1. Retrospective Amendment of Accounting Standard (AS-11)
By a Gazette Notification dated 31.3.2009, the Central Government has amended Accounting Standard (AS-11) dealing with “The Effects of Changes in Foreign Exchange Rates” as notified by the Companies (Accounting Standard) Rules, 2006. It may be noted that para 46 has been added in this Accounting Standard with retrospective effect from 7th December, 2006. This para reads as under :
“46. In respect of accounting periods commencing on or after 7th December, 2006 and ending on or before 31st March, 2011, at the option of the enterprise (such option to be irrevocable and to be exercised retrospectively for such accounting period, from the date this transitional provision comes into force or the first date on which the concerned foreign currency monetary item is acquired, whichever is later, and applied to all such foreign currency monetary items), exchange differences arising on reporting of long-term foreign currency monetary items at rates different from those at which they were initially recorded during the period, or reported in previous financial statements, insofar as they relate to the acquisition of a depreciable capital asset, can be added to or deducted from the cost of the asset and shall be depreciated over the balance life of the asset, and in other cases, can be accumulated in a ‘Foreign Currency Monetary Item Transaction Difference Account’ in the enterprise’s financial statements and amortised over the balance period of such long-term asset/liability but not beyond 31st March, 2011, by recognition as income or expense in each of such periods, with the exception of exchange differences dealt with in accordance with paragraph 15. For the purposes of exercise of this option, an asset or liability shall be designated as a long-term foreign currency monetary item, if the asset or liability is expressed in a foreign currency and has a term of 12 months or more at the date of origination of the asset or liability. Any difference pertaining to accounting periods which commenced on or after 7th December, 2006, previously recognised in the profit and loss account before the exercise of the option shall be reversed insofar as it relates to the acquisition of a depreciable capital asset by addition or deduction from the cost of the asset and in other cases by transfer to ‘Foreign Currency Monetary Item Translation Difference Account’ in both cases, by debit or credit, as the case may be, to the general reserve. If the option stated in this paragraph is exercised, disclosure shall be made of the fact of such exercise of such option and of the amount remaining to be amortised in the financial statements of the period in which such option is exercised and in every subsequent period so long as any exchange difference remains unamortised.”
From the retrospective amendment of AS-11, it will be possible for all corporate bodies to exercise the option to restate their long-term Foreign Currency Monetary Items acquired during accounting periods commencing on or after 7.12.2006. The effect of this amendment will be as under :
(i) If the long term Foreign Currency Monetary Item relates to other than an acquisition of a depreciable capital asset, exchange differences should be accumulated in the “Foreign Currency Monetary Item Transaction Difference Account” and amortised over the life of the monetary item but not beyond 31 March, 2011.
(ii) If the long-term Foreign Currency Monetary Item relates to acquisition of a depreciable capital asset, exchange differences arising on such monetary items should be added to or deducted from the cost of the asset.
By a separate notification dated 31/3/2009, the Central Government has also amended Schedule VI of the Companies Act. By this amendment the second paragraph along with explanation 1 and explanation 2 of the instructions under the head ‘Fixed Assets’ has been deleted with effect from 31.3.2009. The effect of this amendment will be that the requirement of capitalisation of foreign exchange difference relating to the liability incurred for acquiring fixed assets purchased from a foreign country, gets removed. Therefore, if any fixed assets are purchased from a foreign country by taking loan in foreign currency, the foreign exchange difference will have to be recorded as provided in AS-11 as modified by Para 46 inserted w.e.f. 7.12.2006.
2. Limited Liability Partnership
The Central Government has issued a Notification u/s. 1 (3) of the Limited Liability Partnership Act, 2008 (LLP Act) on 31st March, 2009. notifying that LLP Act has come into force from that date. LLP Rules, 2009 and forms are also notified by a separate Notification. The Ministry of Corporate Affairs has now started registering LLP under the LLP Act/Rules.
It may be noted that the position of LLP under the Income-tax Act is not yet clarified. Unless this position is clarified, the existing partnership firms or unlisted companies may not exercise the option of conversion into LLP status. Even new partnership to be formed hereafter may not like to register as LLP unless the position under the Income-tax Act and Wealth-tax Act is clarified.
The LLP Act is silent regarding taxation of LLP under the Income-tax Act. The basic structure of LLP is that of a partnership and the only difference is that the liability of partners is limited. Therefore, the Government should grant the status of a ‘Firm’ to LLP for the purpose of Income-tax Act. In other words, the definition of the words ‘Firm’, ‘Partner’ and ‘Partnership’ in Section 2 (23) of the Income-tax Act should be so amended that it includes definition of these words under the LLP Act. Once this is done, there will be no need to amend other provisions of the Income-tax Act. Accordingly, LLP will pay tax at the flat rate applicable to a ‘Firm’ and it will get deduction for interest and salary to working partners as provided in Section 40 (b) of the Income-tax Act. Share of profit received by a partner from LLP will be exempt from tax. Losses of LLP will be allowed to be carried forward in the hands of the LLP. Other provisions relating to changes in constitution of LLP, dissolution, conversion of LLP to the status of company etc. will apply as they presently apply in the case of a Firm.
3. Working Hours of Articled Assistants
The Council of ICAI has taken certain decisions relating to working hours for training of articled assistants. Some decisions, among others, relate to the minimum and maximum working hours for the articled assistants per week, the course of action required to be taken in case the minimum working hours exceed, etc. These decisions are as follows:
i) The minimum working hours for the articled assistants shall be 35 hours in a week excluding the lunch break.
ii) The office hours of the principal for the articled assistants shall not be generally before 9.00 a.m. or after 7.00 p.m.
iii) The normal working hours of the articled assistants shall not start after 11.00 a.m. or end before 5.00 p.m.
iv) If the exigencies or nature of training so warrants, the articled assistant shall work beyond the normal office hours. However, the maximum working hours for the articled assistants should not normally exceed 35 hours in a week, excluding the lunch break and in any case or circumstances should not exceed 45 hours per week. In case the articled assistant is required to work beyond 35 hours per week, he/she is entitled to compensatory leave calculated with reference to the number of completed hours worked over and above 35 hours per week. The principal shall ensure that long , working hours are not imposed on the articled assistants on a regular basis, and only in case of exceptional circumstances where time-bound work is to be delivered, the articled assistants may be required to work longer hours which will still be subject to a maximum of 45 hours per week. The principal shall be free to allow compensatory leave or off hours in lieu of extra working beyond 35 hours.
(Source: Communication from Secretary, dated 3.4.2009)
4. Auditing Standards
The following Auditing Standards are issued by the Institute.
(i) Standard on Auditing (SA) 500 (Revised)- ‘Audit Evidence’. This Standard was hitherto known as SA 500 (AAS-5) ‘Audit Evidence’. The revised standard is effective for audits of financial statements for periods beginning on or after 1st April, 2009.
(Refer pages 1818 – 1825 of C.A. Journal for April, 2009)
ii) Standard on Auditing (SA) 720 – “The , Auditor’s Responsibility in Relation to other Information in Documents containing Audited Financial Statements”. This standard is effective for audits of financial statements for periods beginning on or after 1st April, 2009.
(Refer pages 1826 – 1828 of C.A. Journal for April, 2009)
5. ICAI News
(Note: The page nos. given below are from C.A. Journal for April, 2009)
i) Chapter of ICAI in Singapore
The Singapore Government has permitted leAl to open a chapter in Singapore. This will be inaugurated in April/May, 2009. (page 1668)
ii) International Conference at Agra
As part of the Diamond Jubilee celebrations of ICAI, an International Conference will be held at Agra from 3rd to 5th July, 2009. The theme of the conference will be “Winds of Challenges – Global Strategies for Accounting Profession”. (page 1669)
(iii) ICAI Publications
(a) Compendium of Standards on Internal Audit
(b) Manual on Internal Audit
(c) Manual on Concurrent Audit of Banks
(d) Training Material on Internal Audit
(e) Compendium of Opinions, Vol. I to Vol. XXV on CD.
(f) Handbook of Auditing Pronouncements (2008 Edition) (Vol. I & II)
(g) Practitioner’s Guide to Audit of Small Entities
(h) Implementation Guide to Risk-based Audit of Financial Statements
(i) Guidance Note on Audit of Banks ( 2009 Edition)
(Refer page 1808 – 1809, 1812 – 1813)
(iv) Master in Business Finance
ICAI has introduced a Certificate Course in ‘Master in Business Finance’. This course is open to members of ICAI and those students who have passed their final examination. Registration for 2009-10 session is in progress. The classes will be held on Saturdays/Sundays at Mumbai, New Delhi, Chennai and Kolkata from 1st June, 2009 (page 1811).
(v) ICAI Examinations
(a) PE-II, PCE, Final and all other examinations will be held from 1st to 15th June, 2009.
(b) CPT examination will be held on 28.6.2009
