Gross negligence – Clause 7 of Part I of Second Schedule (contd.)

Series 3

 Arjun (A) – Last time you told me about gross negligence. It was a great relief that every negligence is not necessarily a gross negligence!

Shrikrishna (S)–No my dear! Don’t take it so lightly. It is not a licence to commit any blunder.

A – But you only said mere error or even a blunder is not negligence and every negligence is not a gross negligence.

S – It is true. The Council itself has taken that view. But don’t stretch it too far. The line between the two is very thin.

 A – But how can one be so perfect? In every audit, there may be some flaw or the other. It is impossible to do any audit so ideally perfect.

S – Agreed. But what is important is your approach and attitude. Moreover, I also mentioned to you that now the amended clause also talks of ‘lack of due diligence’. This is a very wide concept.

A – But how does one judge a member’s attitude? How can one prove that there was no negligence; but only an inadvertent error?

S – Remember, work should not only be done but it should be seen that it is done. You need to maintain working papers.

A – Our clients don’t have a good accountant. There is always a mess in the records. Some how, we manage to draw up the balance sheet ourselves. If there are errors, we get them set right there and then. Who will keep all those queries? We don’t have time nor space to keep so many papers.

S – Understand this difficulty. But you have a double jeopardy. On one hand, clients do not realise how much work you have done. So they don’t pay your fees, let alone increase. On the other hand, your position is vulnerable before the Council.

A – But Council should understand the difficulties of the common practioners. They don’t have so much resources.

S – That is where your attitude comes into play. You have technology at your disposal. You can always email your queries, store them in your computers.

A – But clients can’t understand the queries. They want us only to reply our own queries!

S – But this will at least make him aware of the extent of discrepancies.

A – Now take our accounting standards. They just don’t care. They are not interested even in knowing the implications.

S – You need to use your persuasion skills. Sooner or later, they will realise it.

A – But what to do till then?

S – You need to be assertive. If you tolerate or cover up the flaws, you will be taken for granted.

A – That is already happening. What is the solution?

S – See, my dear. If you compromise once, you invite a great risk. First and foremost, you lose your respect. The value of the profession also goes down.

A – We become helpless.

S – Secondly, if there are flaws in the accounts, you may suffer scrutiny from Revenue Authorities.

A – Yes. We need to ‘manage’ the things over there.

S – And client says, it is your own mistake. So he does not pay for your efforts in taxdepartments.

A – I am told, now-a-days, tax authorities are routinely writing to the Institute about the shortcomings in audited accounts.

S – That’s what I am saying. And even if the client does not pay or hike the audit fees, you have to continue the audit. You are always worried that if some new auditor comes in your place, your mistakes will get exposed! Hence, you perpetuate your mistakes.

A – What you say is true. In a way, we blackmail ourselves and are afraid of deviating from wrong path.

S – Your compromising attitude leads to negligence – or lack of due diligence. Negligence is a very wide term. It covers many things. You can not define it. There can not be an exhaustive list.

 A – You mean it is as endless as your manifestations that you described in ‘Vishwa Roop Darshan’!

S – Yes. That I told you the 11th Chapter of ‘Geeta’.

A – Still, you please tell me at least a few illustrations of negligence.

S – It starts right from your appointment. See that it is properly made with reference to applicable laws, that organisation’s bylaws, and so on. You must take an appointment letter. Then, maintain working papers, preserve the queries raised by you and their replies.

A – Yes. I will be careful.

S – Then take Management Representation Letter – MRL. I don’t think you have ever taken it!

A – I have recently started taking. But not in all cases.

S – Prepare a proper audit program covering all aspect of audit. This you studied in exam but never followed.

A – I have seen some CAs who spend lot of time on all these things. They compile heap of files of working papers. This report and that opinion! I wonder whether they really do any audit!

S – It is easy to criticise others. But try to understand the spirit behind it. Then you need to know not only the applicable laws – like tax, company law, FEMA; but also your Institute’s pronouncements like accounting standards, auditing standards, guidance notes, statements, resolutions – and so on.

A – Wait wait! I cannot digest and remember all these things. We will meet again after this July returns, when I will focus on audits.

S – Yes. I don’t mind meeting again. But don’t be under an impression that negligence is invoked only in audits. It also covers tax practice. In fact, it encompasses each and every aspect of your professional functioning. I will explain next time.

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.