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AnantAnant asked 1 year ago

QUESTIONS 3: Mr. X partner of X & Co. Chartered Accountants, has compiled and signed the balance sheet of False Ltd. for submission to the bankers of the said company. Mr. X has also compiled and signed at the request of the company another balance Sheet inflating the value of assets by 20%, for submission to a term lending institution. Both the Balance Sheets were not in conformity with the books of accounts maintained by the company as they were not up-to-date. Comment on Mr. X liability.
Answer: Mr. X would be held guilty under Clauses 5 and 6 of Part I of Second Schedule to the CA Act, 1949 as Mr. X had compiled the two different balance sheets for the same date without reference to the actual books of accounts, but on instructions of the client. As per clause 5 he has failed to disclose material fact known to him & as per clause 6 he has also failed to report a material misstatement known to him.
Above is a question on professional ethics which i have encounter with, along with the answer provided for it in the book.
My query is: Shouldn’t Claus(7), Part 1, Sch. 2, should be applied instead of cl. 5 and 6, as the auditor didn’t even vouched and verified the books of accounts i.e. no due diligence and gross negligence? Also, if he haven’t even audited the books, how could he have known the existence if material facts or material misstatements for the which, the answer is reffering to clause 5 and 6?

1 Answers
Best Answer
RaviRavi Staff answered 1 year ago

question doesn’t mention that auditor didn’t vouch and verify records and books or he was careless
in fact this case auditor was well aware of situation and cunningly he manipulated things along with client
so it is case of clever manipulation rather than negligence 
if he would have signed 2 sets because of carelessness, such that he didnt remember he has signed 1 set before then it could have been case of negligence   

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