Attitude – Professional Skepticism

Arjun (A) — He Bhagwan, in the last few meetings, you have been explaining to me our Institute’s disciplinary mechanism and its procedures.

Shrikrishna (S) —Yes, dear. It is governed by Chartered Accountants (Procedure of Investigations of Professional and other Misconduct and Conduct of Cases) Rules, 2007 published in the official Gazette of India dated February 28, 2007 (‘Enquiry Rules’).

A — Quite a longish name! Difficult to remember. We have discussed so many disciplinary cases so far. But frankly, I have lost track of what you had told me in the beginning – a couple of years ago.

S — H a! Ha! Ha! It does happen. Actually, the principles should be hammered every day.

A — I agree. We are so much engrossed with our dayto- day worries of the practice that we tend to forget the basic things. Please give me some tips that we should always keep in mind.

S — I was also thinking on the same lines. See I explained the Bhagwad Geeta to you thousands of years ago. Many people are still reading and trying to understand it. But very rarely any one practices it. Same is with your ethics.

A — That is precisely the trouble. In school also, we are taught so many good things. But when we grow old, we compromise on everything under the fond excuse of ‘practical approach’.

S — I don’t preach idealism. Even in the Mahabharata war, I had advised you a few loopholes in the rules of war. So one has to be practical. But one has to be careful in balancing the rules of ethics and practical life.

A — True. Thanks to your advice, I could get rid of Karna, Jayadratha and others. Otherwise, it would have been a tough time for all of us.

S — Anyway! There are a few guiding principles which you CAs should constantly keep in mind.

A — What are they?

S — First and foremost, you should never do anything in ‘good faith’. It is very dangerous. We are now in kaliyug. Total faith in anything and anyone is bound to invite trouble.

A — Yes, I remember the case where the CA wife filed a complaint against her CA husband when their relations got strained. And another incidence of a CA, who signed the balance sheet in good faith that the director would sign subsequently!

S — There are hundreds of such cases where there was a breach of trust. In difficult times, clients conveniently forget all the good things done by their CA for them. At times, he even risks his certificate of practice to accommodate them.

A — But you had told me a few High Court decisions – where it was held that for holding anyone guilty of gross negligence, there has to be some dishonesty or ill-motive on his part that is established. You said, even a blunder is not negligence and every negligence is not gross negligence.

S — Arjun, you are very smart ! You remember only what is convenient to you. Firstly, the law and court decisions are at their own place. Facts and circumstances are more important. And with due respect to the courts, you must note that now clause (7) of Part I of 2nd schedule is amended.

A — In what way?

S — Apart from ‘gross negligence’, even ‘lack of due diligence’ is added. This is a very wide expression.

A — Oh!

S — And moreover, if someone brings his financial statements, and you sign without much verification, can you say you are not negligent? You may not be dishonest or your motives may not be bad !

A — I see your point!

S — Again, you may not be dishonest to any person. But then, are you not dishonest to yourself? Are you not failing in your duty?

A — Yes; if we were just to sign in good faith, the audit profession has no meaning! It is abuse of our signature. It is not audit at all!

S — Moreover, if you simply endorse what client says – without verification, without asking any questions, then why is audit required at all? How can others trust the correctness of the balance-sheet?

A — But what about the principle of ‘watch-dog’ as opposed to ‘blood-hound’?

S — Now that principle is diluted. Remember, now the society and regulators expect you to be blood-hounds only. You cannot and should not accept anything at its face value. That is professional skepticism.

A — You mean, should we not trust anybody? Everything we should see with suspicion?

S — Not exactly that! But doing your duty truthfully and religiously does not mean distrust or suspicion. The question is your credibility. You are the financial police! Can you have police who do not suspect anybody? Or security personnel who does not check you. Does it mean, they suspect you? After all, the duty should be performed strictly – without fail.

A — I agree. But I would like to know more such principles when we meet next.

S — Om Shanti !

Note: This dialogue is based on the same simple but basic principles which we professionals should religiously follow.