1. Disciplinary case :
In the case of ICAI v. Shri M. K. Sachdeva, the member was concurrent auditor of one of the branches of Punjab National Bank. The Bank filed a complaint against the member alleging that while conducting concurrent audit of branch he got opened a current account with that branch in the name of a finance company in which he was a director. The account was introduced by him in his capacity as partner of his audit firm. The Bank purchased 3 cheques of Rs.1.97 lacs, 1.92 lacs and 1.97 lacs on different dates from the finance company which were returned unpaid. At the behest of the member these cheques were not debited to the account of the finance company. The finance company later on deposited two cheques of Rs.1.97 lacs and 2.00 lacs in its account which were also returned unpaid. It was alleged that the above-mentioned transactions of purchase of cheques were entered into by the branch under the influence of the member who was a director of the finance company and was also a concurrent auditor of the branch of the Bank.
The Disciplinary Committee found that the member was guilty of ‘Other Misconduct’. This finding of the committee was accepted by the Council and it recommended to the Delhi High Court that the member be awarded punishment by removal of his name for 3 months from the Register of Members.
The High Court while accepting the above recommendation of the Council observed that the allegations made against the member are quite serious in nature and his acts show that he is guilty of misconduct and had acted in a manner unbecoming of a chartered accountant. The High Court also observed that there has to be some degree of integrity and probity which is expected of a chartered accountant who is regularly concerned with financial transactions and it is not part of his duty to misappropriate the money belonging to his client. The Court also noted that a criminal case had also been registered against the member and he was absconding. Under the circumstances, the Court was of the view that the punishment awarded to the respondent was not at all harsh.
(Refer page 910 of C.A. Journal, December, 2009)
2. Some ethical issues :
The Ethical Standards Committee of ICAI has clarified whether a Chartered Accountant can advertise his professional attainments or services as under.
As per Clause (7) of Part-I of the First Schedule of the CA Act read with S. 11, a member shall be deemed to be guilty of professional misconduct, if he advertises his professional attainments or services. Now the Act has been amended and a proviso has been inserted in the Clause (7). The proviso says that a member in practice may advertise through a write-up setting out the services provided by him or his firm and particulars of his firm, subject to such guidelines as may be issued by the Council. Thus, due to addition of this proviso now a Chartered Accountant in practice is allowed to advertise. But it has to be as per the Guidelines of the Council. Here attention is drawn to Clause (6) of Part-I of the First Schedule which says that if a Chartered Accountant solicits clients or professional work either directly or indirectly by circular, advertisement, personal communication or interview or by any other means, it would be treated as professional misconduct. So, if proviso to Clause (7) and wordings of Clause (6) are compared, it appears that an impossible situation is created since Clause (6) prohibits advertisement and Clause (7) allows advertisement. However, there is no contradiction as in Clause (6) only the advertisement for soliciting of clients or professional work is prohibited. Thus other advertisements which do not solicit clients or professional work are not covered under this Clause. Whereas Clause (7) prohibits a Chartered Accountant from advertising his professional attainments or services, but the proviso permits to advertise through a write-up setting out the services provided by him or his firm and particulars of his firm, subject to such guidelines as may be issued by the Council. Thus, advertisement, in a limited way through a write-up, as per the Council guidelines and not soliciting of clients or professional work is permitted. Details are clarified in Advertisement Guidelines issued by ICAI on 14-5-2008 as reproduced at pages 890-891 of C.A. Journal for December, 2009.
3. Determination of current liabilities — EAC opinion :
A company has interest in energy segment both in India and overseas, like liquid fuel, thermal, hydro, stake in coal mines, etc. The company is also having various business plans/strategies to diversify further into segments like transmission, etc. The company made bids for various transmission bids announced by the Government of India through its various bodies corporates.
In order to qualify as a successful bidder for any transmission/power project, etc., all bidders have to fulfil various financial and technical criteria as per the requirements of the respective bid documents. Among others, some common financial criteria are to meet the minimum requirement of Internal Resources Generation (IRG) and net worth of the bidder either solely or in combination of consortium members as per the conditions of the bid documents.
The company shows, as per Schedule VI of the Companies Act, 1956, all working capital facilities, bill discounting facilities and short-term loans under the head ‘secured loans’/’unsecured loans’ even though they are in the nature of current liabilities as per the Guidance Note on Terms used in Financial Statements issued by ICAI.
Recently, the company sought an opinion of the Expert Advisory Committee of ICAI on the question whether the working capital facilities, bill discounting facilities and short-term loans shown under the heads ‘secured’ and ‘unsecured’ loans are to be considered as ‘current liabilities’ while working out net current assets of the company.
After considering the definition of the term ‘current liability’ as contained in para 3-35 of the above Guidance Note, the committee has given its opinion that all liabilities including loans, whether secured or unsecured, payable within a time period of twelve months should be considered for calculating ‘current liabilities’, irrespective of the fact that the same are not shown under the head ‘current liabilities’ in the balance sheet as per the requirements of Schedule VI of the Companies Act, 1956.
(Refer pages 911 to 912 of C.A. Journal, December, 2009)
4. Some instances of non-compliance with reporting obligations :
The Financial Reporting Review Board (FRRB) has, during their review of some published accounts have come across the following instances of common non-compliances of Reporting Obligations of our Members. These are published on P. 979-980 of CA journal of December, 2009.
i) AS 2 — Valuation of inventories :
It was observed that according to the policy of the company, inventories of raw materials, work-in-progress, stores and spares parts, goods-in-progress and by products were valued at cost. The policy indicates that apparently the enterprise is not considering the net realisable value (NRV) in the valuation of raw materials and work-in-progress. This is not as per AS 2. Paragraph 5 of AS 2 requires all inventories, including raw materials, work-in-progress to be valued at the lower of cost and net realisable value.
ii) AS 6 — Depreciation accounting :
It was observed that some of the enterprises adopt depreciation rates, for certain assets, that are different from the rates as specified in Schedule XIV to the Companies Act, 1956. Further, the enterprises also do not disclose the useful lives or the depreciation rates that have been adopted for such assets. It is in non compliance of the Companies Act, 1956 as well as AS 6.
iii) AS 9 — Revenue recognition :
Some enterprises include two amounts of excise duty, relating to both opening stock as well as closing stock, in the statement of profit and loss but fail to give any explanatory note in the note to accounts to explain their nature. It may be mentioned that as per paragraph 3 of ASI 14 of Accounting Standard 9, Revenue Recognition, requires that “The excise duty related to the difference between the closing stock and opening stocks should be recognised separately in the statement of profit and loss, with an explanatory note in the notes to accounts to explain the nature of two amounts of excise duty”.
iv) AS 10 — Accounting for fixed assets :
Some enterprises include in the Schedule of Inventory those items of fixed assets which have been retired from active use and are held for disposal as an inventory item. It is not in line with para 14.2 of Accounting Standard (AS) 10, Accounting for Fixed Assets and para 3 of Accounting Standard (AS) 2, Inventory Valuation.
v) AS 13 — Accounting for investments :
Accounting Standard (AS) 13, Accounting for Investments, require provision to be created to recognise a decline, other than temporary, in the value of long-term investments. Some enterprises use the term ‘permanent diminution’ instead of ‘other than temporary’, which is contrary to the requirement of AS- 13. It may be noted that there is a difference between ‘permanent diminution in the value of investments’ and ‘other than temporary diminution in vale of investments’ and normally, no diminution in value of investments may be termed as ‘permanent’.
5. ICAI News :
Note : Page Nos. given below are from CA Journal for December, 2009
i. Late Shri Rahul Roy :
Shri Raul Roy who was the youngest President of ICAI in 1998- 99 died at Kolkata on 19-11-2009 at a very young age of 46 years. We pay our sincere homage to the departed soul and pray that his soul may rest in peace. (page 878)
ii. Exposure drafts :
The following exposure drafts are published for comments by Members :
a) Accounting Standard 25 — Interim Financial Reporting (page 999)
b) Standard on Review Engagements (SRE) 2410 dealing with Review of Interim Financial Information performed by the Independent Auditor of the Entity. (page 1010)
iii. Empanelment with C & A.G. :
Applications are invited online from firms of Chartered Accountants who intend to empanel with C & A.G. for 2010-11 for appointment of Auditors of Government companies/corporations. The last date is 10-3-2010. The application forms will be available on ICAI website from 1-1-2010 to 15-2-2010. (page 988)
iv. Regular classroom teaching for students :
Regulations and policies are changing on a regular basis and with the new direct taxes code, the imminent induction of the GST and other laws, the pressure on members and the C.A. profession is increasing day by day. Students too are bearing the brunt of this changing world and the need of the hour is to help them see through these difficult times with ease. To help students get a clear understanding of concepts which will help them clear all their written exams, ICAI has decided to step forward and launch regular classroom teaching classes. These classes will cover the entire CA curriculum from A to Z. Students will reap the benefits of attending these classes which have been specially structured to provide personalised attention and help them prepare for all exams from CPT to Final with peace of mind. On an experimental basis the first series of classes are launched at the Western Regional Office on November 30, 2009. (page 874)
v. Know your clients :
With increasing incidence of economic offences in the Country and threat of terrorism and money laundering looming large over the society, it has become of utmost importance to know the credentials of our clients. As a watchdog of financial sector, it is our national duty and social responsibility to report about our ambiguous clients and their unscrupulous activities to the authorities concerned. To facilitate this, ICAI proposes to formulate and put in place ‘Know Your Client’ norms, having through checklist and guidelines, for CA profession on the lines of ‘Know Your Customer’ norms in place in banking industry. (page 875)
6. ICAI Elections :
The elections for Central Council and Regional Councils were held on 4-5 December, 2009. It is reported that following members are elected to Central Council from Western Region for 3 year term from 2010-2012. Results of election to WIRC is awaited.
Sarvashri (i) R. S. Adukia, (ii) Atul Bheda, (iii) Jayant Gokhale, (iv) Pankaj Jain, (v) Sanjeev Maheshwari, Mahesh Sarda, (vii) Dhinal Shah, (viii) Jaydeep Shah, (ix) Nitesh Vikamsey, (x) S. B. Jaware and (xi) Bhavna Doshi.
7. CPE hours :
ICAI has, by notification dated 15-12-2009, announced that the time limit for compliance with the requirement of CPE hours for structured learning for members holding Certificate of Practice for 2009 has been extended from 31-12-2009 to 31-1-2010. Members may note this change.
