29 December 2014

ICAI ON C&AG REPORT

ICAI ON C&AG REPORT                                         Attention has been drawn to certain issues raised on the certification work done by the members of the profession in the report of Comptroller and Auditor General of India (C&AG) entitled ‘Appreciation of Third Party (Chartered Accountant) Reporting in Assessment proceedings’ (Report No. 32 of 2014).

The issues raised in said report were deliberated in the recent meeting of the Council held from 23rd to 25th December, 2014. The Council was of the view that:

1.  Issues raised in the report be studied for initiating a structured and meaningful dialogue with the office of C&AG.

2.  Necessary steps be initiated against the erring members wherever any act of professional misconduct is observed.

3.  Refer details of all such members to the Disciplinary Directorate, who are said to have done Tax Audit, under section 44AB of the Income Tax Act, 1961, more than the limit prescribed by the Institute.

4.  Develop an IT based system in coordination with the authorities concerned especially to obtain the report of total numbers of Tax Audit done by each member to find out the details of the members not adhering to the Institute’s guidelines.

5.  Call for such information, as required, from the members invoking authority under the relevant provisions of the Chartered Accountants Act, 1949 and Regulations/ Rules framed thereunder.

6.  Keep the communication channels updated especially with the stakeholders so as to protect the interest of the profession.

7.  Create a Special Cell with proper staff to deal with these matters in an urgent manner.

V. Sagar
Acting Secretary
The Institute of Chartered Accountants of India
27th December, 2014

28 December 2014

5-minute test is suggested to filter out risky companies:

n5-minute test is suggested to filter out risky companies:

Auditor’s Opinion: Read the Auditor’s Opinion in the 10-K to make sure that it is a “going concern” and that the financial statements “present fairly, in all material respects, … in conformity with accounting principles generally accepted…”.

Lawsuits: Read footnotes for legal proceedings that can seriously harm the company. Stay away if you don’t understand the full impact of a lawsuit.

Unusual losses: Check how often the company reported unusual losses (e.g. bad debt, inventory write-downs, severance payments to laid-off workers, etc.) in the last several years.

Earnings restatements: Almost every major financial disaster was preceded by an earnings restatement. Make sure the company has not restated in the last several years.

Intangibles assets ratio: [(Goodwill + other intangibles) / Total assets] should be < 20%. Intangibles can be impaired and quickly disappear from the balance sheet. In credit crunch times, intangibles are hard to sell. Large intangibles are also a sign of management overpaying for acquisitions.

Debt-to-equity ratio: [(Sum of all interest-bearing debt including working capital lines of credit, short-term debt, long-term debt, and capital leases) / Shareholders’ equity] should be <= 75%.

Revenue growth: Look for revenue growth of >= 30% over the last 5 years (cumulative, not annual figure). Best revenue growth comes from increase in units sold, followed by price increases.

Stock-based compensation ratio: [Stock-based compensation / accrual profits] <= 15%. This measures how much of the profit goes to employees rather than shareholders.

Short ratio: [Number of shares short / Float] <= 15%. If more than 15%, understand why and determine if that is justified.

24 December 2014

BANK AUDIT 2015

The following procedure will be followed for appointment statutory branch auditors (SBAs) in public sector banks (PSBs):

(i) The list of eligible auditors/audit firms will be prepared by the Institute of Chartered Accountants of India (ICAI) as per the norms prescribed by RBI.( LIST prepared and ready to shoot to RBI)

(ii) The above list will be subjected to scrutiny by RBI for identifying the continuing and rested firms and excluding audit firms against whom adverse remarks/disciplinary proceedings are pending or who have been denied audit.

(iii) RBI will, thereafter, forward the final list of all eligible auditors/audit firms to PSBs for selection.

(iv) The PSBs will select the required number of branch auditors/audit firms. Banks will be required to clearly advise the audit firms selected for consideration of appointment that each audit firm can take up audit assignment (branch audit) in one PSB only. The audit firm should give their consent in writing for consideration of appointment in the bank concerned for the particular year and the subsequent continuing years.( the firms whose four year term has not completed shall be on the panel of sam bank.no fresh consent shall be require)

(v) The consent given by an audit firm will be treated as irrevocable and request, if any, from audit firms for changing the bank, after giving its consent to the bank concerned will not be entertained.( some of the banks takes consent from auditor and dont carry their names to list.auditors ignore the other bank offer being consent given .Attention is required for such exercise)

(vi) After the selection of branch auditors, PSBs will be required to recommend the names of both continuing and selected branch auditors to RBI for seeking its prior approval before their actual appointment, as per statutory requirement.

3. SBAs will have a maximum tenure of four years. The appointment of SBAs will be made on an annual basis, subject to their fulfilling the eligibility norms prescribed by RBI from time to time and also subject to their suitability.

4. The number of eligible auditors / audit firms is more than the number of branches to be audited at the following 33 centres (viz. Mumbai, Kolhapur, Pune, Solapur, Thane, Kolkata, Chennai, Coimbatore, Delhi/ New Delhi, Ajmer, Bikaner, Jaipur, Kota, Udaipur, Ahmedabad, Vadodara, Surat, Hyderabad, Chandigarh, Raipur, Faridabad, Gurgaon, Panchkula, Panipat, Sonipat, Bangalore, Ernakulam, Indore, Nagpur, Ludhiana, Jodhpur, Bhilwara, and Ghaziabad). In such centres, the auditors/ audit firms will be put to a period of compulsory rest for two years after completion of four years of continuous branch audit. In other centres, where the number of eligible auditors / audit firms is less than the number of branches to be audited, the branch auditors on completion of four years of continuous branch audit will be subjected to the policy of rotation.(as per policy the other places are out of rotation but the same is being misused)

5. While allotting branches, banks are required to select auditors/audit firms which are in close proximity to their offices/branches. Banks are also required to have a suitable mix of various categories of auditors / audit firms while selecting the branch auditors keeping in view the size of the branches to be audited.( Though banks have nothing to do with the cooling of firms other than 33 places but the same is being implemented from last four years as CAs are in surplus .Though this year PDC has prescribed a list with gap)

6. As regards statutory branch audit to be carried out by SCAs, banks will allot the top 20 branches(to be selected strictly in order of the level of outstanding advances) in such a manner as to cover a minimum of 15% of total gross advances of the bank by SCAs.

23 December 2014

CAG pulls up chartered accountants for incorrect income tax information

CAG pulls up chartered accountants for incorrect income tax information

 Coming down heavily on chartered accountants hired by the income tax department, a CAG report on Friday said their failure to submit correct tax information resulted in levying of lower taxes by as much as Rs 2,813.11 crore in 367 cases surveyed.

"We found cases where the CAs failed to report full and correct information in 367 cases leading to short levy of taxes of Rs 2,813.11 crore and where the Assessment Officers failed to utilise the information available in 102 reports or certificates submitted to them leading to short levy of taxes of Rs 1,310.05 crore," said the report of the official auditor.

"We also found in another 616 cases where CAs committed mistakes viz in allowance of exemption or deductions, charging of tax on book profit under Section 115JB, adoption of arm's length price and reporting on cash payments exceeding Rs 20,000 per day," it said.

The performance audit covered assessments completed during the period from financial years 2010-11 to 2012-13 and up to the date of audit.

In case of major audit observations, it said assessment records of previous assessment years (AYs) were also linked wherever found necessary.

"We found that 18.87 per cent of CAs (12,435 CAs) for 2013-14 issued more tax audit reports than prescribed by ICAI. We also got cases where CAs did not mention their membership numbers," it said.

Income tax department did not refer any case for professional negligence to ICAI for taking action against erring CAs, it said.

The report also said that CAs failed to give correct information relating to allowance of depreciation in 66 cases involving short levy of tax of Rs 457.79 crore

Tax auditors did not report correct information regarding brought forward loss or depreciation resulting in irregular brought forward loss or depreciation allowance in 46 cases involving short levy of tax of Rs 557.79 crore, it said.

"We have also commented on lacunae in the existing (tax) forms which need modification in order to capture full information of the affairs of assessees so that taxes are applied correctly," it said.

The CAs are regarded as facilitators for the Income Tax Department in administering the provisions of the The Income Tax Act, 1961 correctly.

The tax audit reports (TARs) or certificates issued by them serve as a valuable reference guide to the Assessing Officers (AOs) while making assessments.

 

CAG Report Exposes Shocking Carelessness And Blunders By CAs

The Comproller & Auditor General of India (CAG) has issued a report No. 32 of 2014 setting out the results of the performance audit of “Appreciation of Third Party (Chartered Accountant) Certification in Assessment Proceedings of the Department of Revenue”.

The report makes for shocking reading because it exposes the utterly careless manner in which the Chartered Accountants have conducted audits and issued certificates in blatant disregard of all basic norms.

According to the CAG’s report, there has been short levy of taxes to the extent of Rs 2,813.11 crore in the 367 cases which were surveyed, as a result of wrong audit reports issued by CAs.

The report also points out that there are 616 cases where CAs have committed mistakes in allowance of exemption or deductions, charging of tax on book profit under Section 115JB, adoption of arm’s length price and reporting on cash payments exceeding Rs 20,000 per day.

The CAG report gives several illustrations of such carelessness and also provides the names and membership numbers of the CAs who have conducted the audit.

The report also laments that no action u/s 288 of the Act has been taken by the department against the erring CAs.

It may be recalled that the ITAT has recently in Vijay V Meghani vs. DCIT (ITAT Mumbai) passed severe strictures against the CA profession for alleged falling standards. The Tribunal has also advised the ICAI to take action against erring members and to tackle the issue on a war footing.

In response to the criticism advanced by the ITAT, the ICAI had issued a ste [truncated by WhatsApp]

18 December 2014

GST Bill: 10 Facts

Cabinet Clears Amendment to GST Bill: 10 Facts

The Cabinet on Wednesday cleared the Constitutional Amendment Bill on Goods and Services Tax or GST, paving the way for tabling of the new legislation in the current session of Parliament.

Here's your 10-point cheat sheet on this big story:

1) The revised Bill takes into account the deal reached between the Centre and states on contentious issues like including petroleum, alcohol and tobacco in GST. These items account for a major portion of states' tax revenues.

2) At present, petroleum products will be not be included in the GST but will remain within the central act and will be brought in at a later stage through the GST councils. Alcohol will be exempt from GST and states would have the freedom to decide their own levy. Service tax will be subsumed within GST.

3) In case of losses in the states' exchequer, the Centre will give 100 per cent compensation for the first three years, 75 per cent compensation for the fourth year and 50 per cent compensation for the fifth year.

4) The government wants to introduce the Bill in the ongoing winter session that concludes on December 23.

5) The government on Monday decided to keep petroleum out of the proposed GST in return for states agreeing to entry tax being subsumed in the new indirect tax regime proposed from April 2016.

6) The GST Bill needs to be cleared by at least half of the states, besides Parliament, before its implementation.

7) The launch of GST has been delayed by nearly seven years, as states were concerned about revenue losses on introduction of the new tax regime.

8) The GST will cut down the large number of taxes imposed by the central government and states and will lead to the creation of a unified market, which would facilitate seamless movement of goods across states and reduce the transaction cost of businesses

9) The GST Constitutional Amendment Bill, which was introduced in the Lok Sabha in 2011, has lapsed and the Modi government will be required to come up with a fresh bill.

10) If successful, economists say the implementation of GST could add 2 percentage points to GDP growth.

(With PTI inputs)

15 December 2014

CBEC Circular on Service Tax Audit

CIRCULAR NO 181/7/2014-ST, Dated: December 10, 2014


Audit of the Service Tax assessees by the officers of Service Tax and Central Excise Commissionerates.

Section 94 of the Finance Act, 1994 deals with rule making powers of the Central Government in relation to service tax. Sub-section (2) of section 94, dealing with specific purposes for which rules can be made, was amended with effect from 06.08.2014, vide Section 114(J) of the Finance Act, 2014, and a new clause (k) was added to sub-section (2) of section 94, which is reproduced below –

"(k) imposition, on persons liable to pay service tax, for the proper levy and collection of tax, of duty of furnishing information, keeping records and the manner in which such records shall be verified."

2. In exercise of the rule making powers under clause (k) of sub-section (2) of section 94 of the Finance Act, 1994, the Central Government has inserted a new rule 5(A)(2) in the Service Tax Rules, 1994 vide notification no. 23/2014-Service Tax dated 5 th December, 2014. This rule, interalia, provides for scrutiny of records by the audit party deputed by the Commissioner. Such scrutiny essentially constitutes audit by the audit party consisting of departmental officers.

3. Verification of records mandated by the statute is necessary to check the correctness of assessment and payment of tax by the assessee in the present era of self-assessment. It may be noted that the expression "verified" used in section 94(2)(k) of the said Act is of wide import and would include within its scope, audit by the departmental officers, as the procedure prescribed for audit is essentially a procedure for verification mandated in the statute.

4. It may also be noted that the Hon'ble High Court of Delhi in the judgment dated 04.08.2014 in the case of M/s  Travelite  (India) (2014) TaxCorp(ST) 19175 (HC-DELHI) had quashed rule 5A(2) of the Service Tax Rules, 1994 on the ground that the powers to conduct audit envisaged in the rule did not have appropriate statutory backing. This judgment can now be distinguished as a clear statutory backing for the rule now exists in section 94(2)(k) of the said Act.

5. Departmental officers are directed to audit the Service Tax assessees as provided in the departmental instructions in this regard. Difficulty, if any, in implementing the circular may be brought to the notice of the Board. Hindi version will follow.

F. No. 137/46/2014-Service Tax

03 December 2014

Companies (Amendment) Bill, 2014 

The Union Cabinet, chaired by the Prime Minister Shri Narendra Modi, today approved the introduction of the Companies (Amendment) Bill, 2014 in Parliament to make certain amendments in the Companies Act, 2013. 

The Companies Act, 2013 (Act) was notified on 29.8.2013. Out of 470 sections in the Act, 283 sections and 22 sets of Rules corresponding to such sections have so far been brought into force. In order to address some issues raised by stakeholders such as Chartered Accountants and professionals, following amendments in the Act have been proposed: 

1. Omitting requirement for minimum paid up share capital, and consequential changes. (For ease of doing business) 

2. Making common seal optional, and consequential changes for authorization for execution of documents. (For ease of doing business) 

3. Prescribing specific punishment for deposits accepted under the new Act. This was left out in the Act inadvertently. (To remove an omission) 

4. Prohibiting public inspection of Board resolutions filed in the Registry. (To meet corporate demand) 

5. Including provision for writing off past losses/depreciation before declaring dividend for the year. This was missed in the Act but included in the Rules. 

6. Rectifying the requirement of transferring equity shares for which unclaimed/unpaid dividend has been transferred to the IEPF even though subsequent dividend(s) has been claimed. (To meet corporate demand) 

7. Enabling provisions to prescribe thresholds beyond which fraud shall be reported to the Central Government (below the threshold, it will be reported to the Audit Committee). Disclosures for the latter category also to be made in the Board’s Report. (Demand of auditors) 

8. Exemption u/s 185 (Loans to Directors) provided for loans to wholly owned subsidiaries and guarantees/securities on loans taken from banks by subsidiaries. (This was provided under the Rules but being included in the Act as a matter of abundant caution). 

9. Empowering Audit Committee to give omnibus approvals for related party transactions on annual basis. (Align with SEBI policy and increase ease of doing business) 

10. Replacing ‘special resolution’ with ‘ordinary resolution’ for approval of related party transactions by non-related shareholders. (Meet problems faced by large stakeholders who are related parties) 

11. Exempt related party transactions.  holding companies and wholly owned subsidiaries from the requirement of approval of non-related shareholders. (corporate demand) 

12. Bail restrictions to apply only for offence relating to fraud u/s 447. (Though earlier provision is mitigated, concession is made to Law Ministry &  Winding Up cases to be heard by 2-member Bench instead of a 3-member Bench. (Removal of an inadvertent error) 

14. Special Courts to try only offences carrying imprisonment of two years or more. (To let magistrate try minor violations).      

http://pib.nic.in/newsite/PrintRelease.aspx?relid=112434

Empanel as Concurrent Auditors

BANK OF MAHARASHTRA invites online applications from practicing firms of Chartered Accountants, in the prescribed format, who are willing to...