CLOUD COMPUTING

CLOUD COMPUTING – A New Avenue for Chartered Accountants

Information Technology has become the inevitable part of the modern economy. Bringing business applications on the web has become a key area of every business strategy today. Present global commerce seems to be impossible without complex distribution systems with the help of technology. Chartered accountants deal with data/information in numerous forms for assurance reviews, analysis and decision-making. The location of digital data can be traced to computers and servers either at identified offices of clients or vendors. However, of late, there is increasing talk of data being stored on the “Cloud” and usage of cloud computing which leads to new areas of concern from perspective of risk, security and controls. Enterprises are increasingly using cloud computing due to business benefits it offers, but chartered accountants as control specialists are called upon to provide assurance that inherent risks have been adequately redressed. As with any deployment of IT by enterprises, cloud computing offers both challenges and opportunities to chartered accountants. The challenges are in terms of the inherent risks of accessing data on the cloud and the impact on the way services are provided. The opportunities are the way in which cloud itself can be used to deliver services of assurance/consulting to clients.

According to National Institute of Standards & Technology (NIST), defines cloud computing as, “a model for enabling convenient, on demand network access to a shared pool of configurable computing resources that can be rapidly provisioned & released with minimal management effort or service provider interaction.”

Gartner defines cloud computing as: “A style of computing where massively scalable, IT-enabled capabilities are provided as a service” across the Internet to multiple external customers”. Cloud computing refers to both the applications delivered as services over the Internet and the hardware and systems software in the data centres that provide those services. It facilitates sharing of technological resources, software and digital information across multiple platforms, clients and users on Internet.

In simple terms, cloud computing refers to computing power in all its totality or specified components (infrastructure, platform or service) being offered in the cloud as a utility to users, to be paid by the meter on consumption basis, just as we pay for utilities such as electricity, gas and water based on usage. Cloud computing is an ‘on demand model’ for allocation and consumption of computing as utility which offers immediacy, elasticity and is generally multi-tenanted.

FEATURES

·      On-demand  self-service  with  the  inherent  ability to automatically provision computing  capabilities, such as server and  network  storage, as needed without   requiring   human   interaction   with   each service’s  provider,

·         Access to cloud network  through any device using broad network  access,

·         Model of pooling of resources to serve multiple customers   using   a    multi-tenant    model,    with different physical and virtual resources dynamically assigned and reassigned as per demand.

·         Capability to scale up quickly and rapidly by buying more capacity in any quantity at any time.

·         Measured   services   which   automatically   control and optimize resource use   by   leveraging   a metering capability based on storage, processing, bandwidth and active user accounts and resource usage is monitored, controlled and reported with transparency.

THE CLOUD

The “cloud” in cloud computing is defined as the set of hardware, networks, storage, services, and interfaces that combine to deliver aspects of computing as a service.

CLOUD SERVICES

Cloud services include the delivery of software, infrastructure, and storage over the Internet (either as separate components or a complete platform) based on user demand. Services can include processing, storage, access to applications and business processes. Access to the cloud is generally provided via multiple technologies (Internet or other) using multiple devices remotely on real-time basis.

CLOUD PARTICIPANTS

·         The end user, who doesn’t have to know anything about the underlying technology of the cloud just as you don’t know about the technology behind the cell phone to use it.

·          Enterprise management, who are responsible for the management of data or services living in a cloud.

·          The cloud service provider, who is responsible for IT assets and maintenance and for providing the services as per service level agreement.

WORKING OF CLOUD COMPUTING

In  cloud  computing,  multiple servers are  used as  a single platform on  a  network under   secured   environment   with   access  provided via  any  computer device to  a  range of applications and  tools,  thus reducing  the  cost of  IT  operations. Cloud computing is enabled by a number of existing technologies, such as virtualization, automation, and self-service portals. In cloud computing, services are provided over the Internet by dynamically scalable and often virtualized resources.

The cloud computing system can be conceptually divided into two sections: the front end   and   the back end, which connect to each other through a network, usually the Internet. The front end is the interface by the user for interaction with the back end. The  front  end   or  user interface  could  be  any device such as a desktop, laptop, computer terminal, mobile devices, smart phone, PDA, etc. and  this could be  located  anywhere. The back end is the "cloud" section of the system which is the collection of servers connected on a public/private network.  The front end includes the client's computer or network   and the application required to access the cloud computing system. It is not necessary that all cloud computing systems have the same user interface. Services like web-based e-mail programs use existing web browsers like Google Chrome, Internet Explorer, Firefox, Safari, etc. At the back end are various computers, servers and data storage systems that create the "cloud" of computing services.  Generally, each application is required to have its own dedicated server. A central server administers the system, monitoring traffic and user demands to ensure that all applications and the network access are running as required. The system follows a set of rules called protocols and uses a special kind of software called ‘middleware’ which allows the networked computers to communicate with each other.

DEPLOYMENT MODELS OF CLOUD

The cloud computing environment can consist of multiple types of clouds based on their deployment & usage. They are:

·         Public Clouds

The Public Cloud is made available to the general public or a large industry group. They are administrated by third parties or vendors over the Internet & services are offered on pay-per-use basis.

·         Private Clouds

This cloud computing environment resides within the boundaries of an organization and is used exclusively for the organization’s benefits. These are also called ‘Internal Clouds’. They are built primarily by IT Departments within enterprises who seek to optimize utilization of infrastructure resources.

·         Community Clouds

This is sharing of computing infrastructure in between organizations of the same community. The risk is that data may be stored in the data of the competitors.

·         Hybrid Clouds

It is maintained by both internal as well as external providers. It is a composition of two or more clouds (Private, Community or Public). They have to maintain their unique identity but are bound together by data and application portability.

SERVICE MODELS OF CLOUD COMPUTING

The Service models are dynamically changing as cloud providers come out with new offerings focused on being competitive, increase market share, each with the aim to becoming one-stop shop. Currently, there are three dominant cloud computing service models:

·         Infrastructure  as a Service (IaaS)

This model of services typically includes the core IT Infrastructure Services such as operating systems, data storage, web servers, and edge caching services. This model provides the capability to provision processing, storage, networks and other fundamental computing resources by offering the customer the ability to deploy and run arbitrary software, which can include operating systems and applications. The primary difference between this approach and traditional  outsourcing is that  with cloud  computing,  access to  the  infrastructure  is  through the public or private networks and  the assignment and  payment for resources is based on usage. IaaS by providing required technology infrastructure saves its customers the cost of buying hardware and the system software to run the hardware.

·         Platform as a Service (PaaS)

This model provides the application building blocks which may include: workflow, document management, data services, APIs, fabric, proprietary development languages. This model provides the capability to deploy onto the cloud infrastructure customer-created or acquired applications created using programming languages and tools supported by the provider. PaaS enables independent software vendors (ISVs) to develop, deploy, and manage applications without incurring upfront cost for buying the platform hardware or software. PaaS platform has evolved from software as a service (SaaS) and infrastructure as a service (IaaS).

·         Software   as   a   Service   (SaaS)

This   model provides complete applications which are sold on a subscription model for a specific period This  model  provides the  capability to use the  provider’s  applications  running  on  cloud infrastructure. The applications are accessible from various client devices through a thin client interface such as a web browser (e.g., web-based e-mail). SaaS saves customers the cost of buying licenses and running programs on their own computers.

Enterprises have to select the right service model based on their specific requirements.  The  selection has  to  be   done  considering  various   factors   such as cost benefit  analysis,  relevant  risks,  security  and  controls  and  the  criticality  of  the data   and  services. Typically, enterprises would choose the model which offers them the best savings with the required security as appropriate to the criticality of the services provided.

BENEFITS OF CLOUD COMPUTING

Some key benefits of Cloud Computing are as follows:

·         Reduced Capital Costs

By using the cloud technology, capital costs on hardware, software or licensing fees can be easily brought down.

·         Scalability & Flexibility

Cloud benefits by allowing customers to react quickly to changing IT needs, adding or subtracting capacity and users as and when required and responding to real rather than projected requirements.

·         Improved  Accessibility

Cloud offers accessibility on anytime, anywhere basis, which is the demand of the day.

·         Reduced Expenditure on Technology

Cloud Computing offers less expenditure as its fundamental principle ‘pay only for actual usage’.

·         Improved Resource Utilization

Combining resources into large clouds maximizes utilization by delivering resources only when they are needed.

CHALLENGES TO CLOUD COMPUTING

·         Technical Issues

Though it is true that information and data on the cloud can be accessed anytime and from anywhere at all, there are times when this system can have some serious malfunction. This technology is always prone to outages and other technical issues. Even the best cloud service providers run into this kind of trouble, in spite of keeping up high standards of maintenance.

·         Security in the Cloud

Before adopting cloud computing technology, you should know that you will be surrendering all your company’s sensitive information to a third-party cloud service provider. This could potentially put your company to great risk. Hence, you need to make absolutely sure that you choose the most reliable service provider, who will keep your information totally secure.

·         Prone to Attack

Storing information in the cloud could make your company vulnerable to external hack attacks and threats. As you are well aware, nothing on the Internet is completely secure and hence, there is always the lurking possibility of stealth of sensitive data.

All these challenges require serious consideration and possible mitigation mechanisms before adopting the technology.

CONCLUSION

Technology is evolving and developing day by day. Chartered Accountants  will  be  increasingly  required to  audit  or  consult  on  IT  problems  for  clients.  The cloud computing architecture will continue to evolve to permit additional layers of services to be offered. Enterprises will require advice and assurance on   business, compliance, security aspects of the cloud environment. Chartered Accountants with good  understanding  of  cloud  computing  can  play  a  more proactive role for their clients in riding the cloud wave and  also enhance the quality of their service offerings using the cloud computing model.

TAX ACCOUNTING STANDARDS

TAX ACCOUNTING STANDARDS - An Overview

Over the years there have been several disputes between tax payers and Revenue Authorities on certain accounting policies adopted for determining taxable income. Normally, tax payers follow accounting treatment in line with the accounting standards prescribed by the Institute of Chartered Accountants of India.
Income for income-tax purposes is not the same as for accounting purposes. Most accounting standards prescribed by the Institute of Chartered Accountants of India have been notified under the Company Law and are, therefore, mandatory for companies to keep accounts in the manner prescribed. Even assessees other than companies are expected to follow the accounting principles enjoined by the standards. Schedule VI of the Companies Act, 1956, gives a format, which is also undergoing a change from April 1, 2012. Income-tax law, however, has its own deeming provisions and separate depreciation schedule. It is in this context that the Board was vested with power to prescribe accounting standards by an amendment to Sec. 145(2) by the Finance Act, 1995, with effect from April 1, 1997.

Accounting Standards 1 and 2 as applicable to all cases were issued in pursuance of such power practically adopting the first two standards of the Institute relating to accounting policies and prior period and extraordinary items. However, in 2011 two draft standards were proposed inviting comments from the public. It has been made clear that Tax Accounting Standards will override the other standards and that the statute will override tax accounting standards as well.

The Indian Revenue Authorities (IRA) believe that since ICAI AS provides flexibility of alternative accounting treatment, tax payers can plan payment of taxes by adopting a particular option, which results in a loss to the exchequer. The IRA believes that standardising one, or more, alternatives, in various standards for computing income precisely and objectively for tax purposes, will eliminate any loss to the exchequer. Tax Accounting Standards provide an independent framework for computation of taxable profits, making the accounting framework redundant.

Consequently, to harmonise accounting policies with Income Tax laws and significant developments concerning convergence with International Financial Reporting Standards (IFRS), the Government has constituted a committee (New Committee) comprising tax officials and professionals.
The New Committee has made certain recommendations which are the following:

• A separate Tax AS should be notified rather than incorporating accounting standards of ICAI in the Income Tax laws. 
• In case of conflict, the provisions of Income Tax laws will prevail over the Tax AS.
• The Tax AS is applicable only for computing income and no separate sets of tax books of account are to be maintained by tax payers.
• A reduction in litigation, minimization of alternatives, and providing certainty to issues should be the guiding principles for drafting the Tax AS.
• The Tax AS should be applicable to all classes of tax payers.
• The tax auditor should certify that computation of taxable income is done in accordance with the provisions of the Tax AS. This will be an enormous challenge for auditors, and is a separate subject requiring thoughtful debate.
• A suggested draft for 14 tax accounting standards including valuation of stock, revenue recognition, effects of changes in exchange rates, among others.

Though Tax AS is in harmony with the respective accounting standards, there are modifications that may significantly impact taxable income of several companies. Some key areas are discussed below.

• Construction Contracts

Tax AS mandates use of percentage of completion method for revenue recognition. Accordingly, the completed contract method is no longer permitted. Furthermore, if revenue recognition conditions are met under Tax AS, even uncertain revenue must be recognized in computation of income.

• Revenue Recognition

Unlike AS-9, Tax AS does not require revenue to be measurable or collectible at the time of sale (there is an exception for price escalation claims and export incentives). As such, revenue will have to be recognized when other conditions of revenue recognition are met under Tax AS. A corresponding bad debt expense deduction can be claimed under the Act. The committee has recommended a separate Tax AS for revenue recognition by real estate developers until such guidance is issued; diversity may continue in the manner in which real estate developers apply this Tax AS.

• Forex Rates

Tax AS provides that all gains or losses on forward exchange, or similar contracts entered into for trading or speculation, are to be recognized on settlement as opposed to mark-to-market. Entities recognized foreign currency transactions at an average weekly or monthly rate when the exchange rate did not fluctuate significantly. Tax AS has removed this option, providing that all foreign currency transactions should be recognized at the exchange rate prevalent on the transaction date. Furthermore, exchange differences on transactions that are not an integral part of the reporting enterprise should be recognized as income or expense, and not through the foreign currency translation reserve account as provided in AS-11.

• Government Grants

Current accounting practices permit the capital approach of recording government grants, whereby these are recorded in the nature of promoter’s contribution or capital reserve. This is not permitted under Tax AS. Grants should be either reduced from the cost of the asset or recorded as income.
Borrowing costs
Tax AS requires capitalization of borrowing cost irrespective of the period of construction. The only exception is for inventories — Tax AS requires capitalization of borrowing costs only for inventories that require more than 12 months for completion. Tax AS provides that income from temporary deployment of specific borrowings is to be treated as income. Further, under TAS, for loans borrowed specifically for acquisition of qualifying asset, capitalization of borrowing costs commences from the borrowing date.

• Contingent Assets

The draft Tax AS has recommended that a provision can be recognized only when it is reasonably certain that an outflow of economic resources will be required to settle an obligation. Whereas, the ICAI AS currently requires a provision to be created even in the case of 'probable' outflow of resources. The use of the term 'reasonably certain' is stricter and narrower than 'probable' and hence, will truncate such provision amounts when made. The term reasonably certain is not defined in the draft Tax AS, which may lead to uncertainty and consequent litigation. To avoid this, it is advisable for the term 'reasonably certain' to be defined.

• Valuation of Securities

The ICAI AS provides that securities should be valued at lower of cost or net realizable value (NRV) on an individual basis. However, the draft Tax AS recommends that listed securities should be valued at lower of cost or NRV for a category as a whole. Further, it categorizes securities as Shares, Debt securities, Convertible securities and any other securities. At the end of the year, if a taxpayer has an exposure of losses on certain securities in his portfolio and the profit on certain securities off-set those losses, then a reporting of loss will be allowed only if there is an overall net loss. This is again a significant departure from the principle of 'prudence' to be followed for determining profits of an enterprise. Thus, it may be prudent to avoid tinkering with the established principle of prudence prescribed in ICAI AS so long as the same is being followed consistently.

• Minimum Alternate Tax (MAT)

One critical aspect impacting accounting policies followed by a tax payer and its tax liability is the computation of MAT. For MAT, it is recommended that Tax AS not be made part of the Tax Law, since, if it is done, companies may end up paying MAT on an accelerated basis and not on their prudently computed profits as per ICAI AS.

In summary, the likely consequences of the Tax AS for tax payers will be evaluate aligning accounting policy with Tax AS or maintain separate records, prepare reconciliations to address inconsistencies with Tax AS. They will have to incur higher administrative or compliance time and costs and have a larger onerous responsibility of tracking, reconciling and adjusting differences on year-to year basis. Further, they have to convince tax auditors to seek tax audit report based on evaluation of events and estimate relevant costs and losses for a period relevant to the audit. The successful harmonization of Tax AS with AS, and the achievement of objectives solely depend on how Tax AS is implemented by tax authorities and the judicial system.

CHILD LABOUR

CHILD LABOUR

“The child is the father of man”, William Wordsworth says these words keeping in mind that a child has all the qualities in him that we find in his manhood the future man remains hidden in the child. But the society plays the major role in shaping the child’s life.

There is a saying that only a child’s life is real life. But the precious childhood is snatched from the innocents & they are compelled to work. Child labour means, “employment of children who have not attained the minimum age of admission to employment, which is fourteen or countries whose economic & educational facilities are in insuffeciently developed, & eighteen or hazardous occupations as per the conventions o International Labour Organization”.

The incidence of child labour is very high in India. It is estimated that one third o the child workers in Asia are in India. Extreme poverty & marginal income force the poor families in India to engage the child into laborious work. A good number of children are engaged in firework factories, tea-stalls, dhabas, restaurants, etc.

Child labour may be beneficial to the employers, as they can get more work from the children at negligible wages. But it deprives the children of their education & adversely affects their health. Above all, it spoils the future o the children as well as the country.

Child labour is considered as a national degradation. Elimination of child labour continues to be an area of great concern & article of faith or successive governments. Existing laws prohibit the employment o children below 14 years of age in factories, mines & hazardous working conditions.

As India is the signatory to the convention of International Labour Organization, it is the duty of the country to see that there is elimination of child labour. Again, the children freed from child labour should be properly rehabilitated. Those children should be allowed to have access to basic education or vocational training. Those who perpetuate child labour should be severely punished or the crime.

According to Dr. A.P.J. Abdul Kalam, the former president of India, only the present generation, i.e., the youth of the country have the capability of taking India into great heights. Form this, the evil of child labour should be curbed & thrown out of the country. Only then, his dream of making India a developed superpower by 2020 will be fulfilled.        

IMPLEMENTATION OF SEMESTER SYSTEM IN INDIA

IMPLEMENTATION OF SEMESTER SYSTEM IN INDIA

India is a country, once upon a time well known or its rich heritage, culture, peace & harmony. Indians were famous for their knowledge, bravery, truthfulness, & honesty. Today, it may sound like a fairy tale because India has become notorious for its exploding population, alarming number crimes, violence, communal riots, bloodshed, etc. Indians today are considered as frauds, corrupt & inferior in quality. One of the major causes which has resulted in such a situation is nothing but the faulty education system prevailing in the country. In contrast, the advanced countries have a superior educational setup which has resulted in their overall development. One such system followed by all leading institutes is the ‘Semester System’.

“Pardon me, but the annual examination system in India is completely useless. We have to scrap it & go to semester system.” These were the words o a Planning Commission member of the National Vice-Chancellors’ Meeting. So here the question that arises is as to what is Semester System. The word ‘semester’ is derived from the Latin word ‘semesteris’ which means ‘half year’. Therefore, semester is a half year course or university term in which examinations are conducted at the end of every six months.

The Semester System will improve the quality of education for the college students throughout the country. It is considered advantageous because of the depth of study it allows. There is a great span o time for study, for the absorption of course materials, for preparation, for evaluation, for subject coverage, for more complete textbook coverage & more student-faculty interaction. The actual process of learning is also more methodical. Each topic in the syllabus is allotted a learning time. The student learns not just by taking down notes during a lecture, he has to do self-study, going to the library, browsing the internet & preparing or seminars & presentations. This results in more comprehensive learning of the topic in hand.

For the benefit of the students, teachers & overall development of education, this system should be adopted. Teachers, the best preachers are totally in support of it. It saves students from last minute preparations. This is because the lessons remain fresh in their minds as they are made to study smaller chunks part by part in a sequential pattern. This is the best method as per education psychology. There will be better attendance as all students have to attend classes regularly. Missing out even one class will not be affordable. This will drastically lower the number o students bunking classes. The semester system is no doubt a boon because the syllabus will be comprehensive & interesting. Hence the rate of suicides will come down drastically because of terrific results.

Students who pass under this system are more employable & marketable as their knowledge content is very high. Today, the ‘buzz world’ is ‘knowledge based’ & the semester system helps in creating that. Academicians feel that students would become more knowledgeable & ace the growing challenges o the present day. Due to continuous evaluation, a highly competitive & professional atmosphere prevails.

Though semester system is successfully introduced in post-graduate levels, some universities are still apprehensive of bringing graduate & under-graduate education under its ambit. The reasons are many. Some universities themselves are opposing it on the grounds that lakhs of papers have to be evaluated every time drafting teachers from all colleges. They are reluctant arguing that academics would take a back seat with teachers totally involved in evaluation. Moreover, they feel that without improving the infrastructure or recruiting faculty, such systems cannot bring any qualitative change.

A section of students however is not in favour of the semester system arguing that it would put additional financial burden on them as they have to pay the fee twice. Some feel that they will lose the real charm of college life. Things will become so hectic that round the year, they are only studying or the exams. Further, the number of holidays will become less. So, they cannot enjoy the feasts & festivities. They will hardly get time to relax because as they finish one semester, another will come hovering over their heads.

Inspite of such petty complaints raised against the semester system, it is really beneficial to the education system o a country like India, which is on the path of development. While countries like U.K. & U.S.A. can implement this system & reap its fruits, then why not India??  For us, it is just a matter of balancing a few things & when it comes to a better educational module, the minor defects can be sorted out & implemented all over the country, thereby, increasing the pace o overall development in the near future.

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