Comment on the following situations/statements: (35 =15 Marks December 2013)
a) Ram, a Chartered Accountant prepared a project report for one of his clients to obtain bank finance (long-term) of Rs. 50 lakhs from a commercial bank. Consequent to the sanction of the loan the bank, Ram charged 2% fee on the figures of loan sanctioned.
b) Goma Limited, a leading trading business in electronic goods, has appointed CA. Ranaji Ojha a statutory auditor with Rs. 1.5 lakhs audit fees. Besides, the company has offered 5 latest model iPhone costing of Rs. 1.5 lakhs to his family members as gift.
c) While submitting the financial proposal on consultancy works of Emiliya Gypsum Limited, PZT Associates, a CA. firm has calculated the cost as follows:
FCA Rs. 5,000 Per day/person
ACA Rs. 2,500 Per day/person
RA Rs. 2,000 Per day/person
Assistants Rs. 1,000 Per day/person
As per Code of Ethics 2018, Professional fees should be a fair reflection of the value of the professional services performed for the client, taking into account:
a. The skill and knowledge required for the type of professional services involved.
b. The level of training and experience of the persons necessarily engaged in performing the professional services.
c. The time necessarily occupied each person engaged in performing the professional services.
d. The degree of responsibility that performing those services entails.
Professional fees should normally be computed on the basis of appropriate rates per hour or per day for the time of each person engaged in performing professional services. These rates should be based on the fundamental premise that the organization and conduct of the professional accountant in public practice and the services provided to clients are well planned, controlled and managed. It is for each professional accountant in public practice to determine the appropriate rates.
A professional accountant in public practice should not make a representation that specific professional services in current or future periods will be performed for either a stated fee, estimated fee, or fee range if it is likely at the time of the representation that such fees will be substantially increased and the prospective client is not advised of that likelihood.
When performing professional services for a client it may be necessary or expedient to charge a pre-arranged fee, in which event the professional accountant in public practice should estimate a fee taking into account the referred matters.
Section 34(10) of Nepal Chartered Accountants Act, 1997 states that “Members holding Certificate of Practice shall not base their remuneration as a percentage on the profit or on any other uncertain results”.
Entering into a contingent fee arrangement relating to an assurance engagement is an example of self-interest threat. In the present case, audit fee is contingent upon the profit after tax of the client. So, this is the situation of self-interest threat to the auditor and hence it is advisable for the auditor not to accept the engagement under such fee arrangement.
A professional accountant should not accept any gifts or goods from the client which threat the independence. Code of Conduct Section 8.6 and 8.9 attracts to the professional accountant to accept the gift and goods. Section 8.6 says personal and family relationships can affect independence. There is a particular need to ensure that an independent approach to any assignment is not endangered as a consequence of any personal or family relationship.
It is recognized that it would be impracticable to attempt to prescribe in detail in ethical requirements the permissible extent of a personal relationship between a professional accountant in public practice and a client, or those occupying responsible executive positions (e.g., director, chief executive, financial officer or another employee in a similar position) with a client.
Section 340.8 of the Code of Conduct has defined not to accept any goods and services from the client. Acceptance of goods and services from a client may be a threat to independence. Acceptance of undue hospitality poses a similar threat. Goods and services should not be accepted professional accountants in public practice, their spouses or dependent children except on business terms no more favorable than those generally available to others. Hospitality
and gifts on a scale which is not commensurate with the normal courtesies of social life should not be accepted.
In a given case offering of 5 mobile sets of significant value to the auditor Goma Limited seems to have the intent of influencing the decision making of the auditor. Hence this is the situation of self-interest threat, familiarity threat and intimidation threat. In this situation the auditor should evaluate the significance of the threats and apply safeguards to eliminate threats or reduce them to an acceptable level. If the threat cannot be eliminated or reduced to an acceptable level, the gifts shall not be accepted the auditor.
Nepal Chartered Accountant Act, 2053, Nepal Chartered Accountants Rules, 2061 and the Code of Conduct of the Institute have given authority to make certain standards on the charging of fees its members. Applying the power as provided in the above statutes, the Council has decided and fixed certain fundamental principles on minimum fees, consultancy services fee and fee on certification work. work. As per the decision of the meeting no 194 held on 2071/11/04, the Council has fixed the minimum consultancy charges as follows:
FCA member Rs. 10,000/- per working days CA member Rs. 7500/- per working days RA member Rs. 5000/- per working days Other/assistants Rs. 3000/- per working days
In a given case, the fee as quoted the CA firm is not complying with the decision was made the Council except RA member charge which is as per the decision of the Council.