Professional Ethics and Liabilities of Auditors

These flashcards cover the fundamental principles, threats, legal provisions, and misconduct categories outlined in the professional ethics guidelines for auditors as per the Chartered Accountants Act, 1949 and ICAI Code of Ethics.

Ethics

The moral principle that governs a person's behavior or how an activity is conducted, according to the Oxford Dictionary.

Professional Ethics

Consists of personal, organizational, and corporate standards of behaviour expected for professionals like Chartered Accountants.

Fundamental Principles of Ethics

A set of five principles including Integrity, Objectivity, Professional Competence and Due Care, Confidentiality, and Professional Behaviour.

Integrity

A principle requiring a professional accountant to be straightforward and honest in all professional and business relationships, implying fair dealing and truthfulness.

Objectivity

A principle requiring an accountant not to compromise professional or business judgment because of bias, conflict of interest, or undue influence of others.

Professional Competence and Due Care

The duty to attain and maintain professional knowledge at a level ensuring competent service and to act diligently in accordance with technical and professional standards.

Confidentiality

The requirement to respect the privacy of information acquired through professional relationships and not disclose it without proper authority unless there is a legal or professional duty.

Professional Behaviour

The obligation to comply with relevant laws and regulations and avoid any conduct that might discredit the profession.

Self-interest threat

The threat that a financial or other interest will inappropriately influence a professional accountant’s judgment or behaviour.

Self-review threat

The threat that a professional accountant will not appropriately evaluate the results of a previous judgment made or activity performed by themselves or their firm.

Advocacy threat

The threat that a professional accountant will promote a client’s or employing organization’s position to the point that objectivity is compromised.

Familiarity threat

The threat that due to a long or close relationship, a professional accountant will be too sympathetic to a client's interests or too accepting of their work.

Intimidation threat

The threat that a professional accountant will be deterred from acting objectively because of actual or perceived pressures or undue influence.

Acceptable level

A level at which a professional accountant using the reasonable and informed third party test would likely conclude they comply with the fundamental principles.

NOCLAR

Non-Compliance with Laws and Regulations, comprising acts of omission or commission, intentional or unintentional, contrary to prevailing laws or regulations.

Senior professional accountants

Directors, officers, or senior employees able to exert significant influence over the acquisition, deployment, and control of organization resources.

Associate Member (A.C.A.)

A person whose name has been entered in the Register of members of the Institute of Chartered Accountants of India.

Fellow Member (F.C.A.)

An associate member who has been in continuous practice in India for at least $5$ years or possesses equivalent experience prescribed by the Council.

Deemed to be in practice

A status applied when a member, for remuneration, engages in accountancy, auditing, verification of financial transactions, or renders professional services relating to accounting procedures.

Management Consultancy and other Services

A range of services permitted by the Council under Section $2(2)(iv)$, including financial management planning, inventory management, and personnel recruitment.

Director Simplicitor

An ordinary or simple Director who is not a Managing Director or Whole-time Director and is required only for Board Meetings, paid only sitting fees.

Substantial interest

Beneficially owning shares carrying not less than $20\%$ of voting power or being entitled to not less than $20\%$ of the profits of a concern.

UDIN

Unique Document Identification Number, implement to curb false certification and bogus certificates by unauthorized persons.

Specified number of tax audit assignments

The limit of tax audit assignments per partner in a financial year, which is currently set at $60$ assignments.

Specified number of audit assignments (Companies)

The limit of company audits per partner at any time, which is set at $30$ assignments, excluding one person and dormant companies.

Sick unit

A unit registered for not less than $5$ years which has accumulated losses equal to or exceeding its entire net worth at the end of a financial year.

First Schedule, Part I

Deals with professional misconduct specifically in relation to Chartered Accountants in practice, containing $12$ clauses.

Second Schedule, Part I

Covers professional misconduct for Chartered Accountants in practice regarding matters like disclosure of information, gross negligence, and certifying estimates of earnings.

Disciplinary Directorate

The initial body that receives complaints or information regarding alleged misconduct and forms a prima facie opinion.

Appellate Authority

The body where a member or Director (Discipline) aggrieved by an order of the Board or Disciplinary Committee can prefer an appeal within $90$ days.