Independence of a CA

Independence of a CA

What are specific threats?

Loans, Guarantees, Incentive arrangements, Share of profits, Personal use of corporate assets, commercial pressure from outsiders: The loans maybe arranged for family members of the auditor. There could be out of book incentives, use of company car to auditor family, with driver, to give a small instance. In return auditor maybe attesting true and fair view, even where the going concern concept is under threat.

False / Misleading claims – made/ tactic confirmation: Where auditor is promised that in return for not making an adverse report on false claims of services provided to off-shore, he would be given an assurance engagement opportunity in another company.

 Influencing a transaction, long association with business contacts, receiving gifts/ preferential treatment: The auditor may be auditing a certain public company for long, and he may be asked to overlook certain amount of stock pilfered by management group as normal loss, in process. His acquiescence may lead to his appointment as an independent director a few years down the line, after retiring as auditor.

Dismissal/ replacement: Where there is undue dependence for gross billings/total fees on a certain client by auditor, he may compromise his independence and integrity. The auditor may be threatened that if he makes a qualification in audit report as to reliability of certain debtors, he may not be reappointed.

Possible Solutions:

Focus on regulation – our main role is regulation as per the CA Act: The Chartered Accountants Act, 1949 and the Schedules to the Act set out the acceptable forms of behaviour of the members of the profession. The Conduct of the Chartered Accountants is judged under provisions contained in the Chartered Accountants Act, 1949 and the Schedules thereto; setting out different forms of behaviour which would constitute professional or other misconduct under the Act. The Chartered Accountants Act is framed for the regulation of the profession of Chartered Accountants.

Section 22 of the Chartered Accountants Act defines and describes what constitutes `professional misconduct'. Under Section 22 of the Act, the expression `professional misconduct' shall be deemed to include any act or omission specified in any of the schedules.

The two Schedules are distinguished on the basis of gravity of misconduct described therein. The misconduct listed in the Second Schedule is understood to be grave and serious prescribing higher punishment.

Focus on knowledge – new and updation: Ensure that there is adequate knowledge of the Finance Act changes, impending DTC, GST, latest case laws. Make time each date to improve skill sets atleast for an hour. Enroll for study circle membership, attend CPE seminars.  

 Empowering the executive – Delegate - Select Competent persons not Yes men: Develop a second rung of leadership. This can involve:

Disagree but not disagreeable: Learn to disagree without alienating group. [ This maybe very very important considering that presently some of us spend huge amounts of time on what is recorded, whose photo comes in the magazine and many many minor issue rather than focusing on what we are to do]-

1. Ask questions until you understand the others point of view.

2. I would never tell you to discard your convictions, but do remain open to suggestion, and do seek clarity.

3. Use phrases like “In my opinion,” “I believe that,” or ”In my experience,” to make it clear when you’re expressing a matter.

4. Effective non-verbal communication sets the stage so.

· Smile to communicate friendliness and acceptance.

· Sit up straight to project confidence.

· Keep an open body posture (no crossed arms or legs) to communicate openness.

· Speak in a relaxed manner (mind the tone of your voice!) to project calm and clarity of thought.

· Make appropriate eye contact.

· Nod when the other person speaks – this communicates understanding, not necessarily agreement.

· Another trick to communicate understanding without compliance is to periodically say, “I understand,” or, “I hear what you’re saying.”

· Unless the other person a difficult personality that forces you to interrupt to get in a word in edgewise, let him finish his thoughts before offering yours.

What are the possible advantages / success through ethics?

Other than being the- right thing: Ethics helps us to keep moral high ground. Our work is stronger as it is right.

Increased client [stakeholders] loyalty: The client would trust us, get us good profile, helps in better practice.

Enhancement in image/ brand of ICAI: The value of ICAI would improve. More persons would want to enroll into the profession.

Corporate Citizenship enhances professional  performance and higher returns: The performance improves due to corporate backing. The results for social growth would be better.

More effective recruitment/ retention: There would be better focus on staying on in organization, which would be more ethical in line with its employees /team.

Better morale, loyalty, productivity: Where morale is good, this translates into better work place, knowledge sharing and better growth of organization and nation building.