Page 73 - DCOM204_AUDITING_THEORY

Unit 4: Section 226, 314 and Code of Ethics

discharging his professional duty of attestation, is guilty of professional misconduct, and thereby Notes
liable for disciplinary action and punishment under the Act, which may be;
(i) Reprimanding the member, or
(ii) Removing his name from the Register of members for such period not exceeding five
years, or
(iii) Forwarding the case to the High Court with its recommendations where the council
opines for removal of name for a period exceeding five years, or
(iv) If the misconduct is of a nature, which as per the Chartered Accountants Act requires
action by the High Court, reference to the High Court with recommendations of the
council. The procedure of enquiry in respect of disciplinary action against a Chartered
Accountant is not only lengthy but rigorous also. Barring a few exceptions, the Chartered
Accountant, who has to face action would feel so humiliated that his enthusiasm and
working capacity comes to the lowest level. Removal of name as a punishment further
nails him with a severe economic blow.
Still there are instances when it is noticed that the report of Chartered Accountants either misses
vital information which must be there, or gives incomplete information or gives information in
a misleading manner or at times gives completely wrong information. It is pertinently noticed
by bank officials in dispensation of credit and monitoring of some financed cases, that information
in the financial statements does not help in taking a right and judicious decision. Though it is
difficult to substantiate by tangible evidences, but circumstantial evidences in certain cases, do
point out that the intention of all concerned has not been bona fide, rather it is mala fide and is done
with some ulterior motive.

Some of the common points where reports of Chartered Accountants have not been of desirable
level are:-
1. Valuation of stocks including work-in-progress.
2. Transactions with related parties.

3. Valuation of investments
4. Valuation and status of other assets.
5. Status of Sundry Debtors
6. Status of Creditors
7. Status of loans
8. Provision in respect of all the known liabilities.
All these issues have a considerable impact on profit and the real financial health of an enterprise,
failure of which would prevent taking of a well informed, correct decision by banks and financial
institutions. Here it may not be out of place to mention that banks and financial institutions are
heavily relying on Chartered Accountants in discharging their work in judicious manner. For
this the banks get various type of reports and certificates which the banks have devised after
much deliberations. If these certificates give the required information in the right perspective,
the loan assets of the banks to a large extent may be saved from becoming bad.

These certificates and reports in general are:-
1. Annual Audit Report on the Accounts of Borrower CAs have to be transparent and
absolutely honest while certifying the following items:
(a) Valuation of inventory: Stock, work-in-progress, finished goods, etc. (It may be
observed that variations in the sale of the stocks declared by the companies in their

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