1. Code of Ethics:
The Ethical Standards Board has given answers to some of the questions relating to Ethical issues at Pages 1364-66 of CA Journal for March, 2013. Some of these issues are as under:-
(i) Whether the statutory auditors consisting of ten or more members can conduct the branch audits of the same company?
Response
The Council has prescribed certain self-regulatory measures, in order to ensure a healthy growth of the profession and an equitable flow of professional work among the members. One of the recommendations of this nature is that the branch audits of a company should not be conducted by its statutory auditors consisting of ten or more members, but should be conducted by the local firms of auditors consisting of less than ten members. This should not be understood to mean any restriction on the right of the statutory auditors to have access over branch accounts conferred under the Companies Act, 1956. This restriction may not apply in the following cases:
(a) where the accounting records of the branches are maintained at the head office of the respective companies; and
(b) where significant operations of an undertaking or a company are carried out at its branch office.
(ii) Is there any ceiling on the fees to be accepted from one company?
Response
To ensure that the professional independence of a member in full-time or part-time practice does not appear to be jeopardised, he should, as far as possible, take care to see that the professional fees for audit and other services received by the firm in which he is a partner, by him and his partners individually and by firm or firms in which he or his partner are partners from one or more clients or companies under the same management, does not exceed 40% of the gross annual fees of the firm, firms and partners referred to above. ‘Companies under the same management” here would refer to the definition of this expression as provided in Section 370(1-B) of the Companies Act, 1956. Further, such ceiling on the gross annual professional fees of a member would be applicable, where such fees does not exceed Rs. 2 lakh in respect of a member or firm, including fees received by the member or firm for other services rendered through the medium of a different firm or firms in which such member or firm may be a partner or proprietor. No such ceiling on the gross annual professional fees of a member would be applicable in the case of audit of government companies, public undertakings, nationalised banks, public financial institutions or where appointments of auditors are made by the Government.
(iii) Can a member share profits with the widow of his deceased partner? Response When there are two or more partners and one of them dies, the widow of the deceased partner can continue to receive a share of the profit of the firm. A legal representative, say widow of a deceased partner, would be entitled to share the profits only where the partnership agreement contains a provision that on the death of the partner, his widow or legal representative would be entitled to such payment by way of sharing of fees or otherwise for the specified period.
2. EAC Opinion Accounting for common fixed assets constructed for a project under progress:
Facts: A Government of India company (Company) is engaged in the construction and operation of thermal power plants in the country. The company is involved in the construction of power projects. Every project has a defined capacity expressed in terms of Megawatts (MWs) and such capacity is further divided into stages and units. The company envisages construction of power projects that are around 1000/1320/2000/3000 MW in capacity. These normally consist of individual generating units of 500/660 MW capacity. The capacities are built in clusters called stages. Generally, each stage may consist of two or more units and power projects are constructed in phased manner. In coal based thermal power plants, coal is a basic fuel which is used in the process of generation of electricity. To cater to the coal requirement of a generating unit, a coal handling plant comprising track hopper, crusher house, conveyor and coal stock yard is constructed. Through the coal handling system, coal is supplied to the two different generating units of the first stage of the project. For the construction of coal handling system for two generating units of a stage, a single contract is awarded. The total package includes (a) construction of coal handling plant including conveyor system and the mechanical structure and (b) construction of separate coal supply arrangements beyond the crusher house to different generating units of the project. Thus, the coal handling plant is a common system catering to all generating units of the first stage of the power project. As per Accounting Standard (AS) 10, “Accounting for Fixed Assets” the company, on commercial declaration of the first unit of stage (Unit I) of the project has capitalised the cost of systems which have started functioning (including the cost of coal handling plant) alongwith the cost of first unit. As the cost of the portion of cold handling plant declared commercial is not directly available, the cost of coal handling system is technically estimated/assessed by a committee comprising members from Engineering, Finance and Erection Department of the project.
Query:
On these facts, opinion of EAC has been sought on the following issues: (i) whether the accounting treatment followed by the company for capitalisation of coal handling system on technical assessment/ estimates alongwith Unit ONE is in order? (ii) If answer to (i) is in negative, on what basis, the cost of coal handling system declared commercial alongwith Unit One should be capitalised?
EAC Opinion: After considering paragraphs 9.1 and 9.2 as well as 10.1 of AS-10, the Committee has expressed the view that the coal handling plant handles and processes the fuel required for operation of generating units. Thus, in the Company’s case, power generating units and coal handling system can be considered as composite plant which would be ready for its intended use only when either Unit One or Unit Two and coal handling system to the extent related to the relevant unit, are ready for commercial production. Therefore, those parts of composite plant which are ready for their intended use and can be operated independently of the remaining parts should be considered to be ready for commencement of commercial production/ intended use. Accordingly, in the Company’s case, coal handling system, although under construction but since substantially complete, such that Unit One is ready to commence commercial production, it would be correct to capitalise that cost of the coal handling plant which is necessary for making Unit One operational when unit One is ready to commence commercial production. As regards using technical estimates for determining the cost of related portion of coal handling plant which is to be capitalised, the Committee is of the view that technical estimates can be used provided these approximate the cost of such system reliably. [Refer pages 1402 to 1405 of C. A. Journal of March, 2013 ]
3. New Office Bearers of WIRC The following Office Bearers of WIRC are elected for 2013-14
(i) Chairman: CA Mangesh Kinare,
(ii) Vice Chairman: CA Parag Raval,
(iii) Secretary: CA Neel Majithia, and
(iv) Treasurer: CA Priti Savla. We congratulate the new team of WIRC and wish them successful year in office.
4. Chairman – Vice Chairman of some Important Committees of Central Council (Refer Pages 1479-1484 of CA Journal for March, 2013)
(i) Executive, Examination, Finance, Disciplinary Committees & Editorial Board
Chairman : CA Subodhkumar Agarwal, President
Vice Chairman : CA K Raghu, Vice President
(ii) Other Committees:
5. Revised Form of Audit Reports:
Audit Reports for Financial Statements for the periods beginning on or after 01-04-2012 have to be issued in the Revised format as suggested in the Revised Standard on Auditing (SA) 700 – Page 1485 of CA Journal for March, 2013.
6. ICAI News
(Note: Page Nos. given below are from C.A. Journal for March, 2013)
(i) Standard on Internal Audit (SIA) 18 – Related Parties
This Standard is published on Pages 1491-1494
(ii) New Publications of ICAI
(a) Compilation of Registration Provisions under VAT Laws of different States (Page 1489)
(b) Technical Guide on Accounting Issues in Retail Sector (P. 1489)
(iii) PCE – IPCE Results – November 2012 Examination (Page 1349)
(a) PCE: Both Groups 320(5.45%), Group I 1943 (22.17%) and Group II 1870 (14.78%)
(b) IPCE Both Groups 5720 (11.15%), Group I 25269 (25.14%) and Group II 20326 (21.13%)
