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Wednesday, November 17, 2010

Advanced Auditing (CA Final) Amendments for May 2011

Auditing and Assurance Standards/ Standards on Auditing Amendments:

  1. SA 700;
  2. SA 705;
  3. SRE 2410;
  4. SA 800;
  5. SA 805


Chapter 14:

4.3 Core Investment Companies (RBI Circular August 12, 2010)

Core Investment Company means a NBFC carrying on the business of acquisition of shares and securities which satisfies the following conditions:

· it holds not less than 90% of its Total Assets in the form of investment in equity shares, preference shares, debt or loans in group companies;

· its investments in the equity shares (including instruments compulsorily convertible into equity shares within a period not exceeding 10 years from the date of issue) in group companies constitutes not less than 60% of its Total Assets;

· it does not trade in its investments in shares, debt or loans in group companies except through block sale for the purpose of dilution or disinvestment;

· it does not carry on any other financial activity referred to in Section 45I(c) and 45I(f) of the RBI Act, 1934 except investment in bank deposits, money market instruments, government securities, loans and investments in debt issuances of group companies or guarantees issued on behalf of group companies.

Core Investment Companies (CIC) with an asset size of less than Rs. 100 crores will not be required to register themselves with RBI.

Core Investment Companies (CIC) with an asset size of Rs. 100 crores or more, will be regarded as Systemically Important Core Investment Companies (CICs-ND-SI). Systemically Important Core Investment Companies will be required to get themselves registered with Reserve Bank of India.

A CIC-ND-SI which fulfills the following conditions , will not be required to meet the requirement for maintaining Net Owned Funds & capital adequacy and exposure norms as required under Non-Banking Financial (Non-Deposit Accepting or holding) Companies Prudential Norms (Reserve Bank) Directions, 2007:

  • Maintenance of minimum Capital Ratio where Adjusted Net Worth shall not be less than 30% of its Aggregate Risk Weighted Assets on Balance Sheet and risk adjusted value off-balance sheet items as on the date of the last audited Balance Sheet at the end of the financial year.
  • Ensuring that it’s outside liabilities at all times doesn’t not exceed 2.5 times of the Adjusted Net Worth as on last audited Balance Sheet date.

CICs-ND-SI will be required to submit an Annual Certificate from their statutory auditors regarding compliance with the above guidelines within one month from the date of finalisation of the Balance-Sheet.

Chapter 2:

Capital Profits:

1. Cannot be distributed as dividends until realised (Lubbock vs. The British Bank of South America); and

2. AOA should permit the distribution of realised capital profits; and

3. Equity is adequately represented by remaining assets after such distribution

Capital Receipts (such as securities premium, CRR, profit of reissue of forfeited shares) cannot be distributed as dividends

An unlisted public company or a private limited company can issue bonus shares even out of its revaluation reserve [SC in Bhagwati Developers vs. Peerless General Finance & Investment Company (2005)]

Fictitious Assets:

  1. Should be written off before declaration of dividends out of Capital Profits;
  2. Need not be written off before declaration of dividends from Revenue Profits

· Interim Dividend:

  1. Mere resolution by BOD to pay Interim Dividend does not create an enforceable debt against the company [PNB Ltd vs. UOI];
  2. BOD can rescind the resolution before payment


  1. The Text of the amendments is not clearly visble. Please re upload the same or upload by attaching pdf file

  2. Sir,
    Please copy paste these amendments in MS Word and then it would be visible

    All the Best

  3. Sir, How to view the SA amendments u provided here.