Mr. Chetan qualified as a Chartered Accountant on 18 July 2026 and commenced practice on 15 August 2026. On 16 August 2026, a candidate approached…
CA Final · Advanced Auditing, Assurance and Professional Ethics · MTP · November 2026
Mr. Chetan qualified as a Chartered Accountant on 18 July 2026 and commenced practice on 15 August 2026. On 16 August 2026, a candidate approached him for engagement as an articled assistant. While agreeing to pay the stipend prescribed by the ICAI, Mr. Chetan also offered the candidate 1% of the profits of his CA firm as an additional payment. The candidate accepted both the prescribed stipend and the 1% share of profits. Subsequently, the ICAI objected to the payment of 1% of the firm's profits. Mr. Chetan replied that the additional payment was being made only to financially support the articled assistant, whose financial position was weak. Is Mr. Chetan liable to professional misconduct? OR Kinlab Ltd. is a manufacturing company planning to expand its business over the next few years. The management has approached an investigator to assess the future maintainable turnover of the company for valuation purposes. During the investigation, the investigator observed that the company's sales have increased steadily during the last three years but have fluctuated in certain product segments. The company is also planning to enter new domestic and international markets. At the same time, changes in Government policies and emerging economic conditions may affect the demand for its products. Further, new competitors are expected to enter the market, and some competing products are likely to be available at lower prices. Based on the above facts, state the factors that the investigator should consider while assessing the future maintainable turnover of Kinlab Ltd.
Suggested Answer and Working Notes:
As per Clause (2) of Part I of First Schedule to the Chartered Accountants Act 1949, a Chartered Accountant in practice shall be deemed to be guilty of professional misconduct if he pays or allows or agrees to pay or allow, directly or indirectly, any share, commission or brokerage in the fees or profits of his professional business, to any person other than a member of the Institute or a partner or a retired partner or the legal representative of a deceased partner, or a member of any other professional body or with such other persons having such qualification as may be prescribed, for the purpose of rendering such professional services from time to time in or outside India. In view of the above, the objections of the Institute of Chartered Accountants of India, as given in the case, are correct and reply of Mr. Chetan, stating that he is paying 1% profits of his firm over and above the stipend to help the articled clerk as the position of the articled clerk is weak is not tenable. Hence, Mr. Chetan is guilty of professional misconduct in terms of Clause (2) of Part I of First Schedule to the Chartered Accountants Act 1949. OR Turnover - In assessing the turnover which the business would be able to maintain in the future, the following factors should be taken into account: (i) Trend: Whether in the past sales have been increasing consistently or they have been fluctuating. A proper study of this phenomenon should be made. (ii) Marketability: Is it possible to extend the sales into new markets or that these have been fully exploited? Product wise estimation should be made. (iii) Political and economic considerations: Are the policies pursued by the Government likely to promote the extension of the market for goods to other countries? Whether the sales in the home market are likely to increase or decrease as a result of various emerging economic trends? (iv) Competition: What is the likely effect on the business if other manufacturers enter the same field or if products which would sell in competition are placed on the market at cheaper price? Is the demand for competing products increasing? Is the company's share in total trade constant or has it been fluctuating?
Topics: Professional Ethics & Liabilities of Auditors, Due Diligence, Investigation & Forensic Audit
Related Questions in this Topic
- Dheer & Co., a sole proprietary Chartered Accountancy firm, has its office in a busy commercial area of the city. Since ...
- CA Ajeet, a Chartered Accountant in practice, was appointed as the statutory auditor of Climax Manufacturing Limited. Af...
- PN and Associates are appointed as the Statutory Auditors of The Iron Company Ltd. The Central Government holds 65% of t...
- M/s M & T, a firm of Chartered Accountants having three partners, has been actively involved in professional development...
- M/s GAME & Co., a firm of Chartered Accountants, recently launched its official website "Game-ca.com". The website featu...