Page 448 - CA Final PARAM Digital Book.

position of the consumption of raw material by the concerned entity. He has failed in his duty of
examining the record. He has relied on the minutes of Board of director’s meeting which is not
proper evidence to show the consumption of raw material. The relevant record of production and
stock register should have been scrutinized thoroughly and properly.
Part IV – Conclusion
➢ Mr. Mohan will be held guilty of Professional Misconduct under Clause (2) of Part I of Second
Schedule to the Chartered Accountants Act, 1949.
Author’s Note
➢ Whenever Certification is done without collecting proper evidence . Following shall be referred-
• Clause 7 Part 1 of Second Schedule
• Clause 2 Part 1 of Second Schedule
• Clause 8 Part 1 of Second Schedule

Second Schedule, Part I, Cl 8 --MIS, Internal Inspection Old Course— (N20E)
QNO
757.500 Report, Photos Instead of Attending Physical Verification
TITANIUM CNO – PE.1540
Nam & Co. conducted Stock Audit of DEF Ltd. as per instructions issued by HEG Bank. However instead
of visiting the site where the stock was lying, the firm relied on the Management Information
Systems report along with inspections reports and photographs of Stock taken by the employees
of DEF Ltd. The photographs were also carrying the date and time printed on them. Comment with
reference to the Chartered Accountants Act, 1949 and its schedules thereto.
Answer According to Clause (7) of Part I of Second Schedule to the Chartered Accountants Act, 1949, a
Chartered Accountant in practice is deemed to be guilty of professional misconduct if he “does not
exercise due diligence or is grossly negligent in the conduct of his professional duties”.

It is a vital clause which usually gets attracted whenever it is necessary to judge whether the
accountant has honestly and reasonably discharged his duties. The expression negligence covers a
wide field and extends from the frontiers of fraud to collateral minor negligence.

In the instant case, CA. Nam &Co. did not exercise due diligence and is grossly negligent in the
conduct of his professional duties since it did not visit the site where the stock was lying and instead
the firm relied on the MIS report along with inspection reports and photographs of stock taken by
the employees of DEF Ltd, which is incorrect.

To conduct stock audit, ascertainment of existence and physical condition of stocks, cross tallying the
stock with Stock statement submitted by bank borrower, correct classification of stocks for valuation
purpose etc. is essential. Further submitting stock audit report without physically verifying the stock
amounts to gross negligence.
From the above, it can be concluded that Nam & Co. is guilty of professional misconduct under
Clause (7) of Part I of Second Schedule to the Chartered Accountants Act, 1949.

Second Schedule, Part I, Cl 8 Circulation Certification Old Course-- (M04E, N08E, M10E, N11E, N11R,
QNO TITANIUM CNO – PE.1540 M12E, N12M, PM17, SM17, N22M, M23M)
758.000
New Course—(SM23)
CA. ZZ who conducted ABC audit of a Marathi daily ‘New Era’ certified the circulation figures based
on Management Information System Report (M.I.S Report) without examining the books of Accounts.
OR
CA. Prakash, a practicing Chartered Accountant issued a certificate of circulation of a periodical without
going into the most elementary details of how the circulation of a periodical was being maintained i.e.,
by not looking into the financial records, bank statements or bank pass books, by not examining
evidence of actual payment of printer’s bills and by not caring to ascertain how ma ny copies were sold
and paid for. Is CA. Prakash liable to professional misconduct? Comment with reference to the Chartered
Accountants Act, 1949, and Schedules thereto.
Answer Part I -- Relevant Standards & Laws
▪ Clause (7) of Part I of the Second Schedule to the Chartered Accountants Act, 1949

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