share application money pending for allotment may not give any benefits to the company (neither dividend, interest, rental nor capital appreciation) till shares are allotted against it to the company. However, since the money has been given to the subsidiary companies, this application money for shares may be considered to be held ‘for other benefits’. Further, the Committee notes that the money so provided has been utilised by the companies for acquisition of capital assets and all the companies being State Government companies operate as per the instructions of the State Government. Further, it indicates existence of a ‘contract of contribution’ to share capital against which shares have been allotted after the balance sheet date but before the approval of accounts. The Committee is therefore, of the view that all this indicates that irrespective of the fact that whether shares are allotted to the company or not, the money given as share application money would not be refundable to the company. Therefore, considering ‘substance over form’, the Committee is of the view that these are of the nature of long term investments. Accordingly, provision for diminution in the value of investments other than temporary should be considered against the same. Further, the Committee is the view that it should be disclosed in the financial statements with an appropriate nomenclature and notes to accounts so as to give the correct picture of the situation, viz., shares are yet to be allotted against these investments. The Committee is also of the view tht even if shares are allotted against such application money after the balance sheet date, but before adoption of accounts, there is no need for disclosing it as ‘shares’ till the date of allotment, as it is taking place in the subsequent year. However, additional disclosures regarding allotment (which takes place in subsequent year before adoption of accounts) may be made in the financial statements. (pages 720-724 of C.A. Journal of November, 2013)
4. ICAI News
(Note: Page Nos. given below are from C.A. Journal of November, 2013)
(i) Announcement:
All the members of the Institute of Chartered Accountants of India (ICAI) are hereby informed that in terms of the authority granted under Section 30(1)(i) of the C.A. Act, the Council of ICAI has prescribed Regulation 47 of the C.A. Regulations, 1988, which reads as under:
“No amount shall be charged from, or be payable by, an articled assistant or any other person on his behalf, directly or indirectly, whether by way of premium or as loan or deposit or in any other form in connection with his engagement as an articled assistant.”
In view of the above, charging of premium from articled assistants is misconduct under the provisions of C.A. Act and punishable u/s. 21B(3) of the C.A. Act (page 696)
(ii) Health Insurance Scheme for Members of ICAI
ICAI has taken a major initiative for arranging in the form of specially designed Health Insurance scheme with the special features like no health check-up, no age limit & entry barrier, premium discount in lieu of cumulative bonus, 5% discount in premium to be paid to the Insurance company, where the Member has not preferred any claim in the expiring policy in case of renewal of the policy, wide coverage for pre-existing diseases etc. for Members & Students of ICAI. The scheme has been in force from 12th March, 2013 for the Members of ICAI. Please visit http:/icai. newindia.co.in, to apply online for Insurance policy and to view other formalities as well as details about the aforesaid insurance scheme. (page 804)
(iii) Professional Indemnity Insurance for Members & CA Firms of ICAI
ICAI has arranged insurance protection for members in practice/firms in the form of specially designed professional indemnity insurance at a reasonable premium i.e. 85% discount in market rate. The scheme has been effective from 12th March, 2013 for the Members in practice/ Firms of the ICAI.
Members and CA firms desirous to avail the benefits of the aforesaid scheme may please visit http:/icai.newindia. co.in & online solution for the same. (page 804)
(iv) 64th Annual Report and Accounts of ICAI
The 64th Annual Report of the Council and the Annual Accounts for the year 2012-13 have been published in the Gazettee of India and will shortly be hosted on the website of the institute – www. icai.org. The same is being e-mailed to the members whose e-mail ids are on the record of the Institute.
In this connection, members who have not furnished their e-mail ids are requested to provide their e-mail ids to enable the said report being sent to them also. Further, hard copy of the above Report would also be forwarded to those desirous of the same. Accordingly, members desirous of a hard copy of the above Report may write, giving their membership number and complete postal address, to Shri G. Ranganathan, Deputy Secretary (e-mail: councilaffairs@icai.in). (page 806)
(v) New ICAI Publication
Compendium of Opinions (Vol XXXI) (Page 813)
