1. Some Ethical Issues The Ethical Standards Board of ICAI has given answers to some Ethical Issues on pages Page 37 – 38 of C. A. Journal for July, 2014. Some of these issues are as under:
(i) Issue:
Whether a firm can obtain an assurance engagement at a significantly lower fee level than that charged by the predecessor firm or quoted by other firms?
When a firm obtains an assurance engagement at a significantly lower fee level than that charged by the predecessor firm, or quoted by other firms, the threat created will not be reduced to an acceptable level unless;
(a) The firm is able to demonstrate that appropriate time and qualified staff are assigned to the task; and
(b) A ll applicable assurance standards, guidelines and quality control procedures are being complied with.
(ii) Issue:
When does the situation for Potential Conflict arise?
When the responsibilities to an employing organisation and the professional obligations to comply with the fundamental principles are in conflict, the situation of potential conflict arises for the Professional Accountant in service.
(iii) Issue:
What is the distinction between the two schedules to the Chartered Accountants Act, 1949?
The two schedules are distinguished on the basis of gravity of misconduct and quantum of punishment for the misconduct, the second schedule pertains to a comparably graver misconduct and higher punishment.
(iv) Issue:
Can a member in practice render Management Consultancy and other services?
Yes, however, the areas covered under the Management Consultancy and other services have been summarised by the Council, appearing in the Code of Ethics, 2009 Edition.
(v) Issue:
Whether a member in practice is permitted to undertake the management of NRI funds?
No, a member is not permitted to undertake such assignment because the same is not covered under “Management Consultancy and Other Services” permitted to be rendered by the practicing members of the Institute.
(vi) Issue
Can a Chartered Accountant provide “Portfolio Management Services’ (PMS) as part of CA practice?
No, the Explanation to Clause (xix) of the definition of ‘Management Consultancy and other Services’ expressly bars the activities of broking, underwriting and Portfolio Management.
2. EAC Opinion
Accounting Treatment of Dividend Declared by Mutual Fund in Debt Fund Scheme under Dividend Re-Investment Plan.
Facts
A company (hereinafter referred to as ‘the company’) is a Maharatna Central PSU engaged in mining of coal having touched a production of 452 million tones during the 2012- 13 fiscal year. The company is a direct holding company of nine subsidiaries out of which eight are registered in India and the ninth one is registered in Mozambique.Two of its direct subsidiaries have further three and two sub-subsidiaries, respectively. Further, there are few joint ventures and associate companies which also form part of group accounts. The consolidated turnover of the company for the year 2012-13 was Rs. 88,281 crore with profit before tax of Rs. 24,979 crore. The main object of the company is to produce or otherwise engage generally in the production, sale and disposal of coal and its by products.
The company has stated that the company and its subsidiaries have surplus funds which are invested in bank Fixed Deposits (F.Ds) as well as in mutual funds (debt fund scheme). While the bank Fixed Deposits are shown under the Note ‘cash & bank balances,’ the investment in mutual fund is shown under the Note ‘current investments’ in the balance sheet. The term of the mutual fund is dividend re-investment plan which signifies that the dividend accruing on daily basis of Net Assets Value (NAV) of the scheme as on the date of declaration of dividend, results into increase in the number of total units held by the company.
Query:
In the above background, the company has sought the opinion of the EAC as to whether the dividend declared on a daily basis and credited in the form of additional units in the mutual fund account under debt fund dividend reinvestment plan should be recognised as revenue income as on the date of balance sheet in the final accounts of the company even if the same has not been redeemed/ encashed. If yes, the value at which such recognition is to be made? Or the present conservative practice of the company of not recognising the dividend declared and re-invested in the mutual fund–dividend re–investment plan on the balance sheet date due to non-encashment of such additional units be continued?
Opinion:
In view of the requirements of paragraph 13 of AS 9, the Committee notes that dividend income should be recognised at the time when the unit holder’s right to receive the payment thereof is established. The Committee is of the view that the right to receive is established when dividend is declared. In the extant case, the Committee notes from the Facts of the Case that dividend is declared on a daily basis and credited to the account of the company, which is represented by units determined on the basis of NAV per unit under initial investment of the units. This is reflected in the mutual fund account statement of the company. The Committee also notes from the Dividend Policy under one of the Schemes in the Key Information Memorandum, which is provided by the querist for the perusal of the Committee, that such reinvestment option was available in respect of a liquid fund wherein payout option on a periodic basis was also available. Thus, dividend was realisable both in cash or in kind, i.e., in the form of units of the fund as per the option exercised by the investor. The Committee is further of the view that nature of dividend would not change due to opting for reinvestment of dividend. Change in the value of reinvested units as a function of market price is a separate risk from the risk of investor’s right to receive the dividend. Accordingly, the Committee is of the view that the present practice of the company to defer the dividend declared and re-invested in the mutual fund scheme till the actual redemption of units and realisation of cash is not correct, rather it should be recognized as and when right to receive the dividend is established.
As regards the value at which dividend and investment should be recognised, the Committee is of the view that revenue from dividend should be recognised at the value of dividend received. Similarly, investments should be recognised at the issue price on the date of acquisition of each unit of mutual fund. With regard to any decline in the value of investments occurring subsequently due to market risks involved in mutual fund, viz., fluctuations in the NAV vis-à-vis interest rates etc., the Committee is also of the view that since current investments are carried at lower of cost and fair value, such decline/impairment in value of investment would be recognised while valuing the investments at the reporting date.
(Pl. Refer page nos. 65 to 67 of the C. A. Journal – July,2014)
3. I CAI News i) The following Campus Placement Programme for newly qualified C.As. has been organised by the ICAI during the months of August and September, 2014 (P. 119)
ii) Instructions to Members (P. 124) (a) A ppointment of Auditor of Government/Deemed Government Company:
As per relevant provisions of section 139 of the Companies act, 2013, the auditors of a government/ deemed government Company are to be appointed by the Comptroller and auditor general of india, therefore it is instructed that members should not take up the statutory audit of any government/deemed government Company without getting the appointment letter issued by the O/o C & AG.
(b) The hon’ble President of india addressed the iCai international Conference held in Kolkata in november, 2013. the gist of his address: (P.117)
In present times, we live in a world which offers a vista of opportunities for those who can handle the accompanying serious challenges. The subprime crisis and Eurozone crisis had adversely impacted the global economy including the BRICS nations. The same have reinforced of role of accounting professionals in discharging their responsibility to create public trust. Ethical standards would result in fruitful communication to stakeholders. a highly robust framework was required in the accounting/auditing/financial reporting, Psu accounting and accounting innovation. The ICAI has a big role to play in furthering india’s economic growth by providing inputs to the government in various fields as well as effective implementation of schemes such as mgrega.
