1. Code of Ethics : Whether a person who is not a partner of an audit firm can sign the audited financial statements and audit report on behalf of the audit firm is a question which is under debate at present. It may be noted that Clause (12) of Part I of First Schedule of the C.A. Act, 1949 provides that a Chartered Accountant in practice shall be deemed to be guilty of professional misconduct if he allows a person not being a member of the Institute in practice, or a member, not being his partner to sign on his behalf or on behalf of the firm, any balance sheet, profit & loss account, report or financial statements.
The above Clause prohibits a member from allowing another member who is not his partner to sign any balance sheet, profit and loss account, or financial statements on behalf of his firm.
This Clause is to be read in conjunction with S. 26 of the C.A. Act which stipulates that ‘No person other than a member of the Institute shall sign any document on behalf of a Chartered Accountant in practice or a firm of such Chartered Accountants in his or its professional capacity.’
The Council has, however, clarified that the power to sign routine documents on which a professional opinion or authentication is not required to be expressed may be delegated in the following instances and such delegation will not attract the provisions of this clause :
- (i) Issue of audit queries during the course of audit.
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- (ii) Asking for information or issue of questionnaire.
(iii) Letter forwarding draft observations/financial statements.
- (iv) Initialing and stamping of vouchers and of schedules prepared for the purpose of audit.
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- (v) Acknowledging and carrying on routine correspondence with clients.
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- (vi) Issue of memorandum of cash verification and other physical verification or recording the results thereof in the books of the clients.
(vii) Issuing acknowledgements for records produced.
(viii) Raising of bills and issuing acknowledgements for money receipts.
(ix) Attending to routine matters in tax practice, subject to provisions of S. 288 of the Income-tax Act.
(x) Any other matter incidental to the office administration and routine work involved in practice of accountancy.
It is also clarified that where the authority to sign documents given above is delegated by a firm of Chartered Accountants, the fact that the documents have not been signed by a Chartered Accountant is not a defence to the firm in an enquiry relating to professional misconduct.
However, the Council has decided that where a Chartered Accountant while signing a report, a financial statement or any other document is statutorily required to disclose his name, the member should disclose his name while appending his signature on the report or document. Where there is no such statutory requirement, the member may sign in the name of the firm.
Clause 124(2) of the Companies Bill, 2008 also provides that only a partner of the audit firm, as authorised by the firm, shall sign the audit report and financial statements on behalf of the audit firm.
2. EAC Opinion : The Expert Advisory Committee (EAC) has considered the question of deferred tax treatment in re
spect of assets given on finance lease (see pages 1515 to 1517 of C.A. Journal for March, 2009).
In this case a Government company was engaged in providing rolling stock assets to the Ministry of Railways (MOR) on finance lease. Hence, the rolling stock of assets given on finance lease were not capitalised in the books of the lessor company and shown as ‘lease receivables’ at an amount equal to the net investment in the leased assets as per revised Accounting Standard (AS-19) ‘Leases’. Therefore, the lessor company did not provide depreciation in the books of account but claimed it under the Income-tax Act, as per CBDT Circular No. 2, dated February 09, 2001.
However, while computing the total income, the company added notional depreciation under the Companies Act, even though not provided in the books of account, and claimed depreciation as per Income-tax Act. Thus, the difference in depreciation was considered by the company as a timing difference on which it provided deferred tax liability (DTL). On the these facts, the auditors were of the view that the company should treat the difference in depreciation as permanent difference and no DTL should be provided.
EAC has examined the above facts and stated in
para 12 of its opinion as under : “12. The committee is of the view that, with a view to reflect the true impact of the lease transaction on accounting income and taxable income, the lease transaction as a whole should be considered since the individual items are related. Accordingly, the difference between finance income for accounting purposes and tax finance income representing difference between the lease rental income and depreciation allowance for income-tax purposes originating in a particular year should be treated as timing difference for applying AS-22. This is based on the principle of ‘substance over form’.”
On the above basis EAC has concluded that the method followed by the company for determining DTL was not proper and it should follow the method suggested above.
(Note : Reading the above opinion, it appears that by following the above method the DTL will not get reversed in future and, therefore, this opinion of EAC requires reconsideration.)
3. Auditing Standards:
The following Auditing Standards are issued and published in C.A. Journal for March, 2009 on pages stated below.
(i) Reoised Standard on Auditing (SA) 510 :
Initial Audit Engagements – Opening Balances (Pages 1627-1632),
(ii) Revised Standard on Auditing (SA) 550: Related Parties (Pages 1633-1644)
iii) Standard on Internal Audit (SIA) 14: Internal Audit in an Information Technology Environment (Pages 1645-1648)
(iv) Standard on Internal Audit (SIA) 15 : Knowledge of the Entity and its Environment (Pages 1649-1651)
(v) Standard on Internal Audit (SIA) 16: Using the work of an Expert (Pages 1652-1(53)
4. ICAI News:
(Note: Page Nos. given below are from c.A. Journal for March, 2009)
(i) Enhancing Audit Quality :
Some observations made by the Financial Reporting Review Board are listed on page 1602 in order to enable members to improve the quality of audit of corporate bodies. These observation relate to presentation in financial statements and audit reports as under:
(a) Schedule VI of Companies Act, 1956.
(b) Standard on Auditing (SA) 700 – The Auditors’ Report on Financial Statements.
(c) CARO – 2003.
(ii) Campus Placement Programme – March/April, 2009:
ICAI has organised Campus Placement Programme for newly qualified chartered Accountants at various centres all over India. This scheme has been evolved to provide an opportunity, both to employing organisations as well as the young professional aspirants, to meet and explore the possibility of taking up positions in industry.
It may be noted that in the last such programme organised in August-September, 2008 at various centres, 77 recruiting teams of leading organisations of the country reviewed the bio-data of more than 3800 newly qualified chartered accountants. 874 candidates were offered employment in industry.
Those who have cleared C.A. Final Examination held in May, 2008 and November, 2008 can appear for this interview at the following centres.
(iii) ISA Qualification:
Members who have qualified in the Post-Qualification Course in Information Systems Audit can now use the title D.I.S.A. (lCAI) instead of existing title D.I.S.A. (ICA) (Page 1614).
(iv) Admission of Members in Service as Fellow Members:
The difficulties being faced by members in service while complying with the requirements for admission as fellow members in terms of Regulation 5(3) have been considered by the Council and it is decided that members who are not in practice be admitted to Fellow Membership provided the member has been an Associate Member for a continuous period of five years and submits a self-declaration to the effect that he has been in Government service or is ordinarily holding or has held for a continuous period of not less than five years anyone or more posts carrying duties relating to accounts, cost accounts, audit, finance, taxation, company law, administration and/ or secretarial work in :
(i) an educational institution approved by the Council, or
(ii) a private or government, industrial, commercial or trading undertaking having a minimum paid-up capital of Rs.25 lakhs or a minimum turnover of Rs.50 lakhs or a minimum paid-up capital of Rs.10 lakhs and a minimum turnover of Rs.30 lakhs or minimum total assets of Rs.50 lakhs.
(iii) Employed under a statutory authority; or
(iv) Employed under a local authority having within its jurisdiction a population of not less than 5 lakhs during each of the five years of his service.
The Council has also clarified that there will be no change in the eligibility requirements so far as members in practice and full-time paid assistants under practising Chartered Accountants or firm of Chartered Accountants are concerned.
It is further clarified that there will be no change in other conditions and requirements for admission as a Fellow Member.
For format of self-declaration form visit ICAI website www.icai.org. (Refer page 1615)
(v) ICAI Publication:
Code of Ethics (Revised 11th Education – 2009)
