ICAI And Its Members

    In the case of ICAI v. Shri R. K. Tayal, the Bank had complained that it had sanctioned loan of Rs.630 lacs to one of its clients (Company) for its expansion- cummodernisation project. As per the terms and conditions of the sanction, the Company was to bring about Rs.135 lacs by way of promoter’s contribution. While requesting for disbursement of the sanctioned amount, the Company stated that it had already spent Rs.147.21 lacs for the project and, in support of this, it submitted a certificate from the member. In this certificate it was stated that the Company had already spent Rs.147.21 lacs for the project. Based on this certificate the Bank disbursed loan of Rs.315 lacs. In the above certificate the member had stated that certain payments were made which was found to be not correct. Hence, the Complainant Bank alleged that the member had not verified the records properly before issue of the certificate and that the said certificate did not mention about the end use of the funds.

    The Disciplinary Committee, after examining the evidence, submitted a report to the Council that the member was guilty of professional misconduct under clauses (5) to (8) of Part I of Second Schedule to CA Act (Gross negligence in performance of professional duty). This finding was accepted by the Council and it recommended to the High Court that the name of the member be removed from the Register of Members for 3 months.

    In its judgment, the Delhi High Court has held that the member was grossly negligent in his professional duties in giving the certificate to the Bank without proper verification of the records. The High Court observed that the lack of responsibility displayed by the member clearly showed that he had acted in a manner unbecoming of a Chartered Accountant. The High Court further observed that there has to be some degree of integrity and probity which is expected of a Chartered Accountant who is regularly concerned with the financial transactions and on the basis of whose recommendations and certificates, financial institutions, banks, etc. disburse loans or enter into other financial transactions. With these observations the High Court has accepted the recommendation of the Council to remove the name of the member from the Register of Members for 3 months (Refer page 737-738 of CA Journal for November, 2009).

2. Some ethical issues :

    The Ethical Standards Committee of ICAI has issued the following clarifications on some ethical issues in the form of questions and answers for the benefit of members.

        (i) Q. Can a Chartered Accountant in practice accept original professional work emanating from the client introduced to him by another member ?

        Ans. : A Chartered Accountant in practice should not accept the original professional work emanating from a client introduced to him by another member. If any professional work of such client comes to him directly, it should be his duty to ask the client that he should come through the other member dealing generally with his original work.

        However, there are following exceptions to it :

    (i) A member can respond to tenders or enquiries issued by various users of professional services or organisations from time to time and securing professional work as a consequence.

    (ii) A member may advertise changes in partnerships or dissolution of a firm, or of any change in the address of practice and telephone numbers, the advertisement being limited to a bare statement of facts and consideration given to the appropriateness of the area of distribution of the newspaper or magazine and number of insertions.

        Ans. : As per the CA Act it is not objectionable to institute prizes in the name of the individual Chartered Accountant and also in the firm’s name provided the designation ‘Chartered Accountant’, is not indicated in the prize and the clause relating to advertisements and publicity are complied with.

        (iv) Q. Whether a Chartered Accountant in practice can give public interviews and also whether he can furnish details about himself or his firm in such interviews ?

        Ans. : A Chartered Accountant in practice can give public interviews. While doing so, due care should be taken to ensure that such interviews or details about the members or their firms are not given in a manner highlighting their professional attainments, which may hit clauses (6) and (7) of the First Schedule of the CA Act.

    (Refer Page 718 of CA Journal for November 2009)

3. ICAI accounts :

The Expert Advisory Committee (EAC) of ICAI has recently given an opinion on accounting for business of manufacture, erection and commissioning of Wind Electric Generators (WEGs).

The company based on negotiation prepares three separate purchase/works orders viz. (a) purchase order for supply of WEGs (b) work order for civil, electrical and infrastructure work and (c) order for erection and commissioning of WEGs. The company recognises revenue based on the completion of an activity covered in the aforementioned three purchase/works order separately.

The EAC of lCAl is of the view that the three sepa-rate contracts entered into by the company with its customers are in fact one composite contract which has been broken into three separate agreements.

Further, the committee noted that the performance in respect of sale of WEGs is not complete until the commissioning of WEGs and commissioning is an essence of the contract. Therefore, the company can not adopt the policy on revenue recognition independently for the three orders as these form part of the single composite contract. Hence, the company should recognise revenue only on commissioning of the WEGs.

[Pleaseseepage nos. 739 to 741 of c.A. Journal for November, 2009.]

5. Standards on Auditing – Exposure Drafts:

The following Exposure Drafts are published by lCAl for comments of members. Page Nos. given below  are from CA Journal for November, 2009 :

i. Standard on Auditing  (SA) 220 (Revised)

Quality Control for Audit of Financial Statements (P. 820)
 
ii. Standard on Auditing  (SA) 501 (Revised)

Audit Evidence – Specific Consideration for Selected Items (P. 826)
 
iii. Standard on Auditing  (SA) 505 (Revised)

Analytical  Procedures  (P. 830)

 iv. Standard on Auditing  (SA) 505 (Revised)

External  Confirmations  (P. 834)

v. Standard on Auditing  (SA)  620 (Revised)

Using the Work of Auditors  Expert  (P. 840)

8. New  publications   by ICAI :

Details of the following  publications are given on P. 811 of CA Journal for November, 2009:

i) Data Analysis of Auditors – Practical Case Studies on using CAATS

ii) XBRL –  Primer