CA FINAL ADVANCED AUDITING NOTES- CA(AMENDT)ACT,2011 AMENDING CA ACT

The  Chartered Accountants(Amendment) Act,2011(“the Amendment Act,2011”)  received the assent of the President on 08.01.2012. 

The Amendment Act,2011  amends the Chartered Accountants Act,1949(“the 1949 Act”) so as to allow:

(i)Limited Liability Partnerships(LLPs) of CAs or LLPs of CAs and other specified professionals to  practice the profession of Chartered Accountancy

(ii)Setting up of multi-disciplinary firms/LLPs of CAs and other specified professionals and to enable them to practice the  profession of Chartered Accountancy.

(iii)Sole proprietorship of CAs registered with ICAI included in definition of 'firm"

These amendments came into force with effect from 1^st February,2012[Notification No. S.O.190(E) dated 1^st February,2012]

INDIAN LLPS OF CAs/CAs WITH OTHER RECOGNIZED PROFESSIONALS ALLOWED TO PRACTICE THE CA PROFESSION

.A Limited Liability Partnership may practice as Chartered Accountants with effect from 1^st February,2012 ( the date the Amendment Act,2011) comes into force provided the following conditions are satisfied:

• Condition (i)-It is an Indian LLP(LLP formed and registered under the LLP Act,2008) and not a foreign LLP
• Condition (ii)-The partners of the LLP are  only CAs in practice or CA/(s) in practice and other recognized professionals as may be prescribed.
• Condition (iii)-None of the partners of the LLP shall be a company[Sub-clause (B) of new clause(ec) of section 2(1) of the 1949 Act; Explanation  inserted in section 25 of the 1949 Act] or an Indian LLP or a foreign LLP
• Condition (iv)-The LLP is registered with the Institute of Chartered Accountants of India

Condition (i)- It is an Indian LLP and not a foreign LLP 

• It is a limited liability partnership within the meaning of section 2(1)(n) of the Limited Liability Partnership Act,2008(LLP Act,2008). 
• The said section 2(1)(n) defines LLP as  a partnership formed and registered under “this Act”(i.e. the LLP Act,2008). 
• In other words, LLPs registered in India under the LLP Act,2008 are only allowed to practice as CAs 
• LLPs registered in  foreign countries or foreign LLPs shall not be allowed to practice as CAs 

Condition (ii)-Partners of  LLP are  CAs in practice or CA/(s) in practice and other recognized professionals 

• The partners of the LLPs shall  be either CAs only or CAs and members of such other recognized professions as may be prescribed.   
• This is clear from the words “or in partnership with members of such other recognized professions as may be prescribed” inserted by the Amendment Act,2011  in section 2(2) of the 1949 Act . 
• This amendment  will enable a CA to practice not only in partnership with other CAs in practice(as it is now) but also to practice  in partnership with members of such other recognized professions as may be prescribed.

Condition (iii)-None of the partners of the LLP shall be a company or an Indian LLP or a foreign LLP.

• From section 25(1) of the 1949 Act, it would appear that “company” used in Explanation to  section 25 of the 1949 Act would cover any company, whether incorporated in India or not. 
• At the first glance it appears there is no bar on an Indian LLP of CAs having an Indian LLP/foreign LLP as a partner from practicing the profession of CAs. 
• However, such an interpretation would conflict with the requirements of section 2(2) of the 1949 Act (as amended  by the Amendment Act,2011) which permit  a CA to practice in  partnership with only with  other CAs in practice or in partnership with  members of such other recognized professions as may be prescribed. LLPs, whether Indian or foreign, have a distinct entity from partners .
• Therefore, it appears that partnership with LLPs of CAs/other recognized professionals cannot be treated as partnership with CAs/other recognized professionals  within the meaning of section 2(2) of the 1949 Act. This matter needs ICAI’s clarification.

Condition (iv)-The LLP is registered with the Institute- This is clear from the new definition of “firm” in new clause (ca)  inserted in section 2(1) of the 1949 Act by the Amendment Act,2011.

MULTI-DISCIPLINARY FIRMS/LLPS OF CAs IN PRACTICE WITH OTHER RECOGNIZED PROFESSIONALS TO BE ALLOWED

Section  2(2) of the 1949 Act has been amended to permit a CA to practice in partnership with not only other CAs in practice but also in partnership with  members of such other recognized professions as may be prescribed. Such partnerships may be formed on and from the date the Amendment Act,2011 comes into force(i.e. 1^st February,2012). 

New definitional clauses (ca) (eb) and (ec) defining the terms “firm”, “partner”, “partnership” respectively have been  inserted in section 2(1) of the 1949 Act by the Amendment Act,2011. 

The new definitional clauses (ca) (eb) and (ec) defining the terms “firm”, “partner”, “partnership” are as under:

‘(ca)“firm” shall have the meaning assigned to it in section 4 of the Indian Partnership Act, 1932, and includes,—

(i) the limited liability partnership as defined in clause (n) of sub-section (1) of section 2 of the Limited Liability Partnership Act,

(ii) the sole proprietorship,

registered with the Institute;

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‘(eb) “partner” shall have the meaning assigned to it in section 4 of the Indian Partnership Act, 1932 or in clause (q) of sub-section (1) of section 2 of the Limited Liability Partnership Act, 2008, as the case may be;

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(ec) “partnership” means—

(A) a partnership as defined in section 4 of the Indian Partnership Act, 1932; or

(B) a limited liability partnership which has no company as its partner;

 

The said new clauses provide that a firm or LLP having  one or more CAs in practice as partners and other partners who are members of such other recognized professions as may be prescribed may be got registered with ICAI .Then such multi-disciplinary firm/LLP may practice the profession of Chartered Accountancy 

SOLE PROPRIETORSHIP REGISTERED WITH ICAI IS "FIRM"

According to new clause(ca) of section 2(1) of the 1949 Act, the term “firm” inter alia includes “sole proprietorship” registered with ICAI. 

New clause (haa) defines “sole proprietorship” to mean an individual who engages himself in the practice of accountancy or offers to perform services referred to in clauses (ii) to (iv) of sub-section (2). 

It has hitherto been clarified by MCA that only a CA firm with partners can be appointed auditors by company by  firm name in terms of section 226(1) of the Companies Act,1956 and a sole proprietorship  firm of CA can only be appointed as auditor by company by individual name only. Once the above amendments come into force, can a company appoint a “sole proprietorship” as auditor by firm name? This matter would need ICAI’s/MCA’s clarification.

AMENDMENTS TO THE CWA ACT,1959 AND CS ACT,1980

Similar amendments as above have been made to the Cost and Works Accountants Act,1959 by the Cost and Works Accountants(Amendment) Act,2011 which received the assent of the  President on 12-01-2012 and to the Company Secretaries Act,1980 by the Company Secretaries(Amendment)Act,2011 which received the assent of the  President on 08-01-2012.