1. Disciplinary case :
In the case of ICAI v. Shri Basab Kumar Sarkar, (C.A. Journal, July, 2009, P. 99) the Bank of Baroda had filed a complaint against the member alleging that the member had misappropriated the funds of its client. According to the Bank, the member opened an SB A/c. (No. 7831) with one of its branches. After some time, the member added the name of his client in the above account as a joint account holder without his client’s knowledge. His client had a separate account in the same branch of the Bank. When its client gave 14 cheques of Rs.22.11 lacs to the member for depositing these cheques in his A/c., the member deposited these cheques in his A/c. 7831 and withdrew the funds. Similarly, certain FDRs of Rs.5 lacs belonging to its client were also used by the member to take loan from the bank and this money was misappropriated by him.
The Disciplinary Committee found the member guilty of ‘Other Misconduct’. The Council of ICAI accepted this finding and recommended to the High Court to remove the name of the member from the Register for 3 months. The Kolkata High Court, in its order, observed that the member had not co-operated during the course of inquiry. The member did not make any submissions before the High Court. Considering the facts of the case, the High Court has accepted the above finding of the Council and ordered that the name of the member be re-moved from the Register of Members for 3 months.
2. Provision for LTC benefits :
A Government company was accounting expenditure on leave travel concession (LTC) to employees in the year of availment of leave due to uncertainties in accrual.
The Expert Advisory Committee has given an opinion that ‘accrual’ being one of the fundamental accounting assumptions, the cost of providing benefits to employees in return for the services rendered by them in an accounting period should be accounted for in that period. AS-15 (revised) 2005 recognizes that the liability towards employee benefits should be provided as and when the services are rendered. Further, this falls in the category of ‘other long term employee benefits’. As per AS-15, LTC benefits should be measured on actuarial basis using the Projected Unit Credit Method. The actuarial basis of valuation takes into account various uncertainties. Therefore, the method adopted by the company was not in compliance with the existing Accounting Standard and the standard accounting principles. (Please refer Pages 136 to 137 of C.A. Journal of July, 2009]
3. Enhancing Audit Quality :
Financial Reporting Review Board (FRRB) has made certain observations about non-compliance in the published financial statements and Auditor’s Report on P. 138-139 of C.A. Journal, July, 2009. These observations are made on review of the published financial statements with a view that the audit quality is enhanced. These observations are as under :
(i) AS-20 — Earnings per share :
(a) Some enterprises disclose the numerators and denominators used in calculating basic and diluted earnings per share. However, they do not disclose the reconciliation between the two denominators which is not in accordance with AS-20.
(b) In some cases, the enterprises are not considering the weighted average number of equity shares outstanding during the period. This is not in accordance with AS-20.
(c) In some cases, the enterprises determining the weighted average number of equity shares outstanding during the period considering the number of equity shares as at the beginning and at the end of the year without adjusting the same for the effects of all dilutive potential equity shares.
(ii) AAS-28 — The Auditor’s Report on Financial Statements :
In some cases the auditor/partner of Audit Firm does not give his Membership Number. This is in contravention of AAS-28.
(iii) CARO Report :
(a) In some cases the auditors do not report on the second part of para 4(iv) which requires the auditor to state whether there is a continuing failure to correct major weaknesses in internal control system.
(b) In some cases it was noticed that CARO report is addressed to directors whereas it is required to be addressed to the members.
4. Secondment of articled assistants :
It is possible to send an articled assistant to another member entitled to train articled assistants for an aggregate period of one year during the period of articleship. The following Rules for this purpose are given on P. 150 of C.A. Journal, July, 2009.
(i) A principal may, with the consent of the articled assistant, second from time to time the articled assistant to other member or members with a view to provide the articled assistant the opportunity of gaining practical experience in areas where the principal may not be in a position to provide the same.
(ii) The articled assistant shall be seconded only to a member who is entitled to train one or more articled assistants in his own right or to a member in industry who is entitled to train one or more industrial trainees.
(iii) The member to whom the articled assistant is seconded will not be entitled to train more than two such assistants on secondment at a time.
(iv)(a) The maximum period of secondment shall be one year which may be served with a single eligible member.
(b) The Council may permit secondment with more than one such member provided the minimum period of secondment shall be four months and the aggregate period served on secondment with such members shall not exceed one year.
(v) Where an articled assistant is seconded to a member in industry, the total period spent in industry by the articled assistant, including the period of industrial training under the Regulations, shall not exceed one year.
(vi) During the period of secondment, the member with whom the articled assistant is seconded shall pay the stipend as provided under the Regulations.
(vii) The member with whom the articled assistant is seconded shall be responsible for imparting training during secondment. He shall maintain records of practical training undergone by the articled assistant during secondment and forward the same to the principal on completion of period of secondment. The principal shall include required particulars in the report to the Council under Regulation 64.
viii) A statement in the form approved by the Council shall be sent to the Secretary for records within thirty days from the date of commencement of training on secondment.
5. Accounting and Internal Audit Standards:
i) Exposure Draft of AS-16 :
Borrowing Costs (Revised) has been published by ICAI for comments before 10th August. There is no major difference between the revised AS-16 and IAS-23 except in respect of application of the standard to borrowing costs that are directly attributed to the acquisition, construction or production of inventories that are manufactured or otherwise produced in large qualities on a repetitive basis. (Refer P.155 of CA. Journal, July, 2009).
ii) Exposure Draft of Standard Internal Audit (SIA) :
This standard deals with ‘Consideration of Laws and Regulations in an Internal Audit’. This standard deals with Internal Auditor’s responsibility to consider laws and regulations when performing an Internal Audit or such other review exercise with the objective of providing assurance thereon. The draft is published on pages 168-173 of CA. Journal of July, 2009.
6. Accounts and Audit of Limited Liability Partnership (LLP) :
LLP Act and Rules have now come into force from 1-4-2009. The Sections relating to conversion of firms and private and public unlisted Companies into LLP have also come into force from 31-5-2009. The Finance (No. 2) Act, 2009, recently enacted, provides that LLP will have to pay tax under the Income-tax Act in the same manner as a Firm. Therefore, LLP will not be required to pay MAT, Dividend Distribution or Wealth tax. The provisions relating to accounts and audit of LLP are as under:
i) U / s.34 of the LLP Act, an LLP has to maintain the books of accounts as prescribed in Rule 24. Such books may be maintained either on cash basis or accrual basis of accounting.
ii) LLP has to follow accounting year from April to March only. It cannot choose any other accounting year.
iii) Rule 24 provides that the above books of accounts should be preserved for 8 years.
iv) The above accounts have to be audited by Chartered Accountant(s) if the turnover of LLP exceeds Rs.40 lacs or the contribution by the partners exceeds Rs.25 lacs.
v) The designated partners of LLP or the partners shall appoint an auditor or auditors as under:
- For first financial year before the end of the year.
- For subsequent years, atleast 30 days before the end of the year.
- For filling up the casual vacancy in the office of the auditor.
- For filling up the vacancy caused by removal of an auditor.
vi) The auditor appointed as above shall hold office for the financial year for which he is appointed. He shall hold such office till any other person is appointed as auditor.
vii) The partners of LLP can remove an auditor from his office at any time by following the procedure in LLP agreement.
viii) An auditor of LLP can resign by giving notice to LLP. If he does not want to be reappointed he shall give atleast 14 days notice.
ix) The remuneration of the auditor may be fixed by the designated partners of LLP or by fol-lowing the procedure laid down by the LLP Agreement.
x) LLP has to get the accounts audited each year on or before 30th September and file Statement of Account and Solvency in Form No. 8 with ROC on or before 31st October with the pre-scribed fee. LLP is also required to file Annual Return in Form No. 11 with ROC with pre-scribed fee within 60 days of the close of the financial year (i.e., before 31st May).
xi) The LLP Act or Rules do not prescribe the form of profit & loss A/c. and balance sheet or the form of audit report which the auditor has to give. Therefore, ICAI will have to recommend these forms for the guidance of our members. Form No. 8 provides for information to be given to ROC about assets, liabilities, income and expenditure. It also states that auditor will have to give a certificate in the following form.
“It is hereby certified that I have verified the particulars in the statement of Account and Solvency including the Statements of Assets and Liabilities as at ……………. and the Income and Expenditure for the period ending …………….. from the accounting records and other books and papers of (LLP) and found than to be true and fair.”
7. New Publications of ICAI :
- Technical Guide on Estimation of Future Cash Flows and Discount Rates for the purpose of AS-28 – Impairment of Assets (P. 146 of CA. Journal, July, 2009).
- Study on Benefits of Preferential Trade Agreements (P. 153 of CA. Journal July, 2009).
- Taxation of Charitable Trusts and Institutions – A Study.
- Data Analysis for Auditors (Practical Case Studies on using CAA T’s).
- Motor Third Party Claims Management.
- Clean Development Mechanism and Carbon Credits – A Primer.
- Professional Opportunities for Members – An Appraisal.
