16 March 2017
Hi! I have a query in ICAI's PM on Chapter of Professional Ethics. The Question asked is: "A practicing Chartered Accountant was appointed to represent a company before the tax authorities. He submitted on behalf of his clients certain information and explanations to the authorities, which were found to be false and misleading.Comment with reference to the Chartered Accountants Act, 1949 and schedules thereto."
Institute has given its suggested answer with reference to Clause (5) and (6) of Part I of Second Schedule as follows: "As per Clause (5) of Part I of Second Schedule to the Chartered Accountant Act, 1949, if a member in practice fails to disclose a material fact known to him which is not disclosed in a financial statement, but disclosure of which is necessary to make the financial statement not misleading, where he is concerned with that financial statement in a professional capacity, he will be held guilty under Clause (5). As per Clause (6) of Part I of Second Schedule if he fails to report a material misstatement known to him to appear in a financial statement with which he is concerned in a professional capacity, he will be held guilty under Clause (6). In given case, the Chartered Accountant had submitted the statements before the taxation authorities. These statements are based on the data provided by the management of the company. Although the statements prepared were based on incorrect facts and misleading, the Chartered Accountant had only submitted them acting on the instructions of his client as his authorized representative. Hence the Chartered Accountant would not be held liable for professional misconduct." In my opinion, we cannot make a reference to Clause (5) and (6) since in the aforesaid question as CA is not at all expressing an opinion on Financial Statements. He is making a representation before IT Authorities. Hence, according to me, the answer should be: Whenever a chartered accountant prepares any statement or return on behalf of his client for representation before the any authority, he prepares such statement or return only to the best of his knowledge and according to the information and explanations provided to him. If any information or explanation is not provided to chartered accountant or is falsely provided to chartered accountant, then there is no further responsibility on part of chartered accountant, provided he has exercised reasonable care. But, if he has not exercised due diligence or reasonable care, then he shall be deemed to be guilty of professional misconduct under clause (7) of Part I of Second Schedule to Chartered Accountants Act, 1949. Hence the Chartered Accountant would not be held liable for professional misconduct in the current case, assuming that he has exercised reasonable care and skill. Kindly suggest whether ICAI's suggested answer is correct?
18 March 2017
Kindly note that the Chartered Accountant is not merely a messenger between the company and the Income Tax Authority. This I hope that this is inspite of the fact that the Financial Statement was audited by another auditor. Thus, as authorized representative he is supposed to exercise due diligence which he can prove later on.
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