P01:
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Facts
of the Case
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Write the facts
in 1-2 line
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Legal
Provisions
|
· Council of ICAI pursuant to Section 2(2)(iv) of the
Chartered Accountants Act, 1949 has passed a resolution permitting
“Management Consultancy and other Services” by a CAIP.
· A clause of the aforesaid resolution allows CAIP to act as advisor
or consultant to an issue of securities including such matters as drafting of
prospectus, filing of documents with SEBI, preparation of publicity budgets,
advice regarding selection of brokers, etc.
· It is however, specifically
stated that CAIP are not permitted to undertake the activities of broking,
underwriting and portfolio management Services.
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Analysis
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In the aforesaid
case Mr P , a CAIP was managing the Portfolio of his client which is not
permissible
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Conclusion
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In view of this,
P would be guilty of
misconduct under the Chartered Accountants Act, 1949.
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P02:
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Facts
of the Case
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Write the facts
in 1-2 line
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Legal
Provisions
|
· Under Section 2(2)(iv) of the CA Act, 1949, “A member of the
Institute shall be deemed “to be in practice” when individually or in
partnership with Chartered Accountants in practice, he, in consideration of
remuneration received or to be received renders such other services as, in
the opinion of the Council, are or may be rendered by a CAIP.
· Pursuant to Section 2(2) (iv)
above, the Council has passed a resolution permitting a CAIP to render entire
range of “Management Consultancy and other Services”.
· The definition of the
expression “MCS” includes Personnel recruitment and selection.
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Analysis
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In the given
case, Mr. A was involved in the personnel Recruitment and selection which
includes, development of human resources including designing and conduct of
training programmes, work study, job description, job evaluation and
evaluations of work loads. The same is permitted.
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Conclusion
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In view of this,
A is not guilty of
misconduct under the Chartered Accountants Act, 1949.
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P03:Undertaking
Tax Representation Work: A chartered accountant not holding
certificate of practice cannot take up any other work because it would amount
to violation of the relevant provisions of the Chartered Accountants Act, 1949.
In case a member is suspended and is not holding
Certificate of Practice, he cannot in any other capacity take up any practice
separable from his capacity to practices as a member ofthe Institute. This is
because once a member becomes a member of the Institute, he is bound by the
provisions of the Chartered Accountants Act, 1949 and its Regulations.
If he appears before the income tax authorities, he is
only doing so in his capacity as a chartered
accountant and a member of the Institute. Having bound himself by the said Act
and its Regulations made there under, he cannot then set the Regulations at
naught by contending that even though he continues to be a member and has been
punished by suspension, he would be entitled to practice in some other
capacity.
Thus, in the instant case, a chartered accountant would
not be allowed to represent before the income tax authorities for the period he
remains suspended. Accordingly, in the present case he is guilty of
professional misconduct.
P04:
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Facts of the Case
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|||
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Legal Provisions
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As
per Section 27 of the CA Act, 1949 if a CAIP
has more than one office in India, each one of theofices should be in
the separate charge of a member of the Institute.
Second
Office Exemption
There is however an exemption for the above
if the second office is located :
·
In the same premises, in which
the first office is located; or
·
In the same city, in which the
first office is located; or
·
Within 50 kms from the
municipal limits of a city, in which the first office is located. Since the
second office is situated beyond 50 kms of municipal limits of Mumbai city.
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Analysis
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In
the given case, Mr. G opened office which was 80 Km. beyond the local limits
of Mumbai & employed retired ITO’s for running the office. Rather than
appointing a CA as incharge of the office.
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Conclusion
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In
view above, Mr G is would be liable
for committing a professional mis-conduct
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NOTE: RECOLLECT THE CLASS
ROOM DISCUSSION ON THE SAME
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5.
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Maintenance
of Branch Office in the same city: As per section 27 of the Chartered Accountants
Act, 1949 if a chartered accountant in practice has more than one office in India,
each one of these offices should be in the separate charge of a member of the
Institute. However, a member can be in charge of two offices if the second
office is located in the same premises or in the same city, in which the
first office is located; or the second office is located within a distance of
50 Kilometres from the municipal limits of a city, in which the first office
is located.
In
the given case, Mr. K, Chartered Accountant in practice as a sole proprietor
at Chennai has an office in suburbs of Chennai, and due to increase in the work
he opened another branch near the income tax office. He also employed the
income tax commissioner to run the new office.
Assuming
that the second office is situated within a distance of 50 Kms from municipal
limits, there will be no misconduct if Mr. K will be in charge of both the
offices, however, he will be liable to declare which of the two offices is
the main office.
Note: Alternative view is
possible on the assumption that distance of both the office is more than 50
Km, Hence, Mr. K will be liable for misconduct under section 27 of the Chartered
Accountant Act, 1949.
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6.
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The Council of the Institute
has decided that with regard to the use of the name-board, there will be no
bar to the putting up of a name-board in the place of residence of a member with
the designation of chartered accountant, provided, it is a name-plate or
board of an individual member and not of the firm. In the given case partners
of X Y & Co., put up a name board of the firm in both offices and also in
their respective residences.Thus the chartered accountants are guilty of
misconduct.
Note:
Distance given in the question is not relevant for
deciding(Write this also)
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7.
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(i) A member is liable to disciplinary action
under Section 21 of the Chartered Accountant Act if he is found guilty of any
professional or ‘other misconduct’
(ii) Other misconduct has been defined in Part
IV of First Schedule and Part III of Second Schedule in the CA (Amendment
Act) 2006
(iii) As per Part IV of First
Schedule of the CA Act, a member of the Institute whether in practice or not,
shall be deemed to be guilty of other misconduct if he:
1. Is held guilty by any civil or criminal
court for an offence which is punishable with imprisonment for a term not
exceeding six months
2. In the opinion of
the Council, brings disrepute to the profession or the Institute as a result
of his action, whether or not related to his professional work (iv) As per
Part III of Second Schedule to the CA Act, a member of the Institute whether
in practice or not shall be deemed to be guilty of other misconduct if he Is
held guilty by any civil or criminal court for an offence which is punishable
with imprisonment for a term exceeding six months.
(iv) As per Part III of Second
Schedule to the CA Act, a member of the Institute whether in practice or not
shall be deemed to be guilty of other misconduct if he Is held guilty by any
civil or criminal court for an offence which is punishable with imprisonment
for a term exceeding six months.
This provision empowers the Council to
enquire any misconduct of a member even if it does not arise of professional
misconduct.
Some illustrative examples,
where a member may be found guilty of “Other Misconduct”, under the aforesaid
provisions rendering, himself unfit to be member are:
(1) Where a chartered
accountant retains the books of account and documents of the client and fails
to return these to the client on request without a reasonable cause.
(2) Where a chartered
accountant makes a material misrepresentation.
(3) Where a chartered
accountant uses the services of his articled or audit clerk for purposes
other than professional practice.
(4) Conviction by a competent
court of law for any offence under Section 8 (v) of the Chartered Accountants
Act 1949.
(5) Misappropriation by
office-bearer of a Regional Council of the Institute, of a large amount and
utilisation thereof for his personal use.
(6) Non-replying within a
reasonable time and without a good cause to the letter of the public
authorities.
(7) Where certain assessment
records of income tax department belonging to the client of Chartered
Accountant were found in the almirah of the bed-room of the chartered
accountant.
(8) Where a chartered
accountant had adopted coercive methods on a bank for having a loan
sanctioned to him.
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8.
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A Chartered Accountant is
expected to maintain the highest standard of integrity even in his personal
affairs and any deviation from these standards, even in his non-professional work
would expose him to disciplinary action.
A member is liable to
disciplinary action under Section 21 of the Chartered Accountants Act, if he
is found guilty of any professional or “Other Misconduct”.
As per Clause 2 of Part IV of
the First Schedule to the Chartered Accountants Act, 1949,a member of the
Institute, whether in practice or not, shall be deemed to be guilty ofother
misconduct, if he in the opinion of the Council, brings disrepute to the
profession orthe Institute as a result of his action whether or not related
to his professional work.
The question whether a
particular act or omission constitutes “other misconduct” should be based on
fact and circumstances of each case.
Under Negotiable Instruments Act
1881, where any cheque drawn by a person for the discharge of any liability
is returned by the bank unpaid, either for insufficiency of funds or the
cheque amount exceeds the arrangements made by the drawer of the cheque, thed
rawer of such cheque shall be deemed to have committed an offence.
In the given case the cheque was
dishonoured with the remark “refer to drawer”.
However, such dishonour need not
necessarily be only due to insufficiency of funds. If it is proved that the
cheques were dishonoured due to insufficiency of funds, the CAvwould be held
guilty of “other misconduct”.
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9.
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Section
21 of the Chartered Accountants Act, 1949 provides that a member is liable
for disciplinary action if he is guilty of any professional or “Other
Misconduct.” Though the term “Other Misconduct” has not been defined in the
said Act, this provision enables the Council to enquire into any misconduct
of a member even if it does not arise out of his professional work. This is
considered necessary because a chartered accountant is expected to maintain
the highest standards of integrity even in his personal affairs and any
deviation from these standards even in his non-professional work, would
expose him to disciplinary action. The Council has also laid down that among
other things “misappropriation by an office-bearer of a Regional Council of
the Institute of a large amount and utilization thereof for his personal use”
would amount to “other misconduct”. Thus, in the instant case, Mr. R would be
liable for disciplinary action
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10.
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As per Clause (2) of Part I of
First Schedule of the Chartered Accountants Act 1949, a Chartered Accountant
in practice shall be deemed to be guilty of professional misconduct if he
pays or allows or agrees to pay or allow, directly or indirectly, any share, commission
or brokerage in the fees or profits of his professional business, to any
person other than a member of the Institute or a partner or a retired partner
or the legal representative of a deceased partner, or a member of any other
professional body or with such other persons having such qualification as may
be prescribed, for the purpose of rendering such professional services to
time in or outside India.
In view of the above, the
objections of the Institute of Chartered Accountants of India, as
given in the case, are correct
and reply of Mr. X, stating that he is paying 1 % profits of his firm over
and above the stipend to help the articled clerk as the position of the
articled clerk is weak is not tenable.
Hence, Mr. X is guilty of
professional misconduct in terms of Clause (2) of Part I of First Schedule of
the Chartered Accountants Act 1949.
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11.
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Sharing of Audit Fees with non-member: As
per Clause 2 of Part I of First Schedule to the Chartered Accountants Act,
1949 a member shall be held guilty if a Chartered Accountant in practice pays
or allows or agrees to pay or allow, directly or indirectly, any share,
commission or brokerage in the fees or profits of his professional business,
to any person other than a member of the Institute or a partner or a retired
partner or the legal representative of a deceased partner, or a member of any
other professional body or with such other persons having such qualification
as may be prescribed, for the purpose of rendering such professional services
to time in or outside India.
In the instant case, Mr. K, a practising Chartered
Accountant gave 50% of the audit fees received by him to Mr. L, who was not a
Chartered Accountant, under the nomenclature of office allowance and such an
arrangement continued for a number of years. In this case, it is not the
nomenclature to a transaction that is material but it is the substance of the
transaction, which has to be looked into.
The
Chartered Accountant had shared his profits and, therefore, Mr. K was guilty
of professional misconduct under the clause 2 of Part I of First Schedule
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12.
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Sale of Goodwill: With reference to Clause (2) of Part I to the First
Schedule to Chartered Accountants Act, 1949 the Council of the Institute of
Chartered Accountants of India had an occasion to consider whether the
goodwill of a proprietary concern of chartered accountant can be sold to
another member who is otherwise eligible, after the death of the proprietor.
The Council resolved that the
sale/transfer of goodwill in the case of a proprietary firm of chartered
accountant to another eligible member of the Institute shall be permitted. It
further laid down that in cases where the death of proprietor occurs after
30.08.1998, the goodwill of the deceased member’s practice can be sold to
another member and permission of the Institute has to be obtained within a
year of the death of the proprietor concerned. It is even laid down that in
such cases the name of the proprietary firm concerned would not be removed up
to a period of one year from the death of the proprietor.
Thus, in the instant case, when
the widow of the chartered accountant sold the practice to another member, it
is nothing but goodwill sold to another member. The sale of the practice and
the right to use the name is also allowed in terms of the above decision of the
Council. Therefore, the above act of the widow of the Chartered Accountant is
permissible.
Ans to Similar Question
Sale
of Goodwill: With
reference to Clause (2) of Part I to the First Schedule to Chartered Accountants’
Act, 1949, the Council of the Institute of Chartered Accountants of India had
an occasion to consider whether the goodwill of a proprietary concern of
chartered accountantcan be sold to another member who is otherwise eligible,
after the death of the proprietor. It lay down that the sale is permitted
subject to certain conditions. It further resolved that the legal heir of the
deceased member has to obtain the permission of the Council within a year of
the death of the proprietor concerned.
Thus,
in a given case and on the facts, the widow of Mr. Qureshi, who has sold the
practice for Rs. 5 lakhs is nothing but sale of goodwill. Thus the act of
Mrs. Qureshi is permissible
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13.
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Sharing and Accepting of Part of Profits with an
Advocate: According to Clause (2) of Part I of the First Schedule to the
Chartered Accountants Act, 1949, a Chartered Accountant in practice is deemed
to be guilty of professional misconduct if he pays or allows or agrees to pay
or allow, directly or indirectly, any share, commission or brokerage in the
fees or profits of his professional business, to any person other than a
member of the Institute, for the purpose of rendering such professional
services from time to time in or outside India.
Furthermore, Clause (3) of Part I of the First
Schedule to the said Act states that a Chartered Accountant in practice is
deemed to be guilty of professional misconduct if he accepts any part of the
profits of the professional work of a person who is not a member of the
Institute.
However, a practicing member of the Institute can
share fees or profits arising out of his professional business with such
members of other professional bodies or with such other persons having such
qualifications as prescribed by the Council under Regulation 53-A of the
Chartered Accountants Regulations, 1988. Under the said regulation, the
member of “Bar Council of India” is included.
Therefore, Mr. Preet, an advocate, a member of Bar
Council, is allowed to share part of profits of his professional work with
Ms. Preeti. Hence, Ms. Preeti, a practicing Chartered Accountant, will not be
held guilty under any of the abovementioned clauses for paying and accepting
part of profits from Mr. Preet.
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14.
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(i)
(a)
Partnership with a CPA in New York: Clause (4) of Part I to the First
Schedule to the Chartered Accountants Act, 1949 specifies that a chartered
accountant in practice shall be deemed to be guilty of professional
misconduct if he enters into partnership, in or outside India, with any
person other than a chartered accountant in practice or such other person who
is a member of any other professional body having such qualifications as may
be prescribed, including a resident who but for his residence abroad would be
entitled to be registered as a member or whose qualifications are recognised
by the Central Government or the Council for the purpose of permitting such
partnerships;
Thus,
chartered accountant would be guilty of professional misconduct since
certified public accountants (CPA) are not eligible to become members of the
Institute.
(b)
Partnership with a chartered accountant from ICAEW: As stated above,
it is important that partnership with a member of the foreign professional
body is permissible provided inter alia such bodies are eligible for
the membership of the Institute. Earlier, the Council had passed a resolution
permitting chartered accountants from ICAEW to become members of the
Institute (Appendix 6) as also fulfilment of certain conditions in respect of
persons not permanently residing in India. However, the Council of the
Institute at its meeting held in December, 1995 decided to withdraw the
resolution w.e.f. December 8, 1995. In view of this, persons qualified from
any of the four Institutes in the United Kingdom including England andWales
are not entitled to have their names entered in the Register of Members
maintained by the Institute effective from December 8, 1995. Based on this
development, partnership between members of the Institute and members of
above foreign professional bodies will not be permissible from the above
date. Even a chartered accountant from ICAEW who was eligible to become
member of the Institute, the profit sharing arrangement stated in the
question goes against the provisions of Clause 4. Hence, it would constitute
professional misconduct.
Chartered
Accountants practising outside India:
A member of the Institute of
Chartered Accountants of India practising outside India is not governed by
the provisions of the Chartered Accountants Act, 1949 since the provisions of
the said Act are not applicable outside India. Accordingly, the question of
professional misconduct would not arise if an Indian chartered accountant
practising outside India becomes a partner with aforesaid accountants and
enters into partnership in that country with a member of the Institute of
that country. There would be no professional misconduct within the provisions
of the Institute of Chartered Accountants Act, 1949 as the applicability of
such provisions does not extend to outside India.
Note :
As Per ICAI Journal Published in November,
2009 The Code of Ethics of the
Institute is applicable to all the members , even outside India
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Ans 14A:
|
Old Answer
|
Updated
Answer
|
|
Partnership
with Non-Chartered Accountants: As per clause 4 of Part I of the First Schedule
to the Chartered Accountants Act, 1949, a chartered accountant will be guilty
of professional misconduct if he enters into partnership, in or outside
India, with any person other than Chartered Accountant in practice or such
other person who is a member of any other professional body having such
qualifications as may be prescribed, including a resident who but for his
residence abroad would be entitled to be registered as a member under clause
section 4(1)(v) or whose qualifications are recognized by the Central Government
or the Council for the purpose of permitting such partnerships.
However, for the purpose of Limited Liability
Partnership, Regulation 53B of the Chartered Accountants Regulations 1988
permits a Chartered Accountant in practice to enter into partnership with
other prescribed Professional Bodies which includes an Advocate, a member of
Bar Council of India.
In the instant case, Mr. P, a Chartered
Accountant, has entered into partnership with Mr. L, an advocate.
Thus, he would not be guilty of professional misconduct
as per Clause 4 of Part I of First chedule
read with Regulation 53B.
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Partnership
with an Advocate: As per Clause (4) of Part I of the First Schedule to the
Chartered Accountants Act, 1949, a chartered accountant will be guilty of
professional misconduct if he enters into partnership with any person other
than a chartered accountant in practice or a person resident without India
who but for his residence abroad would be entitled to be registered as a
member under Clause (v) of Sub-section (1) of Section 4 or whose
qualification are recognized by the Central Government or the Council for the
purpose of permitting such partnership.
However,
Regulation 53B of the Chartered Accountants Regulations, 1988 permits a
Chartered Accountant in practice to enter into partnership with other
prescribed Professionals which includes an Advocate, a member of Bar Council
of India.
In
the instant case, Mr. P, a chartered accountant, has entered into partnership
with Mr. L, an advocate.
Thus,
he would not be guilty of professional misconduct as per Clause (4) of Part I
of First Schedule read with Regulation 53B.
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15.
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Responding to Tenders: Clause
(6) of Part I of the First Schedule to the Chartered Accountants Act, 1949
lays down guidelines for responding to tenders, etc. As per the guidelines if
a matter relates to any services other than audit, members can respond to any
tender. Further, in respect of a non-exclusive area, members are permitted to
pay reasonable amount towards earnest money/security deposits.
In
the instance case, since computerization of land revenue records does not
fall within exclusive areas for chartered accountants, M/s LMN can respond to
tender as well as deposit Rs. 50,000 as earnest deposit and shall not have
committed any professional misconduct.
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16.
|
Clause 6 of Part I of the First
Schedule to the Chartered Accountants Act, 1949 states that a Chartered
Accountant in practice shall be deemed to be guilty of misconduct if he solicits
clients or professional work either directly or indirectly by a circular, advertisement,
personal communication or interview or by any other means. Provided that
nothing herein contained shall be construed as preventing or prohibiting any Chartered
Accountant from applying or requesting for or inviting or securing professional
work from another chartered accountant in practice.
Such a restraint has been put so
that the members maintain their independence of judgment and may be able to
command respect from their prospective clients.
In the given case, Mr. Honest
wrote letters only to other Chartered Accountants, M/s XY and M/s ABC
requesting them to allot some professional work to him, which is not prohibited
under Clause (6) as explained above. Thus, Mr. Honest is not wrong in soliciting
professional work
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17.
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Soliciting work directly or
indirectly: As per Clause 6 of Part I of First Schedule to
the Chartered Accountants Act, 1949 a member shall be held guilty if a
Chartered Accountant in practice solicits clients or professional work either
directly or indirectly by circular, advertisement, personal communication or
interview or by any other means. In the present case, Mr. M, a practicing
Chartered Accountant sent the letter to another firm of Chartered
Accountants, claiming himself to be a pioneer in liasoning with Central Government
Ministries and its allied Departments for getting various Government
clearances for which he had claimed to have expertise and had also given a
list of his existing clients and details of his staff etc. which seems to be
indirect methods to adventure their professional practice with a view to gain
publicity and thereby solicit clients or professional work.
Hence, Mr. M was guilty of professional misconduct as per
clause 6 of part I of First Schedule of the Chartered Accountants Act, 1949.
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18.
|
Posting
of Particulars on Website: The Council of the Institute had approved posting
of particulars on website by Chartered Accountants
in practice under Clause (6) of Part I of First Schedule to the Chartered
Accountants Act, 1949 subject to the prescribed guidelines. The relevant
guidelines in the context of the website hosted by M/s XYZ are:
Ü No restriction on the colours used in the website;
Ü The websites are run on a “pull” technology and not a “push”
technology
Ü Names of clients and fees charged not to be given.
In
view of the above, M/s XYZ would have no restriction on the colours used in
the website but failed to satisfy the other two guidelines. Thus, the firm
would be liable for professional misconduct since it would amount to
soliciting work by advertisement.
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19.
|
Hosting
Details on Website:
As
per detailed guidelines of the ICAI laid down in Clause(6) of Part I of the First Schedule to the Chartered Accountants Act,
1949, a chartered accountant of the firm can create its own website using any
format subject to guidelines.
However,
the website should be so designed that it does not solicit clients or
professional work and should not amount to direct or indirect advertisement.
§ The guidelines of the ICAI to allow a firm to put up the details of
the firm, bio-data of partners and display of a passport size photograph.
§ In the case of M/s XYZ, all
the guidelines seem to have been complied and there appears to be no
violation of the Chartered Accountants Act, 1949 and its Regulations
|
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20.
|
As per the Guidelines laid down
under clause (6) of Part I of the First Schedule
to the CA Act in respect of websites by Chartered accountants in Practice ,
it is permitted that website may provide a link to the website of ICAI, its
Regional Councils, Branches and Government Departments and other professional
Bodies like AICPA, ICAEW, CISA. In this case, M/s XYZ Associates provided a
link to “All India Chartered Accountants Association” which is not permitted.
Hence the firm would be liable for misconduct under Clause (6) of Part I of
the First Schedule to the CA Act.
|
||||
|
21.
|
As per Clause (6) of Part I of
the First Schedule to the Chartered Accountants Act, 1949, a Chartered
Accountant in practice shall be deemed to be guilty of misconduct if he
solicits clients or professional work either directly or indirectly by a
circular, advertisement, personal communication or interview or by any other
means.
In the given case, Mr. X
published an advertisement in a Newspaper containing his photograph on the
occasion of the opening ceremony of his office. On this context, it may be
noted that the advertisement which had been put in by the member is quite
prominent. If soliciting of work is allowed, the independence and
forthrightness of a Chartered Accountant in the discharge of duties cannot be
maintained.
The above therefore amounts to
soliciting professional work by advertisement directly or indirectly. Mr. X
would be therefore held guilty under Clause (6) of Part I of the First
Schedule to the Chartered Accountants Act, 1949.
|
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|
22.
|
As
per Clause (6) of Part I of the First Schedule to the Chartered Accountants
Act, 1949,a Chartered Accountant in practice shall be deemed to be guilty of
misconduct if he solicits clients or professional work either directly or
indirectly by a circular, advertisement, personal communication or interview
or by any other means.
In
the given case, Mr. X, a Chartered Accountant and proprietor of M/s X and
Co., wrote several letters to the Assistant Registrar of Co-operative
Societies, requesting for allotment of audit work. In similar cases, it was
held that the Chartered Accountant would be guilty of professional misconduct
under Clause (6) of Part I of the First Schedule to the Chartered Accountants
Act, 1949. The writing of continuous letter to ascertain the reasons for not
getting the work is quite alright but in case such either amount to request
for allowing the work then Mr. X will be liable for professional misconduct.
Consequently,
Mr. X would therefore be held guilty under Clause (6) of Part I of the First
Schedule to the Chartered Accountants Act, 1949.
|
||||
|
23.
|
The Council of the Institute of Chartered
Accountants has issued guidelines for posting the particulars on Website by
Chartered Accountants in practice and firms of Chartered Accountants in
practice under Clause (6) of Part I of First Schedule to the Chartered
Accountants Act, 1949. According to the guidelines the details in the website
should be so designed that it does not amount to soliciting client or
professional work. It is permitted to mention the website address on
letterhead but soliciting people to visit website is not permitted. PQR and
Associates letterhead invites to people to visit their website. Similarly the
website mentions the nature of assignments, names of the prominent clients
and fees charged. The nature of assignments is permitted for display only on
specific 'Pull" request. And the name of clients, the fees charged is
not permitted at all.
PQR
& Associates will be held guilty of Professional Misconduct under Clause
(6) of Part I of First Schedule to the Chartered Accountants Act, 1949
|
||||
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24.
|
Clause
6 of Part I of the First Schedule to the Chartered Accountants Act, 1949
states that a Chartered Accountant in practice shall be deemed to be guilty
of misconduct if he solicits clients or professional work either directly or
indirectly by a circular, advertisement, personal communication or interview
or by any other means. Such a restraint has been put so that the members
maintain their independence of judgement and may be able to command respect
from their prospective clients.
·
In case of making an application for the empanelment for the
allotment of audit and other professional work, the Council has opined that,
“where the existence of such a panel is within the knowledge of the member,
he is free to write to the concerned organization with a request to place his
name on the panel. However, it would not be proper for the member to make
roving inquiries by applying to any such organization for having his name
included in any such panel.”
·
Accordingly, the member is guilty of misconduct in terms of the
above provision as he has solicited professional work from the Finance
Ministry, by inquiring about the maintenance of the panel.
·
|
||||
|
25.
|
Disrepute to the Profession: Clause
2 of Part IV of First Schedule to the Chartered Accountants Act, 1949 states
that member of the Institute, whether in practice or not, shall be deemed
guilty of other misconduct, if he in the opinion of the Council, brings
disrepute to the profession or to the Institute as a result of his action whether
or not related to his professional work".
Accordingly, a Chartered Accountant is also expected
to maintain the highest standards and integrity even in his personal affairs
and any deviation from these standards calls for disciplinary action.
In the present case, the action of Mr. R, a
Chartered Accountant in practice offering free service in return to sanction
of loan brings disrepute to the profession of a Chartered Accountant.
Hence, Mr. R will be
held guilty of other misconduct under Clause 2 of Part IV of the First
Schedule of the Chartered Accountants Act, 1949.
|
||||
|
26.
|
Hint: Guilty Clause (7)- use
of name of firm, leading firm of CAs, Senior Partner, Date of Establishment
|
||||
|
27.
|
Clause 6 of Part I of
the First Schedule to the Chartered Accountants Act, 1949 prohibits
solicitation of client or professional work either directly or indirectly by
circular, advertisement personal communication or interview or by any other
means since it shall constitute professional misconduct. The bio-data was
handed over to the chairperson during the T.V. interview by the Chartered
Accountant which included details about the firm and the achievements of the
partner as an expert in the field of taxation. The chairperson simply read
out the same in detail about association with the international firm as also
the achievements of the partner and his recognition as an expert in the field
of taxation. Such an act would definitely lead to the promotion of the
firms’ name and publicity thereof as well as of the partner and as such the
handing over of bio-data cannot be approved. The partner would be held
guilty of professional miscount under Clause (6) of Part I of the First
Schedule to the Chartered Accountants Act, 1949.
|
||||
|
28.
|
Tax Consultant: Section
7 of the Chartered Accountants Act, 1949 read with Clause 7 of Part I of
the First Schedule to the said Act prohibits advertising of professional
attainments or services of a member. It also restrains a member from using
any designation or expression other than that of a chartered accountant in
documents through which the professional attainments of the member would come
to the notice of the public. Under the clause, use of any designation or
expression other than chartered accountant for a chartered accountant in
practice, on professional documents, visiting cards, etc. amounts to a
misconduct unless it be a degree of a university or a title indicating
membership of any other professional body recognised by the Central
Government or the Council. Thus, it is improper to use designation
"Tax Consultant" since neither it is a degree of a University established
by law in India or recognised by the Central Government nor it is a recognised
professional membership by the Central Government or the Council.
(b) Cost Accountant:
As stated in the preceding paragraph, this would also constitute
misconduct under section 7 of the Act read with Clause (7) of Part I of the
First Schedule to the Chartered Accountants Act, 1949. A chartered accountant
in practice cannot use any other designation than that of a chartered
accountant.
Nevertheless, a
member in practice may use any other letters or descriptions indicating
membership of accountancy bodies which have been approved by the Council.
Thus, it is improper for a chartered accountant to state in his documents
that he is a “Cost Accountant”. However as per Appendix 8 to the Chartered
Accountants Act, 1949 the Council has resolved that the members are
permitted to use letters indicating membership of the Institute of Cost and
Works Accountants but not the designation "Cost Accountant".
|
||||
|
29.
|
Advertisement
of Professional Attainments: Under clause
(7) of part -1 of First Schedule, a CA in practice is deemed to be guilty of professional
misconduct if he (i) advertises his professional attainments or services or (ii)uses
any designation or expressions other than ‘Chartered Accountant” on
professional documents, visiting cards, letter heads or sign boards unless it
be a degree of a university established by law in India or recognized by the
Central Government or a title indicating membership of the ICAI or of any
other institution that has been recognized by the Central Government or may
be recognized by the council.
Here there is no prohibition for
printing names of all 3 firms on the personal letterheads in which a member
holding certificate of practice is a partner. Thus, H is not guilty of any
professional misconduct in the above case
|
||||
|
30.
|
The
Council of the ICAI has in a communication to members stated that if a public
company, in which a chartered accountant in practice is a director, issues a
prospectus or gives any announcement that gives descriptions about the
Chartered Accountant’s expertise, specialisation and knowledge in any
particular field, it shall constitute a violation of Clauses 6 and 7 of Part
I of the First Schedule to the Chartered Accountants Act, 1949. The Council
has further stated that in such cases the member concerned has to take
necessary steps to ensure that such prospectus or public announcements or
public communications do not advertise his professional attainments and also
that such prospectus or public announcements or public communications do not
directly or indirectly amount to solicitation of clients for professional
work by the members. Thus in the instant case, Mr. D would be held to be
guilty of professional mis-conduct and liable for disciplinary action
|
||||
|
31.
|
Solicitation of Professional
Work Through Letters: ‘Z’ a chartered accountant, wrote several letters to
Government Department pointing out the seniority of his firm and sending his
life sketch and stating that he had rendered glorious service to the country
and to the accountancy profession with a view to getting the audit work.
§ Clause (6) of Part I of First Schedule to
the Chartered Accountants Act, 1949 prohibits a member not to solicit
professional work by means of advertisement, circular, personal communication
or interview or by any other means.
§ Since these letters were clearly in the
nature of advertising professional attainments, “Z” was guilty of
professional misconduct under clause (6) of Part I of First Schedule to the
Chartered Accountants Act, 1949.
|
||||
|
32.
|
Clause 6 of Part I of the First Schedule to the Chartered Accountants
Act, 1949 states that aChartered Accountant in practice shall be deemed to be
guilty of misconduct if he solicitsclients or professional work either
directly or indirectly by a circular, advertisement, personalcommunication or
interview or by any other means. Such a restraint has been put so that
themembers maintain their independence of judgment and may be able to command
respect fromtheir prospective clients.
Section 7 of the Chartered
Accountants Act, 1949 read with Clause 7 of Part I of the FirstSchedule to
the said Act prohibits advertising of professional attainments or services of
amember. It also restrains a member from using any designation or expression
other than that of a chartered accountant in documents through which the
professional attainments of the member would come to the notice of the
public. Under the clause, use of any designation or expression other than
chartered accountant for a chartered accountant in practice, on professional
documents, visiting cards, etc. amounts to a misconduct unless it be a degree
of a university or a title indicating membership of any other professional
body recognised by the Central Government or the Council.
Member may appear on television
and films and agree to broadcast in the Radio or give lectures at forums and
may give their names and describe themselves as Chartered Accountants.
Special qualifications or specialized knowledge directly relevant to the
subject matter of the programme may also be given but no reference should be
made, in the case of practicing member to the name and address or services of
his firm. What he may say or write must not be promotional of his or his firm
but must be an objective professional view of the topic under consideration.
Thus, it is improper to use
designation "Management Expert" since neither it is a degree of a University
established by law in India or recognised by the Central Government nor it is
a recognised professional membership by the Central Government or the
Council. Therefore, he
is deemed to be guilty of
professional misconduct under both clause (6) and Clause (7) as he has used
the designation “Management Expert” in his speech and also he has made reference
to the services provided by his firm of Chartered Accountants at reasonable
rates. Distribution of cards to audience is also a misconduct in terms of
Clause 6.
|
||||
|
33.
|
Under
clause (7) of Part I of First Schedule to the Chartered Accountants Act,
1949, a CA in practice is deemed to be guilty of professional misconduct if
he (i) advertises his professional attainments or services or (ii) uses any
designation or expressions other than ‘Chartered Accountant” on professional
documents, visiting cards, letter heads or sign boards unless it be a degree
of a university established by law in India or recognized by the Central
Government or a title indicating membership of the ICAI or of any other institution
that has been recognized by the Central Government or may be recognized by the
council.
This
clause prohibits advertising of professional attainments or services of a
member. It also restrains a member from using any designation or expression
other than that of a Chartered Accountant in documents through which the
professional attainments of the member would come to the notice of the
public.
Members
of the Institute in practice who are otherwise eligible may practice as
advocates subject to the permission of the Bar Council but in such case, they
should not use designation ‘chartered accountant in respect of the matters
involving the practice as an advocate. In respect of other matters they
should use the designation ‘chartered accountant’ but they should not use the
designation ‘chartered accountant’ and ‘advocate’ simultaneously. Since Mr. B
has printed his visiting card where he mentioned his designation as Chartered
Accountant and Advocate which is prohibited under the above clause and hence
Mr. B is guilty of professional misconduct
|
||||
|
34.
|
Guilty of professional misconduct under Clause (8)
of Part I of First Schedule to the CA Act
|
||||
|
35.
|
Guilty of professional misconduct under Clause (8)
of Part I of First Schedule to the CA Act
|
||||
|
36.
|
Accepting Appointment as an Auditor: As
per chapter 7 of councils general guidelines 2008 a member of the Institute
of Chartered Accountants of India in practice shall be deemed to be guilty of
professional misconduct if he accepts appointment as auditor of an entity in
case the undisputed audit fee of another chartered accountant for carrying
out the statutory audit under Companies Act, 1956 or various other statutes
has not been paid.
As per the proviso, such prohibition shall not apply
in case of a sick unit where a sick unit is defined to mean “where the net
worth is negative”.
In the instant case,
though the undisputed fees are unpaid, Mr C would still not be guilty of
professional misconduct since the M/s PSU Ltd. is a sick unit having negative
net worth for the year 2008-09.
|
||||
|
37.
|
Hint: Guilty u/s Clause
8 of Part I of First Schedule to the CA Act
|
||||
|
38.
|
Undercutting
of fees: In
this case, Mr. Rahul is a locally based Chartered Accountant, accepted an
audit assignment at a fee lower than that charged by the previous auditor, who
was outstation based Chartered Accountant and had to spend a lot of money on travel
which was included in his audit fee and was not charged by him separately.
The motive of Mr. Rahul was not to get the work from previous auditor by
accepting the audit assignment on lower fee i.e. undercutting of fee.
Because, in considering whether variation in fees charged would constitute
undercutting, the quantum of work; incidental
and out of pocket expenses and other terms of appointment should be
considered.
Since
the previous auditor was stationed in another town and therefore, had to
incur higher cost on account of conveyance, and the previously the fee was
decided on a composite basis inclusive of travelling expenses of the auditor,
it cannot be said that Mr.Rahul has accepted an audit assignment based on
under cutting of fees. Hence, Mr. Rahul will not be held guilty for
misconduct.
|
||||
|
39.
|
Soliciting work directly or indirectly: As
per Clause 6 of Part I of First Schedule to the Chartered Accountants Act,
1949 a member shall be held guilty if a Chartered Accountant in practice
solicits clients or professional work either directly or indirectly by
circular, advertisement, personal communication or interview or by any other
means.
Further, as per
Central Council Guidelines for Advertisement for the members in practice, write
up of the members should not claim superiority over any other
Member(s)/Firm(s)and should also not include the names of the clients. (Inserted)
In the present case, Mr. M, a practicing Chartered
Accountant sent the letter to another firm of Chartered Accountants, claiming
himself to be a pioneer in liasoning with Central Government Ministries and
its allied Departments for getting various Government clearances for which he
had claimed to have expertise and had also given a list of his existing
clients and details of his staff etc. which seems to be indirect methods to
adventure their professional practice with a view to gain publicity and
thereby solicit clients or professional work.
Hence, Mr. M was guilty
of professional misconduct as per clause 6 of part I of First Schedule of the
Chartered Accountants Act, 1949.
|
||||
|
40.
|
Precautions
before Commencing the Audit Work: In the instant case the auditor before accepting
the appointment as well as commencing the audit work, the auditor should see
the following:
(i)
Check whether a statement, in the prescribed form, has been filed by the
resigning auditor within a period of 30 days from the date of resignation, to
the company and the registrar (or the Comptroller and Auditor-General of
India, as the case may be), indicating the reasons and other facts as may be
relevant with regard to the resignation, for the compliance of Section 140(2)
of the Companies Act, 2013 (herein
after referred as the Act).
(ii)
Ascertain that the appointment of new Auditor is in compliance with Section
139(8) of the Act as mentioned above i.e. the resolution appointing the new
auditor has been approved by the company in the general meeting as in the
case of casual vacancy by resignation.
(iii)
The auditor must obtain the NOC from previous auditor. He should also refer
the resignation statement file by the previous auditor and communicate with
him (previous auditor) to ascertain the circumstances which led up him to
retire.
(iv)
The auditor must ascertain whether there existed any circumstances on account
of which he should not accept the appointment.
(v)
As per Section 139 of the Act, the auditor must ensure that before any
appointment or reappointment of auditors is made at an annual general
meeting, a written certificate has been provided by him to the company that
his appointment is in accordance with the limits specified in Section
141(3)(g).
(vi)
He should also satisfy himself that the notice provided for under Sections
139 and 140has been effectively served on the outgoing auditor.
Further,
Clause (8) of Part I of the First Schedule to the Chartered Accountants Act,
1949,provides that a member in practice shall be deemed to be guilty of
professional misconduct if he accepts a position as auditor previously held
by another chartered accountant without first communicating with him in
writing. Moreover, Clause (9) of Part I of the same Schedule, provides that a
member in practice shall be deemed to be guilty of professional misconduct if
he accepts an appointment as auditor of a company without first ascertaining
from it whether the requirements of Sections 224 and 225 of the Companies
Act, 1956 (now Section 139 and140 of the Companies Act, 2013), in respect of
such appointment have been duly complied with.
|
||||
|
41.
|
Clause (9) of Part I of the
First Schedule to the Chartered Accountants Act, 1949,provides that a member
in practice shall be deemed to be guilty of professional misconduct if he
accepts an appointment as auditor of a company without first ascertaining from
it whether the requirements of Sections 224 and 225 of the Companies Act,
1956 (now Section 139 and 140 read with Section 141 of the Companies Act,
2013),in respect of such appointment have been duly complied with.
Board can appoint the auditor in
the case of casual vacancy under Sections 139(8)(i)and Section 139(6) of the
Companies Act, 2013. The non-acceptance of appointment by CA. X does not
constitute a casual vacancy to be filled by the Board. In this case, it will be
deemed that no auditor was appointed in the AGM.
Further, as per Section 139(10)
of the Companies Act, 2013 when at any annual general meeting, no auditor is
appointed or re-appointed, the existing auditor shall continue to be the
auditor of the company. The appointment of the auditor by the Board is
defective in law. Hence CA. Y is guilty of professional misconduct as per
clause 9 of the First Schedule as he accepted the appointment without
verification of statutory requirements.
|
||||
|
42.
|
Guilty of professional
misconduct under Clause (10) of Part I of the CA Act(Note: In the
instant case, the Chairman of Audit Committee who also happens to be a
chartered accountant would also be guilty of misconduct under the Chartered
Accountants Act, 1949.)
|
||||
|
43.
|
Clause
10 of Part 1 of First Schedule: Regulation
192 exempts member from operation of this clause in case of a valuer for the
purpose of Direct taxes and duties, where the fees is based on a % of the
value of property valued. Miss Moongi has valued only for the purpose of
determining the value of Gift under the Gift Tax Act and as such within the
scope of Regulation 192. Hence , Not Guilty.
|
||||
|
44.
|
Clause 10 of Part 1 of
First Schedule:
(a)
Under Regulation 192 , a CA acting as a Liquidator
may charge fees as a Liquidator a % of realization or disbursement of the
assets. Hence not guilty
(b)
Refusal by the CA to part with
the company’s record and valuables without reasonable cause is wrong Guilty of “ Other
misconduct.
|
||||
|
45.
|
Clause
10 of part I to First Schedule to the Chartered Accountants Act prohibits
aChartered Accountant in practice to charge, to offer, to accept or accept
fees which are based on a percentage of profits or which are contingent upon
the findings or results of such work done by him.
However,
this restriction is not applicable where such payment is permitted by the Chartered
Accountants Act, 1949. The Council of the Institute has framed regulation
192which exempts certain professional services from the operation of clause
10.
The
services rendered by CA. D are not covered under the said exemption and hence
CA. D is liable for professional misconduct.
|
||||
|
46.
|
As per Clause (11) of Part I of
First Schedule of Chartered Accountants Act, 1949, a Chartered Accountant in
practice is deemed to be guilty of professional misconduct if he engages in
any business or occupation other than the profession of Chartered Accountant unless
permitted by the Council so to engage.
However, the Council has granted
general permission to the members to engage in certain specific occupation.
In respect of all other occupations specific permission of the Institute is necessary.
In this case, CA Prabhu is
engaged in the occupation of trading in commodity derivatives which is not
covered under the general permission.
Hence specific permission of the
Institute has to be obtained otherwise he will be deemed to be guilty of
professional misconduct under Clause (11) of Part I of First Schedule of
Chartered Accountants Act, 1949.
|
||||
|
47.
|
Guilty
Clause 11 of Part I of First Schedule to the CA Act (as he has accepted full
time lectureship at a college, without obtaining specific and prior approval
of the council.)
|
||||
|
48.
|
Guilty clause (11) of
part (I) to the first schedule of the CA ACT
|
||||
|
49.
|
·
As per Clause 11 of Part I of First Schedule to the
CA Act, 1949, Mr. J will be held guilty since he has accepted the full time
salaried employment in addition to the practice of Chartered Accountancy
without obtaining permission of the Institute.
·
The CAs Regulation, 1988 provide that a CAIP shall
not engage in any business or occupation other than the profession of
accountancy except with the permission granted as per the provisions
contained in Regulation 190A. Part (B) of Appendix 10 to the Chartered
Accountants Regulations, 1988 requires member of the Institute in practice to
engage in full-time or part-time employment after obtaining the specific and
prior approval of the Council.
·
Further, Mr. J will be held guilty of professional
misconduct under clause (i) of Part II of Second Schedule to the Chartered
Accountants Act, 1949 if contravenes any of the provisions of the Act since
he has failed to inform the Institute.
|
||||
|
50.
|
In
terms of clause 11 of Part I of the First Schedule to the CA Act, 1949, a CA
in practice cannot engage (unless permitted by the council) in any business
or occupation other than the profession of Chartered accountant, but he can
be a director of a company where in he or any of his partners is not
interested in such company as auditor.
However,
public conscience is expected to be ahead of law and the requirement of independence
should be interpreted much more strictly. Members should thus not place themselves
in position which would either compromise or jeopardise their independence.
In
view of the above, an auditor of a subsidiary cannot be a director of a
holding company as it will affect his independence.
|
||||
|
51.
|
Power
of signing reports and financial statements: Under clause 12 of Part I of First Schedule to
the Chartered Accountants Act, 1949, a Chartered Accountant in practice is deemed
to be guilty of professional misconduct if he allows a person not being a
member of the Institute in practice or a member not being his partner to sign
on his behalf or on behalf of his firm, any balance sheet, profit and loss
account, report or financial statements.
This
clause read in conjunction with Section 26 of the Chartered Accountants Act,
1949stipulates that no person other than the member of the institute shall
sign any document on behalf of a Chartered Accountant in practice or a firm
of Chartered Accountants in his or its professional capacity.
The
term ‘Financial Statement’ for this purpose would cover an examination of the
accounts or financial statements given under a statutory enactment or
otherwise. Accordingly, S is guilty of professional misconduct under Clause
12 of part I of First Schedule and also under clause (1) of Part II of Second
Schedule for contravening Section
|
||||
|
52.
|
·
As per clause 12 of Part I of the First Schedule of the Chartered
Accountants Act, 1949, a Chartered Accountant in practice is deemed to be
guilty of professional misconduct “if he allows a person not being a member
of the Institute in practice or a member not being his partner to sign on his
behalf or on behalf of his firm, any balance sheet, profit and loss account,
report or financial statements”.
·
In this case CA Smart allowed his assistant who is not a partner but
a member of the Institute of Chartered Accountants of India to sign stock
certificate on his behalf and thereby commits misconduct.
·
Thus, CA Smart is guilty of professional misconduct under clause 12
of Part I of First Schedule of the Chartered Accountants Act, 1949.
|
||||
|
53.
|
Hint:
Guilty under Part
II of the First Schedule to the Chartered Accountants Act, 1949
|
||||
|
54.
|
Hint: Guilty
under clause 2 of Part III of first schedule
|
||||
|
55.
|
Under
clause 3 of Part II of second schedule, a Chartered Accountant whether in
practice or not is guilty of professional misconduct if he includes in any
information, statement, return or form to be submitted to the Institute,
Council or any of its committees, Directors(Discipline), Board of Discipline,
Disciplinary Committee, Quality Review Board or the Appellate Authority any
particulars knowing them to be false.
In
the instant case A B & Co. included another Chartered Accountant name as
partner in his firm, in his application for empanelment as Auditor of
branches of Public Sector Banks submitted to the Institute. In fact such a
member was not a partner of the said firm on the date of application. He will
be held guilty of professional misconduct.
|
||||
|
56.
|
Failed
to supply information called for: As per Clause (2) of Part III of the First Schedule
to the Chartered Accountants Act, 1949, a member, whether in practice or not,
will be deemed to be guilty of professional misconduct if he does not supply
the information called for, or does not comply with the requirements asked
for, by the Institute, Council or any of its Committees, Director
(Discipline), Board of Discipline, Disciplinary Committee, Quality Review
Board or the Appellate authority.
Thus,
in the given case, Mr. X has failed to reply to the letters of the Institute
asking him to confirm the date of leaving the service as a paid assistant.
Therefore, he is held guilty of professional misconduct as per Clause (2) of
Part III of the First Schedule to the Chartered Accountants Act, 1949.
|
||||
|
57.
|
A
member is liable to disciplinary action under Section 21 of the Chartered
Accountants Act,1949, if he is found guilty of any professional or “Other
Misconduct”.
As
per part IV of the First Schedule to the Chartered Accountants Act, a member
of the Institute, whether in practice or not, shall be deemed to be guilty of
other misconduct, if he-
(1)
is held guilty by any civil or criminal court for an offence which is
punishable with imprisonment for a term not exceeding six months;
(2)
in the opinion of the Council, brings disrepute to the profession or the
Institute as a result of his action whether or not related to his
professional work.
A
member may be found guilty of “Other Misconduct”, as per clause 2, under the
aforesaid provisions rendering, himself unfit to be member if he retains the
books of account and documents of the client and fails to return these to the
client on request without a reasonable cause.
In
the given case, Mr. A failed to return the books of accounts and other
documents of his client without any reasonable cause, therefore, he would be
guilty of “other misconduct” under the
aforesaid provisions.
|
||||
|
58.
|
Disclosure
of Client’s Information: Clause (1) of Part I of the Second Schedule to the
Chartered Accountants Act, 1949 deals with the professional misconduct
relating to the disclosure of information by a chartered accountant in
practice relating to the business of his clients to any person other than his
client without the consent of his client or otherwise than as required by any
law for the time being in force would amount to breach of confidence. The
Code of Ethics further clarifies that such a duty continues even after
completion of the assignment. The Chartered Accountant may however, disclose
the information in case it is required as a part of performance of his
professional duties.
In the given case, Mr. Parekh has disclosed
vital information of his client’s business without the consent of the client
under the impression that it will help the nation to compete with other
countries at International level. Thus it is a professional misconduct
covered by clause (1) of Part I of Second Schedule to the Chartered
Accountants Act, 1949.
|
||||
|
59.
|
|
||||
|
60.
|
Clause (9) of Part I of the
First Schedule to the Chartered Accountants Act, 1949, provides that a member
in practice shall be deemed to be guilty of professional misconduct if he
accepts an appointment as auditor of a company without first ascertaining
from it whether the requirements of Sections 224 and 225 of the Companies
Act, 1956 (now Section 139 and 140 read with Section 141 of the Companies
Act, 2013), in respect of such appointment have been duly complied with.
As per Section 141(3)(f) of the
Companies Act, 2013, a person shall not be eligible for appointment as an
auditor of a company whose relative is a director or is in the employment of
the company as a director or key managerial personnel. The definition of
‘Relative’ includes husband and wife.
In this case Mrs. Fair is a
Director of XYZ Private Limited and the company has appointed Mr. Lovely,
Chartered Accountant, Mrs. Fair's spouse, as its statutory auditor. Mr.
Lovely should not accept the appointment as statutory auditor of the company,
where his wife M is director. This is contravention of section 141 (3) (f) of
the Companies Act, 2013.
Therefore, Mr. Lovely is liable
for misconduct as per Clause (9) of Part I of the First Schedule to the
Chartered Accountants Act, 1949.
|
||||
|
|
|
||||
|
62.
|
·
As per clause (4) of part I of Second Schedule, a CA is deemed to be
guilty of professional misconduct if he expresses his opinion on financial
statements in which his firm or a partner has substantial interest. As per
Council General Guidelines, 2008, the above restriction is also made
applicable for relatives of the members.
·
Further, as per Section 141(3)(f) of the Companies Act, 2013, a
person shall not be eligible for appointment as an auditor of a company whose
relative is a director or is in the employment of the company as a director
or key managerial personnel.
·
In the instant Case, since Q, a relative has a substantial interest
in LMN Pvt. Ltd., P cannot conduct the audit and needs to vacate the office.
Thus Q will be guilty of misconduct in terms of above clause.
Ans to Similar
Question
|
||||
|
63.
|
Evaluation of Cost of Products:
·
Clause 4 of Part I of the Second Schedule to Chartered Accountants
Act, 1949, states that expressing an opinion on financial statements of any
business or any enterprise in which the auditor, his firm or a partner in his
firm has a substantial interest would constitute misconduct.
·
Also, the Council of the Institute of Chartered Accountants of India
has stated that in cases where a member of the Institute is a director of a
company, or the firm in which the said member is a partner, should not
express any opinion on its financial statements.
·
As per facts of the case, the firm has been retained to evaluate the
cost of products manufactured by it for its information system. It is a part
of management consultancy service of the firm and moreover its partner was on
the Board.
·
Hence, the firm can perform this assignment and it will not
constitute misconduct. However, the firm while accepting the position as
auditor in future would have to consider whether it would be possible to act
in independent manner and express opinion on financial statements.
|
||||
|
64.
|
Clause 11 of Part 1 of First Schedule to
the Chartered Accountants Act, 1949 prohibits a member to engage in any
business or occupation other than the profession of chartered accountants
unless permitted by the Council so to engage. It does not prohibit a Chartered
Accountant from being a director of a company, except managing director or a
whole time director. But if any of the partners is interested in such company
as an auditor then he cannot be director of the said company. In the present
case Mr. B has accepted the directorship in a Company where his partner Mr. C
is an auditor without obtaining specific permission of the council. Hence,
Mr. B will be held guilty for professional misconduct under Clause (11) of
Part 1 of First Schedule to the Chartered Accountants Act, 1949.
Further, the Council of the Institute of
Chartered Accountants of India has categorically stated that in cases where a
member is a director of a company, the firm, in which the said member is a
partner, should not express any opinion on its financial statements.
Clause (4) of Part I of the Second
Schedule to the Chartered Accountants Act, 1949 states that expressing an
opinion on financial statement of any business establishment in which the
auditor, his firm or a partner of his firm has a substantial interest would
constitute misconduct.
Additionally, Section 141(3)(c) of the
Companies Act, 2013 also disqualifies a person to be appointed as an auditor
if he is a partner of an officer of the company. Furthermore, section 141(4)
of the Companies Act, 2013 requires the appointed auditor to vacate his office
if he incurs any of the disqualifications mentioned under sub-section (3).
Therefore, in cases, where a member of
the Institute is a director of a company or a firm in which said member is a
partner should not express any opinion on its financial statements. Hence Mr.
C, a partner of Mr. B, should vacate the office
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65.
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66.
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Failure to Disclose
Material Facts: As per Clause (5) of Part I of
Second Schedule to the Chartered Accountants Act, 1949, a chartered
Accountant in practice will be held liable for misconduct if he fails to disclose
a material fact known to him, which is not disclosed in the financial
statements but disclosure of which is necessary to make the financial
statements not misleading.
In the present case,
Mr. J has come across information that a loan of Rs.15 lakhs has been taken
by the company from Provident Fund. This is contravention of rules and the
said loan has not been reflected in the books of accounts. Further, this
material fact has also to be disclosed in the financial statements.
Mr.
J has failed to disclose this fact in his report. Therefore, he is attracted
by the provisions of professional misconduct under clause (5) of Part I of
Second Schedule to the Chartered Accountants Act, 1949.
Similar Questions: Guilty under
clause 5 of Part I of the Second Schedule
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67.
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Disclosure of material facts: A Chartered Accountant
in practice is deemed to be guilty of professional misconduct under clause 5
of Part I of the Second Schedule if he “fails to disclose a material fact
known to him which is not disclosed in a financial statement but disclosure
of which is necessary to make the financial statement not misleading”. In
this case, the Chartered Accountant was aware of the contraventions and
irregularities committed by the trust as these were referred to in the confidential
report given by the Chartered Accountant to the trustees of the company.
However, he had issued the annual accounts without any qualification. On
similar facts it was held by the Supreme Court in Kishorilal Dutta vs. P. K.
Mukherjee that it was the duty of the Chartered Accountant to have disclosed
the irregularities and contravention to the beneficiaries of the fund in the
statement of accounts signed by him. Accordingly, in the present case also it
has to be held that the Chartered Accountant is guilty of professional
misconduct if the amount of irregularities is proved material
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68.
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Guilty under clause 5 & 6 of
Part I of the Second Schedule(Assumptions – Non disclosure of Material Fact
has lead to Material Mis-statement of FS)
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