a) The Joint Merger Committee of Alpha Bank and Beta Bank has appointed CA Ramarjun as Due Diligence Auditor of both banks for the merger process. The appointment letter has following clause regarding fees: “Fees amounting to Rs.300, 000 for each bank (exclusive of VAT) shall be paid on submission of DDA report. Additional payment of Rs.150,000 (inclusive of VAT) shall be made, if the merger is successful.”
b) CA Chandan was appointed auditor of Delta Telecom Ltd. He presented audit plan where in ten teams comprising 4 personnel in each team will be visiting 40 branches (out of 50) across the country for a total of around 4 months. The finance controller of Delta Telecom offered SIM cards for all the team members engaged in the audit with one-year free 4G data and voice services and unlimited one year free 10 MB internet to Auditor‟s Office as logistic support so that communication/emails with all the members are uninterrupted during the course of audit. It is expected that CA Chandan will be appointed as auditor for next two years as well. The general one-time price of SIM cards and installation charges for internet however shall have to be paid for. The Finance Controller requests for replacing some of the branches with others for audit.
Section 330 “Fees and other types of remuneration” of Code of Ethics of ICAN , states that Professional services should not be offered or rendered to a client under an arrangement whereno fee will be charged unless a specified finding or result is obtained or when the fee is otherwise contingent upon the findings or results of such services. Fees charged on a percentage or similar basis should be regarded as contingent.
In the given instance; though the first part of the clause of fee is straight forward and will be received on submission of the DDA report, the second part of the fee is contingent upon the successful merger. The second part of the fee will not be there if the merger is unsuccessful. It is understood that the success of merger shall be significantly influenced the DDA Report. This may also cause self-interest threat on the objectivity of the assignment. Given the facts, CA Ramarjun should not accept the assignment based on the given terms of fee.
Section 340 “Gifts & Hospitality” of Code of Ethics ICAN, states that acceptance of goods and services from a client may create a threat to self-interest threat or familiarity threat to objectivity. Goods and services should not be accepted except on business terms no more favorable than those
generally available to others. The existence and significance of any threat will depend on the nature, value, and intent of the offer.
In the given case, the purchase of SIM cards at regular price seem no more favorable that to others and the facility seemed normal in terms of logistic support for smooth conduction of the audit works. However, the offer for free 4G data charges, voice service and internet for one year which is extended beyond the normal course (4 months) of audit execution period. Therefore, it may not be concluded that the offer is in normal course without the specific intent to influence the decision making. Acceptance of the offer may pose a threat on independence and objectivity and hence should not be accepted.