Page 443 - CA Final PARAM Digital Book.
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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.
Part III – Case Discussion
➢ In this case, CA. Soft has come across information that a loan of `50 lakhs have been taken by the
company from Gratuity Fund.
Part IV – Conclusion
➢ This is contravention of Rules and the said loan has not been reflected in the books of account.
Further, this material fact has also to be disclosed in the financial statements. The very fact that
CA. Soft has failed to disclose this fact in his report, he would be guilty for professional misconduct
under Clause (5) of Part I of Second Schedule to the Chartered Accountants Act, 1949.
QNO Second Schedule, Part I, Cl,5 --Non-Creation of Sinking Fund Old Course-- (N10R, M14R)
751.000 TITANIUM CNO – PE.1540
Comment with reference to the Chartered Accountants Act, 1949 and schedules thereto:
CA. Dice had signed the Balance sheet of QR Ltd. for the year ended 31St March 2019 which failed to give
disclosure of the charge created for Z 4.35 crores against the Corporate Guarantee given in favour
of a Group Company. The Balance Sheet size of the company filed with the Registrar of Companies was Z
26.12 crores.
OR
Qurashi, a Chartered Accountant, failed to report to the shareholders of the Zee Ltd, about the non-
creation of a sinking fund in accordance with the Debenture Trust Deed and did not make clear that
the amount shown as Sinking Funds were borrowed from the Managing Agents of the Zee Ltd
Answer Part I -- Relevant Standards & Laws
▪ Clause (5) of Part I of the Second Schedule to the Chartered Accountants Act, 1949
Part II -- Requirements of Relevant Standards & Laws
➢ As per Clause 5 of Part I of Second Schedule to the Chartered Act, 1949, if a chartered accountant
in practice shall be deemed to be guilty of professional misconduct, if he fails to disclose a material
fact known to him which is not disclosed in the financial statement, but disclosure of which is
necessary in making such financial statement in a professional capacity.
Part III – Case Discussion
➢ In the instant case, CA Dice was in duty bound to see that the nature and subject matter of the
charge created for Z 4.35 crores against the Corporate Guarantee given in favour of a Group
Company.
Part IV – Conclusion
➢ Hence, CA Dice was found guilty of misconduct.
Second Schedule, Part I, Cl,5 --Non-Creation of Sinking Fund Old Course-- (N20E)
QNO (Focus on Materiality)
751.500
TITANIUM CNO – PE.1540
Comment with reference to the Chartered Accountants Act, 1949 and schedules thereto:
CA. Dice had signed the Balance sheet of QR Ltd. for the year ended 31St March 2019 which failed to give
disclosure of the charge created for Z 4.35 crores against the Corporate Guarantee given in favour of
a Group Company. The Balance Sheet size of the company filed with the Registrar of Companies was Z
26.12 crores.
Answer Part I -- Relevant Standards & Laws
▪ Clause (5) of Part I of the Second Schedule to the Chartered Accountants Act, 1949
Part II -- Requirements of Relevant Standards & Laws
➢ It may be observed that this clause refers to failure to disclose a material fact, which is known to
him, in a financial statement reported on by the auditor. It is obvious, that before a member could
be held guilty of misconduct, materiality has to be established. The determination of
materiality has been provided in SA 320, “Materiality in Planning and Performing an Audit”.
Financial reporting frameworks often discuss the concept of materiality in the context of
the preparation and presentation of financial statements. Although financial reporting frameworks
may discuss materiality in different terms, they generally explain, among other points, that
Judgments about materiality are made in the light of surrounding circumstances, and are
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