Page 441 - CA Final PARAM Digital Book.

the Chartered Accountants Act, 1949, and Schedules thereto.
As per Clause (4) of Part I of the Second Schedule of the Chartered Accountants Act, 1949, a Chartered
Accountant in practice is deemed to be guilty of professional misconduct if he expresses his opinion on
financial statements of any business or enterprise in which he, his firm, or a partner in his firm has a
substantial interest.

Section 141 of the Companies Act, 2013 specifically prohibits a member from auditing the accounts of a
company in which he is an officer or employee. Although the provisions of the aforesaid section are not
specifically applicable in the context of audits performed under other statutes, e.g. tax audit, yet the
underlying principle of independence of mind is equally applicable in those situations also. Therefore, the
Council’s views are clarified in the following situations.

As per the clarifications issued by the Council, a member shall not accept the assignment of audit of a
Company for a period of two years from the date of completion of his tenure as Director, or resignation as
Director of the said Company.

In the instant case, Mr. Dhawal, a practicing CA, is appointed as a Director Simplicitor in Gautam Pvt. Ltd.
After three year of appointment, Mr. Dhawal resigned as the Director and accepted the Statutory Auditor
position of the Company. In view of above provisions Mr. Dhawal can accept the Directorship of the
company as tenure of two years after his resignation is completed.

Thus, CA, Dhawal would not be held guilty of professional misconduct under clause 4 of Part 1 of
Second Schedule of the Chartered Accountants Act, 1949.

Second Schedule, Part I,Cl,4 --Issuing Certificate for Old Course— (N22R)
QNO
747.090 Relative
TITANIUM CNO – PE.1520
"Comment on the following with reference to the with reference to the Chartered Accountants Act, 1949
and Schedules thereto:
(a) CA Dev started practice in Punjab in the year 2019. CA Dev issued ‘Turnover Certificate’ for M/s.
ASAUS Traders to be forwarded to the Bank for the purpose of availing cash credit facility and machinery
term loan. Brother of CA Dev was proprietor of M/s. ASAUS Traders.
As per Clause (4) of Part I of Second Schedule to the Chartered Accountants Act, 1949, a Chartered
Accountant in practice is deemed to be guilty if he expresses his opinion on financial statements of any
business or enterprise in which he, his firm, or a partner in his firm has a substantial interest.

Further, it is not permissible for a member to undertake the assignment of certification, wherein the client
is relative of the member. The “relative" for this purpose would refer to the definition mentioned in
Accounting Standard (AS) - 18.

In the given situation, CA Dev started practice in Punjab in the year 2019. CA Dev issued Turnover
certificate for M/s. ASAUS Traders to be forwarded to the Bank for the purpose of obtaining Loan. Brother
of CA Dev is proprietor of M/s. ASAUS Traders. Brother is very well covered in the definition of relative
mentioned in Accounting Standard (AS)-18.

Hence, CA Dev is guilty of professional misconduct.

Second Schedule, Part I, Cl 5 --Irregularities in Old Course-- (N06E, M13M, N16R, PM17, N18M)
QNO pension fund
748.000
TITANIUM CNO – PE.1540
The superannuation-cum-pension fund for the employees of a company was under a separate ‘trust’.
Both the company and the trust were under the same management. The auditor, who was auditing
the accounts of the company as well as the trust noted some irregularities in the operation of the trust
and commented upon these irregularities in the confidential report given to the trustees but did not
mention about these irregularities in his report on the Annual accounts of the Trust.
Answer Part I -- Relevant Standards & Laws

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