June Issue-Students' Journa

8/7/2019 June Issue-Students' Journa

1/36

Chartered AccountantThe

STUDENT'S JOURNAL Pages 36 June 2010 Vol SJ 1 Issue 6

StudentYour Monthly Guide to the CA News, Information & Events

The Institute of Chartered Accountants of India(Set up by an Act of Parliament)

IT GovernanceIT Governance


2/36

2 June 2010 I The Chartered Accountant Student

Dear Students,Your respective examinations areover and you may be enjoyinglittle break that you have got for

relaxation and rejuvenating yourself. I personallyconsider this phase very crucial and vital as youcan use this period to strengthen your grip overthe subjects and improve the proficiency level inyour weak areas. In order to chart out your careergraph, you need to unleash the hidden potentialthat you possess.There are students who are scared to face theconsequences of their performance in theexamanitation, to the extent that they go into their

shell whereas there are students who boldly discussand review their performance. I exhort you to followthe latter approach because it would help you toidentify your weak areas and only then, you canwork towards improving them. This attitude willcertainly help you in all your future endeavours.I feel that there is an urgent need to provide ourstudents a comprehensive exposure to hone theirprofessional skills. Strong foundation is a must for

PresidentsCommunication

MESSAGES

a multi-dimensional personality. The success of any professional largely depends upon how onewithstands the challenges. I would like you toremember that nothing in this world is impossible

if you have a strong will and a high level of commitment to accomplish your set objectives. Youshould formulate a long term strategy andaccordingly plan your career.We, at the Institute are committed to cater to therequirements of each and every student. Thedemand for CAs has increased as a result of phenomenal growth in the Indian Economy. Sucha dynamic scenario demands that you should equipyourself with the latest information and knowledge.I do agree that since the quality and standard of CA course is very high so it is little tough to achievesuccess with less efforts. It is imperative for youto dream high and to turn your dream into reality.

You need to imbibe qualities of I ntegrity , Perseverance and Patience in your life.With Best WishesYours sincerely,

CA. Amarjit ChopraPresident, ICAI, New Delhi

Vice-presidentsCommunicationDear Students,

May 2010 Examinations are over.On a very cheerful note, I conveymy best wishes for your

respective examinations results. Your persistenthard work will certainly hold the key to unlockthe doors of the desired success. After theexaminations, it is very apt time for you to assessand monitor your performance. Success or failurein any examination does not mean end to theworld. Always remember that each failure youcome across brings you one step closer to success.

As a sincere and committed student, you can learn

easily from the experiences of the CA rank holdersthat only through D esire, D edication, D etermination and D iscipline they could able toexcel the pinnacle of the success. Hence, it requiresconceptual knowledge, core competence andpractical knowledge to achieve the desired success.I hope that your conscientious efforts in the

examinations will pave your way to attain the sameamount of success.I also feel glad that apart from our examinationsystem, the course curriculum and the articleship

training are truly impeccable. Our Institute is veryproactive to transform the process of learning andenriching the world of knowledge of CAprofessionals to surpass the emerging challengesof the professional arena. The profession hasdeveloped immensely over the years. The CAprofession has widened its sublime services in thebroad spectrum.Our Institute has taken its joint stride on the pathof distinction. I am pretty confident that you willbring laurels by your glorious professional efforts.Lets remain incessant in this enduring journey of professional excellence.

With best wishes and good luck!Yours sincerely,

CA. G. RamaswamyVice-President, ICAI, New Delhi


3/36

3June 2010 I The Chartered Accountant Student

President and Editor-in-ChiefCA. Amarjit Chopra, New Delhi

Vice-PresidentCA. G. Ramaswamy, Coimbatore

Chairman and EditorCA. Vinod Jain, New Delhi

Vice-Chairman

CA. V. Murali, ChennaiMembersCA. Atul C. Bheda, MumbaiShri Deepak Narain, New DelhiCA. M. Devaraja Reddy, HyderabadCA. Mahesh P. Sarda, JamnagarCA. Pankaj Inderchand Jain, MumbaiShri Prithvi Haldea, New DelhiCA. Ravindra Holani, GwaliorCA. Sanjeev Maheshwari, MumbaiShri Sidharth Birla, New DelhiCA. Sumantra Guha, KolkataCA. Vijay K. Garg, Jaipur

Co-opted MembersCA. Chandra Prakash ToshniwalCA. MS. Keshava

CA. R. Ananda KumarCA. Rajesh Kumar KankariaCA. Sachithanantham R

Director Board of StudiesShri Vijay Kapur

Editorial SupportPrem Bhutani, Deputy DirectorK. Sudhakaran, Sr. Education Officer

OfficeBoard of StudiesThe Institute of Chartered Accountants of India,ICAI Bhawan, A-94/4, Sector-58,Noida-201 301.Phone : 0120-3045938

Correspondents with regard to subscription,advertising and writing articlesEmail : [email protected]

Non-receipt of Students' JournalEmail : [email protected]

Head OfficeThe Institute of Chartered Accountants ofIndia, ICAI Bhawan, Indraprastha Marg,New Delhi - 110 104.

http://www.icai.org

June 2010 I The Chartered Accountant Student

Check your Address : All students should check their mailing address printed onback cover. In case, there is any change or the PIN Code (Postal Index Code) is eithermissing or incorrect, kindly inform immediately the concerned Regional Office givingfull particulars of your address along with correct PIN Code. This would enable us toensure smooth and prompt delivery of the Journal.

Editor: CA. Vinod JainPrinted and published by CA. R. Devarajan, on behalf of The Institute of CharteredAccountants of India, New Delhi. Published at the Institute's Office at Indraprastha

Marg, New Delhi and printed at International Print-O-Pac Ltd., B-204,205, OkhlaIndustrial Area, Phase-1, New Delhi.

The views and opinions expressed or implied in THE CHARTERED ACCOUNTANT STUDENT are those of the authors and do not necessarily reflect those of ICAI. Unsolicited

articles and transparencies are sent at the owners risk and the publisher accepts noliability for loss or damage. Material in this publication may not be reproduced, whether

in part or in whole, without the consent of ICAI.

DISCLAIMER: The ICAI is not in any way responsible for the result of any action takenon the basis of the advertisement published in the Journal.

Annual Subscription Rates:Students : Rs. 200Members & Others : Rs. 500Overseas : US $ 100

2 Messages4 Message5 Limited Liability Partnership -

Procedure for Incorporation

8 Money Laundering - Indian Scenario13 MCA-21- A Technical Revolution in

E-Governance16 Analytical Procedures - An Integral

Part of Audit Process

19 Greek Economy Crisis and India21 The Enterprise : IT Governance24 The Importance of IT for CA Students26 Major Security Threats in

Wireless Networks

28 Academic Updates32 Case Laws

CONTENTS

Inside June

Total Circulation:2,35,697

EDITORIAL BOARD


4/36


Dear Students,I am writing this message to enableyou to plan your career in a manner

that you are able to achieve your desired goal in yourprofessional as well as personal life. It is very importantfor every student of chartered accountancy course to planfor a suitable career and accordingly prepare oneself whileundertaking studies as well as after passing theexamination.What are the Options?The career planning will involve a basic decision about:

Whether to be a professional in practice as aChartered Accountant;Whether to be working in employment;

Whether to act as an entrepreneur and to be inindustry, services, education or other businesses.It is not so easy to take this decision and it may beadvisable to understand and analyse ones :

Family background including financial and socialstrength;Academic capability and strength;Personal preferences and choices;Expected Opportunities.

Choose a Specialization:It is also important for the student to very carefullychoose areas of his/her specialization where he or shewill make a career either as a practicing professional oreven as a working professional in industry or as anentrepreneur. The possible choices could be

Taxation Expert - Direct Taxes expert- Indirect Taxes expert (Service Tax, VAT, GST,

Custom, Central Excise etc.) This will require indepth knowledge of tax laws, regular study of High Court and Supreme Court decisions as wellas decisions by ITAT.

Accounting, Audit and Assurance will require deepknowledge of accounting standards, international GAAP,auditing standards as well as in depth knowledge of business processes and risk management and so on.

Finance :This would require expert knowledge of financialanalysis, financial planning, financial instruments,financial products and knowledge about variousfinancial institutions / banks, multilateral agencies in

India and abroad besides knowledge of capital market.Investment Banking / Merchant Banking :This area would additionally require theoretical andpractical knowledge about listing requirement in India,national and international capital markets, stockexchanges, merchant banking and investment bankingpractices as well as financial markets which could beapproached / tapped.

Message FromThe Chairman,Board of Studies

MESSAGE

Corporate Laws and Economic Laws :This would require in-depth knowledge of law andpractices in the fields of corporate laws, SEBI Rules andRegulations, for example Takeover Code, Public IssueGuidelines and so on.

Information Technology :This would require an indepth knowledge of varioustechnologies including ERP, Business ProcessEngineering, various Information Technology softwaresand presentation technology and technology in relationto languages like HTML, XBRL and so on.The above list is only illustrative and the suggestionsonly indicative. It may be very important for the studentsto actually have a medium term plan as well as longterm plan so that their entire study and focus can be onthe area of their specialization based on the targetedcareer plan. The plans need to be reviewed 6 monthlyinitially and later after every 3 years.Importance of Training :The training with a Chartered Accountant firm andindustrial training will provide a broad and basicunderstanding about, how the businesses are run,various business processes as well as the environmentand in case the student is able to develop a deepexpertise in any area of his choice, it is possible to get asuitable opportunity to work on the practical side tofurther harness his/her capability.

Target Career Building and not Money :Career Building is more important than short termapproach for making quick money. It is very importantto think not to earn much money during the trainingperiod as well as initial few years of you as a qualifiedprofessional. The secrets of practical aspects of yourarea of specialization will start unfolding , once yourpatience for having a longer and devoted relationshipwith your employer/ clients is tested and established.

Job Hopping :The trend of change in training employers as well aschange in career path and change in post qualificationemployer very quickly may result into initial financialgain, but will completely spoil your career as a reliableprofessional. A minimum period of 2-3 years needs tobe spent with an employer and job should be changedonly as a part of overall career plan and not with theintention of making some more bucks.EthicsEthics are the keys to sustained success. For thisfollowing are crucial

ConfidentialityCreditabilityCompetence

I sincerely look forward to hear from you your ideas inresponse to the above sas well as issues facing you inthis regard, to enable the Board of Studies to planappropriate guidance.Yours sincerely

CA. Vinod JainEmail : [email protected]


5/36


L imited Liability Partnership(LLP) is a body corporate and isa separate legal Entity. It is aspecial type of partnershipwherein liabilities of partnersare limited. It has the feature of perpetual succession where thechange in partners does notaffect the existence of Partnership.

It differs from the traditional partnership from thefact that the liability of partners is limited to theamount of agreed contributions. In other words,no partner is liable for the misconduct orunauthorized acts of other partners.

Incorporation Procedure

Incorporation procedure of LLP is similar to thatof Company. The following is the procedure forincorporation of LLP:

Name of LLP

The name of LLP must end with the word LimitedLiability Partnership or LLP.

The Name applied for, should not resemble thename of existing LLP or it should not be prohibitedunder Emblems and Names (Prevention of improper use) Act, 1950. If the proposed namecontains the words Company Secretary/ CostAccountant/ Chartered Accountant / advocates or

similar words, the same should be allowed onlyafter obtaining approval from the Councilgoverning institute or such other authorityspecified by the government.

Section 16 of the LLP Act, 2008, specifies that theapplication for reservation of the name should bemade in Form No.1 to the Registrar having

Limited Liability Partnership- Procedure forIncorporation

B.Parvathavarthani*

Jurisdiction over the registeredoffice of the LLP. The Form No.1can also be filed electronicallyto the Registrar using a digitalsignature of the applicant. TheForeign LLP/Firm/ Company byapplying in Form No. 25 and onpayment of the prescribed feecan reserve its existing name inIndia. In Both cases, the

reservation of the name is valid for 3 months withinwhich person incorporating the LLP must file allrelevant documents with Registrar forincorporation. However, the reservation can berenewed on making a fresh application after payingthe prescribed fee. If the Registrar is satisfied, thenthe reservation of the name is communicatedwithin 7 days of application for reservation.

Registered office of LLP

The Registered office of LLP need not be the sameplace where the business is conducted. LLP maygive another address for service of documentswithin the jurisdiction in which registered office issituated. The LLP must comply with the procedureslaid down in the agreement. If the agreement issilent, then the consent of partners should beobtained. Form No.12 should be submitted within30 days for intimating the above address.

Explanation of Term Partner and DesignatedPartner

Partner means any person who is a partner inaccordance with LLP agreement. Every LLP musthave Minimum of two partners. Body Corporates / Individuals can become Partners.

LAW

*The author is a student of ICAI (Reg.No. SRO 0210818)


6/36


The following persons are disqualified frombecoming partners:

1. Person of Unsound mind

2. Person who has applied to be adjudicated asinsolvent and his application is pending.

3. Undischarged Insolvent

Section 6(2), provides that if the number of partners in LLP is less than two and LLP continuesto carry on business for more than six months, thenthe person who is a partner during the period andwho has knowledge of the above fact is personallyliable for the obligations of LLP during that period.After the period of six months, LLP may havewound up by the tribunal.

Designated Partner means anypartner designated as such insection no.7. According to Section7(1) every LLP must have twodesignated partners who areindividuals. Out of two designatedpartners, one of them must beresident in India. Resident meansany person who stays in India fora period of 182 days or moreduring the immediately precedingone year. In case LLP has allpartners who are body corporatesor one or more partners are thebody corporate then at least twopartners who are individual ornominees of the body corporate shall act asdesignated partners.

If LLP contravenes the provision of section 7(1),then LLP and its every partner shall be punishablewith a fine, which is not less than Rs 10000 butnot more than Rs 500000.

Section 7(2) specifies that at the time of filing of incorporation document, LLP must state the personwho is designated partners and should also statethat each of partners from time to time of LLP is to

be designated partners and hence every partnershall be designated partner.

Section 7(3), specifies that the designated partnermust file his consent in Form No.9 as prescribedunder LLP rules, 2009.

According to section 7(4), every LLP must file with

the Registrar the particulars of partner anddesignated partner and changes therein within 30days in Form No. 4 as prescribed under LLP rules,2009. If the LLP fails to comply with the aboveprovision, then LLP and its every partner is liablewith a fine of not less than Rs 10000 but notexceeding Rs 1 lacs.

Every Designated Partner must obtain DPIN(Designated partner Identification Number) fromthe Central Government. The application for DPINshould be made in Form No 7 electronically.

The following persons are disqualified frombecoming Designated Partners:

1. Every person who is adjudicating as aninsolvent in immediatelypreceding 5years

2. Every person who suspendspayment to creditors or has madea composition with themimmediately preceding 5years

3. Every person who is convictedof an offence involving moralturpitude and sentenced toimprisonment for the period notless than six Months

4. Every person who is convictedby the court for an offence

involving under section 30 of theAct.

LLP Agreement

LLP agreement must be filed in Form No.3 andNotice of appointment of Partner and designatedpartner in Form No.4 should be filed at the time of Filing Form No. 2 or within 30 days of incorporation.

Capital Contribution

Partners in LLP must agree to contribute inaccordance to LLP agreement. There is no provisionin LLP Act, 2008 regarding the minimum level of contribution by partners. In case of no agreement,then the contribution should be made as agreedby partners. Contribution can be in the form of Cash/ Intangible/ Tangible/Movable and immovableassets and any other benefits like promissory notes,contracts to be executed etc. If any Immovable /

LAW

LLP agreement must specify the amount of interest on capital to be

paid on theircontributions. Profits andlosses must be distributedto partners in the ratio of their capital contribution.


7/36


tangible/ Intangible/ movable assets or any otherbenefit is brought as the contribution, then thesame has to be valued by Practicing CharteredAccountant/ Cost Accountant or by approved

valuer of central government. Contribution canalso be given in installments. At the time of Incorporation, partner must indicate the fullamount of contribution. However, partner is liablefor the agreed amount, which is unpaid. LLPagreement must specify the amount of interest oncapital to be paid on their contributions. Profitsand losses must be distributed to partners in theratio of their capital contribution. It can also bedistributed on some other basis, which is mutuallyagreed by way of LLP agreement. In case there isany increase or decrease in the capital contribution,the LLP is required to submit Form No. 3 for filing

particulars of amendment in the LLP.Other Requirements

If any corporate is a partner, then the board shouldauthorize a person by way of resolution for signingvarious documents for and on behalf of thecompany.

As per Rule 11(1) of LLP Act, 2008, incorporationdocument should be filed with the Registrar in FormNo. 2. Chartered Accountant/Company secretary/ Cost accountant/ Advocate who is engaged information of LLP must certify that all therequirements of the LLP Act, 2008 has beencomplied in Part B of Form No.2. If any wrong / falsestatement is made, then the person is punishablewith imprisonment for a term which may extend totwo years and with a fine which is not less than Rs10000 but not more than Rs 5 Lacs.

Proof of the address of registered office should beenclosed. If the LLP declares residence of partnersor office premises as the registered office, thenauthorization/ consent letter of Partner, rentagreement and proof of address must be enclosed.

Section 12 specifies that if the requirement of LLPhas been complied, then the Registrar within 14days of filing Form No. 2 shall register the sameand issue certificate in the form. No.16 stating thatthe LLP is incorporated.

The Certificate issued by Registrar serves asconclusive evidence that LLP has beenincorporated.

LAW

The Institute of Chartered Accountants

of IndiaCA Students Sub-Regional Conference

Hosted by Vasai Branch of WIRC of ICAI

Days and Dates : Saturday, 19 th June & Sunday20 th June 2010

Venue : Venkatesh Banquet Hall, NearFlyover BridgeBhayandar West, Dist.Thane.

Registration fee : Rs.500/- per participant

Students are invited to contribute papers forvarious technical sessions. Paper writers areexempted from immediate payment of Registration fee. All paper writers, whose papersare selected for presentation at the conference,shall be reimbursed registration fee. For moredetails, visit www.vasai-icai.org and www.wirc-icai.org.


8/36


T he concept of two paralleleconomies in India andmany other developingcountries has been existentsince quite some time. Everyother day there are news

reports of people acceptingbribes for award of contracts,special concessions, etc.

What is Money Launderingand what is its impact?

The word laundering literally is used for cleaningdirty clothes. Money Laundering refers to theconversion or laundering of money, which isillegally obtained, in order to make it appear tooriginate from a legitimate source. The FinancialAction Task Force on Money Laundering (FATF)defines money laundering as the processing of criminal proceeds to disguise their illegal origin,in order to legitimize the ill-gotten gains of crime.Indian anti-money laundering law encompassesthe money generated from numerous differentcrimes viz. drug trafficking, racketeering,embezzlement, etc. Apart from these activities,black money is also generated by businessmen, bycompleting off-the-book transactions in order toevade various taxes and levies.

Money Laundering deprives the Government of some much needed tax revenues, thereby raisingthe burden of honest law-abiding citizens. Also,development suffers, because of lack of funds.Besides, due to the rapid movements of largeamounts of money, financial institutions maybecome destabilized, thus in turn threateningsavings and retirement fund accounts with theseinstitutions.

The Money LaunderingProcess

Money Laundering is oftendescribed as occurring inthree stages:

Placement refers to theinitial point of entry forfunds derived from illegalactivities. The aim of thelaunderer is to remove the

cash from the location of acquisition so as to avoiddetection from the authorities, and then totransform it into other assets. This can be donethrough purchases of monetary instruments suchas money orders, postal orders, etc. Other financialservices like credit cards may also be used.

Layering refers to the creation of complex networks

of transactions, which attempt to obscure the linkbetween the initial entry point and the end of thelaundering cycle. It involves many transactions andconversions to blur the trail back to the originalcrime. This may include investments, purchasesof a variety of goods and services, use of severalsmaller cheques to purchase a bank wire, etc.

Integration is the final step in the launderingprocess, and involves the return of funds to thelegitimate economy with an apparently legitimateprovenance. This may include investment in thesecurities of a company, purchase of real estate,luxury items, etc. By this stage, it becomesexceedingly difficult to distinguish between legaland illegal wealth.

What is terrorist financing?

Terrorist financing is exactly the reverse process

Money Laundering Indian ScenarioKunal Suraiya*

MONEY LAUNDERING

*The author is a student of ICAI (Reg.No.WRO 0288483)


9/36


of money laundering. Here, the money earned fromlegal sources is used to fund illegal and terroristactivities. Funds earned from legal sources are usedto aid terrorists and extremist organizations inacquiring guns, ammunitions, explosives, etc.

Various means used by launderers to carry out their activities:

1) Smurfing It is probably the most commonlyused method. It involves many individuals whodeposit cash into bank accounts or buy bankdrafts in small amounts to avoid the reportingthreshold.

2) Money services and CurrencyExchanges These servicesenable individuals to exchangeforeign currency that can thenbe transported out of thecountry. Money can also bewired to accounts in othercountries.

3) Credit cards Overpayingcredit cards and keeping a highcredit balance gives launderersaccess to these funds topurchase high value items orto convert the credit balanceinto cheques.

4) Refining This involves the exchange of smalldenomination bills for larger ones, and usuallyinvolves an individual converting the bills at anumber of different banks in order not to raisesuspicion. This helps in reducing the bulk of large quantities of cash.

5) Value Tampering This is yet another commonmethod, wherein launderers purchase propertyfrom owners, on paper, at a price below itsactual value and then pay the difference of theprice under the table.

6) Loan Back Under this method, a laundererprovides an associate with a large sum of illegitimate money, and the associate creates thepaperwork for a loan or mortgage back to thecriminal for the same amount, including thenecessary documentation.

Role of FIU-IND

The Government of India, in November 2004, setup the Financial Intelligence Unit-India (FIU-IND)

as the central national agency responsible forreceiving, processing, analyzing and disseminatinginformation relating to suspect financialtransactions. It is also responsible for coordinatingand strengthening the efforts of national andinternational intelligence, investigation andenforcement agencies in pursuing the global effortsagainst money laundering and related crimes. It isan independent body reporting directly to the

Economic Intelligence Unit (EIU)headed by the Finance Minister.

Prevention of Money Laundering

Act, 2002

The Prevention of MoneyLaundering Act, 2002 (PMLA2002) and the Rules notified thereunder came into force with effectfrom 1 st July 2005, after beingpassed by both the houses of Parliament and receiving theassent of the President on 17 th

January 2003. Director, FIU-INDand Director (Enforcement) havebeen conferred with exclusive and

concurrent powers under relevant sections of theAct, to implement the provisions of the Act.

Section 3 defines Offence of money laundering asWhosoever directly or indirectly attempts toindulge or knowingly assists or knowingly is aparty or is actually involved in any process oractivity connected with the proceeds of crime andprojecting it as untainted property shall be guiltyof offence of money-laundering.

Section 4 deals with punishment for money-laundering. Whoever commits the offence of money-laundering shall be punishable withrigorous imprisonment for a term which shall notbe less than 3 years but which may extend to 7years and shall also be liable to a fine which mayextend to 5 lakh rupees.

However, if the offence relates to an offencespecified under Para 2 of Part A of the Schedule

MONEY LAUNDERING

RBI has directed all banks

to implement KYC guidelines for all newaccounts in the second half of 2002. The main purpose

of KYC norms was torestrict money laundering

and terrorist financingwhen it was introduced inthe late 1990s in the US.


10/36


(i.e. Offences under the Narcotic Drugs andPsychotropic Substances Act, 1985), the wordswhich may extend to 7 years shall be substitutedby the words which may extend to 10 years.

Section 5 provides for pre-adjudication provisionalattachment in appropriate cases. It outlines theprocedure of such provisional attachment.

Section 8 provides for Adjudication for the purposeof determination and recording a finding, as towhether the provisionally attached proceeds of crime, or retention of the records and propertyseized under the act are involvedin money laundering, and if so, toconfirm the attachment tillconclusion of the trial proceedings

as provided in the act.Section 11 confers powers on theadjudicating authority, similar tothose vested in a Civil Court underthe CPC, 1908.

Obligations of Banking Company,Financial Institutions andIntermediaries

Chapter IV Section 12 requires theabove mentioned entities to a)maintain a record of all the transactions as per the

prescribed nature and value, which may consistof a single transaction or a series of transactionstaking place within a span of a month; b) furnishinformation of such transactions to the directorwithin a month; c) to verify and maintain recordsof the identity of all its clients as prescribed.

However, where the principal officer has reasonto believe that a single transaction or a series of related transactions have been valued below theprescribed value so as to avoid the provisions of this section, then information has to be furnishedto the director. Also, such records have to be

maintained for a period of 10 years from the dateof cessation of transactions with clients.

To go as footnote

(Financial Institution means a F.I defined in 45-I(c) of the RBI Act, 1934 and includes a chit fund

company, a co-operative bank, a housing financeinstitution and a NBFC. Intermediaries in thiscontext refers to stock brokers, sub-broker, sharetransfer agent, banker to an issue, trustee to a trustdeed, registrar to an issue, merchant banker,underwriter, portfolio manager, investment adviserDepository Participants, Custodian of Securities,Foreign Institutional Investors, Credit RatingAgencies

and any other intermediary associated withsecurities market and registered under section 12of the SEBI Act, 1992.)

In exercise of the powersconferred under Section 73(1)and (2), the Central Government

in consultation with RBI notifiedin July 2005 The Preventionof Money - Laundering(Maintenance of Records of thenature and the value of transactions, the procedure andthe manner of maintaining andtime of furnishing informationand verification andmaintenance of records of theidentity of clients of bankingcompanies, financial institutions

and intermediaries) Rules 2005 . These rules werefurther amended in May 2007 vide NotificationNo.4/2007.Rule 3 provides that records are to be maintainedin respect of the following:a) All cash transactions of the value of more than

Rs.10 lakhs or its equivalent in foreign currencyb) All series of cash transactions valued below 10

lakhs, integrally connected to each other, andwhich have taken place within a month

c) All cash transactions where forged orcounterfeit currency notes or bank notes havebeen used as genuine and where any forgery of a valuable security or document has taken place

d) All suspicious transactions, whether or notmade in cash. (E.g. false identificationdocuments, suspicious background, case of insider trading, block deal at prices other thanmarket price etc.)

MONEY LAUNDERING

Documents that are

required under KYC normsinclude proof of identity and proof of address such

as Ration card, electricity ortelephone bill, or a letterfrom the employer or any other publicly recognized

authority certifying theaddress.


11/36


Rules 4 and 5 provide for the information to bemaintained in respect of the records and theprocedure of maintaining the information.

Rule 7 describes the various reports to be submittedto FIU in either manual or electronic form, andinclude Cash Transaction Report (CTR), SuspiciousTransaction Report (STR) and CounterfeitCurrency Report (CCR). Due dates for filing reportsare fifteenth of succeeding month in case of CTR,and seven working days from date of occurrenceof transaction in case of CCR and STR.

Rule 9 provides for theverification of various documentsto be submitted by clients at thetime of account opening,

depending on the nature of theclient.

Summons, Searches and Seizures

Chapter V of the act deals withsummons, searches and seizures.It confers various powers on thedirector and the appropriateauthority to carry out surveys of premises, search and seize recordsand property, examine person onoath, etc. Section 19 alsoempowers the appropriate authority to arrest a

person, if the said authority has reason to believethat the person is guilty of any offence punishableunder the act.

Other Provisions of the Act are - Appellate tribunal(Chapter VI), Special Courts (Chapter VII),Authorities under the act (Chapter VIII), Reciprocalarrangement for assistance in certain matters(Chapter IX) (i.e. agreements with foreigncountries), Miscellaneous provisions (Chapter X)(i.e. punishments, cognizance of offences, recoveryof fines, power to make rules, etc.).

Anti Money-Laundering programme forInsurance sector

Insurers, agents and corporate agents are requiredto maintain records of the nature of transactionsmentioned under Rule 3 of the PMLA Rules 2005discussed above, as well as those relating toidentity of clients for a period of 10 years. The

programme also promotes the submission of thereports discussed earlier. Monitoring of cashtransactions by the insurers requires them toensure premiums are paid only out of clearlyidentified sources of funds, and remittances of premiums by cash should not exceed Rs.50000,premium/proposal deposits beyond Rs.50000should be remitted only through cheques, DD,credit card or other banking channels. Alsointegrally related transactions, wherein theaggregate value exceeds Rs.50000 a month should

be examined more closely. In thisregard, IRDA has issued certainguidelines related to customeridentification, KYC, risk profile,etc.

Know Your Customer (KYC)Guidelines

The main purpose of KYC normswas to restrict money launderingand terrorist financing when itwas introduced in the late 1990sin the US. Taking a leaf out of theUS book, the RBI has directed allbanks to implement KYCguidelines for all new accounts in

the second half of 2002.

Under these guidelines, banks and FIs arerequired to put in place a policy framework toknow their customers before opening any newaccount. Documents that are required under KYCnorms include proof of identity (Passport, votersID card, PAN card or driving license) and proof of address (Ration card, electricity or telephone bill,or a letter from the employer or any other publiclyrecognized authority certifying the address). Somebanks may also ask for verification by an existingaccount holder.

In 2004, RBI had come out with more specificguidelines, which were divided into four parts Customer Acceptance policy, CustomerIdentification procedures, Monitoring of transactions and Risk Management.

Also, the RBI through various notifications has madethe KYC norms applicable to NBFCs, MiscellaneousNBCs, RRBs, Co-operative banks, etc.

MONEY LAUNDERING

A CA can act as aconsultant, providing his

vast experience inhandling huge

quantitative data forverification. He can alsohelp in building effective AML programs for FIs.


12/36


SEBI too had directed non-banking agencies to putin place their AML policies and KYC norms.The RBI vide its Master Circular DBOD. AML. BC.

No. 2/14 .01.001/2009-10 dated July 1 2009, hasconsolidated all instructions on KYC norms/AMLstandards/Combating of Financing of Terrorism(CFT)/Obligations of Banks under PMLA 2002issued up to June 30 2009.PMLA (Amendment) Act 2009The Amendment Act received the assent of thePresident on March 6, 2009. Following are the mainhighlights of the Act:a) Various new clauses have been

inserted in Section 2, and manyothers have been modified.

Authorized person, designatedbusiness or profession, offenceof cross border implications,payment system and paymentsystem operator, etc. have beendefined.

b) Under section 5, the director/ deputy director, with effectfrom the date of thisAmendment Act coming intoforce, can provisionally attachproperty in certain cases for aperiod of 150 days. Earlier, thistime limit was 90 days.

c) The age limit for Chairperson/Member of adjudicating authority has been increased from62 years to 65 years.

d) Under Section 17, before this Amendment Act,only the Director had the power to order a searchand seizure through an officer subordinate. Now,any other officer not below the rank of DeputyDirector has also been authorized.

e) Section 28 deals with qualifications to beappointed as Chairperson/Member of theadjudicating authority. Now, there is norequirement for a Member to be or have been a

Judge of a High Court.f) A new sub-section (7) has been inserted in

Section 60 that provides for returning of property seized in India, as result of executionof a request from a contracting state, or

compensating the state after disposal of theproperty on mutually agreed terms, afterdeducting the necessary expenses.

g) Parts A and B of the Schedule have beenmodified, and a multitude of new offences havebeen inserted.

Anti Money-Laundering SoftwareFew of the popular AML softwares are GIFTSWEBEDD (used by Bank Of India) and eGIFTS (used byICICI Bank) from GIFTS Software Inc., AMLOCK(implemented by SBI in March 2009) and Bank Alert(UTI Bank, Karnataka Bank) from 3i Infotech,

Complinet from Mantas Software,AML2 from ECONWARE andSearchspace AML. AML Modulesinclude Transaction filtering,which enables real-time queries of transactions against a watch-listand batch scans against customerdatabases; and KYC Analytics,which enables banks and FIs tomeet compliance requirements,and also uses various techniquesto detect complex patterns.Other Laws for preventingmoney-launderingSmugglers and Foreign ExchangeManipulators Forfeiture of

Property Act, 1976, The Conservation of ForeignExchange and Prevention of Smuggling ActivitiesAct, 1974 (COFEPOSA), The Benami Transactions(Prohibition) Act, 1988, The Prevention of IllicitTraffic in Narcotic Drugs and PsychotropicSubstances Act, 1988.Opportunities For CAsIt is said that with problems come opportunities.This age-old adage holds true here as well. A CAcan act as a consultant, providing his vastexperience in handling huge quantitative data forverification. He can also help in building effectiveAML programs for FIs. A CA can also aid thegovernment in proper implementation of the Act.Also, CAs can carry out KYC Audit, which includescustomers due diligence procedures, systems auditfor checking identity from external database, etc.CAs can even provide Risk Advisory Services andManagement Advisory Services.

MONEY LAUNDERING

CAs can carry out KYC Audit, which includescustomers due diligence

procedures, systems auditfor checking identity from

external database, etc.CAs can even provide Risk

Advisory Services andManagement Advisory

Services.


13/36


IntroductionMinistry of Corporate Affairs (MCA), Governmentof India has initiated MCA 21 program, for easyand secure access to MCA services in a mannerthat best suits the corporate entities andprofessionals besides the public. MCA 21 standsfor e- governance initiative of MCA of 21 st centuryand it aims at repositioning MCA as an organisationcapable of fulfilling the aspirations of itsstakeholders in the 21 st century. Rather thancompelling the business community to physicallytravel to MCA offices, MCA services are availableat the place of their choice, be it their homes oroffices. MCA - 21 project is designed to fullyautomate all processes related to the proactiveenforcement and compliance of the legalrequirements under the Companies Act, 1956.MCA portal is the single point of contact for all

MCA related services, which can be easily accessedover the Internet by all users.Ministrys VisionTo be a leader and partner in initiatives for

corporate reforms, good governance andenlightened regulation, with a view to promote andfacilitate effective corporate functioning, investorprotection and inclusive growth, empower theIndian citizen and have a global footprint.

About MCA PortalAdopting international best practices, MCA 21application adds immense value to thestakeholders. The project also envisages a cost effective software solution for various in-housefunctions and it connects everyone in its ambitand as the same can be clearly illustrated throughthe under mentioned diagram:

MCA 21- A Technical Revolution inE-Governance

Gaurav Agrawal*

MCA-21

*The author is a student of ICAI (Reg.No. CRO0210427)


14/36


The re-engineered electronic forms, also called e-Forms, are capable of helping the citizens in theprocess of filling the information electronically.The e-Forms and attached documents, all in theelectronic format, are automatically assigned to theMCA staff and the progress tracked until the serviceis delivered to the citizens.Information Technology Act, 2000 Origin of E-governanceE-governance or Electronic Governance is theapplication of Information Technology to theGovernment functioning in order to bring aboutSimple, Moral, Accountable andResponsive and Transparent(SMART) Governance.The Information Technology Act,2000 (Central Act 21 of 2000), was

enacted to make in the main, threekinds of provisions, as under:a. It provides legal recognition for

transaction carried out bymeans of electronic datainterchange and other means of electronic communicationusually referred to as electroniccommerce.

b. It facilitates the electronicfiling of documents with theGovernment agencies.

c. It amends the Indian Penal Code, 1860, TheIndian Evidence Act, 1872, The Bankers BookEvidence Act, 1891 and The Reserve Bank of India Act, 1934, to bring in electronicdocumentation within the purview of therespective enactments.

Legal Recognition of Electronics RecordsSection 6 of The Information Technology Act, 2000brings in the regime of electronic records anddigital signature in public records, by making ananalogous provision, which grants recognition toelectronic records, and digital signatures, in caseswhere any law provides for:a. the filing of any form, application or any other

documents with a Governmental office or

agency; orb. the grant of any license, permit, etc; orc. the receipt or payment of money in a particular

manner.Retention of InformationSection 7 of The Information Technology Act, 2000seeks to permit the retention of information in the

electronic form, where any law provides thatcertain documents, records or information shallbe retained for any specific period.Thus, The Information Technology Act, 2000provides a legal recognition to MCA 21 and it isthe initiative and origin of MCA 21.Key Issues in MCA 21I. E stampRegistrars of Companies have to ensure that properstamp duty is paid on the instruments registeredwith their office. As of now, physical submissionof documents is mandatory where stamp duty is

levied in order to ascertain thatapplicable stamp duty has beenpaid. In the present scenario, eventhough the e-Form is submittedinstantly, the RoC office has to

wait for receipt of physical stamppapers to initiate necessaryprocessing. It results in servicedelivery time getting longer.Hence, in furtherance of e-governance initiatives, provisionsregarding stamp duty applicableon filing of e-forms have beenamended and stakeholders shallhave a facility to pay stamp dutyin the electronic manner also. Asof now, this process shall cover

Form 1 (including MoA, AoA); Form 5 and Form44 only, accordingly revised e-forms are beingintroduced w.e.f. 12.09.2009. These provisionsshall be applicable to the e-forms filed subsequentto this amendment. In case e-forms filed earlierare Resubmitted after implementation of thischange, e-stamp shall not be applicable.Keeping in view the requirement of stakeholdersawareness, process of e-stamp has not been mademandatory, meaning thereby, stakeholders haveoption to pay stamp duty in electronic mannerthrough MCA - 21 system or in physical form asper the existing procedure. Further, this processshall be applicable only to such States/UnionTerritories, which have agreed to the request of

Ministry of Corporate Affairs for collection of e-stamp duty on their behalf.II. Digital Signature Certificates (DSC)Digital Signature Certificate is the digitalequivalent (that is electronic format) of physicalor paper certificates. A digital certificate can bepresented electronically to prove the identity, to

MCA-21

DIN is mandatory forDirectors of Indian

Companies who arenot a citizen of India.However, DIN is not

mandatory fordirectors of the foreign

company havingbranch offices in India.


15/36


access information or services on the internet orto sign certain documents digitally.The Digital Signature Certificate is issued bylicensed Certifying Authority (CA). CertifyingAuthority means a person who has been granted alicense to issue a digital signature certificate undersection 24 of the Indian Income Tax Act, 2000.Section 16 of The Information Technology Act,2000 required the Central Government to prescribethe security procedure for electronic records,having regard to the commercial circumstancesprevailing at the time when the procedure is used.Thus, in respect of such requirement a digitalsignature is deemed to be a secure digital signature,if, by the application of an agreed securityprocedure, it can be verified that a digital signature,at the time it was verified:

a. was unique to the subscriber affixing it;b. was capable of identifying such subscriber;c. was created in a manner or using a means under

the exclusive control of the subscriber and islinked to the electronic records to which itrelates, in such manner that if the electronicrecord was altered, the digital signature wouldbe invalided. [Section 15 of the InformationTechnology Act, 2000]

III.Certified Filing Centre (CFC)A Certifying Filing Centre (CFC) for MCA e-filing,other than the Physical Front Offices or FacilitationCentre set up by the Ministry of Corporate Affairs,to be set up and operate by an appropriatelyqualified private individuals, firm or bodycorporate under the MCA 21 e-governanceProgram, from where the actual electronic filingof documents by companies may be enabled alongwith associated facilitation on the payment basis.Accordingly, it has been decided to provide anopportunity for the Professional Institutions (ICSI,ICAI, ICWAI), their Regional Councils/Localchapters, individual practicing members and thefirms of professionals to create and set-up therequired facilities for this purpose. The CertifiedFiling Centre thus set-up by the Professional wouldbe over and above the facilitation Centre set-up by

the Ministry under the programme. While theservices available from the Facilitation Centre set-up by the Ministry would be without any charge,the services provided by these Certified FilingCenters will entail payment of service Charges.IV. Director Identification Number (DIN)The concept of a Director Identification Number

has been introduced for the first time with theinsertion of Section 266A to 266G of Companies(Amendment) Act, 2006. As such, all the existingand intending directors have to obtain DIN withinthe prescribed time frame as notified. DIN is alsomandatory for directors of Indian Companies whoare not a citizen of India. However, DIN is notmandatory for directors of the foreign companyhaving branch offices in India. Only a single DINis required for an individual irrespective of thenumber of directorship held by him. DIN is aunique identification number and once obtainedis valid for life time of a director.The application with provisional DIN is examinedand processed in the DIN Processing Cell in theoffice of Regional Director (NR) at Noida. After itis found to be in order, a DIN approval letter is

generated and dispatched under Postal Certificateto the applicant at the address given by him in theapplication form. The provisional status of DIN isconverted into a regular DIN and activate in thesystem.Steps after the DIN are allotted:1. The Director, to whom a DIN is allotted, is

required to inform the companies, on which oneis a Director, about the DIN allotted to him/herin Form DIN 2 within a period of one monthof allotment of DIN.

2. The companies, thereafter, are required toinform the Director Identification Number of the Directors on their company board to RoCin Form DIN - 3 within a period of seven daysafter receipt of information to this effect fromthe Directors.

There are provisions for incorporating any changesin the personal particulars of a Director, includinghis address, after he was submitted the informationinitially in Form DIN 1. The required changesare to be intimated to the Government of India[Regional Director (NR) at Noida] in Form DIN 4in manual mode as in the case of Form DIN 1.

V. Pre Certification of e formsApart from authentication of e forms by authorizedsignatures using digital signatures, some e-forms are

also required to be pre certified by PracticingProfessionals. Pre certification means certificationof correctness of any document by a professionalbefore the same is filed with the Registrar.The pre certification is to be carried out by inter alia, Company Secretary, Chartered Accountants,Cost & Work Accountants, in whole time practice.

MCA-21


16/36


A nalytical procedures have become increasinglyimportant to audit firms and now being consideredan integral part of the audit process. Theimportance of analytical procedures isdemonstrated by the fact that the Auditing and

Assurance Standards Board, the board thatestablishes the standards for conducting financialstatement audits, has required that analyticalprocedures should be performed during all auditsof financial statements. The purpose of this articleis to provide the reader with a generalunderstanding of analytical procedures and todescribe the process that auditors use in applyinganalytical procedures.

What is an Analytical Procedure?

In common parlance, Analytical Procedure is oneof the financial audit skills, which helps an auditorunderstand the clients business and the changestaking place in the entity. It helps to identify thepotential risk areas and assists in planning theaudit procedures.

Definition: As per Standard on Auditing 520, it isdefined as The analysis of significant ratios andtrends, including the resulting investigation of fluctuations and relationships that are inconsistentwith other relevant information or which deviatefrom predicted amounts.

Object of the pronouncement: The purpose of thispronouncement is to establish standards on theapplication of analytical procedures during thecourse of audit. Such procedures are recommendedby SA 500(R) Audit Evidence as a method of collection of audit evidence. These procedures maybe applied at different stages of audit.

Analytical Procedures include comparison of financial information (data in financial statements)with:

1. Prior Periods2. Budgets or Forecasts3. Predictive estimates.Eg. Estimation of

depreciation to be charged for the year.

4. Similar industrial information and so on.Analytical procedures involve consideration of predictable relationships, such as:1. Gross profit to Sales,2. Payroll costs to employees,3. Financial information and non-financial

information, for examples the CEOs reports andthe industry news,

4. Stock comparisons ie., Stock levels in differentstores should bear a regular turnover ratiorelationship to Sales,

5. Policy decisions ie., decisions taken with theactual results.

Purpose of Analytical Procedures:To assist in planning the nature, timing andextent of other audit procedures;As substantive procedures, when their use ismore effective or efficient in reducing detectionrisk for specific financial statement assertions;As an overall review, to conclude whetherfinancial statements as a whole are consistentwith auditors knowledge of the business;To provide evidence as to the completeness,accuracy and validity of the data produced bythe accounting system, based on inter-

relationships between financial data.When should an auditor emphasize on AnalyticalProcedures?

Planning stage: To understand the business andidentify areas of potential risk. The auditor

Analytical Procedures An Integral Part of AuditProcess

Sai Prashanthi. S*

AUDITING

*The author is a student of ICAI (Reg.No. SRO 0182705)


17/36


should use the analytical procedures both onfinancial and non-financial aspects.Audit Stage: The Auditors reliance onsubstantive procedures to reduce detection riskrelating to specific financial statement assertionsmay be derived from test of details or analyticalprocedures or a combination of both.Review Stage: To conclude on the consistencyand reasonableness of the financial informationof the entity.

Sources through which Analytical Procedures canbe reviewed:1. Interim financial information2. Budgets3. Management accounts4. Non-Financial information5. Bank and cash records6. VAT returns7. Board minutes8. Discuss ion or

correspondence with theclient at they year-end

If Analytical Procedures areperformed as SubstantiveProcedures:Meaning of SubstantiveProcedure: It means proceduredesigned to obtain auditevidence to verify thecompleteness, accuracy, validityand to detect materialmisstatements in thataccounting system. Theseinvolve tests of details(transactions and balances) andanalytical procedures.

Factors to be considered:In performance of Analytical Procedures asSubstantive Procedures, the auditor shouldconsider the following aspects:

Objectives of the analytical procedures and theextent to which the results can be relied upon.Nature of the entity.Availability of information.

Reliability on the available information.Relevance of the information available.

Source or origin of information.Comparability.

If analytical procedures are being performed as a

substantive test, the auditor will need to gatherinformation to evaluate the explanation beingconsidered, since the primary purpose of substantive analytical procedures is to provideevidence as to the validity of an account balance.The type and amount of corroboration for theexplanation will vary based on factors such as thesize of the unexpected difference, the significanceof the difference to the overall financial statements,and the risks (e.g., internal control and inherent)associated with the account balance(s) affected. Asany of these factors increase, the reliability of theinformation obtained in support of the explanationshould also increase. SA - 520 provides guidancefor auditors in the evaluation of the reliability of

data. Some of the factors to beconsidered by the auditorsinclude the following:

Data obtained fromindependent sources outside theentity are more reliable thandata obtained from sourceswithin the entity.

If data are obtained fromwithin the entity, data obtainedfrom sources independent fromthe amount being audited are

more reliable.Data developed under a

system with adequate controlsare more reliable than data froma system with poor controls.

After an auditor gathersinformation for purposes of

evaluating an analytical procedures explanation,it is a matter of professional judgment indetermining whether the evidence adequatelysupports the explanation. This is one of the mostimportant steps of the analytical proceduresprocess and is referred to as the decision phase of the process. If, after evaluating the evidence, theauditor finds that the explanation being considereddoes not adequately explain the unexpecteddifference, the auditor should return to theexplanation generation phase of the process. If the auditor believes that the audit evidenceobtained adequately supports the explanation, the

AUDITING

Where the Analytical

Procedure identifies the

significant fluctuations, which

are inconsistent with other

relevant information, the

auditor should investigate and

obtain adequate explanations

and appropriate

corroborative evidence.


18/36


auditor may proceed to the final step of the process,which is documentation. While the extent of written documentation will vary depending on themateriality of the unexpected difference, the auditworking papers will generally include a writtendescription of material unexpected differences, anexplanation for the difference, evidence thatcorroborates the explanation, and the judgment of the auditor as to the adequacy of the explanation.Extent of reliance on Analytical Procedures:1. Nature of Risks - The effect of analytical

procedures depends upon the assessment of inherent and control risks. In situations wherethe control risk is high, reliance should beplaced on test of details of transactions than onanalytical procedures.

2. Materiality of items involved - Where certainindividual items of income and expenditure arenot material, comparison with previous yeardata may provide sufficient audit assurance.

3. Accuracy of prediction - If the expected resultsof analytical procedures can be predicted withreasonable accuracy, such procedures will bemore reliable.

4. Other audit procedures - Other auditprocedures directed towards the same auditobjectives, which may provide confirmatory of evidence.

Auditors duty in investigating unusual items:When analytical procedures identify significantfluctuations or relationships that are inconsistentwith other relevant information or that deviatefrom predicted amounts, the auditor shouldinvestigate and obtain adequate explanations andappropriate corroborative evidence. The inquiriesabout unusual items should be followed by:

Corroboration of management responses Comparing the management responses with theauditors knowledge about the business andother available evidence.Representation by management - Obtainingoral or written representations with respect tothe unusual items and the reasons for suchdeviations.Other audit procedures In the absence of management explanation, it is necessary toapply other audit procedures based on theresults of such inquiries.

Where the Analytical Procedure identifies thesignificant fluctuations, which are inconsistentwith other relevant information, the auditor shouldinvestigate and obtain adequate explanations andappropriate corroborative evidence.Effective date: This Standard on Auditing becameoperative for all audits relating to accountingperiods beginning on or after April 1, 1997.

AUDITING

We are planning to bring out a few Special Issuesof the Students Journal in the forthcomingmonths. The main focus will be on IFRS, DirectTax Laws, Indirect Tax Laws, Corporate Lawsincluding SEBI Guidelines and Regulations,Insider Trading Code, Public Issue Guidelines,International and Indian Capital Market, Financeincluding Resource Raising and InternationalFinancing including special financial instrumentsbeing used internationally, and Labour andEconomic laws.

Articles are invited from members, academicians,students and others on the above subjects forinclusion in the Student Journal. An articleshould comprise 1200 to 1600 words only.Articles written by the students are especiallyencouraged. The authors are advised to enclosethe following along with the articles:

1. A formal & signed undertaking in the form of a letter stating that the article is original in allrespects and does not infringe any copyrightand has not been published elsewhere or hasbeen sent for publication.

2. A latest passport size colour photograph (withfull name and registration number written onthe back of the photograph). 3. A soft copy of the article with complete communication andE- mail address. Articles received without thedetails/ enclosures specified above will not be

considered.All correspondence in this regard should beaddressed to The Board of Studies, ICAI, A-94/4,Sector-58, Noida 201 301 with the full name,complete address and the membership/ registration number if applicable.

Articles invited for Students Journal, Special Issues


19/36


Introduction

Greek economy is at acritical juncture in itshistory. After 16 years of continuous growth in itsGDP, it has now entered thesecond year of negative

growth. In 2009, its GDPfell by 1.6% and in 2010 asimilar figure is expected.While some Europeancountries are slowlycoming out of the economiccrisis, Greece is falling into a deep slump.

Until recently the Greek economy was expanding.Availability of easy credit was one of the elementsthat contributed to the boom. Besides, other factorssuch as European Union (EU) aid and statespending also led to the expansion of the economy.Now these two sources of economic growth, state

spending and credit from the banks, have driedup. The banks are in crisis and the state isoverburdened with debt. In the past Greek banksinvested heavily in Eastern Europe and Turkey andmade reasonable profits. Now, however, becauseof the crisis there, Greek banking profits haveplummeted.

Maladies affecting the economy

The Greek economy is in serious debt trap. Thebudget deficit has more than doubled in just sixmonths from 6.2% of GDP in the second half of 2009 to 12.7% in January 2010. Currently it isnearly 14% of GDP.Three factors contributed to this

sudden leap in debt. First there were lower taxrevenues due to the impact of the recession. Thisadds to the already chronic level of tax evasion inGreece. Secondly, for some time the Greekgovernment had been hiding the real level of debtand state expenditure from the European Union.This was in order to facilitate funding from the

Greek Economy Crisis and IndiaPrem Bhutani*

EU. And thirdly, the lavishspending by thegovernment has also addedfuel to the fire. Now,officially the national debtstands at 112.7% but it hasbeen estimated that the realfigure is closer to 120%.

What made things worse atthe end of last year waswhen European CentralBank announced it wasgoing to cut loan facilities

to Greece. This prepared the present nightmarescenario for the Greek financial system. Thesituation is so critical that any major bank couldcollapse in Greece in the coming period and dueto acute shortage of funds the government wouldnot be in a position to carry out a large-scalebailout. This means that the only option open toGreece is to apply shock therapy i.e. to undertakemassive cuts in social spending, wage freezes andincrease in taxes so on.

Production wise the situation is grim in Greece.Industrial production fell by about 25% in 2009.The rate of unemployment which had been fallingtill 2008, started rising thereafter. From 7.8%unemployment rate in 2008, it increased to morethan 10% in 2009. In 2009 alone, 186,000 jobs werelost. There are now well over 500,000 unemployedin Greece. However, this is not the end of the story.It is estimated that unemployment could soon hitthe 20% mark in near future.

Bail Out Package

Although European Union (EU) did not favourbailout of a crisis ridden EU country, InternationalMonetary Fund, the European commission, and theEuropean central bank, in order to ensure stabilityof the euro area and to contain global fallout have

ECONOMY

*The author is Deputy Director, ICAI


20/36


agreed for the bailout of Greece. A package worth$ One trillion or 750 billion is chartered out torescue Greece from financial meltdown. Of the 750, the other 15-euro countries are to supply 500bn in bilateral loans, while the IMF puts upthe remaining 250bn. In return for the lifeline,Greece has committed to take austerity measures.These include, cutting state expenditure, reducingwages, pensions, and other benefits in Greecesbloated public sector and increasing tax rates. Thedeficit is to be reduced from the present 14% of GDP to less than 3% by 2014.

Spill Over Effects on EU

It is feared that Greek crisis may have cascadingeffect on International finance. France andSwitzerland, who are the largest holders of Greekbonds, would start stumbling and whole Europemay get affected in the process. The economiccrisis of Greece and other European countries likePortugal, Spain and Italy have raised fears that thismay lead to a massive crisis in European Union(EU) and in fact, it is feared that it may lead tobreaking of the EU.

Its likely impact on India

Opinions are different as to the likely impact of Greek crisis on India. Some economists are of the

view that Indias trade with Greece is of insignificant amount and as such India is not goingto get affected greatly only because of Greece. Infact, they believe that due to relatively goodperformance of India investors might consider itas a safe haven and might, at least in the shortrun, divert their capital flows here. Othereconomists believe that India cannot remainimmune to the Greek disease. It is feared that theGreek disease may spread to other countries andit may ultimately affect Indian exports. This is soas EU is the largest trade partner of India. Besides,foreign direct investment in India may also beseverely affected. This will affect many ongoing

projects as a great number of them are funded byforeign inflows. Indian equity market has also beenaffected at least in the short run. However, it isexpected that the Greek crisis would not disturbthe Indian economy in a major way as theeconomys fundamentals are strong andgovernment policies are positive.

ECONOMY

It is a matter of great pride for the Indiancommunity that an Indian-born business

administration scholar Dr Nitin Nohriahas been selected as the tenth Dean of Harvard Business School (HBS). DrNohria, who is the Richard P ChapmanProfessor of Business Administration atHBS, has also held senior administrativepositions at the School, including SeniorAssociate Dean for faculty development and Chairof HBS organisational behaviour unit.

Dr Nohria graduated in chemical engineeringfrom the Indian Institute of Technology Mumbai

and received his Ph.D. in management fromMassachusetts Institute of Technologys SloanSchool of Management. His doctoral thesis wason behavioural and policy sciences. Dr Nohriahas co-written and co-edited 16 books. He hasalso authored more than 50 articles and dozens

of teaching cases and notes. Hisintellectual interests centre on human

motivation, leadership, corporatetransformation and accountability, andsustainable economic and humanperformance. His books have explored awide range of topics on how leaders fromdifferent backgrounds rose in American

business to business practices that are successfulin differentiating organisations.

A 2008 article written by Dr. Nohria and fellowfaculty member Rakesh Khurana for the HarvardBusiness Review said managers have lost

legitimacy over the past decade in the face of awidespread institutional breakdown of trust andself-policing in business. The two called for arigorous code of ethics for business leaders,similar to the medical professions HippocraticOath.

NRI Professor to head Harvard Business School


21/36


B usiness technology investmentsof today face a dilemma regardlessof factors such as size, revenue,industry, and region or businessmodel; on how technology can beleveraged with foolproof controls to

deliver the agility andresponsiveness needed to competeon the world stage. The efficiencymeasure is, if business processes areoptimized and execution costsreduced. These often lead toreinventing business models and in the processexplore the alignment of technology with soundstrategic business objectives.A comprehensive view of the enterprise processesneed to justify return on investment aligned withmanagement objective criteria. The need for a

structured set of steps designed to ensure that allrelevant facts have been included in the processto identify risks and to ensure that it produces theanticipated outcomes is vital.A framework provides best practices with apractical guidance in aligning informationtechnology resources with an enterprises businessobjectives and improvements in operationalefficiency. In addition, a comprehensive ITgovernance capability in an enterprise ensuressustained value from IT-enabled investments fromthe scope of all levels of management within anenterprise. The article provides a brief overviewof IT Governance Institutes, Val IT Framework 2.0that regards value delivery as the key focus area of IT governance.Effective IT governance plays a pivotal role inbusiness value an organization generates from IT(The Value IT Framework 2.0)

While COBIT sets good practices forthe means of contributing to theprocess of value creation, Val IT setsgood practices for the ends, byproviding enterprises with thestructure they require to measure,

monitor and optimize the realizationof business value from investments inIT.(COBIT- Control Objective forInformation and related Technology)The Val IT framework takes the

enterprises governance view and focuses on thetwo fundamental IT governance related questions:

Are we doing the right things?

The strategic question.

Is the investment?

In line with our vision.

Consistent with our business principles.

Contributing to our strategic objectives.

Providing optimal value, at affordable cost, atan acceptable level of risk.

And

Are we getting the benefits?

The value question.

Do we have?

A clear and shared understanding of theexpected benefits.

Clear accountability for realising the benefits.

Relevant metrics.

The Enterprise: IT GovernanceSangeetha Jagannathan*

INFORMATION TECHNOLOGY

*The author is Sr.Executive Officer, ICAI


22/36


An effective benefits realization process overthe full economic life cycle of the investment.

To fulfill the value management goal of enabling

the enterprise to realize optimal value at anaffordable cost with an acceptable level of risk fromIT-enabled investments, the Val IT principles needto be applied within three domains namely: seefigure 1. The processes undertaken under eachdomain are to be followed both in parallel anditeratively in accordance with the key managementpractices.

(i) Value Governance,

(ii) Portfolio Management, and

(iii) Investment Management.

Summary of Val IT PrinciplesIT-enabled investments will:

Be managed as a portfolio of investments

Include the full scope of activities required toachieve business value

Be managed through their full economic lifecycle

Value delivery practices will:

Recognise there are different categories of investments that will be evaluated and managed

differently Define and monitor key metrics and respond

quickly to any changes or deviations

Engage all stakeholders and assign appropriateaccountability for the delivery of capabilitiesand the realization of business benefits

Be continually monitored, evaluated andimproved

Figure 1: Val IT Principles

Each domain comprises of a collection processes

and interacting activities that align withmanagement practices. The process is to have aclear business reasons for existing, accountableowners, clear roles and responsibilities forexecution and performance measurement. Theinter-related processes identified in the frameworkare the guiding principles for input, output,

descriptions with RACI (Responsibilities,Accountable, Consulted and Informed) charts, andgoals and metrics at different management levels.

The Val IT principles applied within the threedomains:

(i) Value Governance (VG):

The objective of value governance is to embedvalue practices within the enterprise alignedwith an informed and committed leadershipthroughout the corporate suite(C-suite) whichhelps in:

Establishing the governance framework forvalue management that is fully integratedwith overall enterprise governance.

Providing strategic direction for theinvestment decisions.

To define the characteristics of portfoliosrequired to support new investments andresulting services, assets and otherresources.

Improving value management on a continualbasis, based on lessons learned.

(ii)Portfolio Management (PM):

It translates the business strategy into ITstrategy and goals from the board-levelinvestment oversight. It identifies anappropriate investment mix based on rate of return, degree of risk and type of benefit forthe programmes in the portfolio that implementthe strategy. The commitment to portfoliomanagement helps enterprises to:

Establish and manage resource profiles.

Define investment thresholds.

Evaluate, prioritize, and select, defer, orreject new investments.

Manage and optimize the overall investmentportfolio.

Monitor and report on portfolioperformance.

(iii) Investment Management (IM):

The key components of IM are:



23/36


Business case: To select the right investmentprogramme and manage them during theirexecution.

Programme management: It governs allprocesses that support execution of theprogrammes.

Benefits realization: The set of tasks requiredto actively manage the realization of programme benefits. The goal of IM is toensure that the enterprises individual IT-enabled investments contribute to optimalvalue.

The organizational leaders commit to IM byimproving their ability to:

Identify business requirements. Develop a clear understanding of candidate

investment programmes.

Analyse alternative approaches toimplementing the programmes.

Define each programme and document;maintain a detailed business case for it,including the benefits details, throughout thefull economic life cycle of the investment.

Assign clear accountability and ownership,including those for benefits realization.

Manage each programme through its fulleconomic life cycle, including retirement.

Monitor and report on each programmesperformance.

Relationship amongst Val IT Principles, Processesand Practices:

Val IT supports the enterprise goal of creatingoptimal value from IT-enabled investments at anaffordable cost, with an acceptable level of risk andis guided by a set of principles applied in valuemanagement processes that are enabled by key

management practices and are measured byperformance against goals and metrics.

The Synergistic Relationship between Val IT andCoBIT:

While CoBIT focuses on IT governance in theperspective IT function, Val IT or enterprise

governance of IT deals with delivering value whilemanaging risk. Comparisons between theframeworks with focus on governance, processesand portfolios are:

Governance Focus

Val IT: Enterprise governance of IT.

CoBIT: IT governance.

Process Focus

Val IT: Programme design and initiation. Benefit realization. Investment and ongoing value management

aspects of all processes.

CoBIT: IT solution delivery. IT operational implementation. IT service delivery.

Portfolio Focus

Val IT: Manage the investment portfolio. Provide the overall view of portfolio

performance.

CoBIT:

Manage the IT project portfolio in support of investment programmes.

Manage the IT service, asset and other resourceportfolios.

Provide information on the performance of theIT service, asset and other resource portfolios.

Hence, the Val IT framework addresses theenterprise governance of IT as a whole with thefocus on strategic alignment, value delivery,resource management, risk management andperformance management. The need for IT-enabledvalue generation requires a set of sequential andparallel initiatives to meet the intended strategyand benefit realization. Todays challenges for anenterprise includes increase profits and delivervalue products at lower cost, create opportunitiesto play on a global platform and facilitate a clearbusiness value.



24/36


IntroductionIt is well recognised thatChartered Accountancyprofession is one of themost integral andrespected professions in

India. CAs have thus theresponsibility to take it tothe top of the world byusage of latesttechnologies.It has been usually seenthat CA students arereluctant to study thesubjects relating toI n f o r m a t i o ntechnology(IT) and alsothey do not like toconcentrate on IT skills.In CA offices also, mostly either a basic level of ITis used (like preparing documents on MS word andsome data on Excel sheets in a simple manner) orit is not used at all. Many a times it is seen thaton 31 st day of March of every assessment year, thereis a heavy crowd and long queues of articles atIncome Tax Office for submission of manualIncome Tax Returns. This clearly shows either thelack of e-filing knowledge or reluctant attitudetowards the same amongst Chartered Accountantsand students. CAs and students have been seenwith laptops in hand but still found calculatingthe tax liability or other related things oncalculators. It cannot be said that CAs and students

are not using IT at all. There are numerous CAswho are using IT at its level best. But in todays ITera, our professionals should be completelyengaged in Information technology and make itsfullest use to exploit its numerous advantages.Leveraging IT within the scope of professionaldelivery involves expertise in using tools like Excel.

During my articleship, theexposure to use these toolsmade me realize the benefitof increasing my efficiency.I am obliged to theprincipal of the firm where

I am employed as article forfacilitating a platform. Theuse of these IT toolsefficiently can be paralleledas, Excel can solve thepurpose at CA professionallevel as Java solves atEngineering level. A toollike Excel overcomesrepetitive tasks withautomated inbuiltformulae, functions andprogrammed instructions

like macros. Most students are only familiar withbasic functions like =SUM () or=AVERAGE () or=IF() etc. There is much more with excel to makeyour data extremely automatic.=VLOOKUP () or=HLOOKUP () or=ISERR () or=MID () are some of those helpful tools which aid in building up strongand automated utilities for solving various things.I urge students to gain expertise in IT tools likeexcel which would help them to make audit reportsquite faster than before. They also help inscrutinize the data of various clients (speciallybanks), calculate tax liabilities, amount of exemptions allowed, service tax to be depositedin the current month, STCG and LTCG on shares

in a much comprehensive and interesting ways.IT tools are a must go for thing for an accountingprofessional. In an era of the world becoming aglobal village through the facilitation of information, communication and technologyelectronic mode of business transactions, corporate

The importance of IT for CA students Angad Pal Singh*


*The author is a student of ICAI. (Reg.No. NRO-0168956)


25/36


governance, supply chain etc is the order of theday. The Indian government has been ardentlyputting its efforts in providing e-filing services forIncome Tax returns, TDS returns, VAT/ST returns,Company law returns, E-payment of taxes etc.These have enabled citizens work from the comfortof his/her office/home avoiding long queues inbanks for submission of taxes and crowd at ITOfor submission of returns. Various governmentportals viz., incometaxindia.gov.in and mca.gov.inare the examples of such endeavors of government.Professionals must make fullest use of suchfacilities and save a lot of their time to be utilizedin more work and study. Still long queues are seenat departments for manual submission of returns(which have not been compulsorily required to befiled electronically). Even ICAI has enabled e-Filingfacilitation and provides help on its website linke-Filing Help.Why arent we adopting the e-filing method soextensively? Is it very tough? Or does it involvethe incurring of extra costs? Or does it not provideadditional conveniences?CA professionals must ensure that only thosedocuments, which cannot be filed electronically,are filed manually.Studying and properly understanding the IT

subjects given by ICAI; namely Informationtechnology in PCC and ISCA/MICS in CA final isindispensable for CA students in developing theirprofessional competencies. Students generallyavoid reading these subjects and prefer to cram upthe matter in the last months and write it up inthe exams. This hinders their career opportunitiesand their practice in the field of InformationSecurity and Control, ERP implementation,Database managements etc. These areas are foundto be highly remunerative for a CharteredAccountant and can only be taken up by those whohave got adequate understanding of the saidsubjects with deep concentration and keen interest.Thus, it is very important for CA students, not tocram up these subjects, rather understand theconcepts behind each topic and go conceptuallyas they do for finance management or Law.In the end I would just conclude that IT skill andexpertise will enhance our professional abilities,make our work more reliable, enable storage andreprinting of original documents viz., Challans, ITRAcknowledgements thereby avoiding the hassleand tension of preserving the original stampeddocuments. It shall help us to work efficiently byenabling e-Filing, e-Pay our bills, taxes etc. atanytime and anywhere.


N M

S W O T J O I N T

S W N I

O C O A S T A L

O H

G I N I L

T B Y T E

R A M R P

B O P S I P

L S E B I P

C R O S S W O R D

May-2010

solution


26/36


S ignals in wireless networks are omni directionaland spread beyond the desired coverage area. Dueto this weakness, many active and passive methodsare available for doing attacks in wireless networktransmission. Inserting the data into wirelessnetworks or modifying any transmitted data is

called active method whereas passive methodsinclude monitoring the traffic in promiscuousmode to gather information about wirelessnetworks. With the availability of various software,it is very easy to attack on wireless networks. Majorsecurity threats, which are possible in wirelessnetworks, are as follows:

Active Scanning / Probing Threat:The most common threat of wireless networksis doing attack by Active software like NetStumber (for Windows) and Dstumber (for UNIX/ Linux). These software work on the method of active scanning. Attacks transmit the proberequest to locate an access point. If an accesspoint is available, it will transmit probe responsefor that request. The response frame consists of SSID, Source/Destination MAC Address. Oncean attacker captures this response frame, he/shehas all the necessary information to enter intothe network. Hence, in the absence of a strongauthentication mechanism, attackers may easilyenter into the network.In another scenario, when an access pointis implemented using open systemauthentication, the attacker can easily join thenetwork. On the third scenario, when an accesspoint uses a Shared Key Authentication, which

is based on encrypted challenge-responsemechanism, the job of attacker becomes a bittough, but not impossible.Spoofing Threat:Another major threat in wireless networks isMAC Address Spoofing, which alters the

manufacture assigned MAC address to anothervalue. This is conceptually different than thetraditional IP address spoofing, where anattacker sends data from an arbitrary sourceaddress and does not expect to receive aresponse to their genuine source (Internet

Protocol)IP address. An attacker may chooseMAC Address Altering for several reasons, e.g.to bypass access control list, to impersonate analready authenticated user or disguise his/herpresence on the network.802.11 Beacon Flood Threat:This technique requires generating thousandsof counterfeit/fake 802.11 beacon frames andthen transmits them on the network. Beaconframe contains the information about the SSIDof the network. Hence, it becomes difficult forthe client to choose correct SSID to find alegitimate IP. There are several tools availableto generate and transmit the fake beacon frames.The famous tool for such an activity is Fake-IP(for both Windows and Linux).

Authentication/ De Authentication FloodThreat:In this, the attacker broadcasts the associationor authentication request frames from a fakeaddress either to an access point (infrastructuremode) or to clients (ad-hoc mode). So, whenan access point or a client sends reply andawaits response from the attacker holding theinformation about the request in memory entersinto an infinite loop. Thus, they are loaded withfalse authentication/ de-authentication requests

and legitimate entities are put on hold forsometime, hence denying services to them. Air Jack and Void 11 are the tools, which are usedto achieve this effect.Threat from Unauthorized Devices:In case of wireless networks, unauthorized

Major Security Threats in Wireless NetworksSantosh K. Pandey*

*The author is Executive Officer, ICAI.



27/36

27June 2010 I The

June Issue-Students' Journa

Documents

Transcript of June Issue-Students' Journa