Category: ICAI And Its Members

(i) Issue No. 1
Can the name of a proprietary firm of a Chartered Accountant, after his death, be used by the C.A. who purchases the goodwill of the firm?

Response

The Council has taken the view that the goodwill of a proprietary firm of Chartered Accountant can be sold/transferred to another eligible member of the Institute, after the death of the proprietor concerned and the name of the firm can be used by the purchaser subject to following conditions:

(a)    in respect of cases where the death of the proprietor concerned occurred on or after 30-8-1998, if the sale is completed/effected in all respects and the Institute’s permission to practice in deceased’s proprietary firm name is sought within a year of the death of such proprietor concerned. In respect of these cases, the name of the proprietary firm concerned would be kept in abeyance (i.e. not removed on receipt of information about the death of the proprietor as is being done at present) only up to a period of one year from the death of proprietor concerned as aforesaid.

(b)    in respect of cases where the death of the proprietor concerned occurred on or after 30-8-1998 and there existed a dispute between the legal heirs of the deceased proprietor, the position is as under.

The information as to the existence of the dispute should be received by the Institute within a year of the death of the proprietor concerned. In respect of these cases, the name of the proprietary firm concerned shall be kept in abeyance till one year from the date of settlement of dispute.

ii) Issue No. 2
What is the meantime of communicating with the retiring auditor?

Response

Where a new auditor is appointed, the incoming auditor has an obligation to communicate the fact of his appointment to the retiring auditor and make enquiry as to whether there are any professional or other reasons why he should not accept the appointment.

This is intended not only as a mark of professional courtesy but also to know the reasons for the change in order to be able to safeguard member’s own interest, the legitimate interest of the public and the independence of the existing accountant. The provision is not intended, in any way, to prevent or obstruct the change.

The incoming auditor may not accept the audit in the following cases :-

(i)    Non-compliance of the provisions of Sections 224 and 225 of the Companies Act.

(ii)    Non-payment of undisputed audit fees by auditee’s other than in case of sick units for carrying out the statutory audit under the Companies Act, 1956 or various other statutes; and

(iii)    Issuance of a qualified report.

(iii) Issue No. 3
Can a member act as a Tax Auditor and Internal Auditor of an entity?

Response

The Council has decided that Tax Auditor cannot act as an Internal Auditor or vice-versa for the same financial year.

(iv) Issue No. 4
Can a Concurrent Auditor of a Bank also undertake the assignment of quarterly review of the same bank?

Response

The Concurrent audit and the Assignment of quarterly review of the same entity cannot be taken simultaneously as the concurrent audit is a kind of internal audit and the quarterly review is a kind of statutory audit. It is prohibited in terms of the ‘Guidance Note on Independence of Auditors’.

2.    EAC Opinion

Facts:

(ii)    The company stated that after completion of the major activities of the said project, the existing plant was shut down from October, 2009 to February, 2010 for completing the installation, integration and commissioning of the project / plant. Although the existing plant which was shut down during this installation period came into operation from February, 2010, the Parallel Chilling Train and the Extended Binary Refrigeration (EBR) Compressor had not been successfully integrated. As a result, the capacity of the mother plant had not been ramped up and the increased feed from mother plant to auxiliary and other downstream plants had not been achieved. In view of this, the expansion project was not declared commissioned in February, 2010. The plant started operation at nearly 95% of the enhanced capacity (without one heater which was damaged in fire in July, 2009 and was under reconstruction) for about a month following the integration and commissioning of the EBR and the New Chilling Train (NCT) in May, 2010 and based on an internal certification, the management decided to go ahead with the capitalisation of the project in the books of account in June, 2010.

(iii)    In view of the frequent problems faced by the company post commissioning of the project, non-achievement of the expanded capacity of the plant and also considering the opinion given by the licensor, the management of the company has prospectively realised that the expansion project which was commissioned and capitalised in June, 2010 has not yet fully stabilised to operate at the enhanced capacity on a consistent basis.

(iv)    Therefore, the management of the company is of the opinion that (i) Till stabilisation and successful commissioning of the plant in compliance of the criteria and parameters recommended by the licensor, the company should consider costs relating to the expansion project so capitalised earlier as capital work in progress. (ii) All subsequent expenditure for rectification of the defects, shut down cost, revenues, gain and loss, etc., incurred during the commissioning and stabilisation period of this expansion project should form part of the project cost (iii) Capitalisation of all such costs as mentioned in point (i) and (ii) above in the books in the year of such successful commissioning.

Query:

(v)    On the basis of the above, the company has sought the opinion of the EAC on the aforesaid accounting treatment and whether the same is in conformity with the applicable accounting principles and Accounting Standards.

EAC Opinion

(vi)    The Committee notes that the basic issue raised in the query relate to accounting for expenditure on rectification of defects, shut down costs, revenues, gains and losses, etc., incurred during the stabilisation period of the expansion project after declaration of its commissioning and fitness for commercial production in June, 2010 and determination of the point of time when costs relating to expansion project should be capitalised along with the plant.

(vii)After considering the facts stated in (i) above and Paragraphs 9.4 and 9.4 of AS 10 – “Accounting for Fixed Assets” the Committee is of the view that the activities undertaken for stabilisation of plant cannot be treated as the test run as prescribed in the Standard. The purpose of test run, in the view of the Committee, is to ascertain whether the plant and machinery and other relevant facilities, as installed, give the commercially feasible output in terms of quality and quantity. If during the test run, the production standards are not met, normally, the production is stopped and necessary alterations/modifications are made in the plant and machinery. It may be necessary to carry out test runs(s) further until the output of commercially feasible quality and quantity is obtained. The Committee notes that in the company’s case, the plant after expansion was operational at 95% of the enhanced capacity and was able to produce the commercially feasible goods, and, therefore, was ready for commercial production in June, 2010. Accordingly, in the company’s case, capitalisation of expenditure on rectification of defects, shut down costs, revenues, gains and loss, etc. incurred after declaration of commissioning of the expansion project in June, 210 is not appropriate. Therefore, the question of writing back the costs related to the expansion project, capitalised earlier, in June 2010 to ‘capital work in progress’, as stated by the company does not arise.

[Pl. Refer Page nos. 1558 to 1561 of C. A. Journal – April , 2013]

3. ICAI News

(Note :    The page nos given below are from CA Journal of April, 2013)

(i)  ICAI Towers, BKC, Mumbai

ICAI Towers at BKC, Mumbai, was dedicated to ICAI members and students on 15-3-2013 by the Union Corporate Affairs Minister, Shri Sachin Pilot. The Towers has ground + 8 floors which will house the WIRC office as well as ICAI Decentralised office. This building is spread over 32090 sq. ft. (Page 1506)

(ii) Industrial Training for Articled Assistants

CA Regulations, 1988 provide scope for Industrial Training facilitating articled assistants real life exposure in office workings at industry and service organisations in order to develop their professional acumen. Industrial Training is highly benefiting to articled assistants in terms of practical knowledge & learning. The period of Industrial Training may range between nine months to twelve months during last year of the prescribed period of Practical Training under CA Course.

An articled assistant who has passed Intermediate (Integrated Professional Competence) Examination/

Intermediate (Professional Competence) Examination Professional Education (Examination-II)/Intermediate Examination may serve as an Industrial Trainee in any of the financial, commercial, industrial undertakings under an eligible member of the Institute working with such organisation. A list of registered organisations permitted to impart Industrial Training is available at the ICAI website.

Members are requested to inform and encourage their articled assistants to pursue industrial training by fulfilling the above eligibility. Detailed information and prescribed application forms are available on ICAI website www.icai.org as well from concerned regional offices of ICAI.

Members serving in such organisations/industries are also requested to apply separately in the prescribed form for empanelment of their organisation with the Institute for imparting Industrial Training (Page 1646).

(iii) Secondment of Articled Assistants

CA Regulations, 1988 provide scope for Secondment of articled assistant facilitating an opportunity for gaining practical experience in multi-disciplinary work and variety of business situations. A principal may second an articled assistant to other member/s with a view to provide him/her training in the areas where the principal/articled assistant may require. Secondment can also be availed during Industrial Training.

Such Secondment can be done under an eligible member whether in practice or in employment. A member can provide secondment upto maximum two articled assistants at a time. The minimum period of secondment shall be four months and the maximum period shall be one year which may be served with more than one member. During the period of secondment, the member with whom the articled assistant is seconded shall pay stipend at the rates prescribed under CA Regulations. A record of training imparted during secondment will be properly maintained.

For Secondment, a statement in the form containing particulars of training needs to be filed with the Institute within 30 days from the date of commencement of training on secondment.

Members may inform their articled assistants regarding secondment and encourage them to undergo secondment with an eligible member for training in the desired field. Detailed information and prescribed application form of secondment is available on ICAI website www.icai.org as well as with the concerned regional offices of ICAI. (Page 1646)

(iv) Quality Review Board

The Government of India has constituted Quality Review Board (QRB) u/s. 28A of CA Act. Details about its constitution and functions are published on page 1648 of CA Journal for April, 2013. Our members interested in working as “Technical Reviewers” for QRB can empanel their names with QRB as stated in ICAI Note at page 1648.

(v)    Notification about consequences of breach of C.A. Regulation 65

The Executive Committee of ICAI has noticed that some Articled Assistants are pursuing more than one study courses, besides C.A. Course, during their training period. This amounts to breach of CA Regulation 65. Council is taking a serious view about this non-compliance of CA Regulations. The Notification states that in the cases of Articled Trainees, who have not complied with this Regulation, ICAI will not grant Membership after they qualify for the period during which there was non-compliance. It is also clarified that appropriate action will be taken against the members who have trained such Articled Trainees (Page 1517).

The Government of India directed a State Port Trust (SPT) to construct a new Port. Accordingly SPT acted as the executing agency and completed a Port. For this, the Government of India provided a sum of Rs.426.11 crore to SPT towards implementation of the Port. The Government of India vide their letter dated 14-2-2002 directed SPT to handover the completed Port to ABC Limited, (‘the company’) which is owned by the Government of India and was incorporated with the specific purpose of corporatising the Port.

The company has stated that the Port has been developed and constructed on land acquired from Government agencies. The total consideration paid for acquisition of land was Rs.24.89 crore. Of which, Rs.14.89 crore was paid by SPT and balance Rs.10 crore was paid by the company. In the financial year 2007-08, the Government of India decided that land be owned by the company and therefore directed the company to pay to SPT the amount of Rs.14.89 crore together with interest of Rs.16.51 crore i.e., totaling Rs.31.40 crore. The company had shown the entire amount of Rs.24.89 crore in its books as ‘Advance for Land’ under the head ‘Loans & Advances’, as nature of title that will accrue to the company was not known at the time of making these payments.

Based on the subsequent development in this regard between the company, the Government and Government agencies involved in this issue, the company expects to get ‘Orders of Alienation of Title’ for the land from the respective vendors of the land in due course of time. The company has informed that the formal transfer of title of the land would be through issuance of ‘Orders of Alienation of Title’ by the transferor Government.

Query

On these facts the company has sought the opinion of EAC that (i) whether the company can capitalise the value of land at Rs.24.89 crore in the financial year 2010-11 with a suitable disclosure in the Notes to Accounts as ‘Pending receipt of formal Orders of Alienation of Title’, and (ii) whether the company can charge the interest of Rs.16.51 crore paid to SPT to its profit and loss account for the financial year 2010-11, as separate line item being extraordinary and non-recurring?

Opinion

After considering paragraphs 17 & 35 of Accounting Standard (AS) 1 ‘Disclosure of Accounting Policies’ and paragraphs 35, 49, 58 & 88 of ‘Framework for the Preparation and Presentation of Financial Statements’ the Committee is of the view that the company should capitalise the total amount of Rs.41.40 crore paid by both the company and SPT as ‘Land’ and not as ‘Advance for Land’ from the date when the company possess the beneficial interest in the land and not in the financial year 2010-11. However, the company should give suitable disclosures to convey to the users of financial statements that the execution of conveyance deeds in favour of the company is in progress. Further, the Government has made reference to a rate of interest as a means to compute final sale consideration of the land. Therefore, the amount so determined is in substance not ‘interest’. So the question of treating interest as revenue expenditure and disclosure of interest paid as an extraordinary item does not arise.

 ICAI conducted the enquiry and found the member guilty of professional misconduct under clause (7) of Part I of Second Schedule of the C.A. Act. It recommended to the Delhi High Court that the name of the member be removed from the Register of Members for a period of 3 years.

The defence of the member before the High Court was that he was in practice for 21 years without a single incident of professional misconduct or negligence. He also argued that he could not put up his defence before ICAI properly because he had suffered paralytic attack and the assessee had taken away the file. He submitted that a lenient view may be taken in his case.

The High Court has held as under:

(i) The accountants’ profession occupies a place of pride amongst various professions of the world and makes observance of professional duties and propriety more imperative. When conduct of a member of the profession is contrary to honesty, or opposed to good morals, or is unethical, it is misconduct-warranting consequences indicated in the Statute. A breach of confidence is a stigma not only on the individual concerned, but is also likely to have effect on credibility of the profession as a whole.

(ii) The CA’s explanation that the assessee had taken away the file and that he suffered a paralytic stroke does not inspire any confidence because the relevant documents and information were supplied to him. The assessee accepted the fact that section 80HHC claim was not maintainable during the assessment proceedings. Once it is established that no payment was received against the export, the certificate issued by the CA was false. It is a bogey raised by the CA that he has verified all the documents and only then issued the certificate. On the quantum of punishment, on the one hand, the CA pleads his sickness, has an otherwise unblemished practice of 21 years and incident is old. On the other hand, the misconduct is of serious nature because submitting a false/ bogus certificate to the client to enable him to make false claim of deduction under the Incometax Act, is of serious offence. That the CA made an attempt to dupe the tax authorities and help the assessee to avoid the tax to that extent such a conduct has to be taken seriously.

He accordingly cannot be let off merely by giving him reprimand. Some penalty needs to be imposed so that it acts as deterrent and such professional misconduct is not committed. Weighing the circumstances, the ends of justice would be subserved by removing his name from the Register of Members for a period of six months. (itatonline — 9-3-2012).