Attest function where the member is personally interested (Clause 4 of Part I of the Second Schedule).

S – What was pending?

A – My brother’s all the returns are pending. Tax audit as well as VAT audit! 15th January was the last date. Now everything is done. Great relief!

S – VAT I can understand. But tax audit date has gone long back.

A – Agreed. But my experience is that while doing VAT audit, many ‘lochas’ in tax audit are revealed! That is why, in some cases, I prefer to do it together!

S – But then, you should prepone VAT audit, rather than postponing tax audit.

A – True. But who has time to do VAT audit in the September pressure! Continuously, firefighting is going on in our office. S – Anyway, I hope, your brother’s audit is done by somebody else.

A – Why? Mere bhaika audit doosre ko kyo doo?

S – Arey baba, you cannot certify the financial statements of your relatives. It is a misconduct!

A – Yes. But I make it clear in the report that the person whose audit I am signing is my relative. That’s what we learnt when we did our CA

S – That was the position long ago! Prior to 2006. But your CA Act was amended in 2006. Are you not aware?

A – We recognise only Income Tax Act. All other Acts are of no relevance to me!

S – Then remember. As I mentioned to you, you cannot sign the financial statements of any business or enterprise where you have a substantial interest.

A – Baap Re! It doesn’t talk of mere relative?

S – No. Not only that. Even if your firm or any of your partner has a substantial interest, that also you cannot attest.

A – So wide! That means I cannot sign the balance sheet of even my partner’s wife!

S – This is only to ensure your independence. If you are interested in something how can you be impartial?

A – This is strange !

S – Otherwise, people will always believe that you have ‘accommodated’ the relative. Your credibility is in doubt.

A – But I make a disclosure of interest?

S – That won’t suffice. Previously, it was permitted. But now they have deleted the words – ‘unless he discloses the interest also in his report’. Thus, that exception is a thing of the past now !

A – Oh. I never knew.

S – Your Council has issued further guidelines on 8th of August of 2008 – Date is easy to remember – 8-8-8 !

A – And what it says?

S – It says – not only your own interest – But even if one or more persons who are your relatives have a substantial interest in a concern, then that also you cannot audit.

A – Ah – But relative is a very narrow concept in Income Tax, section 2(41) only talks of parents, spouse, brother and sister !

S – Listen carefully. It is not ‘relative’ under tax act; but under the Companies Act. Section 6!

A – Oh My God! That will cover many persons. And that again I have to check in respect of my partners also!

S – Yes, my dear. Don’t take it lightly. A – And what is substantial interest?

S – For that, you need to refer to your CA Regulations. – In that, Appendix (9).

A – But it would be 20%, I believe.

S – Yes. But read it at least once! See, the Council feels that you should err on safer side; and not merely adhere to the words of law. Try to understand the spirit of it. Otherwise you may lose or compromise your independence.

A – You mean, there should not be conflict of interest and duty. Right?

S – Exactly. Therefore, as an employee of an organisation, you cannot sign as auditor. Not only that, even if you are an employee of a group concern under the same Management, then also you cannot sign.

A – What if I am a part-time lecturer in a college – and I want to sign the audit of the college? S – Even that is not allowed. For that matter, if your partner is a trustee or employee of a trust, that trust’s audit also you cannot sign.

A – Where shall I get all this to read? And who has time to read? After all who is going to see even if I sign?

S – Remember. In the Mahabharata, I supported you because you were on the right side of law. If you are casual and don’t take your rules seriously, I cannot side with you. Then you be prepared to suffer.

A – I believe, apart from our CA Act, there is some prohibition in the Company Law also.

S – Of course, yes. Section 226 of Companies Act directly states the disqualifications of auditors.

A – I will have to read it again. What other things should I see?

S – I am sure, you are not writing the accounts of any client and also signing them.

A – Ah! That I know. Therefore, I give the accounts writing invoice in my wife’s name. Sometimes in Draupadi’s name, sometimes in Subhadra’s. Advantage of having two wives!

S – But do they know what is accounting? They have learnt only classical dancing. Take care. You may invite trouble.

A – You are giving me shock after shock. Ultimately then how to practice?

S – One more thing. Just as you cannot audit the books which you have written, same way you cannot sign statutory audit where you have also done internal audit. I feel, an internal auditor should also not sign a tax audit.

A – Well, you have told me so many things. I cannot remember all this. I’d better get the literature and read it myself.

S – I can see that you have become nervous after hearing all these. But if you see the provisions of the Companies Bill, 2012, they are even more stringent and wider.

A – Oh my God!
The above dialogue is with reference to Clause 4 of Part I of the Second Schedule which reads as under:

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; Further, readers may also refer to the following: – Chapter IV of Council General Guidelines, 2008 dated 8th August, 2008 (refer page nos. 313 – 323 of the Code of Ethics publication January 2009 edition or the website of ICAI). – pages 239 – 244 of ICAI’s publication on Code of Ethics, January 2009 edition (reprinted in May 2009).