Page 402 - CA Final Audit Titanium Full Book. (With Cover Pages)

CA Ravi Taori

Loan: The Bank extended loans based on these Projection Statements.The Bank later found out that the
individuals for whom the statements were issued did not have any business/source for loan repayment.
Misconduct: The Chartered Accountant is found guilty of professional misconduct under Clauses (3), (7), and
(8) of Part I of the Second Schedule to the Chartered Accountants Act, 1949.

(CNO-PE.1520) CLAUSE 4
A Chartered Accountant in practice shall be deemed to be guilty of professional misconduct if he.
Clause (4): 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.
Rationale

Independence: This clause aims to assure the public about the faith and confidence that can be placed on the
independent opinion expressed by auditors. For auditors' opinions to be respected and trusted by the public,
they must be free from any interest that could affect their independence.
Public Conscience: Public conscience is expected to be ahead of the law. Members are expected to interpret the
requirement for independence more strictly than the law requires and should avoid positions that could
compromise or jeopardize their independence.
Substantial Interest: Financial interest in a business can be a substantial interest that may compromise
independence. The existence of such a substantial interest, whether direct or indirect, can influence the auditors'
opinion. According to the clause, an auditor should not express his opinion on financial statements of a business
where he has a substantial interest.
Inclusion & Exclusion
Inclusion: The term "financial statements" in this clause includes reports and certificates given after examining
accounts or financial statements, or any attest function under any statutory enactment or for income-tax
assessments.
All attest functions.: The Council has issued guidelines stating that the requirements of the clause apply to all
attest functions. Applicable to specialized audit areas such as Tax Audit, GST Audit, Concurrent Audit of Banks,
etc.
Exclusion: This clause does not apply to statements prepared by members in employment solely for their
employers' information in the normal course of their duties and not intended for submission to any external
authority.
Clarifications of Clause 4 (Shortcut: Substantial Interest in WILD RICE Limited)
Section 288: Sec 288 of Income Tax Act, 1961 describe the disqualifications for the purpose of Tax Audit.
Internal Auditor Cannot do GST Audit: Internal Auditor and GST Auditor cannot be the same: Internal
Auditor of an entity cannot perform GST Audit for the same entity.
Writing Books: Accountants are not allowed to write the books of account for clients they are auditing.
Internal Auditor Cannot do Company Audit: Statutory Auditor and Internal Auditor cannot be the same
person. Companies Act prohibits the appointment of an Internal Auditor who is also the Statutory Auditor.
Liquidator: If a Chartered Accountant is appointed as the Liquidator of a Company, he should not audit the
Statement of Accounts to be filed under Section 348(1) of the Companies Act, 2013. The audit should be done
by a different Chartered Accountant.
Director: A member must wait for two years after completing their tenure or resigning as Director before
accepting an audit assignment for the same company.
Relative: Members are not allowed to undertake certification assignments for relatives, as defined in Accounting
Standard (AS)-18.
Internal Auditor Cannot do Tax Audit: Internal Auditor and Tax Auditor cannot be the same person. Assesses
Internal Auditor, whether employed or an independent Chartered Accountant, cannot be appointed as the Tax
Auditor.

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