Auditing and assurance revision question and answer

Auditing and Assurance Revision Questions and Answers

Rabin & Associates; Chartered Accountants has been operating a separate bank account for keeping client`s money in course of availing fund manager service to the client. The interest earned on such account during financial year 2072/73 amounting Rs. 100,000 has been transferred to firm`s bank account and booked as miscellaneous income with corresponding miscellaneous income & expenditure in client`s bank account
As per Section 350 “Custody of Client Assets” of Code of Ethics of the Institute of Chartered Accountants of Nepal, it has been clearly stated that: “All interest earned on clients` monies should be credited to the client`s account”.

The accounting entries made Rabin & Associates; chartered accountants for interest income in client`s account is initially correct. But subsequent transfer of interest income to firm’s account booking as miscellaneous expense in client`s account is not correct.

In the light of the provision contained in Section 350 of Code of Ethics, a professional accountant in public practice entrusted with money (or other assets) belonging to others shall therefore;
a) Keep such assets separately from personal or firm assets;
b) Use such assets only for the intended purpose;
c) Be ready to present accounting of those assets and any income generated from such assets at all time to the client; and
d) Comply all the relevant laws and regulations applicable for the custody of client\s assets.
Hence, Rabin & Associates has breached the code of ethics as prescribed ICAN and is under the disciplinary action for non-compliance of ICAN code of ethics.

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