(Note : Page Nos. given below are from C.A. Journal
for May, 2010)
(i) Multipurpose Empanelment Application Form (MEF) for the
year 2010-11 for empanelment for audit assignments has been hosted on
www.meficai.org on 1-5-2010. Last date for submission of MEF is 15-6-2010. Hard
copy of the declaration is to be sent to ICAI, New Delhi before 30-6-2010. Out
of the total applications up to 10% applicants will be called upon to submit (a)
Financial Statements of the Firm, (b) Partnership Deed effective on 1-1-2010,
and (c) copies of acknowledgement of latest Income-tax Returns, computation of
income and the latest assessment orders of the Firm and Partners. (Page 1736).
(ii) SEBI has issued a Circular on 5-4-2010 whereby the
listing agreements of all listed companies are amended. Some of the new
requirements, concerning auditors, as per the Circular are as under :
(a) Auditors of the company will have to give certificate
for accounting treatment under schemes of arrangement on account of
amalgamation/merger/reconstruction, etc. of listed companies to be submitted
to the concerned stock exchange. The auditors will be required to issue a
certificate to the effect that the accounting treatment contained in such
schemes is in compliance with all the applicable accounting standards.
(b) In relation to the requirement of a valid peer review
certificate for statutory auditors, in respect of all listed entities, limited
review/statutory audit reports submitted to the concerned stock exchanges
shall be given only by those auditors who have subjected themselves to the
peer review process of the ICAI and who hold a valid certificate issued by the
‘Peer Review Board’ of the ICAI.
(c) Limited review report and statutory auditor’s reports
are modified to make it clear that disclosures pertaining to details of public
shareholding and promoters’ shareholding, including details of
pledged/encumbered shares of promoters/promoter group, contained in the format
have been traced from disclosures made by the management; and
(d) In order to ensure that the CFO has adequate accounting
and financial management expertise to review and rectify the financial
statements as required under Clause 49 of the Listing Agreement, the
appointment of the CFO is approved by the Audit Committee before finalisation
of the same by the management and the Audit Committee, while approving the
appointment, shall assess the qualifications, experience and background, etc.
of the candidate. (Pages 1753-54)
(iv) Special Placement Programme for experienced CAs :
Special Placement Programme for experienced and fresh
Chartered Accountants has been organised by ICAI in the month of June, 2010 as
under :
| Centre |
Dates |
(a) Mumbai and New Delhi
|
25-26 June, 2010 |
(b) Bangalore, Chennai,
Kolkata and Hyderabad |
23-24 June, 2010 |
| (c) Jaipur and Pune
|
22 June, 2010 |
CAs who have qualified before 10-5-2010 as well as those who
have experience of more than one year can participate in this programme. (Page
1862)
(v) Campus Placement Programme :
In the last issue of BCA Journal (Page 124) results of the
First Phase of the campus placement programme organised by ICAI in Feb-Mar, 2010
were given. Now results of the Second Phase of this programme are published. The
highlights of this phase are as under :
(a) Brief summary for both phases of the programme :
No. of candidates registered — 2931
No. of interview teams — 99
No. of organisations — 94
No. of jobs offered — 1411
% of jobs offered — 48.11%
(b) Phase II — Important Centres :
Centres |
Candidates registered |
No. of interview teams |
No. of jobs offered |
Ahmedabad |
158 |
8 |
29 |
Chandigarh |
337 |
5 |
24 |
Hyderabad |
201 |
19 |
106 |
Jaipur |
370 |
9 |
51 |
|
Note?: Annual salary offered — Highest (international) $ 1.5 lacs (about Rs.70 lacs), Highest (Indian) Rs.10.82 lacs, Minimum Rs.3.24 lacs and Average Rs.6.58 lacs. (Page 1870)
2. Non-compliance with reporting obligations:
Financial Reporting Review Board (FRRB) has observed some discrepancies in compliance with Accounting Standards in published Financial Statements of some of the companies. In brief some of the important observations of the committee are as under. Members may note these observations.
i) AS 1 — Disclosure of Accounting Policies:
a) Certain enterprises merely state in their accounting policy relating to revenue recognition that the revenue has been recognised on the basis as stipulated under AS-9, Revenue Recognition. Such disclosure cannot be considered as adequate disclosure under AS-1. The accounting policy as adopted by the enterprise with respect to timing of recognition of revenue arising from sales revenue, interest income, royalty income and dividend income should be considered as one of the most important accounting policies for any organisation and it should be disclosed separately.
b) Paragraph 24 of the AS-1 requires that all significant accounting policies adopted in the preparation and presentation of financial statements should be disclosed. The financial statements of the enterprises provide a detailed note on accounting policies as adopted by them. However, they often omit to disclose accounting policies with regard to the borrowing costs, valuation of inventories, accounting for investments, impairment of assets, provisions, contingent liabilities and contingent assets. It was felt that enterprises normally, borrow funds, hold inventories as well as investments and also possess certain assets which may be subject to impairment. Further, there is always a need to carry certain provision to meet their future liabilities. Accordingly, subject to circumstances, enterprises are expected to also disclose the accounting policies as adopted by them with regard to borrowing costs, valuation of inventories, accounting for investments, impairment of assets and provisions, contingent liabilities and contingent assets.
ii) AS-2 — Valuation of inventories:
Some enterprises recognise the customs duty on inventory as and when the goods are cleared from customs warehouse. As such, no provision for customs duty is made on the goods lying in the warehouse. It is contrary to the requirement of the AS-2. It may be noted that as per paragraph 6 of the AS-2, the cost of inventories should comprise all costs of purchases, costs of conversion and other costs incurred in brining the inventories to their present location and condition. Since the customs duty is a cost incurred in bringing the goods to its present location and condition, therefore, the liability to pay such duty should be recognised as and when the goods enter the territorial waters of the country. (Page 1871)
3. Deferred tax assets — What is virtual certainty?
Expert Advisory Committee (EAC) has given the following opinion on this subject on Pages 1755-1757.
i) Facts:
A public sector company is engaged in construction of ships and ship repair activities. The company has an accumulated loss of Rs.847.42 crore as on 1-4-2008 and a deferred tax asset of Rs.102.36 crore. As per the Income-tax Returns filed by the company and income-tax assessments, the amount of unabsorbed depreciation and carried forward losses of the company is Rs.255.51 crore. The company has also realised deferred tax asset to the extent of Rs.6.66 crore in the financial year 2007-08.
The Auditors have taken the view that there is no virtual certainty supported by convincing evidence that sufficient future taxable income will be available against which deferred tax assets (DTA) can be realised. The company has given several reasons to support its stand that sufficient income will be available in future years against which a DTA can be adjusted.
ii) Query:
The company referred the following query to EAC for its opinion.
The querist has sought the opinion of the Expert Advisory Committee as to whether the accounting for deferred tax assets by the company is in compliance with AS-22, based on the inputs as stated above in respect of virtual certainty of future taxable income.
(iii) Opinion:
The EAC has considered the above facts, views of the Auditors and the submissions of the company. It has also considered para 17 and 18 of AS-22 dealing with ‘Accounting for Taxes on Income’. In particular, reference is made to Explanation below para 17 of AS-22 (ASI-9) and stated in para 11 of the opinion as under.
On the basis of the above, the Committee is of the view that the orders secured by the company, as mentioned by the querist in paragraph 3(a) to (c) above, may be considered while creating deferred tax asset provided these are binding on the other party and it can be demonstrated that they will result in future taxable income. However, mere projections made by the company indicating the earning of profits from future orders contemplated in paragraphs 3(a) and above, or financial restructuring proposal under consideration of the Government of India or the fact that the books of account of the company are prepared on ‘going concern’ basis as mentioned by the querist in paragraphs 3(d) and (e), respectively, may not be considered as convincing evidence of virtual certainty as contemplated in the ‘Explanation’ to paragraph 17 of AS-22 reproduced above. Further, the mere fact that the items covered u/s.43B of the Income-tax Act, 1961, the provision for liquidated damages, doubtful advances, guarantee repairs and other contingencies, and unabsorbed depreciation can be carried forward for unlimited number of years, can also not be a ground for recognizing a deferred tax asset, as mentioned by the querist in paragraphs 3(f), (g) and (h), respectively, since paragraph 17 of AS-22 read with its ‘Explanation’, requires virtual certainty supported by convincing evidence at the date of the balance sheet. The Committee also wishes to point out that a deferred tax asset can be created to the extent that future taxable income will be available from future reversal of any deferred tax liability recognised at the balance sheet date. To that extent, it would not be necessary to consider the level of virtual certainty supported by convincing evidence.
On the above reasoning the opinion of the Committee is that accounting of DTA by the company is in compliance with AS-22 to the extent stated in para 11 of its opinion.
4. Accounting Standards:
Accounting Standards Board (ASB) has issued further exposure drafts revising the following Accounting Standards and also issued two exposure drafts of New Accounting Standards after convergence with the International Financial Reporting Standard (IFRS) and International Accounting Standards (IAS) for public comments.
A. Revised Standards:
i) AS-9 (Corresponding to IAS-18) — Revenue
ii) AS-15 (Corresponding to IAS-19) — Employees Benefits.
iii) AS-17 (Corresponding to IFRS-8) — Operating Segments.
iv) AS-18 (Corresponding to IAS-24) — Related Party Disclosures.
v) AS-20 (Corresponding to IAS-33) — Earnings per share.
vi) AS-26 (Corresponding to IAS-38) — Intangible Assets.
vii) AS-29 (Corresponding to IAS-37) — Provisions, Contingent Liabilities and Contingent Assets.
B. New Standards:
viii) AS-38 (Corresponding to IAS-41) — Agriculture.
ix) AS-39 (Corresponding to IFRS-4) — Insurance Contracts.
5. Standards on Review Engagements:
The following Standards on Review Engagements (SRE) have been published at pages stated below. These apply to Financial Statements for periods beginning on or after 1st April, 2010?:
i) Standard on Review of Engagements (SRE) 2400 (Revised) — Engagements to Review Financial Statements. (Pages 1879-1884)
ii) Standard on Review of Engagements (SRE) 2410 — Review of Interim Financial Information performed by the Independent Auditor of the Entity. (Pages 1885-1897)
