CH 18 PROFESSIONAL ETHICS

MCQ-PR.13

KB Associates a chartered accountant firm has been appointed as an auditor of the company for the

financial year 2020-21. It consists of two partners CA K & CA B. CA K is brother of the father of the

finance director of the company. CA B is an old friend of the finance director of the company.

What kind of ethical threat is associated with appointment of KB Associates as an auditor of ABC LTD.?

CNO-PE.140

• a) Self Interest Threat.

• b) Advocacy Threat.

• c) Familiarity Threat.

• d) Self-Review Threat.

MCQ--PE.5

One of your audit client Vernon Co with a year ending 31 March 2019 is planning to prepare the financial statements from the next year as per Indian Accounting Standards (Ind AS). The finance director of Vernon Co has contacted the audit engagement partner, asking if your firm can provide training on Ind AS to the accounts department of the entity. This will help them to understand all the provisions of Ind AS and the transition process will be easier.

Which of the following options needs to be considered by the audit engagement partner?

CNO-PE.160

• a) The issue is whether there is a self-interest threat, as the auditor will receive separate training fees for the service provided. The audit partner should decline the training assignment.

• b) The issue is whether the audit firm would be likely to possess the requisite competence to provide such training to the staff of the entity. The audit partner should decline not all the qualified people are good trainers.

• c) The audit partner could go ahead with the training service and disclose the fact in its audit report about the service provided during the period. This will safeguard and reduce the threat to an acceptable level.

• d) The audit partner needs to assess the materiality of the figure, and the degree of subjectivity involved. If it considers that safeguards like using separate personnel, could reduce the threat to an acceptable level, then it can go ahead with both the audit and the training assignment.

MCQ--PE.8

You are a manager in the audit department of Narang & Co, and you are dealing with several ethical and

professional matters raised at recent management meetings, all of which relate to audit clients of your firm:

One of your client Bernwood Co has a year ending 31 March 2018. During this year, the company established

a pension plan for its employees, and this year end the company will be recognising for the first time a pension

deficit on the balance sheet, in accordance with Ind AS 19 Employee Benefits. The finance director of Bernwood

Co has contacted the audit engagement partner, asking if your firm can provide an actuarial valuation service

in respect of the amount recognised.

Which of the following options needs to be considered by the audit engagement partner?

CNO-PE.160

• a) The issue is whether there is a self-review threat, as the valuation of the amount recognised would be

  recorded in the financial statements. The audit partner should decline the work of valuation service.

• b) The issue is whether the audit firm would be likely to possess the requisite competence to provide such a

  valuation service. The audit partner should decline since not professionally qualified to provide the

  valuation service.

• c) Narang & Co. needs to assess the materiality of the figure, and the degree of subjectivity involved. If it

  considers that safeguards like using separate personnel, performing a second partner review, could reduce

  the threat to an acceptable level, then it can go ahead with both the audit and the valuation service.

• d) The audit partner could go ahead with the valuation service and disclose the fact in its audit report about

  the service provided during the period. This will safeguard and reduce the threat to an acceptable level.

MCQ--PE.3

CA. Intelligent, a Chartered Accountant in practice, provides part-time tutorship under the

coaching organization of the Institute. On 30th June, 2019, he was awarded ‘Best Faculty of

the year’ as gratitude from the Institute. Later on, CA. Intelligent posted his framed

photograph on his website wherein he was receiving the said award from the Institute. As per

Chartered Accountants Act, 1949, under which clause Intelligent is liable for misconduct .

CNO-PE.680

• a) Clause (6) of Part I of the First Schedule to the Chartered Accountants Act, 1949

• b) Clause (9) of Part I of the Second Schedule to the Chartered Accountants Act, 1949

• c) Clause (7) of Part I of the First Schedule to the Chartered Accountants Act, 1949

• d) Clause (8) of Part I of the Second Schedule to the Chartered Accountants Act, 1949

MCQ--PE.11

Letter head of CA. Panaj, a Practicing Chartered Accountant, is reproduced below:

PANAJ De PANKAJ ACS, LLB, FCA

Chartered Accountant & Member of parliament

As per Chartered Accountants Act, 1949 you are required to choose the appropriate answer :

CNO-PE.700

• a) As per clause 7 of Part I of First Schedule to the Chartered Accountants Act,1949 he shall not

  use the designation ‘Member of the Parliament’ in addition to tha t of a ‘Chartered Accountant’

• b) He shall not use the designation ‘LLB’ in addition to that of a ‘Chartered Accountant’ as he has

  not enrolled as an Advocate as per clause 7 of Part I of First Schedule to the Chartered

  Accountants Act,1949.

• c) He can use designations such as Member of Parliament, Member of the Legislative Assembly in

  addition to that of a ‘Chartered Accountant’ as these are specifically allowed as per clause 7 of

  Part I of First Schedule to the Chartered Accountants Act,1949.

• d) As per clause 7 of Part I of First Schedule to the Chartered Accountants Act, 1949 he can

  designate himself as ‘Chartered Accountant and Company Secretary’ as he is a member of the

  Institute of Company Secretaries of India also.

MCQ--PR.12

CA Dharma has established another branch in the same city. Branch was inaugurated on 3rd October

2020 and on 4th October 2020, friends of CA Dharma gave an article on the front page of local

newspaper congratulating CA Dharma on opening of another branch which also includes half page

photograph of CA Dharma with his consent. In your opinion was the news in newspaper a misconduct

on the part of CA Dharma and what actions can be taken against him?

CNO-PE.700

• a) Yes, it is a misconduct under clause 8 of Part I of Second Schedule and he can be reprimanded,

  his name can be removed from the register of members for 3 years and fine upto Rs. 5,00,000.

• b) Yes, it is a misconduct under under clause 5 Part I of First Schedule and he can be reprimanded,

  his name can be removed from the register of members for 3 months and fine upto Rs. 1,00,000.

• c) Yes, it is a misconduct under clause 7 of Part I of First Schedule and he can be reprimanded, his

  name can be removed from the register of members for 3 months and fine upto Rs. 1,00,000.

• d) Yes, it is a misconduct under clause 8 of Part I of Second Schedule and he can be reprimanded,

  his name can be removed from the register of members permanently and fine upto Rs. 5 ,00,000.

MCQ--PE.16

Mr. B one of the partners of the firm is facing a dilemma as to whether the firm BMY LLP

should accept the appointment as Statutory Auditors of M/s Foam Limited wherein Mr. B

had sent a communication in writing addressed to the outgoing auditor Mr. Dalai u nder

certificate of posting and the outgoing auditor has sent an acknowledgement vide their

official email, but this email address of the outgoing auditor is not registered with the

Institute of Chartered Accountants of India. Mr. B is of the opinion that this is not positive

evidence of delivery and violates the provisions of Code of Ethics if the firm accepts the

audit assignment.

With respect to the dilemma being faced by Mr. B, partner of the firm regarding

acknowledgment of the communication from the retiring auditor's vide their official email is

not positive evidence of delivery?

CNO-PE.720

• (a) The dilemma of Mr. B is correct as it is not positive evidence of delivery.

• b) The dilemma of Mr. B is not correct as it is positive evidence of delivery as the same

  is received from the official email of the outgoing auditor, as per the Code of Ethics.

• c) The dilemma of Mr. B is not correct as statutory auditors are not required to

  communicate with the retiring or outgoing auditors in this case.

• d) The dilemma of Mr. B is correct as the email address of the outgoing auditor from

  which acknowledgement has come is not registered with the Institute of Chartered

  Accountants of India.

MCQ-PE.2

CA. D, a chartered accountant in practice, availed of a loan against his personal investments from a bank. He issued 2 cheques towards repayment of the said loan as per the instalments due. However, both the cheques were returned back by the bank with the remarks "Insufficient funds". As per Chartered Accountants Act, 1949, under which clause CA D is liable for misconduct?

CNO-PE.940

• a) Clause (6) of Part I of the First Schedule to the Chartered

  Accountants Act, 1949.

• b) Clause (4) of Part I of the Second Schedule to the Chartered

  Accountants Act, 1949.

• c) Clause (12) of Part I of the First Schedule to the Chartered

  Accountants Act, 1949.

• d) Clause (2) of Part IV of First Schedule to the Chartered Accountants Act, 1949.

MCQ--PE.1

CA Ram is practicing in the field of financial management planning for over 12 years. He has gained expertise in this domain over others. Mr. Ratan, a student of Chartered Accountancy course, is very much impressed with the knowledge of CA. Ram. He approached CA. Ram to take guidance on some topics of financial management subject related to his course. CA. Ram, on request, decided to spare some time and started providing private tutorship to Mr. Ratan along with some other aspirants for 4 days in a week and for 3 hours in a day. However, he forgot to take specific permission for such private tutorship from the Council. Later on, he came to know that the Council has passed a Resolution under Regulation 190A granting general permission (for private tutorship, and part-time tutorship under Coaching organization of the Institute) and specific permission (for part-time or full time tutorship under any educational institution other than Coaching organization of the Institute). Such general and specific permission granted is subject to the condition that the direct teaching hours devoted to such activities taken together should _______________ in order to be able to undertake attest functions.

CNO-PE.780

• a) not exceed 25 hours a week

• b) not exceed 21 hours a week

• c) not exceed 25 hours a month

• d) not exceed 21 hours a month

MCQ--PE.15

Mr. Chitragupta Bakutra, a Chartered Accountant is a sole proprietor of Bakutra & Co. which has been appointed as a statutory auditor of Kraftic Ltd. from FY 2020-21, for a term of 5 years. Mr. Chitragupta is a director simplicitor of Kalavitur Ltd. which acquired 55% shares of Kraftic Ltd., for the first time, on 25th May, 2020. Mr. Chitragupta’s term as a director of Kalavitur Ltd. got expired on 31st March, 2021

and he was not re-appointed. Kalavitur Ltd. made a proposal to Mr. Chitragupta for appointing Bakutra & Co. as its statutory auditor from FY 2020-21, for a term of 5 years, which was accepted by Mr. Chitragupta. Is there any violation of the Code of Ethics by Mr. Chitragupta Bakutra?

CNO-PE.1020

• a) Yes, as he cannot be continued to be director of a company, the subsidiary of which he is an auditor and also he cannot accept appointment of auditor of a Kalavitur Ltd. without finishing of the cooling period for the same.

• b) There is no bar in being a director Simplicitor of a company, the subsidiary of which the person is an auditor. However, by accepting appointment as an auditor of Kalavitur Ltd. without finishing of the cooling period for the same, he has violated the Code of Ethics.

• c) Yes, as he cannot be continued to be director of a company, the subsidiary of which he is an auditor. However, there is no bar in becoming an auditor of a company of which a person has been its director.

• d) There is no bar in being a director Simplicitor of a company, the subsidiary of which the person is an auditor and also there is no requirement of following the cooling period by a director simplicitor who on expiry of its term, wants to become auditor

  of such company.