Page 335 - CA Inter Audit PARAM

CA Ravi Taori
• Principle of Integrity: A professional accountant shall comply with the principle of integrity, which
requires an accountant to be straightforward and honest in all professional and business
relationships. Integrity implies fair dealing and truthfulness.

• Association with Reports: A professional accountant shall not knowingly be associated with reports,
returns, communications or other information where the accountant believes that the information
contains a materially false or misleading statement, Contains statements or information provided
negligently or omits or obscures required information where such omission or obscurity would be
misleading.
In the given case, a false certificate is knowingly issued showing misstated original cost of machinery.
Therefore, fundamental principle of “integrity” is violated.

QNO-- Cases - Identify Ethical Requirement / Principle Which is Getting Affected New Course – (M24E)
ETH.45 Bhaskar CNO – ETH.040

A professional accountant is expected to comply with the fundamental principles of professional ethics at
all times. Explain which fundamental principle governing professional ethics is violated in the following
situations?
1) A chartered accountant in practice accepted the appointment as an auditor of a firm in which
his sister was a partner.

2) A chartered accountant in practice was approached by his friend to seek some insider
information about a company, which was a client of the chartered accountant. He could not
refuse his friend's request.
3) A chartered accountant in practice failed to inform his client about the change in laws applicable
to his client.
Answer Fundamental Principles:
1. Objectivity: The principle of objectivity requires that a professional accountant shall not undertake
a professional activity if a circumstance or relationship unduly influences the accountant’s
professional judgment regarding that activity. Objectivity principle will be violated in the given
situation where a chartered accountant in practice accepted the appointment as an auditor of a
firm in which his sister was a partner.

2. Confidentiality: Confidentiality principle requires a professional accountant to respect the
confidentiality of information acquired as a result of professional or business relationships.
Confidentiality principle will be violated in the given situation where a chartered accountant in
practice could not refuse his friends requested to seek some insider information about a client
company of the chartered accountant.

3. Professional Competence and Due care: A professional accountant shall comply with the principle
of professional competence and due care, which requires an accountant to attain and maintain
professional knowledge and skill at the level required to ensure that a client or employing
organization receives competent professional service, based on current technical and professional
standards and relevant legislation; and act diligently and in accordance with applicable technical
and professional standards. Professional Competence and Due Care principle will be violated in
the situation where a chartered accountant in practice failed to inform his client about the change
in laws applicable to his client.

QNO-- Professional Competence Issue - Failed to Send Engagement Letter New Course – (S24M)
ETH.45.500 Bhaskar CNO – ETH.040

CA H has been offered audit of financial statements of a society engaged in promoting social causes, such
as setting up of drug de-addiction centres for misguided youth and rehabilitating such young people by
helping them find avenues of gainful employment. However, CA H failed to send audit engagement letter
to the society’s governing body and proceeded to conduct the audit. In the absence of this letter, the
governing body is of the view that purpose of such an audit is to provide absolute assurance against
probable errors and frauds in the financial statements. Does it constitute violation of fundamental
principles governing professional ethics? State reasons for the same.

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