LIFE COs TO GET REVISED MORTALITY TABLES

The much awaited new mortality tables for the life insurance market, which have been pending for more than a year now, are likely to come out in the next six months. These tables are almost a decade old and the industry, as a whole, has been asking for revised mortality tables to give an accurate picture of life graph on today’s consumers.

INSURERS GET CORE EQUITY LEEWAY

Insurance companies will have more infrastructure firms in their equity investment portfolio soon. The Insurance Regulatory and Development Authority has agreed to allow insurance companies to invest in equities of non-dividend-paying infrastructure companies. Relaxation will enable investment in such companies on the basis of project risk assessment and developers’ risk-rating.

IRDA SET TO ALLOW INVESTMENT IN DERIVATIVE

The Insurance Regulatory and Development Authority (IRDA) is set to allow insurance companies to invest in a few more financial instruments, including derivatives. The proposed move will enhance returns for policy holders. Derivatives such as options and futures are financial instruments whose value is based on another security.

SPOT EXCHANGE TO BE LAUNCHED

MCX subsidiary National Spot Exchange for agricultural Produce (NSEAP) is set to launch the country’s first spot exchange on an electronic platform in Gujarat during September, which would revolutionize spot market commodity trading and offer better prices to farmers.

NCDEX TO FOCUS ON NON-FARM GOODS

The National Commodity and Derivatives Exchange (NCDEX) is shifting focus to politically less sensitive commodities such as metals in a bid to steer clear of constant Government intervention in farm commodities.

INVESTMENT IN EQUITY MUTUAL FUNDS

Public sector blue-chip companies enjoying navratna and miniratna status can now park up to 30 per cent of their surplus funds in equity mutual funds. However, the investments would be allowed only in public sector mutual funds.

FII CAN PLEDGE FOREIGN SECURITIES

In a move to further deregulate the Indian equity derivatives market, the Reserve Bank of India (RBI) has broadened the number of instruments for maintenance of collateral by foreign institutional investors undertaking derivatives transactions. RBI has decided in consultation with the Government of India and Securities and Exchange Board of India (SEBI) to permit SEBI approved clearing corporations of stock exchanges and their clearing members to open and maintain demat accounts with foreign depositories and to acquire, hold, pledge and transfer the foreign sovereign securities, offered as collateral by FIIs.

WITHDRAWAL OF THE STATEMENT ON PAYMENTS MADE TO AUDITORS FOR OTHER SERVICES

The Council of The Institute of Chartered Accountants of India has decided to withdraw the Statement on Payments to Auditors for Other Services.The Council has noted that Part II of Schedule VI to the Companies Act, 1956, exhaustively covers the disclosure requirements for payments to auditor in other capacities. 

WITHDRAWAL OF THE STATEMENT ON QUALIFICATIONS IN AUDITOR’S REPORT

The Council of The Institute of Chartered Accountants of India has decided to withdraw the Statement on Qualifications in Auditor’s Report except paragraphs 2.1 to 2.30, dealing with report under section 227 (1A) of the Companies Act, 1956. The Council has further decided to keep the paragraphs 2.1 to 2.30 of the existing Statement and rename the Statement as “Statement on Reporting under section 227 (1A) of the Companies Act, 1956.

ONLY CERTIFIED CAs FOR COOPERATIVE

Gujarat may soon follow Maharashtra’s model of auditing in co-operatives sector. The Institute of Chartered Accountants of India will soon propose the state government to impanel only those CA’s who have undertaken a special course on auditing of accounts of co-operatives. WIRC of ICAI has trained 4000 CAs for Audit of Maharashtra Cooperatives through a specially designed training course. 

IFRS TO BE MANDATORY

Institute of Chartered Accountants of India (ICAI) council decided to converge the Indian standards with international financial reporting standards (IFRS) issued by the International Accounting Standards Board from the accounting period starting April 1, 2011. The IFRS will become mandatory with effect from April 1, 2011 and will be optional for earlier adoption by corporates w.e.f. 1st April, 2008. Significant changes in accounting practices and techniques, including for revaluation of fixed assets, can be expected with the ICAI giving a go ahead to converge the Indian accounting standards with international standards from April, 2011.

SC REFUSES STAY ON AS-22

The Supreme Court (SC) has refused to stay Accounting Standard (AS) 22 though it admitted a plea challenging this new norm issued by the Institute of Chartered Accountants of India on deferred tax liability of listed companies. A bench headed by Justice S.H. Kapadia observed that the norms would continue to be in operation after Solicitor General G.E. Vahanavati and CA.N.K. Poddar, Senior Advocate opposed the petitions saying AS-22 has come into effect in 2001.

INTERNATIONAL STANDARDS ON AUDITING

To enhance the quality and consistency of audits, the International Auditing and Assurance Standards Board (IAASB), an independent standard-setting board under the auspices of the International Federation of Accountants (IFAC), is continuing to advance its project to clarify its international standards. The IAASB has now approved five final International Standards on Auditing (ISAs) drafted in accordance with the new conventions and, including the eight just released, 23 exposure drafts of ISAs. The IAASB expects to issue a further seven exposure drafts this year, and to complete all 35 ISAs as final standards by the end of 2008. India: The council of the Institute of Chartered Accountants of India has in principle decided to also redraft all its Audit and Assurance Standards (AASs) as Standards on Auditing (SAs) and also to follow same style and numbering as of ISAs 

VAT ON CHARTERED BUS

The Delhi Government has decided to impose value added tax (VAT) on buses carrying office goers, students and others on contract basis, a move that is likely to increase fare in all such public carriers. There is a legal issue involved here as the services are already subject to service tax. How VAT can be levied under “Right to use goods” category?

SERVICE TAX ABATEMENT ON TOUR PACKAGES

The revenue department has agreed to increase the abatement level for levy of service tax purposes from the existing 60 to 75 per cent. The abatement increase is not only for inbound packages but also for domestic package. The increase in abatement rate would be notified shortly.

INSURERS SPAREDFROM SERVICE TAX

Life insurance companies are set to be spared of paying service tax on fund management fees. This is a good news for policy holders investing in unit-linked insurance plans (Ulip) as they will not have to take a hit on their returns. The Central Board for Excise & Customs (CBEC) has accepted IRDAs view that fund management fees should not attract service tax because managing a policy holder’s money is a part of an insurers business.

TAX ON 44 NEW SERVICES

State Finance Ministries have come to a consensus on the list of 44 new services of intra-State nature on which service tax could be levied by the Centre and passed on to them as part of the compensation package for central sales tax (CST) phaseout.

RETAI L ERS , REAL ESTATE COs CHALLENGE LEVY OF SERVICE TAX

Retailers, real estate developers and multiplex owners among others have moved the Bombay High Court challenging the levy of service tax on rental income from commercial properties.

DECISION ON SERVICETAX WAIVER FOR EXPORTS HANGS FIRE

Nearly three months after the commerce ministry announced the measure while unveiling the annual supplement to the Foreign Trade Policy, the finance ministry is yet to finalize the terms for exemption and remission of service tax on export of merchandise goods.

RATES OF DUTY DRAWBACK REVISED

Central Board of Excise and Customs has made the increased rates of drawback effective retrospectively from 1.4.2007. However, in a few cases such as primary steel, dyes and chemicals, the drawback rates have been reduced. The reduced rates will take effect prospectively from 18.7.2007, i.e. the date of coming into force of the notification which is made avaible at website www.cbec.gov.in 

MANDATORY EPAYMENT OF DIRECT TAXES

E-Payment of direct taxes would be mandatory for corporate taxpayers and taxpayers who come under the purview of Section 44AB with effect from 1 January 2008.

LOAN GUARANTEE LIMIT FOR MSEs

The eligible loan limit for micro and small enterprises (MSEs) under the credit guarantee scheme, has been raised from Rs. 25 lakh to Rs. 50 lakh. Significantly, all MSEs operated and / or owned by women will get guarantee covers up to 80% of their credit off take from banks and financial institutions. The higher guarantee limit has also been extended to those micro enterprises, which will take loans up to limit of Rs. 5 lakh. Barring these two listed categories, over MSEs will get the guarantee coverage under the scheme up to 75 % of their borrowing. However, this facility would be enjoyed by those servicing units, which are related to the industrial activities. But not by those which are involved in trading and other non manufacturing activities

LOAN GUARANTEE LIMIT FOR MSEs

The eligible loan limit for micro and small enterprises (MSEs) under the credit guarantee scheme, has been raised from Rs. 25 lakh to Rs. 50 lakh. Significantly, all MSEs operated and / or owned by women will get guarantee covers up to 80% of their credit off take from banks and financial institutions. The higher guarantee limit has also been extended to those micro enterprises, which will take loans up to limit of Rs. 5 lakh. Barring these two listed categories, over MSEs will get the guarantee coverage under the scheme up to 75 % of their borrowing. However, this facility would be enjoyed by those servicing units, which are related to the industrial activities. But not by those which are involved in trading and other non manufacturing activities

PARTICIPATORY NOTES

PNs are derivative instruments whose underlying securities are Indian stocks and are issued by FIIs to overseas investors that want to invest in Indian stocks but are not allowed to do so directly but only through FIIs. PNs also give investors the benefit of anonymity, giving rise to concerns about whether Indian money itself is coming back through the PN route. The sources of such funds have been an issue with Indian regulators.

FII REGISTRATION UNDER SEBI LENS

The Securities and Exchange Board of India (SEBI) is reviewing the registration norms for foreign institutional investors in a move to encourage direct entry by hedge funds. Hedge funds still prefer investments through the participatory note (PN) route because of the high transaction costs after registration as an FII.

VALUATION OF INSURANCE COs

Insurance Regulatory & Development Authority, plans to introduce a new benchmark for insurance companies’ valuations. The new measures will help in arriving at more realistic estimates based on disclosures. Realistic valuations are crucial to the industry which could become a hot-bed for mergers and acquisitions (M&As) if and when there is an increase in the foreign direct investment limit. A sub-committee has been set up by IRDA to suggest ways to value these companies. The Embedded Value (EV) method, which is an indicator of the value of the existing business in the books of a company, is one of the measures suggested by the committee. At present, the New Business Achieved Profit (NBAP) is used for valuation purposes. In the absence of a standard valuation method, the industry feels that some of the valuations may not be justified. While EV is an indicator of the value of the business in terms of policies already written, the NBAP multiplier is the value of the business that will be written in the future. NBAP is arrived at after various assumptions about the future, but it may not give pointers to the quality of the portfolio of the company.

CREDIT AGAINST WAREHOUSE RECEIPTS

National Bulk Handling Corporation (NBHC) will work as a collateral manager with IDBI Bank and State Bank of Patiala for warehouse receipt loans The banks have entered into an agreement to provide credit to farmers, corporates and processors against NBHC warehouse receipts. The stock pledged with the banks will be kept in warehouses owned by NBHC which will guarantee quality and quantity of the commodity

NEW NORMS ON LETTER OF CREDIT

As per Reserve Bank of India (RBI) banks can now negotiate a Letter of Credit (LC) where the negotiation of bills drawn under LC is restricted to a particular bank, and the beneficiary of the LC is not a constituent of that bank.The LC can be negotiated subject to the condition that the proceeds will be remitted to the regular banker of the beneficiary.

RBI MULLS CURRENCY FUTURES EXCHANGE

The Reserve Bank of India (RBI) is exploring a dedicated currency futures exchange, after taking an in-principal decision to launch rupee-denominated futures. RBI has also decided to revive interest rate futures which have failed to take off after being introduced in June 2003.

RUPEE EXPORT CREDIT INTEREST RATES

As per the existing guidelines, banks charge interest rate not exceeding BPLR minus 2.5% on rupee pre-shipment credit up to 180 days and rupee post shipment credit up to 90 days. Banks will now charge interest rate not exceeding BPLR minus 4.5% on pre-shipment credit up to 180 days and post shipment credit up to 90 days on the outstanding amount for the period April 1, 2007 to December 31, 2007 to the specified export sectors. The Government has decided to provide interest subvention of 2 percentage points p.a. to all scheduled commercial banks.

DISCOUNTING / REDISCOUNTING OF BILLS BY BANKS

According to a Reserve Bank of India circular banks should purchase/discount/negotiate bills under Letter of Credit (LC) only in respect of genuine commercial and trade transactions of their borrower constituents who have been sanctioned regular credit facilities by the banks. Banks should not, therefore, extend fund-based credit facilities (including bills financing) to a non-constituent borrower or a non-constituent member of a consortium / multiple banking arrangement.

CRR INCREASED

The Reserve Bank of India has decided to increase the Cash Reserve Ratio (CRR) of Banks by 50 basis points to 7 percent with effect from the fortnight beginning 4.8.2007.

CA EXAMINATION SANCTITY – A CRUCIAL ISSUE

The recent episode of a sting operation by a leading TV channel in relation to CPT Entrance Examination of the Institute of Chartered Accountants of India has raised a serious concern among the Members of the Institute as well as the society. The Institute immediately cancelled the examination and has decided to re-conduct the same on 25th August 2007. The Institute has also constituted a High Power Committee, headed by a Government Nominee to very closely inquire about the subject matter and also to review the weakness in the system and control so that such events do not happen again. It is worth noting that no other CA Examination had been impacted by paper leakage earlier. The lure and lust of money converted into greed for CPT Entrance Examination, in view of its nature of an objective type examination.
The CA examinations are known for their highest standards, tough control and intense preparation requirement to ensure expert level of knowledge among Chartered Accountants. The passing percentage has been ranging from 7%-9% in Final to a range of 15-20% at intermediate level and there is no reason to suspect that there has been any case of paper leakage in the past. It is highly appreciated that the full Council of the Institute of Chartered Accountants of India is deeply concerned about the current paper leakage of the entrance examination. The Council may consider –

• To closely review the current examination systems and procedures and to beef them up with proper internal control mechanism.
• Expert Advisers on systems, securities and control can be retained to advise the Council.
• CPT Entrance Examination may be immediately converted from objective type to a tough and high standard subjective type examination, to enable the Institute to ensure that entry into CA course is very tough and thereafter passing intermediate / final examination, for such high quality students should be easier.
• The CPT paper was leaked from the examination center where paper was sent, just days before the examination. There are more than 200 centers all across India and it may be important to ensure a “three-key control” wherein the papers are kept in sealed boxes, sent to the examination center under high security and are opened few minutes before the examination commences in the presence of ICAI representative, the examination centers in charge and a Committee of volunteer Chartered Accountants.
• To further upgrade the quality of all the CA examination, substantially so as to ensure that only persons with very deep academic as well as practical knowledge are only able to pass the examination. The Council can consider introducing practical multi-disciplinary case studies as a part of the examination.
• The coaching institutes are registered, monitored and disciplined. No coaching is permitted within 9.30 A M and 5.30 P M. ICAI consent to take coaching may be made mandatory. ICAI is also considering providing mandatory coaching by ICAI itself.
• The paper setters, examiners, head examiners and all other connected with the examination system should be subject to rotation periodically and also should be subjected to very tough screening and on going surveillance, to ensure complete sanctity of the system.

Those who planned to leak the papers of CPT actually forgot that CPT paper leakage may give them an entry into a course which is very tough at all level and the very basis of the Course is Excellence, independence and integrity. When there is no integrity, they can never pass CA and we will never allow them to pass CA. We all are committed to take a very tough and stern action against those who are responsible for the current paper leakage. The police have already arrested one of the culprits and others are in the process. A detailed investigation by the police and / or CBI will completely uproot this menace.