By P. N. Shah, H. N. Motiwalla
Chartered Accountants
ICAI & Its Members
1. Disciplinary case :
In the case of ICAI v. Sri S. R. Bhandary, the
Registrar of Companies filed a complaint against the member alleging, inter
alia, that during the inspection of accounts of one of the companies,
certain violations of the Companies Act came to light which had a bearing on the
accounts and transactions of the company. The member who had audited the
accounts of the said company failed to report such violation in his audit report
on the accounts of the company.
The Disciplinary Committee and the Council came to the
conclusion that the member was grossly negligent in the performance of his
duties and he was guilty of professional misconduct under Clause (7) of Part I
of Second Schedule to the C.A. Act. The Council recommended to the High Court
that the member be reprimanded.
The Karnataka High Court has observed that the Council was
justified in taking the above view. The High Court has pointed out that the
member had not reported on the following matters.
The member did not qualify the following points in his report
dated 6-4-1992 :
(i) The Company acquired shares at Rs.14,59,510 in two
private limited companies. These investments were in excess of the limits laid
down u/s.372 of the Companies Act, 1956. The Company did not obtain prior
approval from the Government of India.
(ii) The Company paid interest of Rs.2,21,669 on share
application money received pending allotment. The payment was neither
authorised under the Companies Act, nor under the Memorandum and Articles of
Association of the Company. The payment is, therefore, unauthorised.
The High Court agreed with the Council and accepted its
recommendation that the member be reprimanded for his above negligence.
(Refer pages 1519-1520 of C.A. Journal, March, 2008)
2. Whether Auditor of a subsidiary company can be a Director of its
Holding Company :
The Ethical Standards Committee (Committee) of ICAI has
examined this issue in detail. In terms of Clause (II) of Part I of the First
Schedule to the C.A. Act, a practising C.A. cannot engage in any business or
occupation without permission of the Council. He can, however, be a
non-executive director of a company wherein he or any of his partners is not an
auditor. According to the Committee, the public conscience is expected to be
ahead of the law. Members are, therefore, expected to interpret the requirement
as regards independence much more strictly than what the law requires and should
not place themselves in positions which would either compromise or jeopardize
their independence.
In view of the above, the Committee has decided that an
auditor of a subsidiary company cannot be a director of its holding company, as
it will affect the independence of the auditor. On the same analogy, an auditor
of a holding company cannot be a director of its subsidiary company.
(Refer page 1590 of C.A. Journal, March, 2008)
3. Guidelines for fees payable for Special Audit u/s.142(2A) of Income-tax
Act :
As the members are aware, S. 142 (2D) of the Income-tax Act
was amended by the Finance Act, 2007 w.e.f. 1-6-2007. According to this
amendment, the audit fees for a Special Audit ordered on or after 1-6-2007
u/s.142(2A) is to be determined by the Chief Commissioner or Commissioner and to
be paid by the Central Government. For this purpose, guidelines have now been
issued by a Notification dated 5-2-2008 [298 ITR (St) P.1]. A new Rule 14B has
been added in the Income-tax Rules, which provides as under :
(i) Every Chief Commissioner has to maintain a panel of
Chartered Accountants.
(ii) The Chartered Accountant who is required to conduct
such Special Audit u/s.142(2A) has to maintain a time-sheet and has to submit
it to the Chief Commissioner/Commissioner along with his bill.
(iii) The Audit fees will not be less than Rs.3750 per hour
and will not be more than Rs.7500 per hour for the Chartered Accountant,
qualified assistants, semi-qualified and other assistants.
(iv) The Chief Commissioner/Commissioner will ensure that
the number of hours claimed for billing purposes is commensurate with the size
and quality of the report submitted by the Chartered Accountant.
(Refer page 1508 of C.A. Journal for March, 2008)
4. Accounting treatment in respect of amount withheld from a contractor in
respect of customs duty :
The Expert Advisory Committee (EAC) of ICAI has considered
the above issue in its opinion which appears on pages 1489-1492 of C.A. Journal
of March, 2008. In this case, the company had entered into a lump sum turn-key
agreement with a foreign contractor for installation of process plant. The
contractor submitted its bill which included customs duty paid by it. The
company raised objection with regard to payment of the customs duty, on the
ground that evidence in the form of proof of payment of customs duty was not
furnished. The company withheld the payment of customs duty to the contractor.
The matter was referred to an Arbitrator. The company raised the following two
questions :
(i) Whether the accounting treatment of capitalising plant
at the total lump sum price (including taxes and duties) payable to the
foreign contractor for lump sum turn-key contract is in order by providing for
liability for the amount withheld towards balance customs duty on account of
non-submission of customs documents, against which the contractor has invoked
arbitrator proceedings.
(ii) In case the answer to the above question is in the
negative, whether the amount withheld from the contractor, which is under
arbitration, is to be treated as contingent liability.
