Auditing and assurance revision question and answer

Auditing and Assurance Revision Questions and Answers

a) Mr. A, an auditor of Cold Drink Company has obtained trade secret formula during audit process. A Case was lodged against Cold Drink Company for putting non-edible components in the drink. Subsequently, auditor was called Supreme Court to provide documents and his knowing in the formulae. He shared the information he has received on formula of Cold Drink Company. Mr. B, lodged complaints to ICAN that, Mr. A has violated Code of Ethics on the ground of breach of confidentiality.
b) Mr. Ajay, a practicing Chartered Accountant receives commission from Mr. Sanjay, another practicing Chartered Accountant Rs. 175,000 being 25% of the audit fee for the referral of statutory audit of company limited, a listed company.

answer

a) Section 114 of Code of Ethics of ICAN, specifies about the Confidentiality to be observed members and professional accountants. The principle of confidentiality imposes an obligation on all professional accountants to refrain from: (a) Disclosing outside the firm or employing organization confidential information acquired as a result of professional and business relationships without proper and specific authority or unless there is a legal or professional right or duty to disclose; and (b) Using confidential information acquired as a result of professional and business relationships to their personal advantage or the advantage of third parties.
However, section 114, outlines circumstances where professional accountants are required to disclose confidential information or when such disclosure is appropriate and once such circumstances arise as required law, for example i.e. production of documents or other provision of evidence in the course of legal proceedings.
Hence, in given case, complaint of Mr. B is not valid, as Mr. A has well followed the code of Ethics and release confidential information on trade secret only upon order of supreme court and such release of trade secret is allowed Ethical Code of ICAN and cannot be construed as release of confidential information breaching Ethical Code of ICAN for professional accountants.

b)

Section 330.5 of Code of Ethics of ICAN, accepting certain a referral fee or commission creates a self-interest threat to objectivity and professional competence and due care. According to Code of

Ethics issued ICAN, the payment or receipt of commission a professional accountant in public practice could impair objectivity and independence. A professional accountant in public practice should not therefore pay a commission to obtain a client nor should a commission be accepted for referral of a client to a third party. The payment and receipt of commission are permitted only for such engagements for which independence is not required and the professional accountant in practice should nonetheless disclose the facts to the client.
In the above case since the above assignments requires independence, Mr. Ajay and Mr. Sanjay both are not complying with ethical requirements under Code of Ethics issued ICAN. The disciplinary action can be taken against Mr. Ajay and Mr. Sanjay.



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