Advanced Auditing

CAP III
A review on ethical aspects of audit

Compiled by :
CA Anish Gyawali
Trend
• June 2022 : ~ 15 marks
• Dec 2021 : ~12.5 marks
• June 2021 : ~12.5 marks
• Dec 2020 : ~ 17 marks
What do we cover ?

• HANDBOOK OF THE CODE OF ETHICS FOR PROFESSIONAL

ACCOUNTANTS (2018) – Generally termed as “Code of Ethics”
• Various Circulars/ Guidelines issued by ICAN
• Verdict on disciplinary cases
• Provisions governing audit by ICAN Act (Related to Ethical Aspects)
• Provisions of appointment, responsibility and reporting by auditors
under prevailing acts
 WHY CODE OF ETHICS ?

ICAN CODE OF ETHICS

HANDBOOK OF Overview of the Code
THE CODE OF
Part 1: Professional Accountants in Business
ETHICS FOR
PROFESSIONAL Part 2: Professional Accountants in Public Practice
ACCOUNTANTS Part 4A & 4B International Independence
(2018)
Standards

Guidelines
WHY CODE OF
ETHICS ?
• The accountancy profession assumes the
responsibility to act in the public interest. A
professional accountant’s responsibility is not
exclusively to satisfy the needs of an individual
client or employing organization.
• Therefore, the Code contains requirements and
application material to enable professional
accountants to meet their responsibility to act in
the public interest.
 ICAN Code of Ethics is in line with the Code of Ethics of
the Professional Accountants issued by International
Ethics Standard Board for Accountants (IESBA).

First Code of Ethics for ICAN members made mandatory

from January 15, 2004 [Magh 1, 2060].
ICAN Code
of Ethics Updated Handbook of Code of Ethics for Professional
Accountants 2010 and 2014 Edition.

Recently updated handbook of Code of Ethics for

Professional Accountants 2018 Edition. Effective from 16
July 2019
OVERVIEW OF THE CODE OF ETHICS
• PART 1 :COMPLYING WITH THE CODE, FUNDAMENTAL PRINCIPLES AND
CONCEPTUAL FRAMEWORK (All Professional Accountants - Sections 100 to
199)
• PART 2 : PROFESSIONAL ACCOUNTANTS IN BUSINESS (Section 200 to 299)
• PART 3 : PROFESSIONAL ACCOUNTANTS IN PUBLIC PRACTICE (Section 300
to 399)
• INTERNATIONAL INDEPENDENCE STANDARDS (PARTS 4A AND 4B)
PART 4A – INDEPENDENCE FOR AUDIT AND REVIEW ENGAGEMENTS
(Section 400 to 899)
PART 4B – INDEPENDENCE FOR ASSURANCE ENGAGEMENTS OTHER
THAN AUDIT AND REVIEW ENGAGEMENTS (Section 900 to 999)
Part 1 : COMPLYING WITH THE CODE, FUNDAMENTAL
PRINCIPLES AND CONCEPTUAL FRAMEWORK

Section 100 : Section 110 : The Section 120 : The

Complying With Fundamental Conceptual
The Code Principles Framework
Section 100 : Complying With The Code
To enable professional accountants to meet their responsibility to act in the public
interest.
A professional accountant who identifies a breach of provision of the Code shall
evaluate the significance of the breach and its impact on the accountant’s ability to
comply with the fundamental principles.

The accountant shall also:

# Take whatever actions might be available, as soon as possible, to address
the consequences of the breach satisfactorily; and
# Determine whether to report the breach to the relevant parties (eg
affected parties, regulatory body, etc)
Section 110 :
The
Fundamental
Principles
Subsection 111
Integrity

• straightforward and honest in all professional and business relationships.

• fair dealing and truthfulness.
• shall not knowingly be associated with reports, returns, communications or
other information where the accountant believes that the information is
false or misleading
Subsection 112
Objectivity
• not to compromise
professional or
business judgment
because of bias,
conflict of interest or
undue influence of
others.
Subsection 113 Professional
Competence & Due Care

• Attain and maintain professional

knowledge and skill at the level required
to ensure that a client or employing
organization receives competent
professional service, based on current
technical and professional standards and
relevant legislation; and
• Act diligently and in accordance with
applicable technical and professional
standards.
Subsection 114: Confidentiality
• To respect the
confidentiality of
information acquired as a
result of professional and
business relationships.
• Remember : Where and
what you are speaking
• Confidentiality; also after
end of business
relationship
Exceptions : Confidentiality
(a) Disclosure is required by law, for example:
(i) Production of documents or other provision of evidence in the course of legal
proceedings; or
(ii) Disclosure to the appropriate public authorities of infringements of the law that
come to light;

(b) Disclosure is permitted by law and is authorized by the client or the employing
organization; and
(c) There is a professional duty or right to disclose, when not prohibited by law:
(i) To comply with the quality review of a professional body;
(ii) To respond to an inquiry or investigation by a professional or regulatory body;
(iii) To protect the professional interests of a professional accountant in legal
proceedings; or
(iv) To comply with technical and professional standards, including ethics requirements.
Subsection 115 Professional Behavior

to comply with relevant

a professional accountant
laws and regulations and
shall not bring the
avoid any conduct that the
profession into disrepute.
accountant knows or
(No Exaggerated claims or
should know might
Disparaging references)
discredit the profession.
Throwback Dec 2020
"Code of Ethics is designed to uphold the conduct of the professional
accountants". Discuss.
Should the auditor of merchant banking company, which is a wholly
owned subsidiary of commercial bank disclose the client information to
the inspection team of Securities Exchange Board of Nepal.
Section 120
The
Conceptual
Framework
Reasonable and Informed Third Party

The reasonable and informed third party test is a consideration by the

professional accountant about whether the same conclusions would
likely be reached by another party. Such consideration is made from the
perspective of a reasonable and informed third party, who weighs all the
relevant facts and circumstances that the accountant knows, or could
reasonably be expected to know, at the time the conclusions are made.
Identifying
Threats
 • The accountant shall evaluate whether
identified threat is at an acceptable level.
Evaluating • What is acceptable level? That third party would
conclude it is fine
Threats • Stay careful : if new circumstances arise
• Refer Para 120.8 A2 p10 of ICAN Code of ethics
Addressing Threats
• If the professional accountant determines that the identified threats to
compliance with the fundamental principles are not at an acceptable level,
the accountant shall address the threats by eliminating them or reducing
them to an acceptable level
• The accountant shall do so by:
(a) Eliminating the circumstances, including interests or relationships, that
are creating the threats;
(b) Applying safeguards, where available and capable of being applied, to
reduce the threats to an acceptable level; or
(c) Declining or ending the specific professional activity.

• Refer Para R 120.10 p11 of ICAN Code of ethics

 Part 2 : In Job/Business Part 3 : In Public Practice
200 Applying the Conceptual Framework 300 Applying the Conceptual Framework

210 Conflicts of Interest 310 Conflicts of Interest

320 Professional Appointments
321 Second Opinions
330 Fees And Other Types Of Remuneration
220 Preparation and Presentation of Information

230 Acting with Sufficient Expertise

240 Financial Interests, Compensation and Incentives
Linked to Financial Reporting and Decision Making

250 Inducements, Including Gifts and Hospitality 340 Inducements, Including Gifts and
Hospitality
350 CUSTODY OF CLIENT ASSETS
260 Responding to Non-compliance with Laws and 360 Responding to Non-compliance with Laws
Regulations and Regulations

270 Pressure to Breach the Fundamental Principles

PART 2 – PROFESSIONAL
ACCOUNTANTS IN
BUSINESS

• Section 200 Applying the Conceptual

Framework – Professional
Accountants in Business
Section 210 Conflicts
of Interest
• It creates threats to compliance with the principle
of objectivity and other fundamental principles :
AVOID IT
• What to do ?
Conflict Identification

Threats Created by Conflicts of Interest

Disclosure and Consent

Examples :
• Undertaking a professional activity for each of two parties in a
partnership, where both parties are employing the accountant to
assist them to dissolve their partnership.
• Serving in a governance capacity in an employing organization that
is approving certain investments for the company where one of
those investments will increase the value of the investment
portfolio of the accountant or an immediate family member.
• Being responsible for selecting a vendor for the employing
organization when an immediate family member of the accountant
might benefit financially from the transaction.
Throwback : June 2022

Refer 210.4 A1
Section 220 Preparation and Presentation
of Information
• Preparing or presenting information might create a self-interest,
intimidation or other threats to compliance with one or more of
the fundamental principles.
• Use of Discretion in Preparing or Presenting Information : Use
fairly
• Relying on the Work of Others : be careful what work to use
• Addressing Information that Is or Might be Misleading : Resolve
carefully
• Documentation : of all related facts
Section 230 Acting with Sufficient
Expertise

Acting without sufficient

expertise creates a self-
interest threat to Safeguards : Trainings,
compliance with the adequate time, etc.
principle of professional
competence and due care.
Section 240 Financial Interests, Compensation and Incentives
Linked to Financial Reporting and Decision Making

• Having a financial interest, or knowing of a financial interest held by an

immediate or close family member might create a self-interest threat to
compliance with the principles of objectivity or confidentiality.
• A professional accountant shall not manipulate information or use confidential
information for personal gain or for the financial gain of others.
Examples
• Has a motive and opportunity to manipulate price-sensitive information in
order to gain financially.
• Holds a direct or indirect financial interest in the employing organization
• Is eligible for a profit-related bonus and the value of that bonus might be
directly affected by decisions made by the accountant.
 Throwback : June 2018
Ram is a Chartered Accountant and a member of ICAN. He is employed as an Finance Manager of a public
listed company and is responsible for the financial reporting of the company. He is also well remunerated by
the company and is paid an annual bonus determined based on the profit before tax earned during the year.
During the current year, it came to Ram’s attention that a machine with a net book value of Rs. 2 Crore is
idling and cannot be used for the activities of the company. Also this asset cannot be sold to a third party.
Therefore, the company is required to make adjustments in the value of the asset for impairment. However,
in addition to an increase in expenses during the year, this adjustment will also adversely affect the profits of
the company. As a result, the annual bonus payment of Ram will be affected.
Required:
i) Explain three reasons why ethical behavior is important to Ram as a Finance manager who is involved in
financial reporting of the company.
ii) Explain the types of threat that will affect the professional ethical behavior of Ram in this situation.
iii) State the safeguard available to Ram against the threat identified above.
iv) State two fundamental ethical principles as per the Code of ethics for professional Accountants that Ram
will violate if he decides not to recognize impairment in the value of asset during the year.
Suggested Answer
Section 250 Inducements,
Including Gifts and Hospitality
• An inducement can take many different forms, for
example: Gifts, Hospitality, Entertainment, Political
or charitable donations, Appeals to friendship and
loyalty, Employment or other commercial
opportunities, Preferential treatment, rights or
privileges.
• Accept or not accept : affected by various factors
like nature, frequency, timing, transparency,
occasion, etc.
• Think : What others will think
• Safeguards : Transparency, review of inducements
by other, donation, reimbursement of cost, etc.
• Be careful : If inducement is offered to Immediate
or Close Family Members
Section 260 Responding to Non-compliance with Laws and
Regulations

• Responsibility to Comply with Laws & Regulations : Management

• If non compliance identified : Take timely action
• Action : Communicate with TCWG, Consider legal obligations, find remedy,
reduce reoccurrence risk
• In exceptional circumstances, the senior professional accountant might become
aware of actual or intended conduct that the accountant has reason to believe
would constitute an imminent breach of a law or regulation that would cause
substantial harm to investors, creditors, employees or the general public. Having
first considered whether it would be appropriate to discuss the matter with
management or TCWG of the employing organization, the accountant shall exercise
professional judgment and determine whether to disclose the matter immediately
to an appropriate authority in order to prevent or mitigate the consequences of
such imminent breach.
Section 270 Pressure to Breach the
Fundamental Principles

A professional
Creates accountant shall
Intimidation Threat not: Allow pressure
or pressure others

Refer 270.3 A2
PART 3 :
PROFESSIONAL
ACCOUNTANTS IN
PUBLIC PRACTICE
Section 310 Conflicts of Interest
• creates threats to compliance with the principle of objectivity and other fundamental
principles.
• Such threats might be created when:
a) A professional accountant provides a professional service related to a particular
matter for two or more clients whose interests with respect to that matter are in
conflict; or
b) The interests of a professional accountant with respect to a particular matter and the
interests of the client for whom the accountant provides a professional service related
to that matter are in conflict.
Examples (Refer 310.4.A1)
• Preparing valuations of assets for two parties who are in an adversarial position with
respect to the assets.
• Representing two clients in the same matter who are in a legal dispute with each other
• Providing an assurance report for a licensor on the royalties due while advising the
licensee on the amounts payable.
• Identify>>>> Alert>>>>Eliminate
Throwback : Dec 2020

Prizma Private Limited is tendering for an important contract to supply Om Shree

Private Limited. Both the companies are the audit client of OT Associates,
Chartered Accountants. Prizma Private Limited’s management has requested OT
Associates to provide advice on the tender it is preparing. What matters should OT
Associates consider in deciding whether to provide advice to Prizma Private Limited
on the tender?
Section 320 : Professional Appointments
• Identify Threats (created due to, e.g. client involvement in illegal activities,
dishonesty, questionable financial reporting practices or other unethical
behavior.)
• Check : Are you competent to do the job?
• Understand : About client (nature, complexity, industry, etc.)
• Change in professional appoint : Ask previous auditor ; Previous auditor should
reply
• Recurring Client : Review acceptance periodically
• Using the Work of an Expert : Check quality (Refer NSA 620 & 500)
• (Refer GUIDELINES ON PROFESSIONAL APPOINTMENTS issued by ICAN
separately)
Throwback : June 2021

A Chartered Accountant in practice should agree to provide only those services that
they are competent to perform. Before accepting a specific client engagement, they
should consider whether acceptance would create any threats to compliance with
the fundamental principles. A Chartered Accountant in practice should evaluate the
significance of identified threats associated with an engagement, if they are other
than clearly insignificant, safeguards should be applied as necessary to eliminate
them or reduce them to an acceptable level. Recommend five safeguards necessary
to eliminate or reduce threats associated with accepting new engagements.
Suggested Answer (Refer 320.3 A5)
• Safeguards necessary to eliminate or reduce threats associated with accepting new engagements
may include:
Acquiring an appropriate understanding of the nature of the client’s business, the complexity of its
operations, the specific requirements of the engagement and the purpose, nature and scope of the
work to be performed.
Acquiring knowledge of relevant industries or subject matters.
Possessing or obtaining experience with relevant regulatory or reporting requirements.
Assigning sufficient staff with the necessary competencies.
Using experts where necessary.
Agreeing on a realistic time frame for the performance of the engagement.
Complying with quality control policies and procedures designed to provide reasonable assurance
that specific engagements are accepted only when they can be performed competently.
Section 321 Second Opinions

• A professional accountant might be asked to provide a second

opinion on the application of accounting, auditing, reporting
or other standards or principles
• Communicate : With previous accountant (with client
permission; if permission not provided, providing second
opinion might not be ethical)
• Describe the limitation surrounding any opinion.
• Provide : Copy of second opinion
Throwback : June 2018
• What are the professional behavior imposed by the Code of Ethics for Professional
Accountants issued by The Institute of Chartered Accountants of Nepal (ICAN)
while providing “Second Opinion”.
Section 330
Fees And Other Types Of Remuneration
• Why Fees ? : Level of fee impact quality of work
• Quoting lower fee than previous auditor may create self interest threat
• While offering services members are prohibited to participate in any tendering
or quoting lower fee for that professions/services than the fees/remuneration
of their previous auditor /professional accountants in public practice, without
assigning and communicating reasonable grounds for such reduction.
• Don’t accept any referral fees or commission that might create threat to
independence .
• Contingent Fees : Prohibited ( Also Refer to Sec 34 of Nepal Chartered Accounts
Act)
• Purchase or sale of firm : Allowed
Throwback : Dec 2019

• Mr. Mangal, a locally based Chartered Accountant in Biratnagar

accepted an audit assignment at a fee lower than that charged by the
previous auditor, who was stationed in Kathmandu and had to spend a
lot of money on travel for which he did not charge separately.
Section 340 Inducements, Including Gifts and Hospitality
• An inducement can take many different forms, for example: Gifts, Hospitality,
Entertainment, Political or charitable donations, Appeals to friendship and loyalty,
Employment or other commercial opportunities, Preferential treatment, rights or
privileges.
• What determines whether to accept or not ? : Nature, frequency, timing, occasion,
who offered, transparency, previous behavior, etc.
• Examples of actions that might be safeguards to address such threats include:
➢ Informing senior management or those charged with governance of the employing
organization of the professional accountant or the offeror regarding the offer.
➢ Amending or terminating the business relationship with the offeror.
➢ Transparency, donation, return, etc.
• Check : What others will think
• Check : if it is provided to Immediate or Close Family Members
SECTION 350 : CUSTODY OF CLIENT ASSETS
• If not permitted by law : Don’t take custody (how assets was generated)
• After taking custody
➢Keep separately
➢Use for intended purpose
➢Account for separately (Inc generated income)
(Refer Guidelines on Custody of Client Assets/Money
separately)
Before taking Custody:
• Make inquires about the source of such assets
• Verify whether all the legal and regulatory requirements are properly
complied with.
Section 360 Responding to Non-compliance
with Laws and Regulations
• Primary responsibility : Management
• If identified : Alert management, take further action in public interest
• Check effect of fines and penalties

• (Refer to Guidelines on Non Compliance with Laws and Regulations)

• (Refer to NSA 250 : Consideration of Laws and Regulations in an Audit
of Financial Statement)
Throwback Dec 18
• While verifying the employees’ records in a company, it was found
that a major portion of the labour employed was child labour. On
questioning the management, the statutory auditor was told that it was
outside his scope of the financial audit to look into the compliance
with other laws. Comment
 GUIDELINES ON MARKETING PROFESSIONAL SERVICES BY
PROFESSIONAL ACCOUNTANTS IN PUBLIC PRACTICE
• Direct marketing : Not allowed
• Communication must not be in form to influence, persuade, or coerce the clients through any means
of advertisement, publicity, communication, lobbying etc.
• The professional accountant in practice shall not bring the profession into disrepute when marketing
professional services in any form.
• The professional accountants in public practice shall be honest and truthful and not
❑Make exaggerated claims for services offered, qualification possessed or experience gained; or
❑Make disparaging references or unsubstantiated comparisons to the work of another.
• Certain guidelines for website(The firm of a Professional Accountant in Public Practice would ensure that
their Websites are run on a "pull" model and not a "push" model of the technology)
• Certain guidelines for Professional Documents, visiting cards, letter heads, sign boards etc.
• Advertising (Press, radio, books) : Under own name; details of firm not to be displayed, no marketing
• Use of word CA/RA in social media : Prohibited till date
• Solicitation(A member should not in any circumstances obtain or seek professional work for himself or
another member in any unprofessional manner)
Throwback : Dec 19

• Mr. S, a Chartered Accountant published a book and give his

personal details as the author. These details also mentioned
his professional experience and his present association as
partner with STAR & Associates, Chartered Accountants, an
audit firm.
 Throwback : Dec 2021
You are a manager working for Samu Associates, a firm of Chartered Accountants. You have
been requested to handle the audit of Saurav Ltd. for the year ended 31st Ashadh 2078. The
Saurav Ltd. is in the business of manufacturing and export of heavy vehicle tires. Mr. Aditya has
been the engagement partner of this Saurav Ltd. for the last several years and possesses
excellent knowledge about the business and the client. He requested you to start planning the
audit of Saurav Ltd. Further, he requested you to get Rajan, Aditya's son, who is a junior audit
trainee of the firm, also involved in the planning process. Rajan got through his advanced level
examination with three simple passes in the science stream in 2075 and just registered as a
student of ICAN in late 2076. Further Mr. Aditya informed you that Nilesh is being appointed as
senior in charge of the audit of Saurav Ltd. and he owns 25,000 ordinary shares (total number of
shares issued by Saurav Ltd. is 10 lakh) of the company.
At your initial meeting with the finance director of the company, you were informed that an
audit team will not be provided two nights stay at a five-star hotel owned by the group this time,
as this could appear to be an attempt to influence the opinion of the audit. Instead, he will
arrange lunch for the entire audit team at a five-star hotel once the audit is completed. The
finance director also stated that the fee for taxation service this year should be based on a
percentage of tax saved and trusts that your firm will accept a fixed fee for representing Saurav
Ltd. in a dispute regarding the amount of VAT payable to the Inland Revenue Department.
Analyze the ethical threats which may affect the auditor of Saurav Ltd. Also outline how the
effect of each threat identified can be mitigated.
GUIDELINES ON NETWORKS AND
NETWORKS FIRMS
• When a firm forms a larger structure with the co-operation of other firms or entities
with an aim to enhance their ability to provide Professional services to the intended
parties, this formation of a larger structure becomes a Network firm.
• Firms and entities shall take due care to prevent the perception that might be created
that a firm belongs to a network firm even if that firm does not belong to a network
firm and does not use the common brand name as part of the firm name for example:
by using brand name on stationery or signboard or presenting as a network by virtue
thought other means such as only taking the membership or other materials which do
not fulfill the above criteria of becoming network firm.
• The major objective of formation of Network Firm is capacity enhancements and
revenue enhancements through mutual collaboration.
• Registration of the network firm : With ICAN applying necessary procedure
including Name approval
• Use of name or brand name : After registration permitted
CODE OF CONDUCT : Section 34 ICAN ACT, 1997

• Members and members holding Certificate of Practice shall fully

abide this Act and the Regulations framed under this Act.
• Auditing, either in partnership or in collusion in any manner with a
person who has not obtained the Certificate of Practice (CoP) of
one's class, is prohibited.
• One shall not share or distribute as profit the auditing fees or
remuneration with any person other than a member of the Institute;
and shall not pay any commission, brokerage etc. out of the
professional fees earned to any person or member.
CODE OF CONDUCT : ICAN ACT, 1997
• One shall not, directly or indirectly, influence any person by way of
fear, threat, terror or enticement in order to secure any
professional business.
• One shall not disclose or divulge any information and explanations
acquired in the course of professional service to any person other
than the employer employing him and the person whom he is
complied by the law to do so.
• Members holding CoP shall not certify any financial statement or
give report of any type until themselves or their partner or
employee checks and verifies it.
CODE OF CONDUCT : ICAN ACT, 1997
• Member holding CoP shall, while certifying financial statements or making report thereon of
any corporate body in which he or his partner has interest, clearly mention the extent of his or
his partner's interest therein.
Provided that being merely a shareholder in a company shall not be deemed to have interest
therein.
• Member holding CoP shall, in order to truly present the financial statement certified by him,
clearly indicate all the material facts or any false statements or explanations known to him or
to the best of his knowledge.
• Members holding CoP shall discharge their duties with due care in the course of their
profession and shall draw attention of all concerned to all material facts which are or have
take place contrary to the prevailing law and do not comply with generally accepted principles
of auditing.
CODE OF CONDUCT : ICAN ACT, 1997
1. Members holding CoP shall not base their remuneration as a
percentage on the profit or on any other uncertain results.
2. One shall not knowingly or recklessly mention any false matter in a
notice, explanation or statement required under the prevailing law
to be provided to any office, department of Nepal Government or
any organisation.
3. One shall not perform audit of accounts of any organization where
he has served until the elapse of at least three years of his leaving
the service.
CODE OF CONDUCT : ICAN ACT, 1997
• A member holding CoP shall not accept his appointment as an
auditor of an organisation without ascertaining that all required
procedures for appointment as the auditor under the prevailing
law has been duly fulfilled.
• One should have obtained sufficient information prior to give audit
opinion.
• Other matters concerning the conduct to be observed by the
members and members holding Certificate of Practice shall be as
prescribed.
Process of filing complaints against member and
members holding certificated of practice:
• Lodge complaint with ICAN with evidence and applicable fees (Rs 100), which
can be waived by ICAN.
• The Executive Director shall, if he finds convincing information that proves
any member or member holding Certificate of Practice is not observing the
conduct, submit the proposal along with the related facts to the Council for
further action against such member or member holding Certificate of Practice.
• The council if finds the complaints convincing, the complaint is placed in
the disciplinary committee for further discoveries and recommendation.
Disciplinary Committee (Sec 14 of ICAN Act)
Constitution
• An FCA member designated by council from amongst elected CA council members -
Chairman
• Three persons nominated by the Council from amongst the Council members - Member
• Two persons nominated by the Council amongst the members - Member
• One person nominated by the Auditor General - Member
❑The Procedures of the meeting of the Disciplinary Committee and the term of office of
the chairman and members of the committee shall be as prescribed.
❑Members should not attend meeting hearing their own case
❑The Disciplinary committee shall have the authority, similar to a judicial court, in respect
of summoning concerned person and investigating evidences and witnesses
❑Recommend Council : Reprimand, Membership removal upto 5 years, prohibition from
accounting profession for certain period, cancellation of membership or COP
Throwback : Dec 2018
• Mr. Kothari is dissatisfied with a Chartered Accountant and is willing
to file complain against the ICAN Member. He is asking you whether
there is any provision to do the same. What would be your advice to
him? How is the case taken by ICAN and if found guilty, what
punishments might the member be imposed?
Ceiling over the number of audit
(Mandatory)
• Per partner : 100 entities per year (Subject to maximum 10 limited companies
per year)

• What is not counted in above limit?

❑Audit of entities having less than 1 crores turnover in case of proprietorship
firm, partnership firm, cooperative other than saving and credit cooperative
society, government primary schools, religious institutions, social
organisations, consumer user group, committees, trade union
❑Private limited company having less than 50 lakhs turnover shall not be
included in above ceiling.
Audit amount limitation
• Members holding COP can perform audit as below mentioned turnover
as prescribed by Nepal Chartered Accountants Rules, 2061 (including
amendments);
❑FCA/CANo Amount Limit
❑“B” Class RA Upto Rs. 120 crores
❑“C” Class RA Upto Rs. 30 crores
❑“D” Class RA Upto Rs. 6 crore
• Where Amount means Total of Assets or Liabilities and in case of entities
not preparing Balance sheet, Total of Turnover or expenses.
(Throwback : 3 marks in Dec 2021)
Provision of Minimum
fees & Minimum
office space

• Refer Guidelines
on minimum fee
and firm structure
issued by ICAN
Per day minimum fees for the work performed by a
Chartered Accountant
Category Years of Experience (To be Daily Rates (NRs.)
calculated from the date of
Qualifying CA Education)
Partner/Proprietor/QC >15 Yrs At least 30,000
Reviewer
Partner/Proprietor/QC 11 – 15 Yrs 20,000 – 29,000
Reviewer
Partner/Proprietor/QC 5 – 10 yrs 15,000 – 19,000
Reviewer
Partner/Proprietor/QC <5 yrs 10,000 - 14,000
Reviewer/Managers
Total Minimum Fees = Estimated days*Minimum fees per day
However, the fees • In case of listed financial
determined by above institutions:
method shall not be
less than following:

LOANS AND ADVANCES OR DEPOSITS MINIMUM AUDIT FEES (NRS)

(WHICHEVER IS HIGHER)
>100 Arba 2,500,000/-
>50 Arba 2,000,000/-
>10 Arba 1,000,000/-
>5 Arba 500,000/-
>1 Arba 300,000/-
Minimum 100,000/-
In case of cooperative Society

Loans and advances or Deposits Minimum Audit Fees (Nrs)

(Whichever is higher)
>5 Arba 500,000
>1 Arba 200,000
>60 Crores 100,000
>15 Crores 75,000
>5 Crores 50,000
>2 Crores 25,000
<2 Crores 20,000
There is separate fee prescribed for :

• In case of other listed or unlisted institutions

• In case of NGOs & INGOs

• Points to be noted
• Audit can’t be done without taking any fees.
• Previous period audited financial statement shall be taken into consideration
while deciding audit fees
• The minimum fee prescribed is excluding fees for works other than audit like tax
audit, Long form audit report etc for which fees is separately charged in day basis
Throwback : June 2022
Provisions of Physical Infrastructure

• Every chartered accountant having manpower of upto 5 persons (including

partners/proprietor) shall have minimum office area of 250 sq ft and additional 20
sq ft per staff above 5 persons.
• Apart from that, there shall be separate meeting hall, restroom facilities and
enough space for administrative works.
Provisions related to Partnership
• Every partner of the firm must hold COP
• One firm can have a maximum 20 partners
• A member at a time can be a partner/proprietor in only one firm.
• Partnership of foreign accounting firm is not counted for this purpose.
• Remaining partner must inform ICAN if there is any change in the
composition of the partner, within 35 days of such change.
• The member can use the word partner if he is one of the partners of the firm.
Unique Document Identification Number
(UDIN) (Throwback : June 2021 short note)
• 18 digit unique number generated by UDIN Application for every certifications and audits by a
Practicing Chartered Accountant/Registered Auditor Member of ICAN.
• Objectives
• To provide assurance of authenticity of document certified by practicing ICAN members to
investors, lenders, regulators and other stakeholders by simply entering UDIN in UDIN
application.
• Provides the specific details related to certification / audited financial statement entered by
practicing Chartered Accountant/ Registered Auditor member of ICAN which can be cross
verified with document presented to various parties.
• To identify and take legal actions against nonmembers misrepresenting themselves as
members of ICAN
• UDIN is highly secured as it requires one time password (OTP) for generating every UDIN
which is sent only to registered mobile number and email address.
Throwback : June 2018
• ABC Limited has applied to a bank for loan facilities. The
bank on studying the financial statements of the company
notices that you are the auditor and requested you to call at
the bank for a discussion. In the course of discussion, the
bank asked for the opinion regarding the company and also
asked for detail information regarding a few items in the
financial statements. The information is available in your
working file.
Should you share the requested information with the bank?
Disciplinary cases
• Refer separately
Throwback : June 2021
Mr. Abharam Smith, a practicing Chartered Accountant has been found
guilty in respect of Professional Misconduct. So, Mr. Abharam Smith
has been suspended from practice for a period of 4 months. During the
said period, though he did not undertake the audit assignment since he
had surrendered Certificate of Practice, he had appeared before Income
Tax authorities in his capacity as a Chartered Accountant.
 Section 600 : PROVISION OF NON-ASSURANCE SERVICES
TO AN AUDIT CLIENT
• Before a firm or a network firm accepts an engagement to provide a non-assurance service to an audit client, the firm
shall determine whether providing such a service might create a threat to independence.
• The firm shall evaluate the related threats that might be created if the firm or network firm provides non assurance
services to an audit client.
• Prohibition on Assuming Management Responsibilities
A firm or a network firm shall not assume a management responsibility for an audit client.
Management responsibilities involve controlling, leading and directing an entity, including making decisions regarding
the acquisition, deployment and control of human, financial, technological, physical and intangible resources.
• Determining whether an activity is a management responsibility depends on the circumstances and requires the
exercise of professional judgment. Examples of activities that would be considered a management responsibility
include:
• Setting policies and strategic direction.
• Hiring or dismissing employees.
• Directing and taking responsibility for the actions of employees in relation to the employees’ work for the entity.
• Authorizing transactions.
• Controlling or managing bank accounts or investments.
 Sub Section 601 :ACCOUNTING AND BOOKKEEPING
SERVICES
• Providing accounting and bookkeeping services to an audit client might create a self-review threat.
• Accounting and bookkeeping services comprise a broad range of services including( Preparing accounting records and
financial statements, Recording transactions, Payroll services)
• A firm or a network firm shall not provide to an audit client that is not a public interest entity accounting and
bookkeeping services including preparing financial statements on which the firm will express an opinion or financial
information which forms the basis of such financial 106 statements, unless:
(a) The services are of a routine or mechanical nature; and
(b) The firm addresses any threats that are created by providing such services that are not at an acceptable level.
Accounting and bookkeeping services that are routine or mechanical in nature require little or no professional
judgment. Some examples of these services are:
• Preparing payroll calculations
• Posting transactions coded by the client to the general ledger.
• Posting client-approved entries to the trial balance
• Calculating depreciation on fixed assets when the client determines the accounting policy and estimates of useful life
and residual values
Cntd…….
• A firm or a network firm shall not provide to an audit client that is a public
interest entity accounting and bookkeeping services including preparing financial
statements on which the firm will express an opinion or financial information
which forms the basis of such financial statements.
• But it can provide accounting and book keeping services of the routine or
mechanical nature for divisions or related entities of an audit client that is a
public interest entity if the personnel providing the services are not audit team
members and:
(a) The divisions or related entities for which the service is provided are collectively
immaterial to the financial statements on which the firm will express an opinion; or
(b) The service relates to matters that are collectively immaterial to the financial
statements of the division or related entity
SUBSECTION 602 – ADMINISTRATIVE SERVICES

• Providing administrative services to an audit client does not usually create a

threat.
• Administrative services involve assisting clients with their routine or mechanical
tasks within the normal course of operations. Such services require little to no
professional judgment and are clerical in nature.
• Examples of administrative services include:
● Word processing services.
● Preparing administrative or statutory forms for client approval.
● Submitting such forms as instructed by the client.
● Monitoring statutory filing dates, and advising an audit client of those dates.
SUBSECTION 603 – VALUATION SERVICES
• Providing valuation services to an audit client might create a self-review or advocacy
threat.
• A valuation comprises the making of assumptions with regard to future developments,
the application of appropriate methodologies and techniques, and the combination of
both to compute a certain value, or range of values, for an asset, a liability or for a
business as a whole.
• A firm or a network firm shall not provide a valuation service to an audit client that is not
a public interest entity if:
(a) The valuation involves a significant degree of subjectivity; and
(b) The valuation will have a material effect on the financial statements on which the firm
will express an opinion
A firm or a network firm shall not provide a valuation service to an audit client that is a
public interest entity if the valuation service would have a material effect, individually or in
the aggregate, on the financial statements on which the firm will express an opinion.
 SUBSECTION 604 – TAX SERVICES
• Providing tax services to an audit client might create a self-review or advocacy threat.
• Tax services comprise a broad range of services, including activities such as:
● Tax return preparation.(Providing tax return preparation services does not usually create a threat.)
● Tax calculations for the purpose of preparing the accounting entries. (Preparing calculations of
current and deferred tax liabilities (or assets) for an audit client for the purpose of preparing
accounting entries that will be subsequently audited by the firm creates a self-review threat and A firm
or a network firm shall not prepare tax calculations of current and deferred tax liabilities (or assets) for
an audit client that is a public interest entity for the purpose of preparing accounting entries that are
material to the financial statements on which the firm will express an opinion.)
● Tax planning and other tax advisory services.( Providing Such Services may create a self review and
advocacy threat and When Effectiveness of Tax Advice Is Dependent on a Particular Accounting
Treatment or Presentation the firm shall not provide such services to an audit client)
● Tax services involving valuations.( Providing such services may create self review or advocacy threat
and the fir can provide such services if the such threats can be reduced to an acceptable level)
SUBSECTION 605 – INTERNAL AUDIT SERVICES
• Providing internal audit services to an audit client might create a self- review threat.
• When providing an internal audit service to an audit client, the firm shall be satisfied that:
(a) The client designates an appropriate and competent resource, preferably within senior management, to:
(i) Be responsible at all times for internal audit activities; and
(ii) Acknowledge responsibility for designing, implementing, monitoring and maintaining internal control. (
b) The client’s management or those charged with governance reviews, assesses and approves the scope, risk and
frequency of the internal audit services;
(c) The client’s management evaluates the adequacy of the internal audit services and the findings resulting from
their performance;
A firm or a network firm shall not provide internal audit services to an audit client that is a public interest entity, if
the services relate to:
(a) A significant part of the internal controls over financial reporting;
b) Financial accounting systems that generate information that is, individually or in the aggregate, material to the
client’s accounting records or financial statements on which the firm will express an opinion; or
(c) Amounts or disclosures that are, individually or in the aggregate, material to the financial statements on which the
firm will express an opinion.
SUBSECTION 609 – RECRUITING SERVICES
• Providing recruiting services to an audit client might create a self-interest, familiarity or intimidation threat.
• When a firm or network firm provides recruiting services to an audit client, the firm shall be satisfied that:
(a) The client assigns the responsibility to make all management decisions with respect to hiring the candidate for
the position to a competent employee, preferably within senior management; and
(b) The client makes all management decisions with respect to the hiring process, including:
• Determining the suitability of prospective candidates and selecting suitable candidates for the position.
● Determining employment terms and negotiating details, such as salary, hours and other compensation.
When providing recruiting services to an audit client, the firm or the network firm shall not act as a negotiator on
the client’s behalf.
A firm or a network firm shall not provide a recruiting service to an audit client if the service relates to:
(a) Searching for or seeking out candidates; or
(b) Undertaking reference checks of prospective candidates, with respect to the following positions:
(i) A director or officer of the entity; or
(ii) A member of senior management in a position to exert significant influence over the preparation of the
client’s accounting records or the financial statements on which the firm will express an opinion