Page 403 - CA Final Audit Titanium Full Book. (With Cover Pages)

CA Ravi Taori

Consultancy: It is recommended that. Accountants must exhibit the same level of independence in all aspects
of their work, including tax consulting, financial advising as auditor.
Employee: The Council has decided not to allow a Chartered Accountant in employment to certify the financial
statements of the concern where he is employed, or of a concern under the same management, even if he holds
a certificate of practice. This restriction doesn't apply where the certification is permitted by law.
Lecturer / Trustee: A Chartered Accountant should not accept the Audit of a college if he is a part-time lecturer
there, or of a Trust where his partner is either an employee or a trustee.
Validity of Appointment
Appointment as per Statue: Verify if the appointment as an auditor complies with the governing statute.
Regulatory Authorities: Confirm if the regulatory authorities have authorized the managing committee of the
society/trust to appoint auditors.
Deed/Instruments: Determine if the appointment is valid according to the entity's trust deed/instrument and
associated rules and regulations.
Approval: Ensure that the appointment is duly made by a resolution passed by the managing committee or
board of trustees or board of governors.
Engagement Letter: Obtain a letter of appointment/engagement from the firm/sole proprietor before accepting
the appointment/engagement.

Note: Some Concepts & Clarification are covered with Council guidelines & recent decisions of Ethical Standard

Board given at the end of the Chapter

(CNO-PE.1540) CLAUSE 5
A Chartered Accountant in practice shall be deemed to be guilty of professional misconduct if he.
Clause (5) fails to disclose a material fact known to him which is not disclosed in a financial statement, but
disclosure of which is necessary in making such financial statement where he is concerned with that financial
statement in a professional capacity.
Analysis
Disclosure: The clause pertains to the failure to disclose a material fact in a financial statement audited by the
auditor.
Materiality: Before a member can be deemed guilty of misconduct, the materiality of the undisclosed fact must
be established. Materiality is defined in SA 320, "Materiality in Planning and Performing an Audit".
Balance Sheet Vs P&L: An item may not be material from the balance sheet's perspective but may be significant
in relation to the profit and loss account, and vice versa. Therefore, materiality should be assessed in relation to
both the balance sheet and the profit and loss account.
Inclusion: The term "financial statements" in this clause includes reports and certificates typically issued after
an audit of the accounts or financial statements under any statutory enactment, or for income tax assessments.
Exclusion: This clause does not apply to financial statements prepared by members in employment solely for
their employers' information and not intended for submission to any external authority.
Case Studies
Mortgage: Property is mortgaged but details of charge are not disclosed
Sinking Fund: Non creation of sinking fund as per debenture trust deed
Provident Fund: Company took loan from employee provident fund trust, but it was not disclosed. Auditor
disclosed this info to BOD and trustees but not in audit report, Guilty of professional misconduct.

(CNO-PE.1560) CLAUSE 6
A Chartered Accountant in practice shall be deemed to be guilty of professional misconduct if he.
Clause (6) Fails to report a material misstatement known to him to appear in a financial statement with which
he is concerned in a professional capacity

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