1. Disciplinary case :
In the case of ICAI v. P. V. Mehta the Department of
Customs, Government of India, filed a complaint against the member. It was
alleged that the member had issued a false certificate about export performance
by two concerns. On the basis of such certificates the parties obtained import
licences, effected imports and cleared the goods imported free of duty. The
matter was investigated by the Disciplinary Committee which found that the
member was grossly negligent in the discharge of his professional duties under
clause (7) of Part I of the second schedule of the C.A. Act. The Council, after
accepting the above report, decided to recommend to the Bombay High Court for
removal of the name of the member for one month.
The Bombay High Court has accepted the recommendation of the
Council. The High Court has observed that the member has admitted that he did
not verify the books or the relevant records or documents as also the figures of
turnover of the two concerns. The member admitted that he had signed the export
performance certificates prepared by the Internal Auditor who was also a member
of the Institute. The High Court, after considering the facts of the case,
accepted the finding of the Disciplinary Committee and the Council and confirmed
the punishment of removal of the name of the member for one month (Refer page
831 of C.A. Journal for November, 2008).
2. EAC opinion :
The Expert Advisory Committee (EAC) of ICAI has considered
the question of valuation of investment in shares of a subsidiary company for
non-cash consideration on pages 788-790 of C.A. Journal for November, 2008. In
this case a State Government company (ABC Ltd.) engaged in mining and selling of
rock phosphate, gypsum, etc. received an ‘in-principle approval’ from the
Government of India for allocating coal blocks in certain Lignite mines to the
company. For this purpose, ABC Ltd. was required to form a separate company to
undertake this mining activity. The company entered into a joint venture with a
private sector company and decided to form one JVC Ltd. It was agreed between
the parties that JVC Ltd. will be a subsidiary of ABC Ltd. in which it will hold
51% share capital, and private sector company will hold 49% share capital.
JVC Ltd. issued certain shares to ABC Ltd. for which no
payment was made by ABC Ltd. In the J.V. agreement it was provided that ABC Ltd.
will obtain licences, approvals, etc. and will also contribute its local
knowledge, technical knowledge and other expertise in relation to the mines. JVC
Ltd. was required to allot equity shares carrying 51% voting right to ABC Ltd.
for which no payment was to be made. The private sector company was to hold 49%
shares, arrange entire investment and also provide management support.
ABC Ltd., on allotment of 51% shares in JVC Ltd., debited
face value of shares to Investment A/c. and credited the amount to Capital
Reserve A/c. The amount debited to Investment A/c. was shown by ABC Ltd. under
the head ‘Investments’ in the balance sheet. The Auditors qualified the audit
report by stating that this should have been valued at ‘Nil’ as no payment was
made. According to the Auditors, assets of ABC Ltd. were stated at a higher
figure to this extent.
The EAC has examined the issue on the basis of paras 28/29 of
AS-13 ‘Accounting for Investments’ and given the opinion that the correct
accounting treatment in the books of ABC Ltd. for shares of JVC Ltd. issued/to
be issued in future to ABC Ltd. would be to recognise the same at fair value of
the services and licence to be provided by ABC Ltd. to JVC Ltd. Whether ABC Ltd.
has made actual payment or not is not material. In this case, consideration is
in kind and, therefore, valuation of investment in JVC Ltd. should be made as
explained in para 28/29 of AS-13.
3. Companies Bill — 2008 :
Companies Bill, 2008, has been introduced by the Minister of
Company Affairs in Lok Sabha on 22nd October, 2008. This Bill contains 426
sections and there are no schedules. This Bill, when enacted, will replace the
existing Companies Act, 1956.
4. Limited Liability Partnership (LLP) :
Limited Liability Partnership Bill (LLP Bill) providing for
establishment of Limited Liability Partnerships (LLP) in our country was
introduced in the Rajya Sabha by the Minister of Company Affairs on 15th
December 2006. This Bill was referred to the Parliamentary Standing Committee.
This committee’s report was presented to Lok Sabha and Rajya Sabha on 27th
November 2007. Based on the report of the committee some changes were made in
the original Bill. The revised LLP Bill, 2008 was presented to Rajya Sabha on
21st October 2008, and passed by Rajya Sabha in October, 2008. It will now be
placed before the Lok Sabha in December and may, hopefully, be passed before the
end of the current year. It may be noted that the basic structure proposed in
LLP Bill, 2006, has been retained in LLP Bill, 2008. Some changes are made in
the original Bill, which are of procedural nature. Concept of LLP is accepted in
USA, U.K., Australia and other countries. The new Bill, when enacted, will
provide for an alternative corporate business vehicle that provides the benefits
of limited liability and allows its members the flexibility of organising their
internal structure as a partnership based on a mutually arrived agreement. This
enactment will come into force on the date to be notified by the Central
Government after the Bill is passed by the Parliament. Salient features of
revised LLP Bill are as under :
i) Any two or more persons can form LLP for the purpose of carrying on any business, trade, profession, service or occupation. Even a limited company, an LLP, Non-resident, foreign LLP/Company can be a partner in LLP.
ii) Every LLP has to have at least two designated partners, at least one of whom should be a resident Indian. Designated partners shall be responsible for compliance with all legal requirements of the LLP Act, Rules and other Laws.
iii) LLP has to get itself registered with the Registrar of Companies (ROC) by filing the pre-scribed form of incorporation document and on payment of the prescribed fees. The incorporation document is to be accompanied by a statement about legal compliance signed by an advocate, a chartered accountant, a company secretary or a cost accountant.
iv) Upon incorporation, LLP will be treated as a body corporate and will be considered as a legal entity separate from its partners. It shall have a common seal and perpetual succession.
v) The procedure for obtaining name of LLP is the same as in the Companies Act. For this purpose, the name has to be approved by ROC.
vi) The limit of 20 partners (for business or profession) and 10 partners (for banking business) which applies to partnerships will not apply to LLP. It will be possible for Chartered Accountants to form LLP for rendering management consultancy service and there can be more than 20 partners in such LLP.
vii) Upon incorporation of LLP, its partners will have to enter into a partnership agreement in writing, stating capital contribution of each partner, share of each partner in profits and losses, interest/remuneration payable to each partner and other rights and duties of partners of LLP. The agreement is to be filed with ROC. If no such agreement is executed, the relationship between the partners shall be governed by the provisions of the First Schedule to the LLP Act.
viii) Agreement is to be executed when there are changes in partners or there are changes in the terms and conditions of the partnership. Such agreement is also to be filed with the ROC.
ix) Every partner of LLP is an agent of LLP.How-ever, he is not an agent of other partners. The liability of each partner is limited to the extent of his contribution as specified in the partnership agreement. The liability of LLP is limited to the extent of its assets.
x) LLP has to maintain its books of accounts either on cash or on accrual basis. Such accounts have to be audited every year in such manner as may be provided by the rules. LLP has to file audited statements with a solvency statement with ROC within six months of close of financial year (i.e., on or before 30th September). It has also to file an annual return with ROC in the prescribed form within 60 days of close of Financial Year (i.e., 31st May).
xi) Any existing partnership can be converted into LLP by complying with the procedure laid down in the Second Schedule to the Bill.
xii) Similarly, a Private Limited Company or a Public unlisted company can also convert it-self into LLP by following the procedure laid down in the Third/Fourth Schedule to the Bill.
xiii) The Central Government is authorised to frame rules providing for procedure to wind up a LLP.
xiv) ROC is empowered to collect fees for filing documents with him and for levying penalties for defaults on the part of LLP. The Central Government is authorised to frame rules for administration of LLP Act.
xv) The National Company Law Tribunal is given powers to sanction arrangement, reconstruction, mergers, demergers, compromise with creditors, etc.
xvi) LLP Bill, 2008 is divided into 14 chapters and contains 81 sections and four schedules. The Central Government has power to alter any of the schedules.
xvii) The LLP Bill does not deal with tax aspects of LLP. The Income-tax Act will have to be amended for this purpose. It is likely that LLP will be considered as ‘Firm’ and all the provisions of the Income-tax Act applicable to Firms will apply to LLP. We have to await the amendments in this respect in the forthcoming Budget.
Standards on Auditing (SA) :
The following Exposure Drafts are published for comments in November, 2008, CA. Journal at pages stated below:
i) ‘Agreeing the Terms of Audit Engagements’ SA-210 (Revised) together with Explanatory Memorandum (Pages 912-924).
ii) “The Auditors’ Responsibility in Relation to Other Information in Documents containing Audited Financial Statements” SA-720 together with Explanatory Memorandum (Pages 925-930).
6. ICAI News:
(Note: Page Nos. given below are from CA. Journal for November,2008)
(i) New Certificate courses for members (Page 768):
Following two certificate courses are started for members:
(a) Forex and Treasury Management – This course covers the areas of foreign exchange market, money market, bond market operations and related financial products.
b) Derivatives – This course covers financial derivatives such as forward contracts, futures contracts, options, swaps and other new derivatives.
i) Enhancing Audit Quality:
Some observations made by reviewers while conducting peer review are listed in order to enable members to improve the quality of audit of corporate bodies. These observations relate to training programmes for staff (including articled and audit assistants) concerned with attestation function, including appropriate infrastructure (Page 910).
ii) ICAI – New Branch:
ICAI has opened a new branch in “Beawar” (CIRC) w.e.f. 5-10-2008 (Page 890).
iii) New Publication of ICAI :
Implementation Guide to Risk-based Audit of Financial Statements – (Page 892).
