Skip to content

CS Professional · Banking and Insurance - Laws and Practice · Professional Opportunities

A consultancy firm run by Company Secretary Vikram charges a fixed retainer of ₹4,00,000 for advising a bank on regulatory compliance, and additionally lends the bank ₹10,00,000 at 9% simple interest per annum for 2 years to fund the compliance system. While certifying the bank's compliance, the firm's independence is in question. What is the total simple interest earned by the firm on the loan, and what is the professional concern?

Simple interest is ₹10,00,000 × 9% × 2 = ₹1,80,000. The concern is that lending money to the client creates a financial interest, threatening the firm's independence and objectivity when certifying that client's compliance, whatever the fee structure.

  1. A₹1,80,000; the loan creates a financial interest that threatens independenceCorrect
  2. B₹1,80,000; there is no concern because interest is simple
  3. C₹90,000; the loan creates a financial interest that threatens independence
  4. D₹1,98,000; there is no concern because the retainer is fixed

Explanation

Simple interest = 10,00,000 × 9% × 2 = ₹1,80,000. A professional lending to a client being certified acquires a financial interest, which impairs independence and objectivity. The ₹90,000 option uses one year only, and ₹1,98,000 wrongly compounds the interest.

Did you get it right without looking?

One question tells you little. A timed set on Professional Opportunities shows your real accuracy, how long you take and where you lose marks.

Practise Professional OpportunitiesFree diagnostic mock

More Professional Opportunities questions