Instances where attest function of CA may make them liable for action by ICAI
To ensure the transparency & independents of the CA while carrying out their attest function, ICAI has prescribed the rules and code of conduct. The code of conduct for CA members is stringent and its violation results in disciplinary action on the CA members. It often results in removal of the name of the members from ICAI records.
There are various cases where the violation is minor and the action is harsh. There are various instances where the violation has been caused due to sheer ignorance of the CA. It is time to revisit the instances which are often committed by the CA while doing their attest function. Here are some of the instances which CA member should take precaution. It may be noted that income tax department, GST authorities, ROC, Banks, etc are also making the complaint of the erring auditor to ICAI which is resulting in action against CA. Few of the instances where CA’s are barred by ICAI are compiled as under:
- CA cannot Audit, Sign the balance sheet, financial statements if the partner or the firm is debtor of such firm for an amount exceeding Rs. 1 Lakh. If the firm or partner is purchasing anything from their clients, they must ensure that the amount is repaid immediately. It may be noted that the CA firm or member can be creditor but not debtor while doing the attest function. Further, CA cannot do attest function if he himself or his partner or his Relative has given guarantee of any third person related to the clients.
Relatives include- - spouse of the individual;
- brother or sister of the individual;
iii. brother or sister of the spouse of the individual;
- any lineal ascendant or descendant of the individual;
- any lineal ascendant or descendant of the spouse of the individual;
- spouse of a person referred to in clause (ii) to (v);
vii. any lineal descendant of a brother or sister of either the individual or of the spouse of the individual.
- CA member or any of the partners of the firm should not be the relative of the auditee. If the auditee is a relative of any of the partner, the firm is prohibited from carrying out the audit.
- The CA members should be a regular member of ICAI for carrying out the audit. If the name of the member is removed from the ICAI members record for non-payment of member-ship fees then the such CA is prohibited from doing the attest function.
- CA is barred from attest function if such person or his partner or firm has a substantial interest. Substantial interest is an interest of more than 20% of profit share or voting rights. So, a private limited company wherein any of the partner is owning more than 20% share capital cannot be audited by his firm.
- Any CA or his Relative or Partner holding security or interest in the company cannot carry out the audit. There is a restriction on holding of relative as well. In case of relative, such person cannot hold security or interest for an amount exceeding face value of Rs 1,00,000 for CA to carry out the attest function.
- Newly qualified CA cannot sign the financial statements or carry out the attest function till it obtains membership as well as COP from the ICAI. Clearing the exams is not complete without COP & Membership. Further, CA cannot do tax audit for the new clients if the same is held by another CA member if he don’t obtain his NOC first. There are various cases where action is taken by ICAI for non communication by the new auditor to the previous auditor. No matter how close the previous auditor may be, the new auditor must communicate to the previous auditor in writing.
- There is a restriction on the number of tax audit a person can do u/s 44AB of the Income Tax Act. An Individual member cannot do audit of more than 60 tax audits. However, audits under section 44AD, 44ADA and 44AE of Income Tax Act, 1961 are excluded for reckoning the limit of this 60 audits. It may be noted that the limit of 60 audits can be more if the CA members is signing as a partner in a firm wherein the limit of (60 * number of partners) is applicable to the firm and not 60 audit individually. In short, if there are two partners in a firm then 120 tax audits can be done by one partner if second partner is not doing any tax audit. This is clarified by the ICAI as well.
- Holding Practice certificate is must for doing the attest function of clients. CA in job without COP cannot carry out the attest function as such.
- CA employee, Manager or Key Managerial Person in an organisation cannot carry out the attest function in respect of such organisation. In short, an employee or key managerial person himself cannot be an auditor
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