The directors of Ayush Ltd. have told the lending bank that the company is in an excellent financial position and cash flow projections will meet…

Ethical and accounting implications: As per Ind AS 7 Statement of Cash Flows, cash equivalents are short-term, highly liquid instruments readily convertible to cash and subject to insignificant risk of change in value. Loan given to director has no fixed repayment schedule and likelihood of defaulting is not known. Thus, the classification as a 'cash and cash equivalent' is inappropriate. Instead, loan to director should be shown as a financial asset under Ind AS 109 Financial Instrument. Due to the pressure from directors, CA Suraj knowingly disclosed incorrect information to the bank in projected cash flow statement, thereby compromising the fundamental principles of objectivity, integrity and professional competence. By reporting favourable cash flow projections to bank, objectivity is compromised.Integrity is also compromised as by not acting in a straightforward and honest manner, incorrect information is knowingly disclosed.The principle of competence requires CA Suraj to prepare the cash flow projection to the best of his professional judgment which would not be the case if the cash flow projection showed a more positive position than what is actually anticipated. By submitting incorrect projected cash flow statement, CA Suraj would be subject to professional misconduct under clause -1 of Part II of Second schedule of the Chartered Accountants Act 1949. The clause-1 states that a member of the institute whether in practice or not, shall be deemed to be guilty of professional misconduct, if he contravenes any of the provisions of this Act or regulations made thereunder or any guidelines issued by the council. Guidance to appropriate action As a professional, CA Suraj is responsible for presenting the truth and not to indulge in creative accounting owing to force.CA Suraj should put the interest of the Company and professional ethics first and must insist that the projected cash flow statement to the bank should be an honest reflection of the company's current financial position. He must prevent deliberate misrepresentation to the said bank.CA Suraj should not allow any undue influence and force from the directors to override his professional judgement or integrity.By not providing incorrect projected cash flow statement and by adhering to ethical principles, CA Suraj will maintain his professional integrity and contribute to the trust and reliability placed in the work expected from him.As per the guidelines issued by the council of the Institute, a member of the institute who is an employee shall exercise due diligence and shall not be grossly negligent in conduct of his duties.