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PROFESSIONAL ETHICS

A profession brings with it a special reponsibility. This is because, a profession is characterised by application of special knowledge, along with certain reponsibilities. A profession is opposed from business, because when we speak of a profession, it means that firstly, there is absence of profit motive; and secondly there is absence of competition. In case of CAs, it means that the motivating factor for the CA in profession is not making profit.

To give an example it means, if the CA is taking a fees of Rs. 250 for filing Income Tax return from salaried tax payer, then it does not matter to him whether the salaried client is earning Rs. two lakhs or Rs. ten lakhs as his annual salary, the practicing CA would charge Rs. 250 from both. Two comparisons can be made. Firstly a similar example of a Doctor who charges a fees of Rs. 100 from his patient for the specialised advised given. A second example, but a contrasting one can be in the form of a professional cinema artist. T he hero may charge Rs. 50 lakhs from one producer, and Rs. two crore from another one for the same kind of role depending how much the producer can pay. But then, a cinema artist or a films hero does not have to abide by any ethical issue! The second aspect of absence of competition is trickier to understand. Technically and legally, a profession is a kind of brotherhood (without the gender bias of the English word!). This is because, the CAs dont compete among them for getting clients. Simply stated, its different from the kind of competition one would find in business. Take for example, a tender process for the contract, where the different businesses are competing among themselves for getting the contract. The business can bid their contract amount and the lowest one would get the contract. In contrast to this, CAs cannot compete among them for getting audit assignments they cannot undercut among themselves! Ethics simply stated is morally acceptable action. For a Chartered Accountant, ethical behaviour and ethical action is very much needed because, CAs as a profession are engaged in a trust function. CAs attest the sanctity and reliability of the financial statement and on which third parties entrust their faith. As auditors CAs have high responsibility because their audit opinion is going to be used by a vast variety of users whether it be government for the tax and other purposes, banks for loans etc, by investors, by employees, by regulatory agencies, and others. If for example, an auditor opines that a business entitys profit as reflected and the balance sheet gives a true and fair reflection of the financial health of the business and based on that opinion, numerous small investors

invest in that business, then its a huge responsibility. If the government relies on the tax audit report for collecting tax from business, then its a huge responsibility. And in performance of such function, the CA has to be guided by the professional ethics and the dignity of the profession. Even apart from the audit function, CAs work as accountants managing money of businesses, or if s/he is a fund manager for some mutual fund, or manager in a bank and determines whether a loan should be advanced or not then all these require high degree of responsible behaviour, as the monies that are being dealt with are monies given in trust by other people, and not the personal money of the CA.

Also, the professional responsibilities of CAs are perhaps at a higher scale. This is because, for example, the responsibility of a lawyer is tohis immediate client. The responsibility of the lawyer is to defend his client. If the lawyer is able to defend his client successfully in court, then it does not matter whether the client has committed the offence or not. In contrast the CA as auditor receives his remuneration to speak loud and clear where his client has erred! And on the opinion of the auditor would rest the faith of many of the stakeholders.

Its not so that Auditors are always true to their profession or that they have always acted ethically. After all, even the profession itself is ones source of income, and its human to want to have higher levels of income. Also, its natural that some would like to have bigger clients. This kind of thing leads to competition of the market place.Such requirements of the market, driven by revenue pressures leads to a situation where on certain occasions, Auditors have deviated from their stated duty and professional ethics.

Code of ethics is very important for the CAs, particularly when they are doing the audit/attest function. However the many financial scams in the last decade throws a poor light either in the audit/attest propriety and/or the enforcement mechanism of the State. The person / organisation whose audit is being done is after all a client of the auditor. Its quite difficult to be too honest and also keep the client happy. The Audit firms are not just engaged in the Audit work, but also various kinds of consultancies for their clients, whose audit they do.

The money from non audit work is much more than the audit work. Sothe money that one gets from the works like management consultancies, tax works and other non audit work, acts as a revenue pressure to give a clean audit report. This is because, if the problems detected in audit

work is reported, its well possible that the clientwould change the auditor, and with that would also go the money from the non audit work.

Questions 1) What is the relevance of ethics in CA profession? 2) What lead to the introduction of these schedules?

Source

: www.ca clubindia.com

Compiled by: Harikrishnan R S harikrishnanrsmalayam@gmail.com 0 9446461475

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