Page 459 - CA Final PARAM Digital Book.

Part 4- COUNCIL GUIDELINES

Author’s Note

Common for answers related to Council Guidelines 2008

Clause (1) of Part II of Second Schedule is not mentioned by the institute in any of the answers related to Council
Guidelines 2077608. Module also maintains the institute’s view.

However, if the students want to include additional reference, they can also mention the clause below:
“As per Clause (1) of Part II of Second Schedule, a member of the institute will be held guilty of professional
misconduct if he contravenes any of the provisions of this act or regulations made thereunder or any guidelines
issued by the council”

QNO Audit Fees Progressive Basis Old Course-- (N08R, M09E, M11R)
771.000 TITANIUM CNO – PE.1760 New Course-- (SM23)
D, who conducts the tax audit u/s 44AB of the Income Tax Act, 1961 of M/s ABC, a partnership firm, has
received the audit fees of ` 25,000 on progressive basis in respect of the tax audit for the year ended
31.3.2015. The audit report was, however, signed on 25.5.2015.
Answer Part I -- Relevant Laws
▪ Council General Guidelines2008- Appointment of an auditor when he is indebted to a concern
▪ Explanation to Section 288 of Income Tax Act, 1961
▪ ICAI Research Committee
Part II -- Requirements of Relevant Laws
➢ Council General Guidelines, 2008
A member of the Institute in practice or a partner of a firm in practice or a firm shall not accept
appointment as auditor of a concern while indebted to the concern or given any guarantee or
provided any security in connection with the indebtedness of any third person to the concern, for
limits fixed in the statute and in other cases for amount exceeding ` 1,00,000/-.
➢ Explanation to Section 288 of Income Tax Act, 1961
An individual who, or his relative or partner is indebted to the assessee cannot conduct tax audit,
provided that the relative may be indebted to the assessee for an amount not exceeding INR
1,00,000.

➢ ICAI Research Committee
However, the Research Committee of the ICAI has expressed the opinion that where in accordance
with the terms of engagement of auditor by a client, the auditor recovers his fees on a progressive
basis as and when a part of the work is done without waiting for the completion of the whole job,
he cannot be said to be indebted to the company at any stage.
Part III – Case Discussion
➢ In the instant case, Mr. D is appointed to conduct a tax audit u/s 44AB of the Income Tax Act,
1961. He has received the audit fees of ` 25,000 in respect of the tax audit for the year ended
31.3.2015 which is on progressive basis.
Part IV – Conclusion
Therefore, Mr. D will not be held guilty for misconduct

QNO Previous Audit Fees Unpaid, Sick Unit Old Course-- (N05E, N16E, PM17)
772.000 TITANIUM CNO – PE.1760 New Course-- (SM23)
Mr. C accepted the statutory audit of M/s PSU Ltd., whose net worth is negative for the year 2013-14.
The audit was to be conducted for the year 2014-15. The audited accounts for the year 2014-15 showed
liability for payment of tax audit fees of ` 15,000 in favour of Mr. E, the previous auditor.
OR
Mr C accepted the statutory audit of M/s PSU Ltd, whose net worth is negative for the year 2007-08
The audit was to be conducted for the year 2008-09 The audited accounts for the year 2008-09 showed
liability for payment of tax audit fees of Rs15,000 in favour of Mr E, the previous auditor

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