No respite for proprietary firms, partnerships firms and Association of Persons firms.
A day after the government notified the deferment of Accounting Standard-11 (AS-11) till 2011, which deals with differences in foreign exchange rates, the Institute of Chartered Accountants of India (ICAI), the apex body to regulate the profession of chartered accountancy in India, has said AS-11 would continue to apply to all non-corporate entities.
Therefore, even as corporate India is cheering after the government cleared the proposal to defer AS-11 implementation for companies to 2011, non-corporate bodies like proprietary firms, partnerships firms or Association of Persons (AoP) firms would continue to abide by AS-11 and deduct the losses incurred due to foreign exchange movement against their profits.
“They (non-corporate entities) will continue to show losses or gains as per AS-11,” said Uttam Prakash Agarwal, ICAI president.
The government has postponed the compliance for the corporates with retrospective effect from December 7, 2006 till 2011. Now they will have the option to show the forex loss or gain according to AS-11 or Schedule VI of the Companies Act, which allows adjustment of profit or loss against the asset.
In 2011, when India will converge with the International Financial Reporting Standards (IFRS), companies will have to compulsorily report mark-to-market losses and gains, Agarwal said.
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ICAI has been opposing the deferment of AS-11, saying standards should not be changed based on circumstances.
Price Waterhouse files petition against ICAI
In another development, audit firm Price Waterhouse has taken ICAI to court. A petition has been filed by Price Waterhouse in the Bombay High Court, challenging the Institute’s disciplinary committee’s proceedings against the audit firm in the Global Trust Bank (GTB) case.
Confirming it, Agarwal said: “Yes, we have received a notice from Price Waterhouse. The audit firm wants to have a trial de novo (starting a new trial) in GTB case, probably to delay the entire process.” He declined to give more information as the matter is before the court. However, he said such incidents showed ICAI needed to have more powers.
Price Waterhouse partner S Gopalakrishnan, currently under arrest for his alleged role in fudging the books of Satyam Computer Services, along with two others, was found guilty of professional misconduct in auditing the GTB books by ICAI.
The disciplinary committee had given its findings to ICAI in the GTB case relating to three financial years, from 2000-01 to 2002-03. The auditors were accused of professional negligence in not detecting reduced provisioning for non-performing assets in the balance sheet of the Hyderabad-based GTB, which was merged with the Delhi-based Oriental Bank of Commerce in 2004.
Rakesh Mohan Committee on Financial Sector
ICAI has challenged the Rakesh Mohan committee’s recommendation on providing functional autonomy to the Accounting Standard Body (ASB).
According to Agarwal, ASB is part of the ICAI council and it already has functional autonomy. The composition of ASB is fairly broad-based and ensures participation from all interest groups in the standard setting process. The 30-member body has representation from all regulators like the Comptroller and Auditor General (CAG), Securities and Exchange Board of India (Sebi) and the Reserve Bank of India, he added.
Another recommendation that ICAI is challenging pertains to auditors being required to submit financial statements and audit reports of listed companies if they are being qualified to the Sebi. “The responsibility for preparing financial statements lies with the management and auditors are only required to express their opinion and it would be beyond the realm of legal environment in requiring auditors to submit a copy of financial statements to the Sebi,” said Agarwal.
The third recommendation that ICAI is objecting to the proposal of having an independent oversight mechanism for the auditing profession. “The Quality Review Board (QRB) was set up for this purpose only in 2007, based on the Naresh Chandra Committee report,” said Agarwal and added that since the QRB had started functioning only from 2007, it should be given a fair trial before contemplating any further changes.