Page 444 - CA Final PARAM Digital Book.

affected by the size or nature of a misstatement, or a combination of both.
Part III – Case Discussion
➢ In this case, CA Dice has signed a Balance Sheet which failed to give disclosure of ₹ 4.35
crores (considered material fact applying above SA 320 principle) against the corporate
guarantee given in favour of a Group Company. Size of Balance Sheet of QR Ltd is ₹ 26.12 crore.
Part IV – Conclusion
➢ This material fact has to be disclosed in the financial statements. Keeping in view the above, he is
attracted by the provisions of professional misconduct under Clause (5) of Part I of Second
Schedule to the Chartered Accountants Act, 1949.

Second Schedule, Part I, Cl 6 --False information Old Course -- (N07E, M11R, N13R, PM17, SM17 N18E)
QNO to Tax Authorities New Course -- (SM23)
753.000
TITANIUM CNO – PE.1540
A practicing Chartered Accountant was appointed to represent a company before the tax authorities. He
submitted on behalf of his client’s certain information and explanations to the authorities, which
were found to be false and misleading.
Answer Part I -- Relevant Standards & Laws
▪ Clause (5) of Part I of the Second Schedule to the Chartered Accountants Act, 1949
▪ Clause (6) of Part I of the Second Schedule to the Chartered Accountants Act, 1949

Part II -- Requirements of Relevant Standards & Laws
➢ Clause (5) of Part I of the Second Schedule
If a member in practice 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, where he is concerned with that financial statement in a professional capacity, he will
be held guilty under Clause (5).

➢ Clause (6) of Part I of the Second Schedule
As per Clause (6) of Part I of Second Schedule if he fails to report a material misstatement known
to him to appear in a financial statement with which he is concerned in a professional capacity, he
will be held guilty under Clause (6).
Part III – Case Discussion
➢ In given case, the Chartered Accountant had submitted the statements before the taxation
authorities. These statements are based on the data provided by the management of the
company. Although the statements prepared were based on incorrect facts and misleading, the
Chartered Accountant had only submitted them acting on the instructions of his client as his
authorized representative.

Part IV – Conclusion
➢ Hence the Chartered Accountant would not be held liable for professional misconduct
Author’s Note

Here it is assumed CA was not aware that facts were incorrect and misleading. You can take
other assumption and write alternative answer possible.

This question has been answered as per Professional Ethics. Look for QNO 378.100 in “Liabilities of
Auditor” for similar question when it is specifically asked to answer as per Income Tax Act.

QNO Second Schedule, Part I, Cl,6 Orders Under Negotiation Old Course-- (M15R, PM17, M20M, M23M)
754.000 TITANIUM CNO – PE.1560 / PE.1540
Mr. Brainy, a Chartered Accountant in practice, is the auditor of Fair Ltd. He advised the Managing
Director of the company to include ‘orders under negotiation’ in sales, to reflect higher profit and

better financial position for obtaining bank loans in future. Mr. Brainy, thereafter, gave clean reports on
the balance sheet prepared accordingly without examining the accounts.

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