ICAI News

The regulator, at a board meeting of its core research body Accounting Research Foundation (ARF) on Tuesday, decided to study the policy that governs joint ventures, and the regulatory safeguards to counter the ills of cartelisation. The research study has been initiated as part of the regulator's MoU with information technology giant Infosys.

"We encourage capacity-building measures for joint ventures. The idea of the study is to understand the causes and effects of cartels vis-à-vis joint ventures," ICAI president Ved Jain told ET. Maintaining that the study is solely a research initiative of the regulator, Mr Jain said suggestions evolving from the study will be forwarded to the government.

Cartelisation -- which in simple terms means coming together of competing entities to distort competition -- affects the consumer. While the government considers cartelisation a negative force in its efforts to contain the spiralling inflation, the country still lacks regulatory teeth to counter it. With market regulator MRTPC lacking teeth to rein in suspected cartel formations and the upcoming Competition Commission of India (CCI) yet to get its enforcement rights, the economy stands susceptible to such unethical business practices.

By this November, ICAI will inaugurate the country's first museum that traces the evolution of chartered accountancy in India.

Historic press clippings, photographs, rare documents and video clippings are some of things through which the institute hopes to illustrate the past.

"The initial idea was to start a museum dedicated just to ICAI, which is celebrating its diamond jubilee this year It was while working on this idea that we decided to look at the bigger picture. This museum will trace the journey of accountancy in the country right from the rudimentary stages. That is when Chanakya spoke of economy and made references to accounting," said ICAI president Ved Jain.

"A lot of the material from 1913 onwards will be easily available from the institute as well as people who have been associated with ICAI. We have, for example, managed to procure a photograph of the East India Company's first balance sheet that dates all the way back to the early 1700s," informed Vijay Kapur, director, ICAI.

The apex accounting body is also going to set up its 21st chapter in Singapore to provide forum for the members of the institute working there to interact and keep themselves abreast with the developments in the field of accounting.

That apart, ICAI has formulated a 75hour certificate course on International Financial Reporting Standards, which will provide in-depth education and training to professionals. The course will be launched in September

"Sebi will have to change its listing agreement norms for India Inc to adopt International Financial Reporting system (IFRS)," ICAI Accounting Standard Board Chairman Amarjit Chopra said.

He said there is difference of approach in Sebi and National Advisory Committee on Accounting Standards (NACAS) in preparing financial statements as per accounting standards.

While Sebi asks the companies to prepare financial statements as per the accounting standards issued by the Indian Institute of Chartered Accountants (ICAI), NACAS is of the view that only those standards should be followed which have been notified by the Government.

NACAS is a body under the Ministry of Corporate Affairs, which studies accounting standards issued by ICAI and sends them to the Government for approval.

The latest accounting standards issued by ICAI on financial instruments like derivatives are yet to be notified by the government.

Chopra said ICAI also wants the government to revise the threshold limit defining a public-interest entity, for which it is mandatory to adopt IFRS.

A detailed analysis of the results by the Institute of Chartered Accountants of India (ICAI) placed Delhi among the top five states with impressive success rates. Delhi has the fourth and fifth highest pass percentage for the CPT and the final examination, respectively.

A scrutiny of the final examination results (including both group I and II comprising four papers each) placed Chandigarh at the top with a pass percentage of 42.86. Rajasthan and Punjab follow with 34.71 and 34.38 per cent, respectively Delhi missed the fourth spot just by a few decimal points. While Gujarat - holding the third rank - has a success rate of 30.6 per cent, Delhi has 30.32 per cent. The final examination was conducted in May this year.

The Capital has done a little better in CPT results and is positioned at the fourth spot with a success rate of 43.96 per cent. A total of 3,946 out of the 8,976 students from Delhi passed the CPT held in June this year Roohi Aggarwal of Delhi is among the first five all-India toppers of the CPT test.

With a success rate of 57.46 per cent, Chandigarh maintains its supremacy in this category as well. "We have conducted such a detailed analysis for the very first time. The scrutiny shows that students from northern states, such as Delhi, Chandigarh, Punjab and Haryana, have done well in comparison to the rest," said ICAI President Ved Jain. The results declared on Saturday threw up another significant trend, which, however, was not a surprise for many "The results of this year's CA exams are in sync with the larger trend of female candidates outperforming boys," added Jain.

Dasgupta, head of the empowered committee of state finance ministers on Value Added Tax (VAT), recognized the role of ICAI in implementation of the VAT regime, claimed Ved Jain, president of ICAI.

ICAI was scheduled to meet the minister again in a month's time. ICAI had been studying GST in various countries, and included these inputs in the concept note, Jain said.  Discussions were on a macro level, said N Haldar, chairman of the eastern regional council of ICAI.

The final version of the GST should be ready in a few month as the Finance ministry had approved the GST model and road map in April this year.

The accounting technician course proposed for launch by ICAI will now cover candidates who could not clear their final examinations for CA. The technicians will be absorbed in the accounting and finance departments, directly assisting the chartered accountants.

ICAI has already proposed to the Union ministry of corporate affairs to go ahead with the launch of the new course. It is expecting the Centre to give the necessary clearances in the next couple of months.

According to the proposal, a student will be required to register for the entrance examination after passing his 10th grade examination. The eligible candidates will be required to attend classes and undergo IT training. After successful completion of the studies and IT training, students can appear for the examination, any time after nine months of registration.

"Candidates who could not clear CA finals will just have to appear for 100 hour computer training to get the accounting technician certificate. They will not have to follow the procedures like other students. We are expecting that about one lakh students who could not clear examinations beyond CA inter will now have even better opportunities in the job market," said ICAI vice president Uttam Agrawal.

He added that the institute is expecting to create one lakh accounting technicians as a second rung of skilled manpower to the core accounting professionals in next couple of years. It may be mentioned here that 1.45 lakh CA professionals and 3.5 students are associated with ICAI.

"I am of the view that SMPs have a place and important role in India. In the diamond jubilee year, we will do everything possible to strengthen the SMPs, which will in turn help the SMEs. The institute will take the initiative of developing practice tools (software etc) for SMPs," Mr Ved Jain, President of ICAI, told a press conference today.

Of the 1,45,000 members of ICAI, about 45,000 come under the category of small and medium practice units.

The Prime Minister, Dr Manmohan Singh, will inaugurate the ICAI's Diamond Jubilee year celebrations here on July 1. The Finance Minister, Mr P. Chidambaram, will deliver a special address on the same day, he said.

On the issue of mutual recognition of qualifications with other countries, Mr Jain expressed confidence that memorandum of understanding (MoUs) would be signed with regulatory bodies of 2-3 countries during the diamond jubilee year.

"There are reasonable possibilities that with 2-3 countries we will be in a position and those countries that matter most we will be in a position to achieve this in diamond jubilee year," he said, but declined to name the countries.

The two years course will create a category of assisting CAs, said Ved Jain, president, ICAI.

There is a huge demand for such professionals in the country and the Institute has already sent a proposal for approval to the ministry of corporate affairs, Jain informed. Some amendments were required and the course was likely to be rolled out within the next three months.

ICAI was looking at enrolling around 50,000 students for the course in the first year.

It will be open to students of 10+2 qualification through the Common Proficiency Test(CPT).

After clearing the CPT, the student could either go for the CA course or the Accounting Technicians course.

        Chartered Accountants (CA's) occupy key posts in business firms. They are responsible for money management, preparation and analysis of accounts and providing financial advice. Chartered Accountants maintain records of the company's financial transactions and profits, prepare tax returns and monitor costs. The records of the income and expenditure of the company forms the basis of the annual accounts. These account books are audited by qualified chartered accountants. Public sector organizations' accounts are checked by an appointed firm of accountants.

        Only members of the Institute of Chartered Accountants under the Companies Act can do professional practice and are authorized to audit company accounts.

        Nature of Work

"The strong economic growth is fuelling demand for CAs and increasing interest in the profession. We have also consciously adopted a strategy of catching them young. There will be a quantum jump in the number of CAs passing out in 2010 without compromising on our quality and standards," Mr Ved Jain, ICAI President, told reporters here on Monday.

In 2007, 1.25 lakh students opted for the chartered accountancy course as against enrollment levels of 35,000 to 40,000 seen in each of the years 2001-2006.

Articleship training

Meanwhile, Mr Jain said that the ICAI's Central Council has now decided to allow articleship training to be undertaken abroad so long as it was under a practicing member of the institute. "Articleship training need not be done only in countries where ICAI has a chapter. Having a chapter is not the criteria for this. The requirement is it can be done in any country but it should be under our institute member who is in practice," Mr Jain said.

Currently, ICAI has 18 chapters and the Central Council has now given its nod for setting up a chapter in Muscat.

The Institute of Chartered Accountants of India (ICAI) on Friday approved Accounting Standard 32 for disclosure of losses and gains from investment in various market-linked instruments such as derivatives, mutual funds, government securities.

Though the new norms are mandatory only from 2011, companies are free to start using AS 32, as it is called, from 2009, the ICAI said.

The expectations are that the stringent standard will bring about transparency especially with the way derivatives losses are shown in the financial statements.

The new norms will enable users to "evaluate the significance of financial instruments for the entity's financial position and performance; and the nature and extent of risks arising from financial instruments to which the entity is exposed during the period and how the entity manages those risks," the ICAI said.

Derivatives losses arisen out of mis-selling of some products by banks have been in the news for the last few months. Investors have not yet known the extent of the losses since these loses are 'marked to market' and disclosures are not compulsory.

ICAI said its officials are increasing vigilance on company books to provide correct disclosures.

In a step which is likely to give shareholders a clearer picture of the health of the company they own, accounting regulator ICAI on Friday approved a new accounting standard on disclosure of all sorts of financial instruments.

It would also keep investors abreast of the steps taken by the companies to guard against potential financial losses.

The new norms come in the backdrop of various companies filing cases against their banks for the losses they suffered on exotic derivative products in the wake of the US subprime crisis. Many banks, including some of the country's biggest lenders such as SBI, ICICI Bank and Axis Bank have in the recent past announced making provisions to cover mark-to-market losses.

The new accounting standards mandates the companies to reveal various financial instruments such as derivatives, futures and options, mutual funds and loans in their financial statements. Companies are recommended to disclose these details from the beginning of next fiscal. The accounting standard AS-32 pertaining to disclosure of financial information will become mandatory from April 1, 2011.

These norms are based on international financial reporting standards, which India has formally decided to adopt. Disclosure of the `financial engineering' of companies allows shareholders to make more informed decisions.

AS-32 follows two other accounting standards (AS-30 and 31), wherein the regulator had laid down rules pertaining to recognition and measurement and presentation of financial instruments by companies.

"AS-32 will bring greater transparency in disclosures related to financial instruments such as derivatives and how the entity manages risks associated with such a portfolio," ICAI president Ved Jain said. He also expressed hope that the new norm would be a step towards empowering the citizens.

The disclosure norms evoked sharp criticism from industry chambers, which argued that mark-to-market losses (showing the market value of an instrument) are notional and it would be difficult for companies to account for them

Last December, ICAI had come up with detailed accounting standards -- AS-30 and AS-31 -- in order to establish principles for measuring and recognising financial assets & liabilities and contracts to deal in non-financial assets.

ICAI president Ved Jain said, "AS-30 and AS-31 were only the measurement and recognition of the financial statements. Whereas, AS-32 is an accounting standard that would lead to a proper disclosure of the financial statements."

The objective of AS-32 accounting standard, is to bind financial entities to provide disclosures in their financial statements so that users can evaluate the important information in the statements. It will help client assess the significance of financial instruments for the entity's financial position and performance. Moreover, it would also help disclose the nature and extent of risks arising from financial instruments to which the entity is exposed during the period and at the end of the reporting period, and how the entity manages those risks.

ICAI is confident that there would not be any financial scam in the derivatives exposure of Indian Companies, as the domestic accounting standards were quite rigorous.

Earlier, Jain told FE that there was no escape route for Companies. They would need to account for losses immediately as the existing Accounting Standards (AS-1) mandates them to do so. The auditors have to make suitable disclosures otherwise, he said.

"Unless you violate the directions and instructions of the regulators, I see no reason why any scam or anything wrong can take place," Jain said. "All issues possibly arising on financial instruments are properly addressed. I don't see any scope (for creative accounting)," he said.

Like AS-30 and AS 31, the council proposes to make AS-32 recommendatory from April 1, 2009 and mandatory from the April 1, 2011. ICAI secretary Ashok Haldia told FE that "AS-30, AS-31 and AS-32 are the three standards taken together to cover the whole gamut of financial instruments".

Accounting Standard-30 in December 2007 asks Companies to provide for mark-to-market losses as well as profits from April 2009 on a voluntary basis. "All complexities regarding derivatives have been addressed in AS-30--an internationally recognised accounting standard on lines of IFRS (International Financial Reporting Standards).

In  case an entity does not opt either for AS-30 and is not accordance with AS-1, then the auditors need to make a suitable disclosure," he said.

Jain's comments are significant as a large number of Indian Companies are battling over the issue of how to write in huge losses on the face of exposure to forex derivatives, when their currency bets went wrong. The ICAI standards mean the Companies have a choice between either taking the losses in their balance sheets right now, as per AS-1 standards, or offset them against profits made in the same exposure, when their bets went right, as per AS-30. In both cases they have to provision the exposures as per current market values--mark to market, instead of treating them on a historical book value.

Jain had initially said that even those Companies that have sued the banks would have to account for their losses. "I think probably now everything will come in the next one month when the audited results get out. From 10 April onwards, when results start pouring in, you can work out (the losses)."

Analysts note the total mark-to-market losses of Indian Companies' exposure in the forex derivatives could be in the region of $5 billion. Company auditors would need to disclose in case it does not follow any of the accounting standards. Forex exchange derivatives are used as a risk management and mitigation tool by Companies having large forex exposure. A derivative is an instrument whose value is a function of an underlying commodity, bond, stock, or currency. As on December 31 2007, banks operating in India had a derivatives exposure of Rs 127.86 trillion, as per data compiled by the government.

Accounting Standard-32 in continuation with the AS-30 and 31 will be of a great advantage to the shareholders and stakeholders. It will allow users to get a proper disclosure of financial statements that would help them re-evaluate operations. Moreover, the costs of information on the financial statements would be available to its users on a timely basis.