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Category: Ethics and You

(Audacity To Complain!)

Arjun Hey Bhagwan, good that you came early today.

Shrikrishna Arjun. You know that I never come nor do I go. I am Omni present!

Arjun That I am aware of. But in this kaliyuga, it seems, your presence is missing at many places. Innocent people are suffering.

Shrikrishna I have told you in Geeta that people suffer due to their own Karma; and my presence may not help unless they surrender to me! And improve their karma.

Arjun Be it as it may! Today I am very much worried. Rather frightened.

Shrikrishna Why? Is it because of wars everywhere? Ukraine, Iran, Afghanistan….

Arjun I am never frightened of wars. Thanks to your blessings, I was always triumphant.

Shrikrishna Then what are you worried about?

Arjun Our own profession! This war of complaints of misconduct is terrible. So much of nuisance. So much of harassment to innocent CAs. And no one to help!

Shrikrishna Yes. I have heard that. But it is common. Everywhere Asat (Evil) is powerful since Sat (सत्) Righteous is not strong and assertive! Anyway, tell me what is the present problem?

Arjun Lord, it is very serious. I have lost my sleep. My friend is totally depressed due to a very mischievous complaint against him. And there is no fault on his part whatsoever!

Shrikrishna In Mahabharata also, there wasShakuni!

Arjun This is super Shakuni! See the audacity of the present complainant. There are two partnership firms with 5 partners each – ABC Caterers and Decorators; and ABC Caterers.

Mrs. A is a common partner in both the firms. One or two other partners are also common.

Shrikrishna Okay. Then?

Arjun ABC Caterers and Decorators (C & D) took a loan from a PSU bank.

Loan application was made on C & D letterhead, their partners’ data was given to bank, Mrs. A has signed the application and other papers.

Loan was sanctioned and disbursed to C & D only.

Shrikrishna Fine. Quite normal.

Arjun Moreover, Mrs. A’s husband was a guarantor to this loan. He was fully aware of everything as Mrs. A was a partner for name’s sake.

Shrikrishna That is also normal.

Arjun Unfortunately, the bank while opening the account, mentioned only ABC Caterers. The words – ‘and Decorators’ were missing. Entire paper work was in the name of C & D only.

Shrikrishna Didn’t they ask the banker?

Arjun They did. They were told that in their system, full name was not accommodated. Only these many characters are accommodated.

C & D firm operated this account as its own, also it utilised the loan amount, but it became NPA!

Shrikrishna Oh!

Arjun Bank started recovery proceedings against C & D.

Shrikrishna Obviously.

Arjun My CA friend audited accounts as if the transactions and bank account were of C & D only. And he was right.

Shrikrishna Did the other firm – ABC Caterers consider these transactions as theirs?

Arjun Not at all! Everybody was fully aware that it was of C & D only and it had nothing to do with the other firm.

Shrikrishna Mr. & Mrs. A were also aware?

Arjun Of course, yes. They were signatories. My friend was also involved right from beginning – in the process of obtaining the loan.

Shrikrishna Now, what is the problem?

Arjun Lord, Mr. A who is fully aware of everything, has filed a complaint against my friend.

Shrikrishna What for?

Arjun My friend was the auditor. The complainant says that he audited the accounts with transactions of C & D although the account on the face it was in the name of the other firm.

Shrikrishna Oh!! That was perhaps the mistake of the bank or the limitation of its system.

Arjun Yes, Lord. The fact remains that it was legally and factually of C & D itself. The bank has taken up legal proceedings against C & D only.

Bank has confirmed all these facts in the recovery proceedings before DRT.

Shrikrishna Very strange! But your friend will be definitely absolved.

Arjun I am not sure since your present has become doubtful! And any complaint takes at least 4 years for disposal. My poor friend is totally depressed and frustrated.

Shrikrishna The lesson is – Don’t trust anyone in such matters. Write to the bank there and then when the account is opened

Arjun I agree. But these are afterthoughts. No one could have even dreamt this. Question is that the guarantor despite being a party to the whole affairs has the audacity to make such a complaint.!

Shrikrishna Don’t worry. I will help him!

Om Shanti.

(This dialogue is based on the current scenario of rampant frivolous complaints of misconduct)

Co-Operative Societies

Shrikrishna:  Arey Arjun, for a change, you are looking in a cheerful mood today. What is the secret?

Arjun:     Nothing, Bhagwan. Just enjoying the pleasant climate. And a little relaxed from the deadlines.

Shrikrishna:     I understand. From July to December, every month end is a nightmare for CAs.

Arjun:    Very true. In the housing society where I stay, there were celebrations for new year, Makar Sankranti and the Republic Day.

Shrikrishna: Oh, Great! So your society members must be good and friendly with each other.

Arjun:      Yes. But……….

Shrikrishna:  But there are a couple of trouble makers, Right?

Arjun:  Absolutely, Lord. I have observed that by and large in all co-operative housing Societies, there is nothing but non-cooperation!

Shrikrishna: Unfortunate!

Arjun: No one voluntarily comes forward for work. They consider managing committee members as their servants! Sometimes, committee members are also a little too smart. There is some friction or the other among members.

Shrikrishna: And one or two members are a bit too smart! They feel that they know everything; and they alone know the laws and regulations!

Arjun: Bhagwan, how do you know all these things?

Shrikrishna: Arjun, this is kaliyug. Even in previous Dwapar yuga, there were disputes among cousins and close relatives.

Arjun: The one or two trouble making members disturb the peace of all. They rake up disputes with the managing committee and all other members. They keep on filing complaints to all authorities – Registrar, Police, Courts, and so on!

They often refuse to pay the dues to the society.

Shrikrishna: And also to your Institute!

Arjun:  Yes, I was coming to that. It is there hobby to create unrest and make the Auditor as a scapegoat.

Shrikrishna: But Arjun, you must admit that you CAs also take the society’s work rather lightly. Don’t you?

Arjun:  Agreed. Our CAs are not careful and they unnecessarily invite trouble for themselves. Most common points are – These non-profit organisations cannot afford a proper accountant. So, the CAs themselves render accounting services either themselves or through their articles or employees or through their relatives.

Shrikrishna: Yes. And they raise the invoice also, mentioning as ‘Accounting and Audit Services”!

Arjun:  True! That is very common biggest blunder.

Shrikrishna:  Then you people never examine and insist on secretarial record – like minutes, notices, attendance record and so on. So also, the various registers which are required to be maintained, are never updated.

Arjun: And our CAs do not sign them even if they see. There should be an evidence of their verification. There should be working papers, correspondence and so on.

Shrikrishna: I have always been warning. In kaliyuga, ‘good faith’ is always very dangerous.

Arjun: Managing Committee people are not always qualified and experienced. Actually, they should attend the training programmes organised by the Federation of housing societies. But they take it lightly.

Shrikrishna: If there is some large capital expenditure or heavy repairs, the auditor has to be extra careful.

Arjun:  Moreover, Bhagwan, today redevelopment of societies’ buildings is very common. There, lot of paper work is required apart from accounting and tax issues. An average auditor not having the necessary exposure and expertise should either leave the assignment or seek proper expert advice.

Shrikrishna:  I have heard that many CAs are being dragged into disciplinary proceedings for the lacunae in audits of co-operative societies.

Arjun: Yes. As it is, these audits are not at all remunerative. But CAs do not take it seriously and invite disciplinary complaints.

Shrikrishna: One more aspect is of verification of original bank deposit receipts; and confirmation from banks. There have been many instances of misappropriation of money by fraudulently encashing the FDs.

Arjun: Yes. I am aware of many such complaints in the context of societies and Charitable trusts.

Shrikrishna: In short, CAs should not neglect the assignments merely because these are Non-profit organisations and not very remunerative.

Arjun: I entirely agree, Bhagwan.

OM SHANTI

(This dialogue is based on the general scenario in the audit assignments of co-operative societies and other NPOs.)

Address Verification

Arjun : O’ Lord ! Where are you? I am not finding your anywhere.

Shrikrishna : Parth, I am here !

Arjun : Here means where? I went to your house also; but you were not there!

Shrikrishna : Arjun, you very well know that I am everywhere! Whenever my devotee calls me, I rush to his rescue.

Arjun : Yes, Bhagwan. You are Omnipotent.

Shrikrishna : Yes. Now I am here before you. Tell me what happened?

Arjun : Lord, the problem is of verification of address only. Everywhere, there is a hype of KYC!

Shrikrishna : Ha! Ha!! Ha!!!

Arjun : My CA friend is in deep trouble. About 10 years ago, a few clients approached him for incorporation of a private limited company.

Shrikrishna : Ok. What next?

Arjun : You know, for incorporation, many documents are required and a CA or other professional is required to certify that all documents are in order. He has also to verify and verified the location of proposed registered office.

Shrikrishna : Fair enough!

Arjun : After incorporation, the promoters used my friend’s services for a couple of years – to obtain GST registration, other registrations and so on.

Shrikrishna : Good.

Arjun : Last 8 years, the promoters were totally out of contact. They would have engaged another CA!

Shrikrishna : Nothing uncommon.

Arjun : Now, it appears that the company did some shady deals and dodged the revenue for a huge amount! The investigating authorities visited the registered office and found that there were no business operations there. They interrogate the landlord. He denied any connection with the company. He said the NO Objection Certificate submitted by the company at the time of incorporation was a fake one! He had never signed such NOC. His signature could be a forged one!

Shrikrishna : Oh! Horrible.

Arjun : That’s why I was looking for you at your address!

Shrikrishna : (laughs) I agree, Arjun. This is a serious matter.

Arjun : We have to proceed in good faith when the clients give us such document. The place was very much there. Rent agreement was notarised. What more are we expected to verify?

Shrikrishna : True. I am told there are many similar cases coming up.

Arjun : During Covid time, it was not even feasible to personally visit any place.Moreover, the place may be situated at a distant location, perhaps in another city! That makes our responsibility endless!

Shrikrishna : Now, you people only will have to evolve a system of verification. Just check standards on secretarial practices issued by Institute of Company Secretaries of India.

Arjun : I understand that. But for a relatively small thing, too much of a burden! And the worst part is that the regulators try to rope the CAs also in a criminal conspiracy or abetment!

Shrikrishna : That is very alarming.

Arjun : Now, this my friend may be ultimately absolved; but he has to undergo the torturous proceedings for many years! Perhaps, henceforth, we will have to record the discussion with the landlord or gather ‘third party evidence’ by writing to him.

Shrikrishna : Yes, Arjun. In this kaliyuga, you have no choice! And despite all these precautions, anything may happen on which you have no control.

Arjun : Lord you will say ‘कर्मण्येवाधिकारस्ते मा फलेषु कदाचन”

Shrikrishna : In this case, it is also likely that the owner may have given a negative statement out of fear.

Arjun : Exactly. Such chances are bright. Otherwise, over a period of 8 years, There would certainly be some correspondence at that address. Everything is very strange, Bhagwan.

Shrikrishna : I agree. It is ‘Maya ‘. In kaliyuga, anything can happen! The only lesson is that you need to be more cautious!

Arjun : Bhagwan, please save me.

This dialogue is based on a practical case involving factual verification of place of registered office; and how totally unforeseen things happen. Members are advised to make the verification fool-proof.

Working Papers

Arjun is in his office. Shrikrishna enters the office.

Arjun: (excited, stands up and welcomes him)  Ohh! Oh! Bhagwan, welcome, welcome. What a pleasant surprise!

Shrikrishna : How are you, Parth?

Arjun: With your blessings, Bhagwan, I am fine. Slogging as usual!

Shrikrishna : Is ITR pressure over?

Arjun: Lord, it was a nightmare! On the last day, I uploaded 80 returns!

Shrikrishna: Why do you keep it pending? Why don’t you keep on uploading as and when ready.

Arjun: That’s a dream of all CAs! But last 30 years, the same thing continues.

Shrikrishna: Don’t tell me all excuses – Clients don’t give data, staff are on leave, festivals in between and so on. Even after a liberal extension of time, you can’t manage it?

Arjun: Lord, we have no answer to this question.  Hum Aadat se majboor hain. (we  are the slaves of our habits).

Shrikrishna: What you lack is will-power and proactiveness. Anyway, I was passing by and saw the light in your office. So late in the night?

Arjun: Thank you, Lord. But tell me, what would you prefer? Tea or coffee?

Shrikrishna: Arjun, you know very well that right from my childhood, I have taken only milk! Anyway, why are you working so late?

Arjun: Now the next compliance! Audit. And, there is one Income tax query as to how a particular figure was arrived at 2 years before.

Shrikrishna : You don’t have that working?

Arjun: Bhagwan, our work is nothing but firefighting. Once we sign the statements and upload the returns, everything is gone! It goes out of our memory also. We get busy with the next deadline.

Shrikrishna: But you have to maintain your working papers.

Arjun: Yes, that is in the standards and in the textbooks. In reality, firms of our size never maintain working papers properly.

Shrikrishna : Why? No space?

Arjun: Space may be there, but nobody has time!

Shrikrishna: That’s very dangerous. Work should not only be done, but it should be seen that it is done. Work without documents is no work done at all!

Arjun: I agree with you. But we finish the audit and compliance at the 11th hour. From where the figures are derived, God alone knows. Many times, we make last-minute adjustments, and later, we forget those. Many entries are made in our Minds only!

Shrikrishna : But why adjustments?

Arjun: We need to perform a lot of acrobatics to reconcile everything with each other – Tax, GST, requirements of bankers.

Shrikrishna: And what about your Accounting principles and standards?

Arjun: That is incidental.  I know, it is not proper, but we are helpless.

Shrikrishna: But you need to do it in time, and seal your working papers in the system within 60 days after signing every audit.

Arjun: All that applies to big firms and large corporates.

Shrikrishna: Arjun, don’t take it so lightly. Working papers are a must.

Arjun: We take bank reco, cash and bank certificate, stock certificate and something in MRL!

Shrikrishna: Oh! Arjun, you may invite trouble. You need to maintain so many things.

Arjun : Like what?

Shrikrishna: Your correspondence with the client, your queries, their replies, noting of how you dealt with the queries, important contracts, bank loan sanction letters and other financial institutions. Most important –Third-party evidence, evidence that you tried to get, also, explanation of contingent liabilities.

Arjun: I attended a lecture about it, now I recollect it, as you are saying.

Shrikrishna: Actually, your Institute has issued very good guidelines on the working papers and documentation. The principle is very simple: whatever you do, document it immediately; and you do only what is documented. You have to issue an engagement letter as well.

Arjun: All that is easy to say but very difficult to implement.

Shrikrishna: One reason is that you are not upgraded and disciplined. So you cannot train others. Working papers are to be prepared by your staff and the articles that are involved in the concerned assignment. But for that, you need to train them properly.

Arjun: What you say is right. Now I remember, all my friends who have faced disciplinary proceedings had the same difficulty. No documentary evidence. Everything is done in good faith!

Shrikrishna: Remember, faintest of ink is stronger than the strongest of memories!

Arjun: But Bhagwan, most of our mid-size firms are focused on tax, advisory services.They don’t realise the importance of documentation.

Shrikrishna: That’s another misconception. It is not the case that documentation is required only for audit practice. It is equally essential for advisory services.

Your appointment letter, scope of work, client’s query in writing, your counter questions, data supplied by the client, study of the query, supporting case law, your thought process in replying to the query, your opinion and so on. If there are any debatable issues or risks, you should communicate them in writing. Otherwise, if anything goes wrong, the blame falls on you! Client will plead ignorant and say that he depended on you entirely.

Arjun: Yes, yes. I remember, in many cases, clients argued in tax proceedings that , their CA did everything.

Shrikrishna: Even for internal audit or assignments like accounts supervision, one should maintain notes of what one has done. Otherwise, the client feels that everything was proper in his office, and your services are redundant! Actually, you might have ensured that the wrong things are set right, but unfortunately, you cannot show what work you did!

Arjun: Bhagwan, in our Peer Review, all these things are seen and that is good for us;

Shrikrishna: In fact, the Peer Review booklet of your Institute can be a good guide as to what record you should maintain and how. There is a complete checklist.

Wake up, Arjun. There are difficult days ahead! Haven’t you read the orders of NFRA? They are in the public domain.

Arjun: Lord, as always, you have opened my eyes. This time, I will at least make a beginning. Our old habits die hard. Everything is not possible overnight!

Shrikrishna: I understand that. But please don’t try to justify your lacunae!

Arjun: Yes, Lord.

OM SHANTI.

(This dialogue is based on the importance of maintaining working papers and other documents. Members should try to implement these practices immediately since they will be signing the audit/tax audits now.)

Height Of Gratitude !

Arjun: (Screaming)  Hey Bhagwan! Hey Shrikrishna! Hey saviour of the world! Save me! Save us all!

Shrikrishna: (Smiling)  Arey Arjun, what happened, you are so much in panic!

Arjun:  Lord, we are really in the peak of kaliyuga. It’s time for you to take your ‘Avtaar- (incarnation)

Shrikrishna:  Tell me, which demon has seized you?

Arjun: Height of Ungratefulness!!

Shrikrishna: Tell me everything.

Arjun; Listen. My friend is now 70; almost retiring from practice. He had a client for many years, almost of his age.

Shrikrishna: Ok

Arjun: They had a good tuning with each other. When the client needed some funds, my friend gave him a small loan. The client graciously offered to pay interest although my friend was not very keen on interest.

Shrikrishna: Good

Arjun: Unfortunately, the client’s position was worsening. He was not in a position to repay the loan. So, the interest kept on accruing and the figure became sizeable over more than 10 years!

Shrikrishna: But your friend kept quiet?

Arjun: No. Actually, from time to time he was asking for his money. But it did not happen.

Shrikrishna:Ok.

Arjun: A few years ago, the client’s son started looking into the business. He was of new generation, with lesser sentiments about relations! No maturity.

Shrikrishna: The senior client must have gradually retired, entrusting everything to the son. He had no say in the business. Correct?

Arjun: Absolutely. The son found this old CA a little inconvenient. So he wanted to get rid of him.

Shrikrishna: But your friend’s fees were paid?

Arjun: No ! Quite a large amount of fees got accumulated. Then the son changed auditor. However, our Institute’s rule says that previous auditor’s fees should be paid first.

Shrikrishna: Was it then paid?

Arjun: Not voluntarily; but only after quoting this rule! That was paid very reluctantly. Otherwise, the new auditor would have come in trouble!

Shrikrishna: Yes. I understand. What next?

Arjun : Now the real problem comes! The client’s son became vindictive. And our CAs -! The less said the better! They are very enthusiastic in instigating someone to file complaints against another CA. They guide that clients and provide them all technical points.

Shrikrishna: Perhaps, clients may not be even aware of those points. But some CAs educate them! Right?

Arjun: Yes. You know what the son has done? He filed a complaint of misconduct against my friend saying that by way of loan, the CA had financial interests in the entity that he was auditing!

Shrikrishna: So, he is taking advantage of his own wrong – of not repaying the loan In time.

Arjun: And over the years, the partners’ capital got eroded due to mis-management; and the loan amount with interest looked comparatively high!!

Shrikrishna: Strange!

Arjun: Unjust and unfair! On the one hand, you borrow from a professional, don’t repay him; and then file a complaint of ‘conflict of interest! No word to describe this ungratefulness.

Shrikrishna: But your friend needs to show the materiality or otherwise of the loan. amount.

Arjun : That he will, of course, do. The question is such types of complaints are also made. And that too, at the instance of our own CAs!

Shrikrishna: I agree Arjun. I now understand why many CAs are keen to surrender their Certificate of Practice!

Arjun: I am aware. Ultimately he will get justice from the Disciplinary Panel; but it takes at least 3 to 4 years for its decision. That itself is a punishment!

Shrikrishna: I agree. What cannot be cured has to be endured. I hope, they will bring further reforms in the procedure.

Arjun: True. You alone can make it happen. श्रीकृष्ण: शरणं मम !

OM SHANTI.

This dialogue is based on the incidents that happen unknowingly and people use them to harass the CAs. One should be cautious in having financial dealings with the clients.

Associate? Beware!

Arjun : (Chanting)

Hare Krishna, Hari Krishna, Krishna Krishna Hare Hare!

Shrikrishna : (after listening to the chanting)

O, Parth! Cool down. People remember me only when in difficulty.

When they are happy, they never think of me!

Arjun :  Bhagwan, that may be true for other people. But I am your most loyal Bhakta’. I remember you constantly in my every breath!

Shrikrishna :  Yes, dear! I know that. That is why I also keep you in my heart as my  most favourite Bhakta and friend! Your innocence is enchanting!

Arjun : My friend is in deep trouble.

Shrikrishna : What happened?

Arjun :  His senior was doing an audit of a company for many years. Now, because of rotation, the senior had to discontinue.

Shrikrishna : Ok. Then?

Arjun : The Senior was possessive about the assignment. So, he offered to my friend the audit, just for name’s sake.

Shrikrishna : Meaning?

Arjun : Meaning, the senior’s firm only will continue to do the entire audit. He said they have been very familiar with it for many years.

Shrikrishna : And your friend will sign it blindly for a small portion of the fees. Right?

Arjun : Yes, Bhagwan. But unfortunately, the fraud being committed by the CEO of the company over the past few years was exposed only this year!

Shrikrishna : This is very common, Arjun. But these things are continuously going on for years!

Arjun : Yes. The human nature is like that. You don’t want to give up an assignment. You want to ensure that it should remain with you for ever!

Shrikrishna : And the junior (your friend) has blind faith in the senior’s ability! He may sign even without visiting the client’s place even once!

Arjun : And also without even seeing the contents of what he is signing!

Shrikrishna : Ha! Ha!! Ha!!!

Arjun : Sometimes, CAs are helpless.

Shrikrishna : Why?

Arjun : They cannot displease the senior, especially where they have undergone articleship training. They cannot show distrust in the senior firm.

Shrikrishna : But Arjun, the clause of Part II of the Second Schedule clearly says that if a CA signs any document which is not verified by him or his employee or his partner, it is a misconduct. Here, you have not verified anything.

Arjun : And when there was an investigation, the senior only had to attend the interrogation! Apart from this, when we cannot cope with some work, we often engage an outsider – some friend or associate or ex-article or ex-employee! We don’t have time to supervise their work.

Shrikrishna : This is problematic. That person is not your employee or partner. He is a stranger. Then, it amounts to disclosing of the information of the client to an outsider without the consent of a client!

Arjun : OMG!! So that’s a separate misconduct!

Shrikrishna : Yes, see clause (1) of Part I of the Second Schedule.

Arjun : Then how to tackle this problem?

Shrikrishna : Simple! Don’t accept the work which you cannot execute with your own staff!

Arjun : Lord, saying this is very simple. But in practice………

Shrikrishna : Then be ready to face the consequences! You cannot eat the cake and have it at the same time.

Arjun : And we cannot call anybody as our employee unless we have corroborative evidence in terms of documents! But Bhagwan, clause (2) permits us to rely upon the examination done by another Chartered Accountant.

Shrikrishna : I agree. But in the case you narrated, the other CA was not officially in the picture. He was never appointed by the client nor by your friend! He did not carry out the examination independently, but he acted on Your behalf without any locus standi!

Arjun : That’s a point. You mean, if he had independently examined some part and certified it in some other context, then we could rely on the work done by him?

Shrikrishna : That’s right. For example, if another CA verifies sales or stocks who has certified them to be correct, then you may rely on his work.

Arjun : Understood. So, no Associate business! Remain within your capacity and within your means! Don’t be possessive. Don’t invite big risk for a small portion of fees! Do justice to your responsibility.

Shrikrishna : You said it!

Arjun : Thank you, Bhagwan.

(This dialogue is based on the common practice of engaging a stranger under the guise of ‘associate’ and signing the audit based on his work). Clause (1) and (2) of Part I of the Second Schedule.

Study Circles

Shrikrishna: Arey Arjun, yesterday I called you many times; but you didn’t pick up the phone.

Arjun: Bhagwan, I was attending a lecture in our study circle meeting.

Shrikrishna: Oh! What was the topic?

Arjun: yehi – apna Ethics! Bhagwan, I tell you, the future of the profession seems to be very bleak. Everybody was crying.

Shrikrishna: I am aware. There are many risks and threats. Too many regulations, harassment by Regulators, excessive expectations of clients, no reward ………Right?

Arjun: You said it. On many occasions, I have shared my worries with you. No good staff, no good articles. Can’t really cope up with the work. So many compliances!

Arjun: There is no unity amongst us. We cannot afford to say ‘No’ to any client. Whatever he wants we have to bow down. I am told, even well-established firms also have not much choice

Shrikrishna: True. I wonder whether real independence was ever there in your profession. That way, in all professions, the situation is more or less the same.

Arjun: Clients literally dictate us and take advantage of our lack of unity and solidarity.

Shrikrishna: Therefore, you can never demonstrate your collective strength.

Arjun: Our study circles are also focussing more on academic topics. Yesterday, the speaker suggested that we should have separate informal meetings for brain storming on our professional anxieties and to discuss the future of profession.

Shrikrishna: You can share your peculiar experiences and try to seek solutions. Even you can improve your communication skills to avoid many problems. By timely and effective communication, you can avoid embarrassing situations.

Arjun: The speaker also suggested that we should proactively discuss exposure drafts of Regulations and Standards and send our views. There is no point in shouting after it is passed.

Shrikrishna: So also, there can be many standardised letters that can be used by your members. All of you may not have good drafting skills. But wherever there are recurring compliances, you can use such ready made drafts which you can suitably modify.

Arjun: We can even take expert advice for getting such drafts.

Shrikrishna: Moreover, all firms may not have a ‘knowledge manager’. You can hire expert services to vet your audit reports or submissions. A studycircle can retain such expert for all members so that the cost is shared.

Arjun: That’s a good idea. We are not often updated, we need to depend on our juniors, we don’t get time to check everything as there is always a fire-fighting exercise.

Shrikrishna: Then your study circles can organise workshops for compact groups – not lengthy lectures. Each firm may not be in a position to organise training programmes for its staff. But 5 to 6 firms collectively can arrange trainings in a workshop. Study circles can do it more effectively.

Arjun: Lord, I find growing frustration amongst CAs at all levels. Even the partners of large firms are not happy. They are stressed. Most of them are trying to keep away from audit signing.

Shrikrishna: It’s a tragedy. People want to run away from the core function of the profession.

Arjun: Audit signing is now always very risky. No one is sure what he has seen and not seen! A lot of fear and discomfort, despite such a high academic qualification.

Shrikrishna: And your knowledge becomes outdated so fast! You should collectively keep on expressing your concerns and making representations to the authorities, to the Council, write articles in the press and social media airing your difficulties. Make your voice heard! Groups like study circles can do that.

Arjun: I think, one more thing the study circles can do. Today, there are many management-sponsored frauds rampantly happening. CAs are being held responsible for not detecting those frauds. They are also made co-accused!

Shrikrishna: Yes, the dividing line between the principles of watchdog vs bloodhound is getting blurred. People and Regulators want you to be fraud detectors. And if you apply a few important SAs strictly, frauds can easily come to light, especially, third-party evidence.

Arjun: So, there could be discussions or presentations on frauds, forensic audit and the like. This could be for CAs as well as for audit staff. That will arouse interest in the minds of staff and articles.

Shrikrishna: Actually, there are many more things that can be done. We will discuss them some other time.

Arjun: I agree. I will tell our convener to act on this.

“OM Shanti”

This dialogue is a general discussion on how study circles can add value for the members instead of arranging only academic lectures.

Misconduct and Punishments

Arjun: Hey Bhagwan, today, all CAs are under tremendous tension due to the fear of Regulators.

Shrikrishna: Really? How many Regulators are frightening you?

Arjun: Practically. All of them! Our Disciplinary Committees, NFRA, CBK, SFIO, EOW – all are after us. We can’t breathe freely!

Shrikrishna: Yes. I heard that many CAs are suffering from stress at a young age and a few are even dying due to the pressure of work.

Arjun: And regulators like MCA, Tax Authorities, Registrars of Co-op. Societies, RBI, SEBI. Charity Commissioners are vying with one another in sending complaints or information to the ICAI. CBI makes even the auditors as co-accused in the frauds basically committed by the management.

Shrikrishna: Yes, Parth. Today, I am told, many CAs are on bail and a few are in jail.

There is no strong agency to stand behind you firmly and strongly. There is no unity amongst you. So, many CAs are suffering harassment.

Arjun: True. Their lives have become miserable. They cannot even afford the litigation expenses, lawyer’s fees, etc. This is in addition to the loss of business since they cannot attend their office work peacefully.

Shrikrishna: Arjun, what you say is right. What are your leaders doing?

Arjun: I have no answer to this question, Lord. Anyway. You had once told the punishments prescribed for various items of misconduct. Please tell me again.

Shrikrishna: Why talk of punishments?

Arjun: I am very much worried due to the letter received by some CAs from NFRA.

Shrikrishna: What was that?

Arjun: His partner was held guilty by NFRA and punished. There was a fine, and also debarring from signing any audit for 2 years.

Shrikrishna: Oh! Then?

Arjun: Now his partner has received a letter that since the signing partner was held guilty, the quality review partner is also equally responsible. So, there is a show-cause notice against him as well!

Shrikrishna: Yes. NFRA has this power.

Arjun: They have asked him to submit a list of names and contact details of all other audits signed by him! That means they will write to all such clients! Disastrous! We will be nowhere if such things happen.

Shrikrishna: I agree; but you have to face the reality. There is a rationale behind this provision of law. This is much more severe than the punishments prescribed in your CA Act.

Arjun: What are they? Let me revise the knowledge.

Shrikrishna: For that, you need to know that there are two schedules to the CA Act. First Schedule items of misconduct are considered of lesser gravity. So, the punishments are a little milder.

Arjun: I remember now. There can be a combination of reprimand, fine up to ₹1,00,000/- and/or suspension of membership for a maximum of 3 months. Right?

Shrikrishna: Yes. But it is proposed to be doubled now. Fine up to ₹2 Lakhs and suspension up to 6 months.

Arjun: Oh! And for the Second Schedule, the same – reprimand, fine up to ₹5 lakhs and suspension for any length of time, even permanent.

Shrikrishna: Here also, the fine is proposed to be doubled. But then there is a more dangerous amendment.

Arjun: What is that?

Shrikrishna: If one partner of a firm is held guilty and within 5 years if another partner is held guilty, then the Council can directly punish the firm without any proceedings!

Arjun: Oh My God!!

Shrikrishna: But Arjun, there are many indirect punishments which are even more harsh. They are not prescribed in the Act.

Arjun: Really? What are they?

Shrikrishna: Firstly, your disciplinary proceedings last for 3 to 4 years minimum. So you need to carry that tension. Secondly, it is a stigma. Your name gets published in the official gazette and gets spread on social media.

Arjun: That is really dangerous.

Shrikrishna: Moreover, the firm is deprived of professional assignments if any one partner is held guilty. Even while the proceedings are in progress, the firm may not get any audits from C & AG, Banks, large corporates, MNCs and so on. Just consider the loss of revenue.

Arjun: Then the only alternative is the guilty partner should quit the firm! It has a demoralising effect.

Shrikrishna: So, Arjun, do your work diligently. Prevention is better than cure.

Arjun: It is easy to say so. But Lord, I feel the only way to avoid misconduct is not to do practice at all.

Ha! Ha!! Ha!!!

“OM Shanti”

This dialogue is based on the present mood of fear among the majority of practising CAs who are faced with Regulatory action, probably for their small, human lapses

Ethics and You

Arjun (A) — Oh
Lord, why have you created this kaliyug?

 

Shrikrishna
(S) — I didn’t create it. It was the idea of the Creator – Brahmadev! I
have been entrusted only with the job of maintenance.

 

A — Don’t just pass the blame on him. I know, you only must be giving
ideas to him. I have seen you in Mahabharata, doing some mischief and then
watching the fun!

.

S — (smiles) – Arjun, what is your grievance? I have always supported
you in all the difficulties and brought you out of your problems.

 

A — Tell me, why in kaliyug people are always quarrelling with each
other?

Why can’t they stay together with love and affection? They have so many
comforts due to technology.

 

S — (laughs). Arey Arjun. You are saying so? What did you do in
Mahabharata? Didn’t you fight with kauravas?

 

A — But we were demanding only 5 small villages from them. Nothing more.
But they wanted to grab everything. They cheated us.

 

S — Anyway, forget that. Why are you so tensed up today? The kaliyug was
      there all these years. What makes
you blame it today?

 

A — These disputes between other parties are causing great risk to our
profession. Two brothers, two partners, two directors, rather any two persons
coming together finally end-up in a dispute and just to settle their score on
one another they blame their CA. They expect that the CA would exert influence
on the other party. In this process CA alone suffers. He is made a scape goat.

 

S — Did you have any dispute with any person? See, both of us are
together for thousands of years right since Mahabharata but we have never
quarreled.

 

A —You are a God and I am only your devotee. By relation we are cousins
but it is your goodness that you treat me like a friend. But nowadays, I see
that even the relationship between the spouses is not permanent. I told you an
incident that where husband and wife both were CAs, the wife did a small audit
for two years; the husband did the audit for next two years.

 

S — Then what is wrong about it?

 

A —There was a divorce petition between them and the wife filed a
complaint that the husband accepted audit work without communicating with her!

 

S — My wife Satyabhama does get angry with me every now and then. Now I
should be more careful in kaliyug lest she leaves me.

 

A —(Laughs) Last month there was a similar incident. The daughter of
CA’s client came to him and asked for attested copies of the IT Returns of her
husband and mother-in-law. She said she wanted it for VISA application.

 

S — Then?

 

A — My friend verified it in the computer and gave the attested copies
to her.

 

S — Good.

 

A — What “good”? The daughter’s husband filed a complaint as to why the
CA delivered the copies of his returns to his wife without his authorisation.

S — Oh. That means there must be some dispute between them.

 

A — Yes. In fact she had filed a case of domestic violence against him.
She used the ITRs in that law suit.

 

S — That is why I always caution you not to do anything in good faith.
Never take any relationships for granted. I agree that this incident is an
extreme one!

 

A — But even in this case, the fact remains that there was no error or
negligence in the certification as such. What was certified was true. I don’t
understand as to how such work should have been tackled.

 

S — Your institute has issued detailed guidelines for the work of
issuing certificates. One should get a written request in which the purpose for
the certificate should be stated. Further, the purpose should be stated on the
certificate as well. So that, it cannot be used for any other purpose.

 

A — I am aware of that but I just wanted to point out the vulnerability
of our profession and how careful one should be in even small piece of work.

 

!!OM Shanti!!

 

Conclusion:

The above dialogue
emphasises the fact that anything done in a good faith in our profession may
backfire at a time when it is least expected. A CA needs to be very careful and
alert while doing even the smallest work. It underlines the importance of
professional skepticism.

ETHICS AND YOU

Members in Industry

 

Arjun
(A) — Hey Bhagwan, today I want to ask you a very important
question.  It is perplexing my mind for a long time.

 

Shrikrishna
— Arjun, what then prevents you from asking?

 

A — No, all this time, we have been discussing about the ethics to be
followed by members in practice.  What
about those who are working in Industry?

 

S — you think they are above all the rules of ethics?

 

A — I feel, they are enjoying life without bothering of ethics.  Only us who are slogging in practice are
constantly under fear of disciplinary action.

 

S — You are mistaken.  Why do you
say so?

 

A — See all these scams –right from Harshad Mehta, Ketan Parikh, Satyam,
PNB, MCX, upto IL & FS – I have never heard any of their employees being
hooked for misconduct.

 

S — Achchha?

 

A — Yes.  Only our practicing CAs
are taken to task.  These corporate
executives  who are the real
beneficiaries of scams are enjoying life merrily!  Their pay packages are also thick.  And on the top of it, there are allowances
and perks!

They
are minting money.

.

S — Arjun, grass is always greener on the other side.  Have you seen their lives closely?

 

A — They only pretend to be busy. Whole day long they relax, do chatting
and also spend time in share market. 
They start working in the evening, claim all late-sitting benefits and
show that they are under stress!

 

S — If that is so, why didn’t you take up such corporate job?  Anyway, today let us talk only about the Code
of Ethics applicable to them.

.A — Haan! Yes, tell me.

 

S — See, in part II of First Schedule, they can neither share a part of
their emoluments with anyone; nor can they accept anything in part in the
payments made to the other persons engaged by the employer company.

.

A — Aah! What is so great about it? How can bribery be
tolerated? It’s a crime.

 

S — I agree.

 

A — See, how many stringent clauses apply to us – Due diligence,
Gross negligence, Contravention of laws ………………………

 

S — Part III and Part IV of First Schedule apply to all
members.  Like, they cannot misrepresent
themselves as fellow members if they are really not FCAs or its a misconduct if
they do not supply information required by the Institute or solicit
professional work.

 

A — Oh! I hadn’t noticed it. What next?

 

S — And if they are held criminally guilty or if they bring disrepute to
the profession. All these clauses are very much applicable to them.

 

A — But what about those cumbersome compliances with Accounting Standards,
Guidance Notes; other directives of the Institute?  They seem to be free from all those!

 

S — How can you say so?  You as an
auditor are supposed to see whether they on behalf of the company have complied
with all those directives.  That’s your
very job.  You have to report those non
compliances without fear or favor.  Then
they will be exposed.

 

A — See, company’s management is never bothered about such compliances.
They say it is auditor’s botheration. 
They create such a situation where the auditor is really helpless.  The last moment rush!  We also don’t get enough time to

discuss
and apply our mind.

 

S —Then, why don’t you give an adverse report; or a disclaimer?

 

A — Bhagwan, that is not so easy.  We can’t afford to qualify our report like
this.

 

S — Why?  It is your duty.

 

A —  Agreed.  But where do we have so much independence?

 

S — To that extent, I appreciate your limitations.

 

A —Actually it is helplessness.  ‘majboori’
The foundation of the audit profession itself becomes shaky because of this.

 

S — The reason is you lack unity and courage to say ‘No’

 

A — But tell me how further they are bound by ethics?

 

S — See. Again in Part II of Second Schedule, very first clause, if any
member including the one in service, contravenes any of the provisions of CA
Act or regulations or guidelines issued by the Institute, he is held guilty.
They also

cannot
divulge the secret information with any person, make any false or untrue
statement or defalcate or embezzle moneys. All these clauses apply to all the
members.

 

A — Yes.  I agree that I was
under a mistaken belief.  In short,
ethics are all-pervasive. All of us need to follow them religiously.

 

S — You said it!  Even I
am not above ethics!

 

Om Shanti.

 

Note:

The above dialogue
explains various clauses of Code of Ethics which are applicable to members in
service.

 

 

Ethics and You

Arjun
(A) — (alone, chanting prayers)

 

Hare Ram Hare Ram Ram Ram Hare Hare

Hare Krishna Hare Krishna Krishna Krishna Hare Hare

 

He Bhagwan ! I can’t see
you anywhere. There is a deep darkness all around; and you are also dark
(Krishna) in complexion!

 

Hare Ram Hare Ram Ram Ram Hare Hare

Hare Krishna Hare Krishna Krishna Krishna Hare Hare

 

Shreekrishna enters – (smiling at the sight of Arjun)

 

S — Re
Arjun, What’s the matter? Can’t you see me? I am omnipresent. I am there in
your heart.

 

A —
You are right; but I have lost my heart. I have lost everything! I have lost my
senses!

 

S — Cool down, Arjun. I had told you in Geeta that one has to be “sthitapradnya”
– always cool and collected. Never lose your balance. Tell me what happened.

 

A — Nothing is happening!

 

Clients
are not coming in time. Accounts are not ready. Audits are pending. Articled
trainees are on exam leave. So many difficulties! And Government is not
extending the date.

 

S — That’s your annual grumbling. Why don’t you improve your ways
and become pro-active?

 

A — It is very easy to say so. But our profession is essentially
reactive. Government, regulators and clients do something and we are expected
only to react and also act! We can do audits only after the clients’ accounts
are finalised. Government keeps on changing the forms, regulators introduce new
systems; new requirements without understanding practical realities.

S — But now with computerisation everything is digitised.

How is it that the work is
not completed on time.

 

A — Many clients are not tech-savvy. They rely on us. Small
businessmen, senior citizens, charitable organisations, housing societies and
such other people are not used to the `digital environment’.

 

S — So you mean, you alone have to take care of 1000 such small
clients!

 

A — Precisely! And further, in case non-audit assessees the date
was extended from 31st July to 31st August. So, the July
load was carried forward to August 2018. Further GST requirements are keeping
us busy round the year! – It is a big volume.

 

S — Why don’t you represent to the Government?

 

A — We are doing it repeatedly; but it is falling on deaf ears. We
are helpless. Our Institute had made an excellently drafted convincing
representation – and it was rejected on 3 occasions! Actually, there is
something structurally wrong in the present statutory deadlines.

 

S — Relax. You will get extra time.

 

A — But when? On 29th September? – when we have
virtually, somehow pushed the returns!

 

S — That means, somehow or the other you can do it!

 

A — No. Really speaking, it is humanly impossible. And quality
suffers; let alone the stress that affects health.

 

S — But you have to stick to your discipline and ethics. You can’t
afford to compromise on quality. That will defeat the very purpose of audit.

 

A — Yes. Everybody expects that CAs should maintain discipline,
give quick results and at the same time ensure quality! Further we have to
ensure many compliances on day-to-day basis. Hence, we don’t have time for
creative and meaningful work.

 

S — You say there is no room for creativity; but in all scams
Government feels that it was the ingenuity of CAs.

 

A — That’s the pity. Real thieves are different; but everywhere CAs
are blamed. CAs are expected to perform the role of fraud-detectors even in the
normal audit! No one realizes that there is difference between audit and
investigation. I at times wonder why I became a CA!

 

S — Don’t be so nervous. Things will improve.

 

A — I don’t see any chance of that. We are facing humiliation
everywhere. Everybody is taking us for a ride. – Government, regulators,
clients, bankers, staff, even our articled trainees!

 

Everybody is deviating from
ethics.

 

S — That is Kaliyug. But you should never compromise on
ethics. You need to be more firm and assertive.

 

A — I am aware of all this philosophy. Unfortunately though we are
not a part of unethical acts, we are expected to certify the reporting is
correct and `true and fair’.

 

S — It seems, your grievances are unbearable today.

 

A — Yes. We have no choice. By nature, we are not rebellious. But
sometime, our feelings are going to explode. Hell with this compliance
practice! They are thrusting everything on us; and on the top of it, Government
is not even listening to our genuine requests.

 

S — So, what to do now?

 

A — Arey Bhagwan, when I am helpless, I approach you with
this question. And today you are yourself asking me this question? So, you also
don’t have the solution, it seems!

 

S — Go to the Courts.

 

A — Ah! I am skeptical about it. And even if Court intervenes,
Government will not understand the spirit of the verdict. There is no savior
for us.

 

S — Hmmm!

 

A — And in this birth, becoming and practicing as a CA appears to
be a sin! So I don’t know what is going to
happen in next birth.

 

S —  We will see of next
birth. But what are you going to do now?

 

A — Beg to FM, wait, watch and chant bhajan –

 

Hare Ram
Hare Ram Ram Ram Hare Hare

 

Hare
Krishna Hare Krishna Krishna Krishna Hare Hare

 

Note: The above dialogue only shows how various stakeholders have taken
our fraternity for granted. It’s high time we put our foot down and unite
together. Though, preaching on Code of Ethics seems old school, this is the
only thing that will help us.


ETHICS AND U

Arjun (A) — Bhagwan, we meet every
month.  I always get valuable insights
from you.

 

Shrikrishna — I also enjoy talking to you and
observe how you are following the principles from Geeta

 

A — I must admit that Kauravas
had a huge army; many times more than ours. But we won only because we followed
your advice.

 

S —Even today, you are in constant
war against evil. You can fight it only with the shield of ethics and sword of
action. If you want to be independent, you need to be eternally vigilant.

 

A—True. Times have changed.
People’s thinking has changed. Now we CAs are expected to be blood-hounds and
not mere watch-dogs.

 

S—Many scams are revealing
direct or indirect involvement of your clan. People are perceiving auditor’s
involvement. This is very dangerous.

 

A—I have the same dilemma as I
had in the Mahabharata what to do. It is whether to continue to act as
Auditor?

 

S—I understand your anxiety.
But what else can you do?

 

A—Krishna I feel like giving
up all audit and signing assignments.

 

S—That’s not the answer. A
professional like you cannot think of running away. Do you think there is no
risk in rendering other services like advisory?

 

A—The reality is that all
authorities are after our blood. They harass our clients – result – all
tensions come on us.

 

S—That’s precisely what I had
advised you in Geeta. Be detached. Yours’ probably is the only
profession that gets emotionally involved with the client.

 

A—We are trapped in a vicious
circle. On one side laws are radically changing. New laws are coming. Our own
Institute’s rules and regulations are a little too much for a small entity. On
the other hand, there is lack competent manpower. We can’t afford to employ too
many qualified people. The irony is that our clients don’t appreciate our
efforts and are also not willing to pay for our services! They take us for
granted.

 

S—That’s because they don’t
find any value addition. The client perceives your services as mere compliance.

 

A—Krishna but that is a wrong
perception. By ensuring compliance we save them from penalty and prosecution.
Another issue that bothers us is : How much to study? Under pressure we neglect
our health and family. There is no time to relax and live – we merely exist.

 

S—Today, you seem to be too
stressed.

 

A—Yes. As it is, every March
is like this. March mars our mood!

 

S—(smiles). In Geeta, I
advised you to be a ‘sthitapradnya’ – a balanced and steady mind.
Unperturbed by anything!

 

A—Krishna, it is easy to advise, but difficult to
follow. See how many fronts we have to fight – advance tax, GST, planning for
closure of books, gearing up for bank audits! To add to this our
assistants/trainees are on exam leave! On top of this the tax authorities are
all out for coercive recoveries! How can they have target oriented tax
assessments and recoveries? Government’s thinking is strange!

 

S—Arjun, why are you whaling?
I understand your difficulties. But today all professions are sailing in the
same boat. Please remember your very survival depends on the laws made by the
Government! Don’t complain about complicated and confusing laws.

 

A—I envy other professions –
that perform and also enjoy without any tension!

 

S—That’s a wrong impression.
Grass is always greener on the other side.

 

A—What was the point you were
making?

 

S—See, you criticised the
Government. Now elections are coming. It is your duty to vote consciously. And
also educate and motivate others to do so! As intellectual professionals you
owe a duty to the nation and society.

 

A—That’s OK. But this year I
am worried about bank audits! The recent scams are frightening!

 

S—Ensure that you write to the
previous auditor. Better talk to him and get fair idea and opinion about the
branch you are going to audit. Also, keep the record of your work – working
papers. In short, be diligent, meticulous and careful. Timely communication
backed by proper evidence will help you in doing the work smoothly. Remember,
work should not only be done; but it should be seen that it is done.

 

A—Yes, Lord! I cannot run away
from the profession.  Everywhere the
things may be the same. Whatever I do, I must do it properly and diligently. I
seek your blessing!

 

S—You are always blessed, My
Dear!

 

Om
Shanti.

 

ETHICS AND U

Shrikrishna: Yes, my dear
Arjun, you seem to be in a relaxed mood today. All tension over?

 

Arjun: Hmm! I wish I could be
really relaxed. But in our profession there is no room for relaxation. It is
not in a CA’s destiny at all.

 

Shrikrishna: Why are you so
sceptical? All professions, or rather, all people are sailing in the same boat
today.

 

Arjun: That is true. But almost
all practising CAs I know are fed up with practise. Many are giving up their
COP. Their next generation is keeping itself away from traditional practice.

 

Shrikrishna: I am told even
the large firms are shying away from assurance function. Then who will do the
audits?

 

Arjun: That is really a problem.
Government should think about it seriously. Many of us feel that all small and
medium entities should be exempted from audit. That the turnover limit should
be respectably high. Other criteria also should be liberal.

 

Shrikrishna: Arjun, you
feel so because you are staying in a metro city. Have you thought of your
professional brothers staying upcountry? They will literally starve if audit
work is gone.

 

Arjun: Yes. That’s a point. But
then, what’s the solution? We slog so much even for a small audit and take so
much tension, but there is no proportionate remuneration. The regulations are
too strict for a small entity to comply.

 

Shrikrishna: I agree. For
this I feel you should be more serious about collective thinking and action
among your members. In your study circles, you brainstorm only on academics.
Instead, you should devote more time to think about how to tackle this chronic
issue. Think of the fate of the profession.

 

Arjun: True. And on the top of it,
the sword of disciplinary action is always hanging on our heads. I don’t see
any ray of hope. Everything is gloomy.


Shrikrishna: That’s another
problem. You people are very keen to learn all other laws that you are dealing
with in the practice but you are not that serious about knowing and updating
yourself about your own CA Act!

 

Arjun: Why? What happened? Is
there any change?

 

Shrikrishna: Yes. There is
a change in both the parts of your Code of Ethics.

 

Arjun: Both the parts? I didn’t
even know that there are two parts! I only know that COE is very frightening.

 

Shrikrishna: Ha! Ha! Ha! Arey,
Arjun, Part A is more about principles applicable internationally. New
concepts, new thinking, new principles which are universally recognised. Our
Indian Code is expected to be in tune with this international thinking. That’s
in Part B.

 

Arjun: Ahh! Who is bothered about
such philosophy? Let them change Part A as many times as they like. Tell me
what matters to me.

 

Shrikrishna: That’s the
problem! You are not awakened enough about your profession. Part A has already
been changed and your Institute has already published it a few months ago. Now,
they are changing Part B – i.e., your Indian Code of Ethics.

 

Arjun: Where is that new thing?
When is it applicable?

 

Shrikrishna: They have
already circulated the Exposure Draft for your comments. The Institute cannot
change the provisions of law or the schedules. That is to be done by
Parliament. The Institute expresses its views and interpretations in its
commentary. That is sought to be changed.

 

Arjun: I will see when it becomes
applicable.

 

Shrikrishna: Arjun,
this approach is wrong. You are sleeping over such things. Not awakened about
the proposed changes. And then you keep
crying after it becom-es applicable – when it is too late! You need to be
proactive.

 

Arjun: I agree.
So what should we do?

 

Shrikrishna: You
should sit in a group and study the proposed changes and their impact. And send
representations to the Institute.

 

Arjun: Let me
first study it for myself. I’m sure none of my friends would know about it. But
next time we will discuss the changes so that I can take more care.


Shrikrishna: Sure.


Om Shanti.


(This dialogue is based on the need to study
the exposure draft on changes in the Code of Ethics – Part B. Details will be
discussed in the next write-up)  

 

 

ETHICS AND U

Arjun:    O hell with this profession!
Lord Krishna, please save me!

 

Shrikrishna:  Arey Arjun, you are now
in practice over three decades. Well settled now. Then, why this frustration?

 

Arjun:    I am really fed up with this
tax representation work. Nothing moves without corruption! So much wastage of
time and energy! And on the top of it, so much botheration and harassment. Life
has become miserable.

 

Shrikrishna:  Relax, Parth. I have
explained to you the theory of Karma. You get the fruit of what you do.

 

Arjun: What do you
mean? Are we also corrupt?

 

Shrikrishna:  What do you mean by
corruption?

 

Arjun:  See, even for petty things, they take so much
of bribe! Right from locating your file – to passing of the order. Not only
that, even for delivering the order, you have to pay. They don’t do their duty
honestly.

 

Shrikrishna:  I agree. But do you mean
bribery is the only form of corruption?

 

Arjun:  Then what else is
corruption?

 

Shrikrishna:  It could be corrupt
thinking, corrupt behaviour; any deviation from duty, especially knowingly, is
also corruption.

 

Arjun: I didn’t
follow what you want to say. Tell me, where we have not performed our duty.

 

Shrikrishna:  See, Arjun. Your profession
is like that of the police. When you do audit, you are a financial police.

 

Arjun: I see your
point.

Shrikrishna:       You curse
the police department for corruption. Do you sign all financial statements only
after
proper verification?

 

Arjun: Well, we
try our utmost to get all information and explanations. But as you know, we
cannot see everything.

 

Shrikrishna:  And whatever discrepancies
you notice, how do you deal with them.

 

Arjun: Wherever
possible, we get it corrected. But sometimes, clients don’t accept the
correction. They insist on the presentation that suits them.

 

Shrikrishna:  So they want it that way
only. That means some deliberate mistakes.

 

Arjun: Yes. After
all, it is to suit the banks, financial institutions and revenue authorities…
rather, all authorities under
all laws!

 

Shrikrishna:  In short, adjustments!
Right?

 

Arjun: (smiles):
Yes, Lord. There is no financial statement without any ‘adjustment’.

 

Shrikrishna: And knowingly you sign them!

 

Arjun: There is no
alternative.

 

Shrikrishna:  And still you say it is
‘True and Fair’. And also take full fees. Is it not corruption?

 

Arjun: There is a
point in what you are saying.

 

Shrikrishna: Further, you not only certify erroneous accounts, you help in
filing an erroneous return and then try to justify it as correct in the
tax-proceedings.

 

Arjun: In recent
years many such matters were exposed as scams or frauds. This has spoilt the
image of the profession. But what is the way out?

 

Shrikrishna: You need to act objectively, without fear or favour. You need to
be impartial.

 

Arjun: All this is
easy to say. But where is independence? If we do our duty strictly, we will
lose the assignment.

 

Shrikrishna: Then the entire profession needs
introspection. Where do we stand? Are we united? Have we lost our spine? Are we
compromising on principles?

 

Arjun:  You have
opened my eyes. Still, unless we get united and act collectively, our voice
will never be heard. That is why people are running away from our core function
of audit.

 

Shrikrishna:  True.
Then this is a serious ethical issue.

 

Arjun: Even the government does not listen to us.
There is no respect for the profession. We are being taken for granted. And see
the ever-increasing regulation! We can’t cope with it.

 

Shrikrishna:  Government treats you like its own extended
arm. Your very survival depends on the laws and regulations. How can you raise
your voice?

 

Arjun: Then what is the solution?

Shrikrishna: Prove that you are indispensable. Be
assertive. You may lose a few clients; but eventually you will command respect.
Increase your credibility. That requires systematic working. And of course,
there is some sacrifice necessary.

 

Arjun: Unfortunately, the profession does not have
good and strong leaders. We lack courage and boldness to assert ourselves.

Shrikrishna: That is the reason… every time you have
to compromise on ethics. There is no point in blaming others. Stand up and
learn to say ‘No’ to ‘adjustments’. Update your knowledge, upgrade your skills
and maintain documents and discipline. Then you have nothing to worry. Good
rewards will flow. That is the theory of Karma.

 

Arjun: Yes, Bhagwan.

 

Om Shanti

(This dialogue is based on
the present unenviable situation of the CA profession and a few reasons for the
same.)

ETHICS AND U

Arjun : (Chanting) Hare Rama Hare Krishna…

           

Shrikrishna : Arjun, I am sure you are praying for extension of due date.

           

Arjun : Oh, Lord, I didn’t notice when you arrived.

           

Shrikrishna : I am omnipresent.

           

Arjun : Yes, you guessed correctly what I was thinking about. September is
really a nightmare for all of us. It is a yearly phenomenon.

           

Shrikrishna : All these years, I used to feel that the fault lies with you CAs only.
But over the years I realised that it is a problem of the system. It has become
a chronic issue.

           

Arjun : You said it! Actually, our time and energy is lost in the relatively
unproductive exercise of filing smaller returns. Government also may not be
getting substantial revenue from it.

           

Shrikrishna : But you get 2 full months after 31st of July.

           

Arjun : Agreed. But this year, even that date was extended up to 31st
of August. It was followed by Shree Ganesh festival.

           

Shrikrishna : But Ganesh festival is only in a few states.

           

Arjun : What you say is right. But Mumbai is the financial capital. So the
social life of Mumbai has to be considered by the government. And there were
disastrous floods in Maharashtra. This year, there was a record rainfall.

           

Shrikrishna : Why don’t you tell all this to the government?

           

Arjun : Further, all our experienced CA trainees are on exam leave in
September. Government – especially bureaucrats – are least bothered about our
problems.

           

Shrikrishna : This would be the problem of all seasonal businesses and professions.

Arjun : And all compliances almost coincide with each other. Tax audits, tax
returns, GST, company law compliances, AGM – everything simultaneously. How can
we cope up with all these?

           

Shrikrishna : But your clients also have to take it seriously. Don’t they co-operate?

           

Arjun : That is another hazard! All clients appear at the 11th hour
only. Each one is under the sweet impression that he is our only client. They
are relaxed when we are slogging day and night for them! They feel that we are
doing all these compliances for our own sake only! They have nothing to do with
any paper work. Accounting Standards, Auditing Standards and other regulations…

           

Shrikrishna : Then let them suffer penalties.

           

Arjun : That is true! But again they blame us! And the present-day tax
terrorism is depressing. For every small default, there is disproportionate
penalty and even prosecution.

           

Shrikrishna : Why don’t you employ more qualified staff?

           

Arjun : Bhagwan, in today’s grave recession, we find it difficult to pay
salaries to even the existing staff. Again, newly-passed CAs do not wish to
enter this profession. I am told, even the number of new students joining the
course has reduced by more than half.

           

Shrikrishna : But I know that you have a common practice of backdating the signatures!

           

Arjun : Ha! Ha! Ha! But now, that is also restricted. We need to generate ‘UDIN’.

           

Shrikrishna : What is that?

           

Arjun : Unique Document Identification Number. Actually, it is in our interest
only as there were many instances of forgery of CAs’ signatures on financial
statements. Now, after signing the audit, we have to generate our UDIN for each
document within 15 days.

Shrikrishna : That means, from all angles, you are trapped. That should curb many unethical
practices.

           

Arjun : Bhagwan, finally all our discussions turn to the topic of
ethics. For your information, non-generation of UDIN is also now regarded as a
professional misconduct.

           

Shrikrishna : Then you need to be extra careful. In a hurry and confusion, you may
forget to do so in a few cases! I suggest you better establish a proper system
of recording the dates of signatures and creation of UDIN. The best way is not
to sign any document without UDIN.

           

Arjun : Bhagwan, it is an ideal or dream situation! Never possible in a
typical CA’s  office. The pressure of
uploading is too acute – rather, suffocating.

           

Shrikrishna : Then really, all of you should come together; and think of a real
solution to this perpetual, never-ending problem. You only take a lead and God
will support you!

           

Arjun : Yes, My Lord! I will do it next year!

           

Om Shanti.

 

(This dialogue is based on the yearly
problem of tax compliances in CAs’ offices and the requirement of UDIN in Code
of Ethics)  

 

 

ETHICS AND U

Arjun (A) — O’ Lord, you have always been telling me the importance of
ethics; but ………

 

Shrikrishna — ‘But what, Arjun?

 

A — In practice, it is very difficult.  I will have to close down my practice.  Whatever I do, there is some misconduct or
the other.  Just not possible to escape.

 

S — (smiles). What you say is largely true.  But ultimately, it is in your own interest to
follow the rules of ethics.

 

A — How? 
Many times it is a burden.

 

S — You are mistaken.  Yours is not only a profession; but a
mission!

 

A —This is very philosophical and idealistic.

 

S —Listen, the very foundation of any
profession is credibility.  If that is
lost, not only that individual member but the entire profession suffers.

 

A — It’s really a challenge.  Just think, we as chartered accountants are
answerable to so many authorities – MCA, SEBI, Tax authorities, Bankers, RBI,
FEMA, Labour law authorities, authorities under many economic laws and most
importantly, our client!  This is very
unfair!

 

S — I appreciate this.  But often when a few members commit
misconduct, the society perceives the entire profession as unethical. Then your
professional brothers also suffer for no reason.

 

A — True, we do slog in updating our
knowledge, delivering the quality.  But
one factor is beyond our control.   We
became helpless.

 

S — What is that?

 

A — Corruption!  Wherever we go, corruption gives frustration
to us.

 

S — It is difficult to disagree with
you.  But what do you mean by corruption?

 

A — Bribery! 
Even if a case is hundred per cent perfect, it does not reach finality
without some greesing. Professionals are made helpless.

 

S — What if you refuse?

 

A —The authorities have tremendous nuisance
value.  They can make one’s life
miserable if their demand is not ‘satisfied’, and client gets scared as his
business is disrupted.  In spite of
representing the case perfectly, the client gets an impression that the case
gets ‘settled’ by money and not by merits of our presentation!

 

S — Do you feel bribery is the only form of
corruption?  Any compromise on principles
for a personal gain is corruption.

 

A — What do you mean?

 

S — Have there been times when you sign a accounts
without diligently verifying its correctness, or sometimes even knowing the
deficiencies in the accounts?  And you
take fees.  Is it not corruption?

 

A — It is a point worth thinking about!

 

S — Arjun, corruption is of thoughts
also.  Tell me, you CAs are perceived to
be those who can ‘manage’ things!  Many a
time it is perceived that, you people help find loopholes in the laws. .

 

A — Yes. 
I have also experienced that.  It
is very painful as most of us are not of that sort.

 

S — So, you need to introspect.  Just think, you people manage even your ‘CPE’
hours!  Some pay the seminar fees; but
often not remain present.  Even if you
are physically present, you enjoy your ‘siesta’.  Is it not ‘corruption’?

 

A — Lord, now don’t give me any more
instances!  I feel more and more guilty;
if not ashamed!  We are burdened by so
much unnecessary and useless matters and are surrounded by such imperfections
of the society such as complicated legal systems. Tell me what is the solution?

 

S — Unity amongst yourselves and strong
leadership.  Don’t allow it to be a
spineless profession.  You need courage
to stand up and fight.  After all you are
financial ‘police’.  You cannot help or
ignore the thieves!

 

A — We also need strong leaders.

 

S — How can you expect strong
leadership?  Even your elections are
fought on the basis of caste, community, language and such irrelevant factors
whereas merit and motivation to serve should be the sole criteria.  This, I say, is corruption of ‘thoughts’.

 

A — I agree that we can bring about the
change only by united action with strong leadership.  It will be my ‘New Year Resolution” for 2019!

 

S — New Year Resolutions are never acted
upon.  Take it as life mission!  Then only you will get ‘Divine Support and
blessings’!

 

A — Yes Bhagwan.

 

Om Shanti

This dialogue is meant for reinforcing the
importance of ethics and the need for unity to achieve the triumph of
righteousness over evil.

Ethics and You

Arjun
(A) — (chanting bhajan) Ram Krishna Hari ! Ram Krishna Hari ! (opens his
eyes and looks around in despair)

 

A — O
Lord ! Where are you? Please save me ! Please save me ! Ram Krishna Hari !

 

Shrikrishna
(S) — (appears with a smiling face) Re Arjun, you are chanting my bhajan
today. Anything special?

 

A — What else can we do?

 

S — Why? You said, in July you don’t have time even to
think about me. I avoided meeting you in July. You remembered me. So I had to
come.

 

A —This time there is a penalty for late filing of tax
returns. But clients did not turn up with data. They take it casually.

 

S — Yes. All of them must have flocked in during last
week of July.

 

A — Yes. As if each one of them is our only client !

 

S — But this is your annual ritual to keep crying !
Nothing new about it. I think, you are afraid of something else.

 

A — You are right ! Truly, you are ‘antargyani’.
You can read our minds. Many of my friends wanted to fall on your feet. They
want to surrender before you !

 

S — Surrender what? Certificate of practice?

 

A — May be, you can’t rule it out !

 

S — How can you run away from your profession? It’s your
mission !

 

A — But this mission has become ‘bheeshan’ –
horrifying !

 

S — What happened? Some new draconian law has come?

 

A — No Lord ! Same law; but new approach. Full of
prejudice and negativity.

 

Really, don’t understand what to do. ‘To practice or not
to practice’ —— that is the question.

 

S — Oh ! you are talking like Hamlet. But why this
dilemma after so many years? I remember, you were in a similar dilemma before
Mahabharata War.

 

A — Absolutely true. The regulation is so much that we
cannot cope up with it.

 

S — If you are a small practitioner, all this will always
keep on frightening you. Grow Big, Arjun, you must think Big !

 

A — Bhagwan, I am talking about ‘Big’ CAs only.
Many of the big CA firms have left the audit assignments of big corporates which
they were doing for number of years !

 

S — Surprising ! What made them do so?

 

A — Fear ! Every CA is now finding the profession very
risky. Whatever you do, there is some flaw or the other. And now it is becoming
fatal.

 

S — But why such sudden change?

 

A — It is change of attitude of Government. Change of
approach of regulators. All these years, we were watchdogs, but now they want
us to be blood-hounds.

 

S — So, all of you need to be ‘Duryodhana’ and not
‘Yudhishthira’. You need to be always suspicious; smelling some foul.

 

A — You said it ! We can’t afford to remain as mere
auditors; but need to act as investigators. Businessmen – our clients – are
never hundred percent honest. They cannot survive with honesty. Government
forces them to be dishonest.

 

S — And they pay you fees to audit their accounts ! And
Government wants you to be ‘independent’ ! Interesting !

 

A — And real problem is that the businessmen will never
mend their ways. They have to commit irregularities. So all those
irregularities, these auditors have tolerated for years ! Now, it is difficult
to continue the audits knowing the irregularities. At the same time, you cannot
discontinue by stating this reason ! Then you are fully exposed ! Very
difficult situation. Catch 22 !

 

S — So you need to be more diligent; more organised; more
pro-active; and more bold.

 

A—But if we start doing the audit in this ‘ideal’
fashion, we will land up completing only one year’s audit over a period of 2 to
3 years ! !

 

S — I think, we need to discuss it more; but not now. I
am busy in regulating the monsoon, it has started behaving strangely !

 

A — The ship of our profession is in the troubled waters.
YOU ALONE can steer it through!

 

NOTE: The above
dialogue is describing the current scenario and the dilemma faced by audit
profession.  

 

ETHICS AND U

Shrikrishna
— Arrey Arjun, I am waiting for you for a long time. Why so much delay?

 

Arjun
— What to tell you, Bhagwan! A most disorganised client who has no
discipline at all was with me.

 

Shrikrishna
— He must be in financial stress.

 

Arjun
— Exactly. He wants to apply for some loan and wanted his balance sheet of 31st
March, 2019 instantly!

 

Shrikrishna
— But are the accounts ready?

 

Arjun
— That’s the main problem. Somehow, he has got it done. Volume is not much and
it is a private limited company.

 

Shrikrishna
— Have you signed his balance sheet?

 

Arjun
— Yes, I was helpless.

 

Shrikrishna
— Did you obtain signatures of at least two directors?

 

Arjun
— It was a fire-fighting situation. I have signed in good faith. One of the
directors has signed. The other one will sign it later.

 

Shrikrishna
— This good faith is very dangerous. There are cases where the other director
refused to sign due to dispute between them. Result – the auditor was held
guilty.

 

Arjun
— Oh my God! But these are nice people. They won’t ditch me.

 

Shrikrishna
— Don’t be overconfident. Don’t take things for granted. This is kaliyug
and anything can happen. What about the other directors of the private company?

 

Arjun
— Actually, there are four directors. But only two are active.

 

Shrikrishna
— That is an additional risk. What is important is the approval of accounts in
the board meeting. Signing by two or three directors is consequential. The
board approves the accounts and authorises two or three of them to sign the
accounts on behalf of the company. This is extremely important. You must obtain
a confirmation that the board has approved the accounts.

 

Arjun
— Oh, really? We have never obtained such confirmations.

 

Shrikrishna
— It has been held to be a misconduct. Another important thing, have you issued
the audit report?

 

Arjun
— Yes, they wanted it. My assistant just changed the year in last year’s
report. It was a copy-paste as there was virtually no activity.

 

Shrikrishna
— Are you sure that no change was required?

 

Arjun
— Overall, I saw facts and figures were practically the same.

 

Shrikrishna
— My dear Arjun, are you aware that the format of company audit report
has been changed?

 

Arjun
— No. When was it changed? Is the change applicable to accounts for the year
ended on 31st March, 2019?

 

Shrikrishna
— It is very much applicable to accounts for the year ended on 31st
March, 2019. The changes are not very significant. Three standards have been
revised and one is newly introduced. Go rush and hold that report before it is
released. Arjun, I never expected you to be so negligent.

 

Arjun
— What to do? My colleagues are enjoying their vacation. Senior articles are on
exam leave. Exams were postponed due to Lok Sabha elections. I am fighting all
alone.

 

Shrikrishna
— You must now gear up for the audits for the year ended on 31st
March, 2019. Please try to implement all those things which you have so far
taken very lightly.

 

Arjun
— Like what?

 

Shrikrishna
— Writing for independent confirmations of balances of debtors, creditors,
loans, banks and so on. Also you need to carefully maintain the working papers.
Moreover, also ask the companies to update their registers of directors,
shareholders; and also minutes of meetings.

 

Arjun
— I agree. We have been taking these things lightly. But now we cannot afford
to continue to do so. Audit is becoming more demanding. We need to change.
Thank you for opening my eyes.

Shrikrishna
— Take care.

 

!!Om Shanti!!  

 

[This dialogue is in the
context of the recent changes in company audit reports; new SAs and general
preparation for ensuring audits. Standard on Auditing 700, 705 and 706 have
been revised and Standard on Auditing 701 is newly introduced.]

ETHICS AND U

CA and Social Conduct

 

Arjun (A) — Oh Lord, It
is now becoming too much!  Simply
unbearable!

 

Shrikrishna — Arjun,
What are you talking about? Heat?

 

A — No.

 

S —Then,
compliances? Corruption?.

 

A —
No Bhagwan. I am talking about Supreme Court decision. There is no logic
only.

 

S —
But this is the case with many decisions of the Courts.  Why are you wasting your time and energy in
finding out any logic in the decisions?

 

A —
They do give some logic. But quite often, it is hard to agree with it.

 

S —So,
you always can use the expression ‘with due respect…………..’.

 

A —
Jokes apart.  I am referring to a Supreme
Court decision in the case of Council of the Institute of Chartered Accountants
of India vs. Shri Gurvinder Singh & ANR delivered on November 16, 2018.

 

S —
What does it say?

 

A —
It says even the personal or private behaviour of a CA is subjected to
disciplinary mechanism! It need not be a misconduct committed in the course of
carrying out the profession.

 

S —
Then, what is wrong about it?

 

A —
How do you say so? How is ICAI concerned with our private affairs? I may do
anything in my personal life. So long as I am discharging my professional
duties diligently, who can be aggrieved?

 

S —
You are mistaken, Paarth! Have you ever read your Chartered Accountants’
Act?

 

A —
I read it at the time of my exam 25 years ago! Why? Is there any amendment?

 

S —
Yes. To some extent there is an effect of Amendment in the year 2006. But this
particular provision was there right since the beginning.

 

A —
I never noticed it.

 

S —
Paarth, you know that the term ‘misconduct’ is defined in section 22
of the Act. The heading itself says ‘professional or other misconduct
defined’.

 

A —
Let me see. Oh! But I will have to hunt for the Act.  I may have lost my copy. Ever since I
qualified, I have never seen it!

 

S —
Ironical but that’s the case with almost all the CAs.

 

A —
True. Ok, tell me what it says?

 

S —
It says – professional or other misconduct includes any act or omission listed
in the 2 schedules of the Act.  Over and
above this, it also gives wide powers to the Director Discipline to inquire
into the conduct of any member under any other circumstances.

 

A —
Oh! That means it is all pervasive. But why so?

 

S —
Arjun, it is very simple. If you misbehave anywhere, how is it reported in the
news? ‘CA caught red-handed in doing ______’ Is it not?

 

A —
Yes. Like bribery, money laundering, falsification of documents; and even other
crimes.

 

S — Doesn’t
it bring disrepute to the profession? By your professional misconduct, normally
a few clients or revenue authorities or banks may be aggrieved. But by such other
misconduct, entire profession’s image is tarnished.

 

A —
So, what kind of misconduct is covered under this expression?

 

S —
Many items! It includes even the case of dowry, breaking other laws,
violence, cheating, issuing cheques without adequate balance,
misrepresentation, so on and so forth!

 

A —
Even traffic rules?

 

S —
Of course, yes. If it is recurring affair! Even quarrelling in public
places, obscene behaviour – and what not! Of course, it will depend on
facts.

 

A — But
then, what was the amendment?

 

S —
Previously, other misconduct was a general term – meaning – behaviour
unbecoming of a professional! As a professional, you are expected to maintain
certain standards of behaviour in personal as well as public life. Only then
the credibility and respectability can remain.

 

A —
Agreed. But what is the amendment?

 

S —
They have now codified it by adding clause (2) in Part IV of first schedule. It says the act of a CA that brings disrepute to
the profession or the Institute by his action, whether or not related to his
professional work.

 

A —
Oh! So, it is clear.

 

S —
Further, if a CA is held guilty by any civil or criminal court for any offence
which is punishable with imprisonment, that is also a misconduct.

 

A —
Bhagwan, now I have understood. So, the Apex Court was right, since the law is
clear. I am also convinced about the logic behind it. Thank you Lord.

 

S —
So, take care in all your personal affairs too!

 

A —
Yes, I will.

 

Om Shanti!

 

This dialogue is based on the following:-

 

i)     Supreme Court decision in the case of Council of the
Institute of Chartered Accountants of India vs. Shri Gurvinder Singh & ANR delivered
on November 16, 2018


ii)    Section 22 of CA Act – Professional or
other misconduct defined

 

For the purpose of this
Act, the expression ‘professional or other misconduct’ shall be deemed to
include any act or mission provided in any of the Schedules. But nothing in
this Section shall be construed to limit or abridge in any way the power
conferred or duty cast on the Director (Discipline) under sub-section (1) of
section 21 to enquire into the conduct of any member of the Institute under any
other circumstances’.

 

iii)    Other misconduct in relation to members of the Institute
generally:


Items (91) and (2) of Part
IV of First Schedule.


1.    Is held guilty by any civil or criminal court for an offence
which is punishable with imprisonment for a term not exceeding six months;


2.    In the opinion or the Council, brings disrepute to the
profession or the Institute as a result of his action whether or not related to
his professional work.

 

iv)   Part III of Second Schedule

 

A member of the Institute,
whether in practice or not, shall be deemed to be guilty or other misconduct, if
he is held guilty by any civil or criminal court for an offence which is
punishable with imprisonment for a term exceeding six months.

ETHICS AND U

Arjun: Hari
Om Hari! Hari Om Hari! Hey Bhagwan, when is this lockdown going to
end? When will this Corona go away?

 

Shrikrishna:
Arjun, open your eyes. You are chanting my bhajan and murmuring
something. Hope everything is fine at home?

 

Arjun:
At home? I am fed up of this house arrest. Both Draupadi and Subhadra are
making me do all the household work. Sweeping the floor, cleaning the utensils,
helping in cooking…

 

Shrikrishna:
But you are familiar with all this!

 

Arjun:
What do you mean?

 

Shrikrishna:
You yourself keep saying – in office, you have to clean up the mess in the
clients’ accounts, you have to window-dress them and make them presentable…

 

Arjun:
Ha! Ha! True. But tell me, when are our offices going to restart functioning?

 

Shrikrishna:
Why? Do you think that you cannot function from home? You people talk of Work
from Home, don’t you?

 

Arjun:
Yes, but there is a limit to that. Work cannot be completed sitting at home.
Our staff is not available, clients’ data is not coming since their accountants
are also not attending work. Everything is paralysed.

 

Shrikrishna:
But in your management studies, you talk of converting problems into
opportunities. Now why don’t you implement those great ideas?

 

Arjun: All
that is all right in seminars in posh hotels. In practical life, it is
difficult.

 

Shrikrishna:
But have you even applied your mind to what fruitful things could be done?
There are many new things coming up in the field of ethics. Those are all very
essential for you to understand.

Arjun:
Really? How can I know them? Tell me some highlights at least.

 

Shrikrishna:
Arjun, during this lockdown, I have been meeting people almost every day and
telling them the principles of ethics.

 

Arjun: Don’t tell me! Then why
didn’t you come to my house?

 

Shrikrishna:
Arjun, on your television sets I am coming so frequently in different forms and
characters, Vishnu, Ram, Krishna, Yudhishthira, Bhishma through all those
serials. There I teach nothing but ethics.

 

Arjun: Yes.
But those serials are meant for children and retired people. Practical life
mein uska koi fayda nahi!

 

Shrikrishna:
You are mistaken, Paarth. Now, even internationally your ethics are
getting strengthened. Finance field mein paap bahut badh gaya hai. It
was you peoples’ job to control it, but instead you encouraged it. In
Mahabharata you Pandavas fought against the Kauravas; but now you are acting
hand-in-glove with them.

 

Arjun: Just
as you preached me the Geeta in the Mahabharata war, please explain to
me what is the new Geeta in our Code of Ethics.

 

Shrikrishna:
For this, you should know that your Institute has come out with three new
volumes of books on New Code of Ethics. The First Volume covers the
International Ethical Standards adapted by the Institute. It was earlier known
as Part A.

 

Arjun:
And the other two volumes?

 

Shrikrishna:
The Second Volume is the old Part B, but significantly revised. It contains
your CA Act, Rules, Regulations, ICAI pronouncements, notifications, guidelines
and so on, on ethics. And Volume 3 is the compilation of case laws.

 

Arjun:
Oh! So much new literature! But tell me any single item which is very
important.

Shrikrishna: One point
directly relevant to you is that now you can communicate with the previous
auditor on email. Earlier, only registered post was allowed or recommended.

 

Arjun:
But which email ID?

 

Shrikrishna:
The ID which is registered with the ICAI. In case you mail on his
ID known to you, but the previous auditor does not respond to your email, you
can get the ID from the ICAI.

 

Arjun:
Anything more important on this formality?

 

Shrikrishna:
This is not a mere formality. It is to protect your own interest. Further, if
the incoming auditor inquires about any negative findings in the audit, the
previous auditor is duty-bound to supply the important points to the incoming
auditor.

 

Arjun: Oh!

 

Shrikrishna:
Are you aware that during the lockdown the focus of all your
webinars has been on Ethics and Standards on Auditing (SAs). This has become
mandatory in your CPE hours.

 

Arjun:
I heard of this. But who has time to listen to all these things!

 

Shrikrishna:
Arrey! Just now you were saying you are sitting idle at home. Then why
don’t you listen to these useful presentations? You people ‘manage’ even your
CPE hours by just joining the webinars but never seriously listening.

 

Arjun:
Yes, Lord. What you say is right. But in our next few meetings please tell me
the highlights of this new Code of Ethics.

 

Shrikrishna:
Yes, Paarth. It will be my pleasure to do so.

 

Om Shanti

This
dialogue is based on the basic idea of the New Code of Ethics which is expected
to be effective from 1st July, 2020. The next few write-ups will be
on important contents of the New Code.  

 

ETHICS AND U

Arjun: Oh my
Lord, please save me! Please save me! I totally surrender to Thee!

           

Shrikrishna: (Smiling);
Arrey Arjun, what happened? What is your panic about?

           

Arjun: Last time
you mentioned something about NOCLAR and I asked you whether it was some
disease. It really made me uneasy.

           

Shrikrishna: You are
talking about disease. Today, the only disease the world over is Corona!

           

Arjun: I am not
afraid of Corona. It will come and go but NOCLAR will stay forever on our
heads. Or even if Corona comes to me, I will myself go. So, no worries!

           

Shrikrishna: Ha! Ha!
Ha!

           

Arjun: Since you
have mentioned about Corona, tell me, how long will it stay? Can it be a good
excuse for seeking extension of time for payment of taxes?

           

Shrikrishna: (laughs)
Wah, Arjun! You are constantly thinking of extension of deadlines only. When
are you going to improve?

           

Arjun: Anyway,
tell me something more about NOCLAR.

           

Shrikrishna: See, this
is basically connected with the fundamental principles of integrity and
professional behaviour.

           

Arjun: But
reporting on non-compliances is dangerous. Both the entity as well as the
‘auditor’ will get into trouble.

           

Shrikrishna: Why? If
an accountant or auditor takes cognisance of it and acts accordingly, then
there is no problem for him.

           

Arjun: Agreed.
But the same non-compliances could be there in earlier years, too. And the CA
may not have reported on it.

           

Shrikrishna: But
Arjun, you need to start somewhere. Better late than never.

           

Arjun: But the
company will be ruined.

           

Shrikrishna: No,
Arjun, don’t jump to conclusions. Actually, it is meant for the betterment of
the company. It can take timely steps to set things right. Non-compliances
cannot continue perpetually. Some defaults, if continued, can cause serious
damage. They may lead to huge losses and penal consequences.

           

Arjun: True. We
are required to report on ‘going concern’. The non-compliances will soon make
the company itself ‘go away’.

           

Shrikrishna: You said
it! It’s like your health. Early detection of disease increases the chances of
cure – including diseases like cancer. For that matter, even Corona.

           

Arjun: But tell
me, what exactly are we supposed to do if we come across such non-compliance?

           

Shrikrishna: Look, if
you give early signals to the management, the serious damage can be avoided.
This will enhance the reputation of your profession. Look at the positive
aspect, my dear.

           

Arjun: Yes, I
agree. But tell me, how to tackle the situation?

           

Shrikrishna: In a few
situations NOCLAR may not apply – like where the default is minor and
inconsequential, more like a simple traffic offence or personal misbehaviour of
an employee.

           

Arjun: Yes. But
should we always qualify our report?

           

Shrikrishna: Not
necessarily. First, remember that it is not your duty to seek or search for
non-compliances. It should be the ones which you come across in the course of
your work.

           

Arjun: Good.

 

Shrikrishna: Then you
need to understand the matter well. Discuss it with the management or you may
seek legal opinion. Discuss and then decide whether any further action is
required.

           

Arjun: But what
if the management does not listen?

           

Shrikrishna: That is
more likely. Then create the evidence that you have drawn their attention. If
it is serious, then decide whether to report it to the appropriate authority.
But for all this, keep your documents perfectly in order in terms of the
relevant standard of auditing.

Arjun: Okay.
Understood. So, we need to tackle it tactfully, with a cool-head. We need not
panic nor rush to take further steps.

           

Shrikrishna: And in an
extreme situation you may even withdraw from the assignment.

           

Arjun: That’s a
good piece of advice! Thank you for enlightening me as usual.

 

Om Shanti

This
dialogue is a continuation of the concept of NOCLAR

   

     


ETHICS AND U

Shrikrishna: Arjun, are you reading something? Shall we meet later?

Arjun: Bhagwan, please don’t say so. There is nothing more important in
my life than meeting you! Good that you came.

Shrikrishna: Why? What are you reading? I rarely see you referring to any book. Oh!
It’s a dictionary!

Arjun: Yes. Looking for a very strange word. I referred to three dictionaries,
but did not find it. It is an English word NOCLAR.

Shrikrishna: Where did you come across it?

Arjun: Yesterday, in some CPE seminar everybody around was talking about it.
They said it is very serious. Something like a disease.

Shrikrishna: (laughs) It is not a disease, but it will certainly make one Un-easy.

Arjun: What is it about? Is it going to add to our thankless burdens?

Shrikrishna: Yes, to some extent. It depends on how you take it.

Arjun: But why is that word not there in any dictionary?

Shrikrishna: Dear Paarth, it is only an acronym like your CARO. It means your
response to ‘Non-Compliances with Laws and Regulations’.

Arjun: Oh! Interesting. But wherever we go for audit, we see nothing but
non-compliance only. Anyway, what are we supposed to do then?

Shrikrishna: See, you know IESBA?

Arjun: Who is this ‘Yesba’?

Shrikrishna: (smiles) He is not a
person but a body – called International Ethics Standards Board for
Accountants. They issue guidelines for the Public Accountants (PA’s).

Arjun: Yes, our ICAI also has an ESB. What next?

Shrikrishna: While doing the audit or any other work of a company, if you come
across any non-compliance with any law or regulation which is of a very serious
nature, or which is illegal, then the question is how does a PA respond to it?
Whether he should act as a whistle-blower and expose the illegalities, or just
keep quiet?

Arjun: To tell you the truth, all these years, we CA’s have been keeping quiet
only. We never had the courage to speak out. That is why we are taken for a
ride.

Shrikrishna: I understand. You have a fear that you will lose your client. There is
a feeling of insecurity among the practising accountants like you. But remember
that NOCLAR applies not only to practising CAs, but it also covers the
accountants in employment.

Arjun: Baap-re! This is even more dangerous. Many accountants will have
to quit their jobs.

Shrikrishna: As an enlightened citizen and professional you cannot turn a blind eye
to the illegalities.

Arjun: That is exactly what Dhrutarashtra Uncle did in Mahabharata. If
he had done his duty conscientiously, the entire war and disaster could have
been avoided.

Shrikrishna: Wah, Arjun. What an apt example! That means you have understood
what NOCLAR is… I don’t have to explain it to you any further.

Arjun: No, Bhagwan, you can’t leave just like that. Please tell me what
exactly we are supposed to do? Since when will it be applicable? Where is it to
be reported? Does it cover fraud, corruption and bribery? Does it also include
money laundering? You need to tell me all this.

Shrikrishna: (smiles) Yes, dear. We need to discuss it in detail. All accountants
are now worried as to how they should tackle this. It will be very embarrassing
for anyone to expose the illegalities of the clients. It will be a serious threat
to the client as well as to the accountant.

Arjun: If it is so damaging then why bring this regulation at all.

Shrikrishna: Remember, Arjun, your
client as well as you yourself are a part of the society and the country. A company may have its vested self-interest in doing illegal acts. You as
auditors or service providers are indirect beneficiaries of the client’s business. But one must see whether such
illegal or irregular acts can be sustained by a client for a long time. Some
day or the other, the irregularities are bound to get exposed. Such acts cause
irreparable damage to the society and the country. If educated professionals
like you overlook or ignore these things, then you are breaching the trust
reposed in you. If such things continue, the social atmosphere will continue to
worsen.

Arjun: I agree. Is this the reason why some big firms are giving up a few
audit assignments? This is all very interesting. Tell me further.

Shrikrishna: I’m in a hurry. You please read it yourself. We will discuss it again
next time.

Om Shanti

 

This dialogue
is based on the new concept emerging in the profession – NOCLAR.

 

            

 

ETHICS AND U

Arjun: Hey Bhagwan, you have a habit of staying too close to your Bhaktas
(devotees). But I request you to please keep yourself a little away from me.

 

Shrikrishna (smiling): Why? Anything wrong with me? Or with you?

 

Arjun: No. But better to maintain social distancing in this corona pandemic.

 

Shrikrishna: Arrey Arjun, this pandemic has occurred only because you people
have kept ME at a distance. Come close to ME and you will be free from all
worries.

 

Arjun: Really? But you keep on causing headaches to us by talking about this Code
of Ethics. You were telling me about the New Code of Ethics. Good that the New
Code has come now.

 

Shrikrishna: Oh, surprising! You were always cursing the Code of Ethics and how is it
that even without knowing about the New Code, you say it is good?

 

Arjun: Yes. As it is we never studied the old code seriously. Whatever we learnt
at the time of the exam, we have forgotten. Now we can directly go for the New
Code.

 

Shrikrishna (smiling): No, Arjun. The New Code is not replacing the old code. It is in
addition to the existing code, with some changes.

 

Arjun: Oh my God! Actually, I am fed up with these virtual meetings of study
circles. Every alternate day they are boring us with this New Code.

 

Shrikrishna: Last time I had started telling you about the New Code, and you wanted to
know more.

 

Arjun: Yes. Instead of listening to those lectures, it is better that you tell me
about it. I register there just to
get CPE.

 

Shrikrishna: That is unethical, Paarth. You are not truthful to yourself!

 

Arjun: Anyway, tell me, the New Code has become effective from 1st of
July, right?

 

Shrikrishna: Yes. But the good news for you is that some of the aspects have been
deferred.

 

Arjun: Arrey
waah! Very good. So no need to know about them!
What are those topics?

 

Shrikrishna:
Last time I told you about NOCLAR.

 

Arjun: Yes, non-compliance of Laws and Regulations.

 

Shrikrishna: Yes. Basically it was applicable only to the listed companies. But it has
been deferred.

 

Arjun: What next?

 

Shrikrishna: The one of your interest is about the taxation services to audit clients.

 

Arjun: Good. And what was that 15% fees point?

 

Shrikrishna: If out of your total
fees, more than 15% is received from one single audit client for two
successive years, then you need to communicate it to that client.

 

Arjun: And what will the client do? Will he remove us? What is the logic?

 

Shrikrishna: See, you should not be independent but appear to be
independent. If you are heavily depending on one single client, you are likely
to compromise on the quality of audit. It is a self-interest threat.

 

Arjun: True. You need to broad-base your practice.

 

Shrikrishna: So, for example, your major fee, say 60 to 70%, is from one audit client,
you are supposed to tell this to that client and demonstrate that you are truly
independent.

 

Arjun: What else is postponed?

 

Shrikrishna: The non-audit services like management consultancy services to the audit
client. Similarly, under Indian circumstances, auditors are commonly rendering
taxation services. So that is also deferred.

 

Arjun: Any more postponement so that we don’t need to bother about it?

 

Shrikrishna: The independence standards which were adapted from the International
Ethical Standards have also been deferred.

 

Arjun: Good. Now next time please tell me what is immediately implemented. We
will keep that in mind while doing this year’s audit.

 

Shrikrishna: Yes, dear. Surely, I will.

 

Om Shanti!

 

Note: This
dialogue is based on implementation of the New Code of Ethics w.e.f. 1st
July, 2020.




One who is bent on courting his death will not take kindly to
sage counsel given by his well-wishers
—  (Valmiki Raamaayan 3.53.17)

ETHICS AND U

Shrikrishna:
Paarth, are you having a headache?

 

Arjun:
Lord, in our practice there is nothing but headache.

 

Shrikrishna:
So what’s new that has happened? Tax deadline? No Extension?

 

Arjun:
That is a routine headache, an annual feature. But other ethical headaches are
increasing.

 

Shrikrishna:‘Ethical’
headaches?

 

Arjun:
Yes. Relating to our Code of Ethics. Whatever you do, there is some
contravention or other. I wonder how we can continue in the profession.

 

Shrikrishna:
Tell me, what’s the problem.

 

Arjun:
See, Bhagwan, we need to cater to a large
number of clients who are not very organised in terms of accounting and
record-keeping.

 

Shrikrishna:
Even in large corporates there is a mess in accounts. But in a ‘posh’
environment it gets concealed.

 

Arjun:
True. But these small people – SMEs, societies, trusts. Such clients do not
have regular accountants. They are not willing to appoint anyone and also
cannot afford them.

 

Shrikrishna:
Yes, I’m aware. But that is their problem. Why are you bothered?

 

Arjun:
Bhagwan, we need to certify their
accounts and sign the audit.

 

Shrikrishna:
Tell them that unless your accounts are proper, we cannot do the audit. Do they
at least pay your fees?

 

Arjun:
Don’t ask me! Fees they pay next year. But it is also our social work.

 

Shrikrishna:
What exactly is the difficulty?

Arjun:
The clients expect us to suggest some person to do up their
accounts.

 

Shrikrishna:
It is a patch-work. Not a long-term solution.

 

Arjun:
Right. This problem arises every year at the time of audit. We are helpless. So
we ask someone from our circle to write the accounts, or make up the
differences.

 

Shrikrishna:
What do you mean by ‘someone from our circle’?

 

Arjun:
It may be our employees or ex-employees, or someone does the accounts of our
other clients.

 

Shrikrishna:
I know. There are many such persons who write accounts and simply
take your signature on the audit.

 

Arjun:
Yes. That’s very common.

 

Shrikrishna: And you sign the accounts blindly. In good faith.

 

Arjun:
Yes, Bhagwan, you know
all our trade secrets! That signing gives us even more headaches. But I am
talking about something else here.

 

Shrikrishna:
And what is that?

 

Arjun:
When it comes to billing, our CA members raise a common invoice of audit and
accounting.

 

Shrikrishna:
Oh! That’s dangerous. You cannot render accounting services to
your audit client.

 

Arjun:
Yes. Our members also take it casually. And what they do is that after
recovering the amount from the client, they don’t pay separate cheques to the
accounts person. That makes things even worse.

 

Shrikrishna:
Oh! And many may be saying that they paid in cash?

 

Arjun:
You said it! That is the problem.

 

Shrikrishna:
It is all the more dangerous if that person is your own employee,
part-time or full-time, whatever.

 

Arjun:
And in any case, billing should not be common. So your social
service invites trouble for you.

 

Shrikrishna:
So, what is the lesson you learn?

– Insist
on the clients to get organised.

– Insist
on their appointing their own man for accounts.

– Do
not raise a common invoice even by mistake.

– For
any reason, if his payment is routed through you, make proper documentation and cheque entries.

– Insist
on that person raising a separate bill.

 

Arjun:
There is one more difficulty. Section 34 of the Maharashtra Public Trusts Act
is very strange. It says the final accounts shall be prepared and submitted to
the Charity Commissioner by the auditor!

 

Shrikrishna:
Oh! There is a special reason for this. You should know the
history behind it. When these laws were framed the lawmakers believed that the
managing bodies of trusts and societies would consist of social workers. They
would not afford trained and qualified staff and the services of a
professional. So it was thought that an auditor would act as a friend,
philosopher and guide. But the times have changed.

 

Arjun:
True. Now, the regulators should review the whole situation. The leniency shown
earlier to trusts and societies should no longer continue.

 

Shrikrishna: Whatever
it may be, but as a professional it is your duty to take care. Don’t act in a
loose manner.

 

Arjun:
Yes, Bhagwan!

 

Om
Shanti!

           

(This
dialogue is based on conflict of interest-maker checker principle, Council
guideline. Contravention of any guideline is misconduct under Item No. 1 Part
II of second schedule to the CA Act.)

 

 

ETHICS AND U

Shrikrishna:
Yes, my dear Arjun, how was Diwali? Any special purchases for Draupadi and
Subhadra?

 

Arjun:
Lord, due to this Covid-19 created by you, our coffers are empty. No money.
Running hand to mouth.

 

Shrikrishna:
I created Covid?

 

Arjun:
Who else? You are the Doer and Undoer of everything. Creator and Destroyer,
both.

 

Shrikrishna:
No, Arjun. I don’t create any pandemic. It is you mortals that invite
everything by your acts. It is a fruit of your karma. Anyway, how is
office going on? Still working from home?

 

Arjun:
Yes, Lord. In Mumbai, without local trains activity gets paralysed for a common
man. Staff cannot attend office. Efficiency is hampered.

 

Shrikrishna:
Why? One gets ample time at home.

 

Arjun:
Correct; but other necessary references are not readily available. But forget
that, I am disturbed due to another serious problem.

 

Shrikrishna:
What is that?

 

Arjun: See.
There is always last minute rush in our offices. Many complicated and delicate
issues arise in many cases. There is a dilemma as to what stand to take.

 

Shrikrishna:
Agreed. Even in the Mahabharat war you were faced with the dilemma – to
fight or not to fight! It’s a part of life.

 

Arjun: But
in our case it is all the more difficult. It is a daily phenomenon.

 

Shrikrishna:
Then take some expert advice. Discuss with the client.

 

Arjun:
That’s the problem, Bhagwan. There is no time. It is like fire-fighting.
So, ultimately we take a stand on our own and go ahead.

 

Shrikrishna:
So then…?

 

Arjun:
If anything goes wrong, the clients start blaming us. They speak from both the
sides. Actually, we take a decision which we honestly think is for the client’s
benefit.

 

Shrikrishna:
Agreed. But you have no control over the outcome. If it clicks, no one gives
credit, but if it misfires, you are to be hanged.

 

Arjun:
You said it! What to do?

 

Shrikrishna:
I see there are two reasons for such a situation. Firstly, you are not
proactive. Why the last minute rush every year? Secondly, you don’t communicate
with the client in time and involve him in the decision. Explain the pros and
cons.

 

Arjun:
But they say, it’s left to us.

 

Shrikrishna:
Fine. But then, they cannot blame you later. They were given an opportunity.

 

Arjun:
I remember, in the war also, you used to give opportunity to everyone before we
killed them!

 

Shrikrishna:
Moreover, please keep your role clearly in mind. You are an adviser and not the
decision-maker. Don’t step into the shoes of the client.

 

Arjun:
Just see, for example, there is the Vivad se Vishwas scheme of the tax
department. In many cases, appeals are dicey. Out of several grounds, a few are
strong, others very weak.

 

Shrikrishna:
Then you should communicate to the clients well in time about the scheme, what
are the merits, what are the stakes involved and take them into confidence.
Perhaps, they can also suggest something useful.

 

Arjun:
I agree. I must do this right away. Actually, the last date is 31st
December.

Shrikrishna:
Even in the tax audits and returns, you anticipate the issues of dilemma in
major cases. Start thinking immediately. Obtain experts’ views.

 

Arjun: I will do it on priority
basis. A few of my friends have received complaints made by clients to the
Council. They say, the CA took decisions directly without informing them!

 

Shrikrishna:
Remember, after explaining my full philosophy in the Bhagavad Geeta, I
asked you whether you have understood what I was saying; and then asked you to
take your own decision, use your own discretion. I said(‘yathechchhasi tathaa kuru’).

 

Arjun:
Yes, Bhagwan. I will use my discretion and act.

 

Om Shanti!

 

(This
dialogue is based on understanding clearly the role of a professional, and the
importance of timely communication with the client while taking any stand.).
  

ETHICS AND U

Shrikrishna: Parth, you are
looking in a cheerful mood today! Quite unusual.

 

Arjun: Why?

 

Shrikrishna: Normally, in September
you are always stressed, depressed and nervous. This is the time you are always
busy longing for extension of the tax deadline.

 

Arjun:
You’re right! But this year, for tax returns the date is already extended. Now,
the company’s AGM dates have also got extended. So, relaxing.

 

Shrikrishna: And what about staff?
Articles?

 

Arjun: That is always a problem. But due to Covid
everybody is pretending to be working from home. Normally, we are quite used to
articles remaining at home on exam leave. But this year even the exam schedule
is a big question mark.

 

Shrikrishna: I think the May exam is
already cancelled.

 

Arjun: We wonder how to cope with this situation.

 

Shrikrishna: Actually, this is a good
opportunity to improve upon the quality of audit.

 

Arjun: How? We are somehow managing the ‘virtual’
audit on scanned documents.

 

Shrikrishna: That’s OK. But today you
are having some peaceful time to do things which are necessary but you can’t do
due to fire-fighting.

 

Arjun: Like what?

 

Shrikrishna: Real updating of
knowledge, not merely CPE hours.

 

Arjun: What do you mean?

 

Shrikrishna: See, in your audit text
book you studied many things. How far are you implementing them? All these new
standards of accounting are nothing but an elaboration and refinement of those
basic principles.

 

Arjun: Give me some examples.

 

Shrikrishna: You are supposed to have
a permanent audit file of each client. Do you have it? Have you ever read the
basic formation documents like Memorandum of Articles of companies,
constitution and bylaws of societies, Trust Deeds…?

 

Arjun: I am not sure whether we really have these
basic documents on our record. They might have been taken perhaps decades ago.

 

Shrikrishna: Have you ever seriously
looked into the secretarial records of companies – like minutes, notices,
attendance records?

 

Arjun: Ah! That we never see.

 

Shrikrishna: Fixed assets register?

 

Arjun: For that we just put a standard remark.
Maintained, but not updated! God alone knows whether that really exists.

 

Shrikrishna: And third party evidence?
There is a specific SA on that. Writing to banks and debtors, creditors,
lenders for confirmation of balances?

 

Arjun: We have never done it. But I agree, we
should make a beginning somewhere. But without staff how can we do it?

 

Shrikrishna: Technology! Prepare a
standard letter and insist on the clients to send them. Everything is possible.
What you lack is will power.

 

Arjun: What you say is right. These things were
never done before and clients find it difficult to digest such things now. We
were lax in this respect.

 

Shrikrishna: But it is necessary for
your own benefit. If you contravene the Council’s guidelines, it is misconduct.

 

Arjun: I don’t know why the Council is putting so
much burden on us!

 

Shrikrishna: It is for your own
safety. Users of financial statements audited by you are not happy about the
quality. You are losing credibility. The Council does not want that to happen.

 

Arjun: The future of our profession is really
gloomy. There are very few new entrants, regulation is increasing so much that
it is unbearable. It is not remunerative as no one understands the value of our
services.

 

Shrikrishna: You’re right. But what
else can you do? So whatever you are doing, try to do it properly,
systematically.

 

Arjun: Due to Corona, the economy is already
depressed. We are all in very low spirits. So, better not get further
frightened by a discussion on disciplinary cases. Actually, I feel the Council
should declare an amnesty scheme for all misconduct that has occurred so far.

 

Shrikrishna: You have already gone
away from ethics, that is why your future is gloomy. But make good use of this
time for creative thinking, knowledge upgradation… That will at least help
you in future after Corona goes away. Otherwise, you will repent that you lost
the opportunity to get better organised. Such a time may never come again. Be
positive! Be brave.

 

Arjun: I agree.

 

Shrikrishna: So wake up. Think of what
best you can do to perform better in the post-Covid scenario.

 

Arjun: Yes, my Lord! I will walk on the path shown
by you. Thank you, Lord.

 

Om Shanti!

 

(This dialogue is based on the general attitude required to face the
present Covid scenario and take things in a positive manner so as to follow
ethics better.)

CAPACITY-BUILDING

Arjun: O Lord! I am tired of this Corona.

Shrikrishna: (smiles) Everybody is fed up and afraid!

Arjun: You are saying so! You are yourself the creator of everything including this Covid chaos. And you are smiling?

Shrikrishna: Dear Arjun, I am the Creator (Generator), Organiser and Destroyer of everything. That is why they call me ‘GOD’. Anyway, destruction is also one of my essential tasks.

Arjun: That reminds me. Over so many years of practice, I have ‘created’ so many files. Lot of paperwork. And many clients have discontinued more than eight to ten years ago.

Shrikrishna: Then why are you carrying all their records? Do I need to tell you that space is the most costly asset?

Arjun: This lockdown spoils the mood. Don’t feel like doing anything.

Shrikrishna: On the contrary. This is an opportunity for housekeeping, cleaning up work.

Arjun: Yes, you are right. Weeding out on mass scale is necessary. But there are no assistants. Even the offices have to be kept closed.

Shrikrishna: But there is one thing you are neglecting. One valuable asset that you are not utilising properly.

Arjun: What is that?

Shrikrishna: Manpower. Your articled trainees and your assistants.

Arjun: Oh! You are calling them an asset? We treat them as a liability.

Shrikrishna: Then why don’t you get rid of them?

Arjun: Ah! They do help us in audit, tax work. But they are not dependable. Articles have different priorities always.

Shrikrishna: Like what?

Arjun: Their coaching classes, exams, leave. And they lack sincerity. They don’t take interest in the work. They do only a superficial job.

Shrikrishna: But what efforts do you make to create interest in their minds? There is an obligation on you to train them. Do you really do it?

Arjun: Where is the time? We just send them somewhere for audit, or ask them to do data feeding for GST.

Shrikrishna: If you don’t have time, are there seniors in your office who can guide them?

Arjun: No. We can’t afford to have seniors. And I doubt whether they themselves are updated. Mine is a small firm.

Shrikrishna: Ok, please tell me, are you yourself updated?

Arjun: (No answer)

Shrikrishna: Remember, so many new things are coming up in your profession. You never had those things in your syllabus.

Arjun: True.

Shrikrishna: But your articles are studying those things. They know it better. They are also more tech-savvy than many of you.

Arjun: Agreed.

Shrikrishna: What is necessary is to guide them, motivate them, train them and arouse their interest in the work.

Arjun: Frankly, I don’t consider myself competent to teach them anything.

Shrikrishna: Don’t worry. You need not teach them technical things. But you can always share your experience with them. You have done so many audits. You can tell them what to see, what to ask for, how to see a particular thing.

Arjun: They cannot even write the queries.

Shrikrishna: Instead of writing routine queries, you must explain to them the implications of queries, the legal implications from the perspective of various laws.

Arjun: Like tax disallowances, company law, labour laws, FEMA…?

Shrikrishna: Right! They should feel that their work is meaningful and important. Today, they do it without taking much interest in it.

Arjun: I agree. But I am not an expert on these laws. We cannot afford such training sessions.

Shrikrishna: You have to combine three or four firms so that there is sufficient number of articles. You can invite experts from outside. In the process, you also learn.

Arjun: I understand what you are saying. Actually, training our staff is in our own interest. We cannot
check everything. Finally, we just put our signatures on the audit with a fear that there could be many blunders in them.

Shrikrishna: And then you get caught in disciplinary action!

Arjun: True. Prevention is better than cure. I am convinced that training the staff is an investment. It is for our own benefit.

Shrikrishna: But it should be like a workshop for limited numbers. Not a big scale lecture. Coaching classes may be teaching them theory. But you have to explain to them how to relate theory to practical work.

Arjun: And I think, even in the peer review, they see what we have done for staff training. Today I have realised that it is not only our duty to train the staff and articles, but it is in our own interest to do so.

Shrikrishna: Not only the articles, but even your administrative staff – clerks, receptionists, peons also need training. They should not feel monotony in their work. They should feel some change, some progress in life.

Arjun: And I should myself be more serious about updating and upgrading myself, I should not take CPE hours as a thing to be ‘managed’. Otherwise, I will soon become outdated and unfit to carry on practice.

Shrikrishna: While listening to the Geeta, you showed so much inquisitiveness. You should continue the same interest in learning even now.

Arjun: Lord, I will. Thank you for opening my eyes.

Om Shanti.

(This dialogue is intended to bring out the importance of training and capacity-building for a CA’s office.)

ETHICS AND U

Arjun: Bhagwan, what kind of justice are you doing to innocent people? They are made to suffer always.
Shrikrishna: My dear Arjun, what happened? What’s on your mind?

Arjun: See, these banks sanction and disburse loans to any person against stocks, book debts and so on.

Shrikrishna: Yes, that is their business.

Arjun: Agreed. But they do not appraise the proposal properly. They may even act in collusion with the borrower. And finally, when the loan becomes an NPA, they just pass on the blame to the auditors.

Shrikrishna: How can they do that? Do you mean to say that your CAs do the job properly and still they are made to suffer?

Arjun: Precisely.

Shrikrishna: Tell me, how?

Arjun: See, what happens is the banks grant a loan for working capital. Then they appoint CA firms to do the stock audit. They ask the CAs to certify the stock values, book debts, loans, vehicles and what not.

Shrikrishna: What is unusual about that? It’s normal. It’s a part of your profession.

Arjun: Yes, Bhagwan. But quite often there are fraudulent transactions in large borrower companies. Stock records are not proper, there are multiple locations, there is no reconciliation, sales are inflated, debtors are bogus, vehicles are not properly registered, they are hypothecated to many banks…

Shrikrishna: Enough, enough! These are common problems. But what’s your problem? You have to verify and certify.

Arjun: True. But there are practical problems, managements of borrower companies do not co-operate, they conceal the details, data is not made available, the time given is very short, the fees are too low, and…

Shrikrishna: I know all this, Arjun. But it is for this task that you are appointed.

Arjun: How can we certify without proper data?

Shrikrishna: Then say clearly in the certificate that the data is not proper and inadequate and hence you can’t certify. Simple!

Arjun: Bhagwan, how can we give such a negative and harsh certificate? How shall we then get clients?

Shrikrishna: So, you want to somehow accommodate the client! For that, you are willing to compromise your principles and risk your degree?

Arjun: These bankers are funny! They complain that based on our certificate they renewed their working capital facility. But in fact they have already sanctioned or renewed it. And they pass the blame on to the CAs.

Shrikrishna: Arjun, yours is a responsible profession. You are expected to work without fear or favour. How can you certify something as true and correct unless you are objectively satisfied about it?

Arjun: Yes, in principle that is right. But in practice…

Shrikrishna: You cannot take the excuse of ‘practicality’… This is clearly gross negligence as well as lack of due diligence.

Arjun: But then what should we do?

Shrikrishna: Simple, follow the basics. Apply your common sense. Don’t rely only on financial books of accounts. You need to see beyond that. Learn to read between the lines. Have professional scepticism. Maintain working papers. Try to get third party evidence. Ask questions, create a record of your work. Remember, ‘Work should not only be done, but it should be seen that it is done!’

Arjun: Enough, enough! Followed. In short, the quality of work should be absolute regardless of fees. Right?

Shrikrishna: In fact, first understand the value of work, of your signature yourself. Only then will others recognise it. Don’t allow others to take you for granted. Now, Arjun, please don’t tell me that if you refuse to certify, some other CA will do it. I have no answer to this argument.

Arjun: Bhagwan, like in the Bhagvad Geeta, you have opened my eyes again today. Do keep on meeting me and guiding me, always.

Om Shanti

(This dialogue is based on the need for due diligence while certifying stocks, etc.)

CAPACITY-BUILDING

Arjun: Hey Bhagwan! Main toh ab pareshan ho gaya hoon! (I am fed-up!)

Shrikrishna: What happened? Now you have got ample time to file the tax returns. No tension of extension!

Arjun: True. But I am not talking of that.

Shrikrishna: Covid is also subsiding. Activities are reviving. Then what is your pareshani?

Arjun: These election candidates! Every day dozens of messages. I have asked my assistant to delete all such messages without even opening them.

Shrikrishna: Then what is the difficulty?

Arjun: Phone calls! The candidates phone, then their assistants keep on calling. Some of them have even appointed agencies to follow up with voters.

Shrikrishna: Oh!

Arjun: And candidates come personally and keep on requesting for references. It’s a big nuisance.

Shrikrishna: But you can’t avoid elections. By the way, when are the elections?

Arjun: The 3rd and 4th of December. So this month there will be continuous bombarding of messages. Some of them want me to go with them for canvassing.

Shrikrishna: Good. Your PR increases.

Arjun: Ah! Such PR is of no use. And I know many candidates who are absolutely useless. They have no professional standing, no recognition as knowledgeable members. Even their integrity is doubtful.

Shrikrishna: Then it is all the more necessary that you should be alert in voting.

Arjun: I don’t even feel like going for voting. But they don’t allow us to sit at home. They keep on ringing us.

Shrikrishna: But democracy is a big value. It is a boon to the citizens. You must honour it.

Arjun: Agreed. But these elections are dangerous. They are a mockery of democracy.

Shrikrishna: It is up to you to maintain its value.

Arjun: Two of my friends are contesting. But our community votes are getting divided.

Shrikrishna: Oh! Community matters?

Arjun: What do you mean? It matters the most. Rather, it alone matters.

Shrikrishna: So it means there is no difference between your Council elections and your country’s elections.

Arjun: Absolutely. Now the problem is that the younger generation is mostly in corporates. They have no connect with the profession. Many times they don’t even bother to take membership of the Institute.

Shrikrishna: Then what is the meaning of their degrees?

Arjun: Yes, it’s a fact of life. Now, it is a task to bring these people to vote. There is total indifference.

Shrikrishna: Isn’t there any Code of Conduct?

Arjun: Conduct ko maro goli! All ethics are crushed in the election process. The organisers of seminars even go to the extent of promoting only their preferred candidates. They even avoid inviting the other candidates to speak as a faculty.

Shrikrishna: So, all kinds of politics?

Arjun: Yes. In the good old days, canvassing was strictly prohibited. Knowledge, reputation, good work was the only canvassing. But now, the less said the better.

Shrikrishna: But then how are you discharging your duty as a member? Are you a silent spectator when ethics are killed? Like Bhishma and Drona in the Mahabharat – who remained silent when Draupadi was humiliated?

Arjun: What you say is right. But what can I do?

Shrikrishna: There is a lot that you can do. You may spread the message – motivating the maximum number of people to vote. And that, too, purely on merits. Try to tell people that in professional matters community, caste, creed should not matter.    

Arjun: Every time I decide to do what you are saying… But in reality it does not happen. It consumes a lot of our time and energy and our work suffers. Everybody thinks ‘Yeh aisa hi hota rahega’ (It will continue as it is!)

Shrikrishna: There should be some collective action. Something like a movement. You discuss with a few like-minded friends and start this campaign. Act now. Otherwise, you have no right to complain.

Arjun: What you say is right. We must act. If we remain silent spectators, things will further deteriorate.

Shrikrishna: And remember, the candidates whom you elect are going to lead the profession. They should be such who command respect for their knowledge and integrity. They should be able to represent your profession. And most importantly, they are going to sit in judgement to decide the cases of misconduct. So, they should themselves be ethical.

Arjun: I wholeheartedly agree. If we fail in our duty, we are ourselves to blame. We cannot afford to be indifferent.

Shrikrishna: If you fail in your duty to vote properly, that in itself will be an unethical act on your part.

Arjun: Bhagwan, thanks for opening my eyes. I will do what you say.

Shrikrishna: Tathaastu

!! OM SHANTI !!

[This dialogue is intended to make the members aware about their duty in respect of the Council elections and to be more careful and serious about the same]

ETHICS AND U

Arjun: Oh, Lord! Oh, Lord! Please save me!

Shrikrishna (smiling): Yes, Paarth. What’s the matter? Everything is alright no?

Arjun: Bhagwan, You know everything. And You are Yourself asking this? Are You teasing me? It is Your habit to make fun of others.

Shrikrishna: No, Arjun. I am always there to protect those who have faith in me.

Arjun: I know You!

Shrikrishna: It is not enough that you know Me. In Kaliyug, you must know everybody you come across.

Arjun: This is one more cause of worry. See, You started with demonetisation, then GST, then RERA, corona – and lockdown. All monsters coming one after the other! They are killing our economy.

Shrikrishna: The only answer is, Know Me and Worship Me! Know everyone you meet. Sixty years ago, you did not know China and they invaded you. Again they are attacking the world.

Arjun: China is another demon.

Shrikrishna: Correct! So Know Your China! KYC!

Arjun: Oh! This KYC is another monster! Very irritating. I am a customer of my bank for over 50 years. Still every year, they trouble me.

Shrikrishna: But you never know when a closely known person will land you in trouble.

Arjun: But they have gone to the extent of stopping my account operations. I was very upset.

Shrikrishna: It is not the fault of your bank. The Reserve Bank insists on strict compliance. Your bankers also find it difficult to monitor it.

Arjun: That reminds me. Last month was the height! I did the tax audit of a CA firm. And they delayed the payment of my fees – for want of my KYC. Disgusting!

Shrikrishna: Are you not aware that your Institute also has issued specific guidelines for KYC? It is mandatory for all CAs.

Arjun: Oh! Is that so?

Shrikrishna: And your Institute is right in insisting on it. There were many disciplinary cases because of the misbehaviour of clients.

Arjun: But I am not a client of that CA firm. I am their tax auditor.

Shrikrishna: Agreed. KYC is just an acronym for convenience. It is wide enough to cover all persons. Arjun, please try to understand the spirit behind it. Don’t just treat it as compliance.

Arjun: I appreciate your point.

Shrikrishna: And keep in mind that it is your Institute’s guideline. Non-compliance with ICAI guidelines is a professional misconduct.

Arjun: Oh, really?

Shrikrishna: Of course! See the first clause of the second part of the second schedule of your CA Act.

Arjun: Oh, my God! I have never taken any KYC details of my clients.

Shrikrishna: Those details are prescribed in the guideline. Do it at least for audit clients in the first phase. But it will be better if you extend it to all your clients, vendors, service providers. I suggest that you should take it from your staff, too.

Arjun: I never knew this. So KYC does not merely mean ‘Know Your Customer’, but it also means ‘Know Your Compliance!’

Shrikrishna: You said it! So, Paarth, please wake up. Have a KYC drive. At least make a beginning. There will be some trouble in the beginning. But slowly, it will become a habit.

Arjun: Bhagwan, good that I know You. You opened my eyes by telling me about our ICAI KYC! I am obliged to you, as always! Please bless me.

Shrikrishna: Tathaastu!

|| Om Shanti ||

(This dialogue is based on the KYC Guidelines of the ICAI)

ETHICS AND U

Arjun: (Chants Shrikrishna’s bhajan) ‘Hey Bhagwan. You are so kind! Where are you today? Please come and give me your ‘darshan’.

Shrikrishna: Arrey Parth, what happened to you today? You are in such a happy mood. Did your Government give further extension of time?

Arjun: No, Lord. But they will have to give it. Their own site is not working for the last many days. The new utility has gone for a toss.

Shrikrishna: Really? But the system was working all right till recently.

Arjun: Yes, but they suddenly thought of changing the system. They engaged a new service provider for a huge amount of money. And nothing is working well. It’s totally in a mess.

Shrikrishna: Anyway, let it be. Tell me, why are you so happy today?

Arjun: I got a good audit assignment. Two directors of a big private limited company approached me today through a common friend.

Shrikrishna: Oh, I see. What for?

Arjun: They offered me the statutory and tax audit of the company. They say they are not happy with their present CA.

Shrikrishna: Why?

Arjun: He takes a long time to complete the work, charges exorbitant fees and harasses them in tax matters.

Shrikrishna: Do you know their existing CA?

Arjun: Not directly. But I have heard that firm’s name. They are quite large in size. They have a good name.

Shrikrishna: So when will you take up the work?

Arjun: Immediately. They want it urgently as they are going for a new project. The two directors are giving the appointment letter tomorrow itself.

Shrikrishna: Very good. But you will have to write to the previous auditor.

Arjun: Yes. Actually, I called one of their partners who has signed the last year’s audit.

Shrikrishna: What did he say?

Arjun: He said ‘No problem, please go ahead’. I asked for his NOC. He said not to worry. They were not very keen to retain that audit. The formalities can be done later.

Shrikrishna: So, starting the work immediately?

Arjun: Of course! Why should I leave the opportunity? They are paying a good fee and during Covid I have a liquidity crunch.

Shrikrishna: Arjun, I doubt whether you are the same Arjun to whom I narrated the Bhagwad Gita in the Mahabharata.

Arjun: Why? What makes you think that way?

Shrikrishna: That Arjun was very intelligent, brave, honest and ethical. You are behaving the exact opposite way. All my preachings on ethics have gone to waste.

Arjun: I don’t understand. I did speak with the previous auditor. Only then I decided to start the work. They need it urgently.

Shrikrishna: They may need it. But what about your ethics? How can you compromise on them?

Arjun: I will definitely write to them. Now our Institute has permitted communication by email also. Who has time to wait for registered post AD?

Shrikrishna: My dear Arjun, your intellect seems to be covered by ‘moha’. You are not able to use your discretion and are forgetting your duty.

Arjun: Why do you say that?

Shrikrishna: Firstly, you should think why such a large company would approach you at the last moment. Are the reasons given by them convincing? Did you verify the facts?

Arjun: I am aware that these so-called large CA firms do not render proper service. So, their clients are never happy.

Shrikrishna: But have they resigned? Or have they been removed?

Arjun: But the directors are giving me a regular letter of appointment. I will take a copy of the resolution if you suggest so.

Shrikrishna: Arjun, will it suffice? Please read Clause (9) of Part 1 of the First Schedule to your CA Act. You must ensure compliance with the Company Law provisions on change of auditors.

Arjun: Like what?

Shrikrishna: Their resignation, the reasons for the resignation, then calling of EGM. Its notices, minutes, attendance register… Don’t take it so lightly.

Arjun: But many people accept just an appointment letter from the directors.

Shrikrishna: Then they are sure to invite trouble for themselves. Be loyal to your profession. Clients take advantage of the lack of unity in your profession.

Arjun: Then what should I do?

Shrikrishna: Ensure all secretarial compliances, better take a certificate from a CS. Verify the papers for yourself. And what about the previous auditor’s fee? If the undisputed audit fees are pending, then you can’t accept the audit.

Arjun: But the directors are disputing the fees. They say he charged too much!

Shrikrishna: But once their fee is appearing as outstanding in the balance sheet and it is signed by the directors, it is treated as undisputed. The subsequent dispute is irrelevant.

Arjun: Where is this written?

Shrikrishna: See your Council’s Guidelines of 8th August, 2008 – Chapter VII.

Arjun: But their partners have assured me they have no objection.

Shrikrishna: This is dicey. Never accept such things just in good faith. We are in kaliyug.

Arjun: Thanks for opening my eyes. I will tell the client…

Shrikrishna: Actually, this is a very elementary thing. It is unfortunate that your ‘lobha’ (temptation) made you forget this lesson.

Arjun: But this is all unnecessary. Why do they create hurdles?

Shrikrishna: Arjun, you are mistaken. Imagine that you are in the position of the previous auditor. And some client criticises you, approaches another CA, doesn’t pay your fees…

Arjun: Agreed, agreed, agreed! I’ve understood. I remember two of my friends faced a disciplinary case in a similar situation. Good that you cautioned me. Much obliged, Lord!

Shrikrishna: Take care. I have no time to narrate to you the Gita once again!

||Om Shanti||

[This dialogue is based on Clause Nos. (8) and (9) of Part 1 of the First Schedule to the CA Act and Council General Guidelines – Chapter VII]

New Year Resolution!

Shrikrishna: Hello, Arjun, all set to usher in New Year?

Arjun: Yes, Lord. Planning so many ambitious things!

Shrikrishna: Very good. For example?

Arjun: I am taking a pledge. I won’t start any work unless and until I am properly appointed.

Shrikrishna: Why? What makes you think that way? Of course, it is a good thing.

Arjun: Our friends are suffering unnecessarily for this reason.
        
Shrikrishna: What happened?

Arjun: Bhagwan, you know everything. Still, you are asking me?

Shrikrishna: True, I know what you are referring to. But tell it again so that other Pandavas also know.

Arjun: Fine. There was a large listed NBFC engaged in housing finance.

Shrikrishna: OK. What of that?

Arjun: Now it is facing many enquiries due to a big fraud of a few thousand crores!

Shrikrishna: Mostly, such frauds are sponsored by the management itself. One has to be very careful.

Arjun: True. For over 15 years, the company has been appointing only statutory auditors.

Shrikrishna: OK. Then?

Arjun: Then the company started appointing 25 to 30 SME firms to conduct branch audit of over 200 branches. This was in consultation with the statutory auditors.

Shrikrishna: So, the branch auditors were not appointed by the company directly in its annual general meeting. Right?

Arjun: Yes. The appointment letter of branches stated all terms and conditions in a couple of annexures and specified the fees.

Shrikrishna: Where was the problem?

Arjun: The branch auditors addressed their report to the statutory auditors, not the company! The company paid the fee to the branch auditors. This went on smoothly for several years!

Shrikrishna: Then, what is the issue?

Arjun: Now, NFRA has issued long notices to all branch auditors. Apart from other points, two basic points raised by NFRA are: The appointment of branch auditors itself is invalid since it was not made in the company’s general meeting, and the branch auditors did not give any engagement letter to the company!

Shrikrishna: Strange! And interesting! What are the branch auditors saying? And what was the fate of their branch audit reports?

Arjun: Statutory auditors have stated in their audit report that they have dealt with the branch auditors’ report while finalising the audit.
            
Shrikrishna: What about SA 210 regarding engagement letter?

Arjun: The appointment letter contained detailed terms and conditions and also the methodology of conducting the audit. The branch auditors accepted the appointment letter. So, no need was felt for a separate engagement letter. Moreover, they had been doing branch audits for many years. In such a case, the engagement letter every year was not warranted.

Shrikrishna: Oh! We had discussed many times that you people could be more serious about your own appointment and related provisions of the company law. You never bother to see secretarial records. See Clause (9) of Part I of the First Schedule.

Arjun: Lord, I agree that our members are careless about it. But here, it was a big reputed company. It had an army of qualified professionals employed with them. There was a full-time Company Secretary and a department under him. In addition, there was a secretarial audit.
Above all, the Statutory auditors are also a senior and reputed firm. Nobody noticed the flaw, if any.

Shrikrishna: But there is a big lesson! Don’t take anything for granted.

Arjun: Agreed. Our people never verify the minutes’ book, resolutions, notices or attendance records…. I realise that it is very essential. That’s my New Year’s Resolution to ensure that at least my appointment as an auditor is appropriately made!

Shrikrishna: My blessings to you, Paarth!

Om Shanti!!

        
[This dialogue is based on the importance of verifying the company’s secretarial compliances to ensure that an auditor is validly appointed. (Clause 9 Part I of First Schedule)].

TIME BARRING

Arjun: Oh Lord! Save me!

Shrikrishna: Arey Arjun, you are sweating. Too much heat this year?

Arjun: Yes, Lord. But I didn’t remember you for this heat.

Shrikrishna: Then what for?

Arjun: This burden of Ethics! You say it is for our protection. But after all, it is a very heavy shield to hold continuously in hand. And the armour is often unbearably heavy.

Shrikrishna: True. But you have no option!

Arjun: That also I accept. But tell me, how long do we remain answerable for our work? Is there no time barring – as we have in income tax?

Shrikrishna: There is! But not in the sense that you have in mind. It is not a rigid or blanket limitation of time.

Arjun: Do you mean it is different for different types of misconduct? Like in income tax, we have different time limits depending upon the stakes involved.

Shrikrishna: Why don’t you read the relevant rules? The title of those rules is very long. Difficult to remember.

These rules may be called The Chartered Accountants (Procedure of Investigations of Professional and Other Misconduct and Conduct of Cases) Rules, 2007.
    
Arjun: Oh! I wonder how you remember this. For a short cut, let us call it as misconduct procedural rules.

Shrikrishna: Fine. See Rule 12.

Time limit on entertaining complaint or information – Where the Director is satisfied that there would be difficulty in securing proper evidence of the alleged misconduct, or that the member or firm against whom the information has been received or the complaint has been filed, would find it difficult to lead evidence to defend himself or itself, as the case may be, on account of the time lag, or that changes have taken place rendering the inquiry procedurally inconvenient or difficult, he may refuse to entertain a complaint or information in respect of any misconduct made more than seven years after the same was alleged to have been committed and submit the same to the Board of Discipline for taking decision on it under sub-section 21A of the Act.

Arjun: This is very vague. How do you decide?

Shrikrishna: Yes. It is a loose type of time barring. There is an important rider. If the production of evidence is difficult or it is otherwise inconvenient to continue the proceeding.

Arjun: But who decides this? Solely at the discretion of the Director?

Shrikrishna: To some extent, yes. But he has to seek the concurrence of the Board of Discipline. He is not the sole person to decide.

Arjun: Oh God! But on what basis he will decide it? How can we keep a record or remember what happened so many years ago?

Shrikrishna: I appreciate this. But Arjun, sometimes the misconduct is very apparent. Self-evident. Not much external document is required.

Arjun: Like what?

Shrikrishna: Like your balance sheet is not tallied at all! Or you have issued a report in an incorrect format; or certain mandatory disclosures not done at all!

Arjun: Oh! I understood. This is horrible. So it is endless!

Shrikrishna: I will tell you an interesting case. I had perhaps already told you earlier.

Arjun: Tell me. Your stories are interesting.

Shrikrishna: One lady’s Will was prepared. She died 12 years after the preparation of the Will.

Arjun: Then what happened?

Shrikrishna: When it was opened after her death, it was found that the CA had signed it as a witness, but there was no signature of that lady at all!

Arjun: Strange! But is it so serious?

Shrikrishna: Obviously. When you sign as a witness, you indirectly state and affirm that the concerned person has signed in your presence. You saw him signing. If you put your sign as a witness without that person’s signature, it is a false statement. It is a lie!

Arjun: But quite often, we put our signatures on balance sheet first and then send it for directors’ to sign.

Shrikrishna: This is very wrong; and dangerous. At the same time, signing as an auditor is different from signing as a witness.

Arjun: Yes, I appreciate that. In short, the sword of a disciplinary case remains hanging on our heads forever!

Shrikrishna: Yes. But remember, try to do things perfect. Take care, so that you don’t have to worry!

Arjun: Agreed! Bhagwan! Thank you.

 

OTHER MISCONDUCT

Shrikrishna: Arjun, you look quite relaxed today. I am sure you have uploaded all audited accounts comfortably.

Arjun: Yes, Bhagwan. At the time of every signing and uploading, I used to chant your name!

Shrikrishna: Why?

Arjun: At the time of signing, I pray that the blunders committed by us should not be exposed; and at the time of uploading, I pray that the technology should not fail. It is a task in itself!

Shrikrishna: Why do you think of blunders? You got so much time.

Arjun: True, but no accounts in today’s world can ever be perfect! Too much work at a time, no competent assistants, clients own imperfection and indifference; too much of regulation; and above all, our own ignorance and inefficiency, some error or other is inevitable and can be held as ‘negligence’.

Shrikrishna: Professional misconduct! But today, I heard something about ‘other misconduct’.

Arjun: You mean section 22 of the CA Act?

Shrikrishna: Yes, now even other misconduct is largely codified in the sense that Part IV of First Schedule and Part III of Second Schedule of CA Act provide for the ‘other misconduct’.

Arjun: Yes, – for example, you are held guilty by some other civil or criminal court, and the prescribed punishment is of ‘imprisonment’.

Shrikrishna: And also, bringing disrepute to the profession.

Arjun: What case you heard of other misconduct?

Shrikrishna: In one of the CA firms, a partner retired at 65 as per their deed of partnership.

Arjun: Then?

Shrikrishna: He signed the settlement of accounts – based on audited financial statements. But after a few months, when his accounts were to be explained in his income tax scrutiny, he noticed that he had introduced about Rs. 20 lakhs into the firm, and the same had not been credited to his account!

Arjun: Oh! Then where had it gone?

Shrikrishna: To some other account.

Arjun: Surprising! Then what happened?

Shrikrishna: He wrote to his ex-partners; and pointed out the discrepancy. He asked for that amount to be paid to him.

Arjun: Naturally! The partners would have immediately accepted.

Shrikrishna: No, my dear! The partners said, since you have signed the settlement sheet, now you won’t get it!

Arjun: Disgusting! Shameful!

Shrikrishna: Poor fellow has been following up with them for the last 5 years! They are not even responding.

Arjun: It is really a disgrace to our profession. In fact, it is against basic human courtesy. Forget about the profession.

Shrikrishna: True. But there are members like this!
Arjun: And what about auditors?

Shrikrishna: Obviously, they had signed the tax audit. So, the person wrote to the auditors as well.

Arjun: And what was their response?

Shrikrishna: Same thing. No response at all!

Arjun: This is really unbecoming of a professional. How can a CA behave like this with another CA? and that also, with own ex-partner?

Shrikrishna: True, that is why I had often told you that you people are utterly lacking in unity. Since there is no unity amongst yourself, people take advantage. Ultimately the profession suffers.

Arjun: Yes, we should come out of this mindset of distrust, and there should be more cordiality and cooperation among all of us or else we are ourselves to suffer.

Shrikrishna: If your own partner does not pay your legitimate dues, how a client will pay you promptly and smoothly. Think it over seriously and act soon. It is high time you all introspect and improve your ways.

TAX PLANNING? BE CAREFUL

Shrikrishna: Arjun, you are looking very worried today. I’m sure the compliance pressure of tax deadlines keeps you under stress.

Arjun: Yes, Bhagwan. That stress is always there. We are now quite used to it. But there is something else.

Shrikrishna: Really? And what’s that?

Arjun: That my friend, Ritesh…

Shrikrishna: Yes. I know him. His office is adjoining yours. Right?

Arjun: Yes. He is in deep trouble.

Shrikrishna: What happened?

Arjun: A girl closely known to him got married into a business family.

Shrikrishna: Very good. When?

Arjun: About 15 years ago.

Shrikrishna: Oh! Then what is the problem now?

Arjun: Her in-laws are Ritesh’s clients. The entire group.

Shrikrishna: Good.

Arjun: At their request, Ritesh suggested ideas of tax planning. He built up a good amount of capital in her name. Actually, she was only a home-maker. Not even a graduate! She was shown to be earning some salary over the years.

Shrikrishna: So, where’s the problem?

Arjun: Now, she is separating from her husband.

Shrikrishna: Oh! After 15 years? This is kaliyug. No relations are permanent.

Arjun: And she is claiming a big amount in alimony. A good amount of capital stands in her name. She says she is a housewife and has no source of income.

Shrikrishna: So what? There must be some documentation. Some evidence of employment.

Arjun: No, Bhagwan. Ritesh had shown her as his employee. And her salary was ‘paid’ in cash. Later, she was shown to be in employment with some group company.

Shrikrishna: Oh! Interesting.

Arjun: There is no documentation whatsoever. All returns of the family members including her return were filed through Ritesh’s office; and she is demanding the tax records from him.

Shrikrishna: He has to give them to her – Isn’t it?

Arjun: True. But that will bring the family into trouble. She has great nuisance value.

Shrikrishna: It’s better to settle it amicably.

Arjun: She has threatened that she will approach the Institute if the CA refuses to give the file. Now, he is in a dilemma.

Shrikrishna: Arjun, I have always been telling you to give up the short-sighted approach. There are many instances of separation of spouses even after 30 to 40 years of married life. Social life is now vitiated.

Arjun: I agree. You have been warning me – not to do anything in good faith.

Shrikrishna: Due to the inevitable dispute between any two persons, the things done with good intentions are viewed maliciously afterwards. The context in which a thing is done is conveniently forgotten.

Arjun: Anything can misfire. So, careful and timely documentation is essential.

Shrikrishna: Yes. There are instances where two of the Directors sign the financials; meetings are not held. Secretarial record is lacking. And when there is a dispute among Directors, they disown everything. They say, they were never shown any balance sheet, no meetings were ever called. And the two Directors are in collusion with the auditor. They have manipulated the accounts with the help of the auditor.

Arjun: True. I have heard of such cases. Then, what is the remedy?

Shrikrishna: Documentation! Working papers! Secretarial records, minutes. The faintest of inks is stronger than the strongest of memories! And, preferably, keep a balance sheet copy signed by all Directors or partners or trustees, managing committee members… and so on.

Arjun: Very good advice. An eye-opener.

Shrikrishna: This is not a complete solution. It only protects you from allegations that they were kept in the dark. After all, every small thing should be properly documented with signatures of the persons concerned.

Arjun: Thank you, Bhagwan. I will always keep this in mind. Please bless me.

Shrikrishna: Tathaastu!

!! OM SHANTI !!

(This dialogue is based on the common experience of loose documentation, weak tax planning, breaking relationships in the society and the consequences on the profession.)