Gross negligence – Clause 7 of Part I of Second Schedule (contd.)
Series 5
Shrikrishna (S) –Arey Arjun, I am aware that this is the time of acute pressure of work for you. But why don’t you plan the work properly? Why such last minute rush every year?
Arjuna (A)– Hey Bhagwan! We are continuously into fire-fighting. There is no peaceful time at all! Every month, some deadline or the other. Our time-planning becomes a myth. The tax department also makes us dance to their tune any time.
S – Why? Don’t you have assistants? Why don’t you delegate some of the work?
A – Our trained articles always go on leave for exams exactly when we need them. Clients’ data is never ready when our staff is available.
S – Yours is a seasonal work due to common deadline for all tax-audits. So pressure is bound to be there. But in the Mahabharata War, it was fiercer. Death was constantly hovering around you. Still, you always looked fresh and cheerful.
A – True. But then, in that war, the fighting was only up to sunset. We could relax at nights. But in this war of tax-audits, we are fighting day and night.
S – But now everything is on computers. And there is e-filing. Then what is the problem?
A – This year, we need to upload our tax audit and other reports also. Upto last year, we were comfortable. After the returns were e-filed, we could peacefully complete the reports! Again, they are changing the forms and software every now and then. It is just chaotic!
S – You mean, fighting with a pen is more tiring than fighting with the bow and arrows. But, how do you ensure that the accounts you sign are alright?
A – Everything is Ram Bharose! Who has time to see all those things! Many of the audits we sign just like that! Now take these audits of other CA firms. All the partners of those firms are my good friends. Who has time to check their accounts? And it doesn’t look good also.
S – I remember, one Chartered Accountant signed another CA firm’s accounts in good faith like this. But unfortunately, in their scrutiny assessment, it was noticed that there was a small negative balance of cash on one day!
A – Oh God! Then what happened?
S – The tax officer simply forwarded it to your Institute as a case of negligence! Poor fellow suffered like anything.
A – But the regulation is too much. One friend of mine checked the accounts thoroughly. When that unit became NPA, the bank filed a complaint for negligence. It was revealed that he did not enquire about contingent liability. And there were many such liabilities of contingent nature. Taxation, labour litigations and what not!
S – Last time I told you, there is no end to the forms in which negligence takes place. Now, I am sure, all those company balance sheets you are signing now will carry a date of 31st August or 1st September. And I am also sure that in between, you must have sent e-mails about pending queries. That means you have created evidence of negligence against yourself!
A – No. You had once told me that a senior member of a very reputed firm was held guilty for such back-dating. So I take maximum care.
S – Good, another area of negligence is physical verification of fixed assets and stocks. Do you remember, in the Mahabharata, you used to take inventory of all weaponry—swords, bows, arrows, and also of horses, elephants, food grains and many other things. Are you doing it as an auditor?
A – We had studied all about stock-taking for the exam. In my friend’s enquiry of misconduct, there was no record at all of his ever visiting client’s office, or factory. No one from the auditor’s office ever went for stocks. And many items of machinery were not there. He used to just ‘rely on management’s certificate’.
S – I doubt whether he was obtaining any certificate. You people just mechanically mention in the report that you obtained certificates.
A – I agree. We are very much lax in taking the Management Representation Letter. I have heard stories of all such lapses being treated as misconduct.
S – Are you aware, nowadays, ROC’s inspection has been activated and there are many lapses in audit being reported? ROC is forwarding its observations directly to your Institute. And it is being treated as ‘information’ to initiate disciplinary proceedings.
A – Baap Re! I have heard many of my friends received notices from ROC’s office. They used to think that no one sees the audit reports of private limited companies. But what you say is alarming!
S – Another very important point—you people are under a sweet impression that if two directors sign the balance sheet, it is enough. But read section 215 of the Companies Act. It says what is necessary and important is the Board’s approval.
A – You had told me this once. But our friends sign in good faith, when even directors have not signed. And I know a case where the auditor signed it when only one director signed. Later on, the other director who was his brother, refused to sign the balance sheet. He wanted to take revenge on the CA since the CA had refused to take that director’s daughter as a ‘dummy’ article! So, one should never sign in good faith.
S – Quite strangely, many people argue that there was no mala fide intention. Remember, the Council is not concerned with your intentions but it wants to see whether you discharged the duties diligently. And quite often, those who claim to have clear conscience have a weak memory!
A – You started your philosophy again. Now I make a new year resolution from 1st October that I will prepare for next year’s audits right now!
S – That’s great! But let it not be the usual ‘New Year Resolution”!
Om Shanti !
The above dialogue between Shri Krishna and Arjuna is a continuation of earlier dialogues published in BCA Journals of May 2013 and June 2013. It deals with the terminologies ‘gross negligence’ and ‘lack of due diligence’ used in Clause (7) of Part I of Second Schedule. This is the most important and serious charge of misconduct. Discussion on this clause will continue.
