CA Final, Paper 3 Advanced Auditing & Professional Ethics, Chapter 8

CA. Kamal Garg

Age < 21 years; or

Unsound mind and has been adjudged so by competent court; or

Undischarged Insolvent; or

Discharged Insolvent but has not obtained Court’ certificate; or

Unless pardoned by CG, (i) Offence of Moral Turpitude and/ or (ii) Non-technical offences committed in his professional capacity; or

Removed by Council if found guilty of Professional or Other Misconduct

Services that can be offered ??

Don’t offer PUB services: P = Portfolio

Management; U = Underwriting; B = Brokering

Section 2(2)(iv) read with Regulation 190A;

Authorship of books and articles.

Holding of Life Assurance Agency Licence for the limited purpose of getting renewal commission.

Attending classes and appearing for any examination.

Holding of public elective offices such as M.P., MLA & MLC.

Honorary office-bearership of charitable, educational or other non-commercial organizations.

Acting as Notary Public, Justice of the Peace, Special Executive Magistrate and the like.

Part-time tutorship under the Coaching Organisation of the Institute.

Valuation of papers, acting as paper-setter, head-examiner or a moderator for an examination.

Editorship of professional journals

Acting as surveyor and Loss Assessor under the Insurance Act, 1938.

Acting as Recovery consultant in the Banking Sector

Any coaching assignment organized by the Institute, its Regional Councils and Branches of Regional Councils.

Engagement as Lecturer in an University, affiliated college, educational institution, coaching organisation, private tutorship, provided the direct teaching hours developed to such activities taken together do not exceed 25 hours a week.

Engagement in any other business or occupation permitted by the Executive Committee from time to time.

Insurance brokerage

Part I

Clause 1

• Allowing any other person to practice in his own name Misconduct

• Other person CA in practice; and • Is in Partnership; or • Is in his employment

Exceptions

Misconduct

Solicitation of clients or professional work

Solicitation can be direct or indirect through circular, advertisement, personal communication, interview, etc.

Exceptions

Work from other CA in practice

Responding to tenders or enquiries

Application for empanelment for allotment of audit or other professional work;

Publication of the name of firm in the telephone directory ;

Issuing hand bills;

Publication of books or articles, if it indicates his association with a firm of chartered accountants;

Issue of greeting cards or invitations with designation and firm name;

Roving enquiries;

Representation under Section 225(3) of the Companies Act;

Giving public interviews which are intended to secure publicity, rather than highlighting professional achievements

Clause 7

Misconduct

Advertising attainments or services

Using unapproved or wrong designations

Exceptions

Advertising through Write Up permitted

The write-up should not be false or misleading and bring the profession into disrepute;

The write-up should not claim superiority over any other Member(s)/Firm(s);

The write-up should not be indecent, sensational or otherwise of such nature which may likely to bring the profession into disrepute;

The write-up should not contain testimonials or endorsements concerning Member(s);

The write-up should not contain any other representation(s) that may like to cause a person to misunderstand and/or to be deceived;

The write-up should not violate the provisions of the ‘Act’, Rules made there under and ‘The Chartered Accountants Regulations, 1988’;

The write-up should not include the names of the clients (both past and present);

The write-up should not be of font size exceeding 14

the actual format of the Website is not being prescribed nor is any standard format being given. However, there is no restriction on the colours to be used;

individual members can have webpages in their own name or trade name;

websites should run on “pull model” and not on “push model” of the technology;

mentioning website address on the professional stationery is permitted;

the following information may be allowed to be displayed on the websites:

details of employees, job vacancies

nature of services offered to be displayed on “pull” request;

member’s/firm’s address, telephone/fax numbers, e-mail ids;

year of establishment;

member/trade name;

use of logo or photograph of any sort is not permitted (CA logo, passport size photograph permitted);

chat rooms can be provided which permit chatting amongst members of ICAI;

on line advice can be provided on a specific request, either free or on payment basis;

adequate secrecy of matters of clients handled through website should be maintained;

the listing of suitable search engine is permitted provided the field of search should be restricted only to the field of “Chartered Accountants” or “CA” or “Indian CA”, “Indian Chartered Accountant” or any permutations or combinations thereof;

the website may provide links to the website of ICAI, its Regional Councils and Branches, Govt./ Govt. Departments/Regulatory Authorities

the website should not contain any information or material which is unbecoming for CA;

advertisement in the nature of banner or any other nature is not permitted;

the name of the client and the fees charged to them cannot be given;

the address of the website can be different from the name of the firm but such address should be as near as possible to the individual name/ trade name, or name of the firm. An intimation of this should be given to the ICAI within 30 days.

Advertisements for recruiting staff in the members’ own office. However, the use of expression like “a very well known firm” should be avoided;

Advertisements on behalf of clients requiring staff or wishing to acquire or dispose of the business or the property;

Advertisements for the sale of a business or property by a member acting in a professional capacity as a trustee, liquidator or receiver;

Can members in practice also practice as advocates: Yes, subject to Bar Council Permission and should not use the designation ‘chartered accountant’ and ‘advocate’ simultaneously

Can also hold public elective offices of MP/ MLA/ MLC etc. provided both designations are not used simultaneously

Clause 8

Misconduct

If no written communication with previous auditor before

accepting the position as an auditor

Exceptions

NIL

Clause 9

Misconduct

If does not ascertain the compliance of Sec. 224 & 225 in respect of his appointment

Clause 10

Misconduct

Fees on:

(i) % of Profits; or

(ii) Contingent Findings

Exceptions under Reg. 192

1. Liquidator/ Receiver on the basis of assets’ realisation;

2. Audit of Cooperative Society w.r.t. its paid up capital/ working

capital/ income;

3. D.T. Valuation

Misconduct Engaging in Other

business/ occupation

Full time COP (+) Salary

Exceptions 1. ICAI Permission;

2. Director Simplicitor;

3. Employment in CA Firm;

4. Sec. 2(2)(iv) & Reg. 190A

Misconduct

Allowing non-members to sign F.S.

Sec. 26 also states so

Exceptions

Signing documents not containing

expression of opinion

Of his professional business with Non-members

Any share, commission or brokerage in the

Fees; or Profits

Directly or Indirectly

Pays; or Allows; or Agrees to pay or allow

Professional Misconduct if

Exce

ptio

ns:

ICAI Member;

Partner;

Retired Partner;

Legal Representative (LR) of deceased partner

Widow or LR of partner only if Deed provides;

Widow or LR of proprietor can receive only goodwill but no participation in

earnings of the firm Member of other specified professional bodies;

Specified qualified persons

Any part of the profits of professional work from Non-member

Professional Misconduct if:

1.Accepts; or 2.Agrees to accept

Exceptions: ICAI Member;

Member of other specified professional bodies;

Specified qualified persons

Professional Misconduct if:

Enters into partnership;

In or outside India with Non-members

Exceptions:

ICAI Member;

Member of other specified professional bodies;

Specified qualified persons

Professional Misconduct if:

Secures work from Non-members

Exceptions:

Employee;

Partner;

Other open means (e.g. Clause 6 or 7);

Persons as per Clause 2, 3 and 4

ICSI;

ICWAI;

Bar Council;

Indian Institute of Architects;

Institute of Actuaries

CS;

CWA;

Bachelor in Law (from recognised University or Institution);

Bachelor in Engineering;

Bachelor in Architecture;

Actuary;

B Tech;

ICSI;

ICWAI;

Advocate (i.e. member of Bar Council);

Engineer (i.e. member of Institution of Engineers);

Architect (i.e. member of Indian Institute of Architects);

Actuary (i.e. member of Institute of Actuaries)

Part II

Clause 1

Misconduct

Paying/ allowing to any person share in employment emoluments

Clause 2

Misconduct

Accepting any remuneration/ commission/ gratification from counsels/ customers of the company/ firm

Part III

Clauses Misconduct: Clause 1: Not FCA but acts as FCA

Clause 2: Does not supply info to ICAI/ comply requirements asked for by ICAI3:

Clause 3: Violation of Clause 6/ 7

Part 1

Misconduct Disclosure of information

acquired during professional engagement

Exceptions 1. Client’s consent;

2. Law Requirements

Same principle also in SA 200

Misconduct

Certification/ submission of report on F.S. without examination

Exceptions

1. Examination under his supervision;

2. Examination by other CA in practice

Misconduct

Vouching the accuracy of forecasts

Exceptions

Follow AAS 35/ SAE

3400

Misconduct

Expression of opinion on F.S. of an entity with presence of substantial interest (either himself/ his firm/ his partner)

Substantial Interest

1. Co. > 20% voting power;

2. Others > 20% profits

Relatives (as per AS 18) of CA also covered

Misconduct Fails to obtain information for expression of opinion

In a way, its about violation of SA 500/ SA 501

Misconduct

Failure to invite attention to any material departure to Generally Accepted Audit Procedure

Clause 10

Misconduct

1. Failure to keep client’s money in separate bank account; or

2. Use such money within reasonable time

Even money recd. in capacity as trustee/ liquidator, etc. also covered

in this clause

Exceptions

1. Fees/ remuneration (even advance);

2. Reasonable time usage

Clauses Misconduct

Clause 5 • Failure to disclose “Material Fact”

Clause 6 • Failure to report “Material Misstatement”

Misconduct

Grossly Negligent of his Duties

(Vituperative Epithet)

Part II

1 • Contravention of Act/ its Provisions

2 • Being employee discloses confidential

information without consent/ legal requirement

3 • Submits false info to ICAI/ its Constituents

4 • Defalcates or Embezzles money recd in

professional capacity

(earlier referred as ICAI Notifications)

Practicing CA/ Firm to maintain proper books including:

Cash book;

Ledger

Limited up to 45 in a financial year;

This limit is applicable on per partner basis;

Each year audit is a separate audit assignment;

Maintain record of assignments;

Part Time practicing CA shall not be considered

Limits u/s 224(1B) + Exemptions u/s 224(1B) < 30;

Maintain record of audit assignment;

Limit applicable to per practicing CA;

Part time practicing CA not counted

Particulars Practising firm having 5 or more partners but less than 10 partners

Practising firm having 10 or more than 10 partners

In cities with population of 3 million and above

Rs. 6,000 p.a. Rs. 12,000 p.a.

In cities/ towns with population of less than 3 million

Rs. 3,500 p.a. Rs. 8,000 p.a.

Exception : Audit of Sick Unit

Undisputed audit fees, has not been paid by the entity to previous auditor

Guilty if appointment as an auditor accepted Where

Guilty if accepts appointment u/s 233B while he is:

Auditor of Company u/s 224;

Officer or employee of company;

Partner or employee of (2);

Partner or employee of (1);

Indebted/ provided guarantee/ security to company for > Rs. 1,000

Guilty if:

Accepts appointment as auditor u/s 224 when indebted > Rs.

1,000;

Accepts appointment as auditor in other cases when indebted >

Rs. 10,000;

If other limits given by some other statute then they would be

applicable

Internal auditor, concurrent auditor not covered by this

Guideline;

In case of firm, if one partner is ineligible, then whole firm is

ineligible

Other Work Fees > Statutory Audit Fees = Guilty of Professional Misconduct

Applicable to “audit and other work” of only:

PSU; Govt. Co.; Listed Co.; Other Public Co.

having turnover > Rs. 50 crores in a year

Guideline applicable to CA in aggregate (i.e. collectively to their firm/ MCC/ associates etc.)

Other Work as per Section 2(2)(iv) & Regulation 190A but does not include:

Audit under any other statute;

Certification work done by statutory auditors;

Representation before an authority

Each one of such offices should be in separate charge of a full time member in practice;

For member practicing is Hilly Areas For all members (i) In plains for period of upto 3 months in winter season, & (ii) Temporary office not to be mentioned as place of Business & (iii) Correspondence continue at permanent office, &. (iv) Before coming to plains in every winter &

at close of such office in plains, inform ICAI. (v) Name board of firm to be displayed at temporary

office only during these 3 months.

(i) If second office is located in same accommodation or premises or (ii) If second office is located in same city, or (iii) If second office is Located within 50 kms.

From Municipal limits of city in which Ist office in situated.

Q.1. Mr. X is a practising chartered accountant. He accepts appointment as valuer of goodwill of the business for the purpose of determining the value of wealth under the Wealth Tax Act on the condition that he would be paid 2% of the value of wealth so determined as his fees

Q.2. Mr. L, a CA in practice has charged a fee for representing his client in an Income Tax Appeal based on the expected relief to his client as a result of the appeal

Q.3. A chartered accountant in practice died in a road accident. His widow sold the practice of her husband to a friend of him for Rs. 8,00,000. It is to be noted that the purchaser is also a chartered accountant in practice

Q.4. Mr. Ramana, a chartered accountant in practice and a lawyer agree to pay to each other 12% of the gross fees received by them from the clients referred by them to each other. It is agreed that both of them will maintain a record in respect of such clients’ and the account will be settled at the end of each year

Q.5. Mr. S, a chartered accountant in practice, who is proposed to be removed as the auditor of a company, makes unsubstantiated and derogatory remarks against the management of the company in his representation u/s 225 of the Companies Act, 1956

Q.6. A chartered accountant in practice does not maintain the books of account because he is not required to maintain such books u/s 44AA of the Income Tax Act, 1961

Q.7. Mrs. R is a Chartered Accountant in practice. She looks after the tax matters of Mr. R, her husband. He gave her Rs.25,000, saying that the amount was intended for her personal expenses and also for the payment of his self assessment tax. He promised that he would furnish details of his income etc. within a week to enable her to calculate the tax. Later it came to be known that Mrs. R had spent ` 20,000 on the purchase of a necklace and as a result there was shortage of funds for the payment of self assessment tax of Mr. R, by `3,000. A furious Mr. R makes a complaint to the Institute about the conduct of his wife as a Chartered Accountant

Q.8. A firm of Auditors of a Limited Company gives ‘power of attorney’ to an employee Chartered Accountant to sign reports and financial statements of the Company

Q.9. Mr. A is the auditor of Z Ltd., which has a turnover of Rs. 200 crores. The audit fee for the year is fixed to Rs. 50 lakhs. During the year, the company offers an assignment of Management consultancy u/s 2 (2) (iv) of the Chartered Accountants Act, 1949 (as amended), for a remuneration of Rs. 1 crore. A seeks your advice on accepting the appointment

Q.10. Mr. X a practicing CA is a Tax Auditor of ABC Limited and has taken a loan of Rs. 11,000 from the company

Q.11. M/s ABC and Co. are appointed as special auditors (u/s 233A of the Companies Act, 1956) of PQR Limited of which Mr. X used to be the statutory auditor. The new auditors did not communicate with Mr. X prior to the acceptance of such an appointment

Q.12. Mr. A was appointed as statutory auditor of PQR Limited of which Mr. X used to be the statutory auditor. The new auditor did not receive the reply of communication with Mr. X which was made prior to the acceptance of such an appointment even 15 days after such communication and hence he accepted the appointment

Q.13. In which of the following instances Mr. X, a practicing CA would be deemed guilty under the Chartered Accountants Act, 1949: (i) Mr. X, CA, CS, MBA (ii) Mr. X, CA, Expert in Bank Audits (iii) Mr. X, CA, Advocate