Chapter 19

PROFESSIONAL ETHICS

QUESTION BANK
Quest-1 A Chartered Accountant in practice has been suspended from practice for a period
[S.M.] of 6 months and he had surrendered his Certificate of Practice for the said period. During
the said period of suspension, though the member did not undertake any audit
assignments, he undertook representation assignments for income tax whereby he
would appear before the tax authorities in his capacity as a Chartered Accou ntant.
Ans Undertaking Tax Representation Work: A chartered accountant not holding certificate
of practice cannot take up any other work because it would be violation of the relevant
provisions of the Chartered Accountants Act, 1949.
In case a member is suspended and is not holding Certificate of Practice, he cannot in
any other capacity take up any practice separable from his capacity to practice as a
member of the Institute. This is because once a person becomes a member of the
Institute; he is bound by the provisions of the Chartered Accountants Act, 1949 and its
Regulations.
If he appears before the income tax authorities, he is only doing so in his capacity as a
chartered accountant and a member of the Institute. Having bound himself by the said
Act and its Regulations made there under, he cannot then set the Regulations at naught
by contending that even though he continues to be a member and has been punished
by suspension, he would be entitled to practice in some other capacity.
Conclusion: Thus, in the instant case, a chartered accountant would not be allowed to
represent before the income tax authorities for the period he remains suspended.
Accordingly, in the present case he is guilty of professional misconduct
Quest-2 Mr. A, a practicing Chartered Accountant agreed to select and recruit personnel,
[S.M.] conduct training programmes for and on behalf of a client where he is not providing any
assurance service. Is this a professional misconduct?
Ans: Providing Management Consultancy and Other Services: Under Section 2(2)(iv) of the
Chartered Accountants Act, 1949, a member of the Institute shall be deemed “to be in
practice” when individually or in partnership with Chartered Accountants in practice, he,
in consideration of remuneration received or to be received renders such other services
as, in the opinion of the Council, are or may be rendered by a Chartered Accountant in
practice. Pursuant to Section 2(2)(iv) above, the Council has passed a resolution
permitting a Chartered Accountant in practice to render entire range of “Management
Consultancy and other Services”.
The definition of the expression “Management Consultancy and other Services” includes
Personnel recruitment and selection. Personnel Recruitment and selection includes,

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development of human resources including designing and conduct of training
programmes, work study, job description, job evaluation and evaluations of workloads.
Conclusion: Therefore, Mr. A is not guilty of professional misconduct.
Quest-3 P, a Chartered Accountant in practice provides management consultancy and other
[S.M.] services to his clients. During 2023, looking to the growing needs of his clients to invest
in the stock markets, he also advised them on Portfolio Management Services whereby
he managed portfolios of some of his clients. Is P guilty of professional misconduct?
Ans: Advising on Portfolio Management Services: The Council of the Institute of Chartered
Accountants of India (ICAI) pursuant to Section 2(2)(iv) of the Chartered Accountants
Act, 1949 has passed a resolution permitting “Management Consultancy and other
Services” by a Chartered Accountant in practice. A clause of the aforesaid resolution
allows Chartered Accountants in practice to act as advisor or consultant to an issue of
securities including such matters as drafting of prospectus, filing of documents with
SEBI, preparation of publicity budgets, advice regarding selection of brokers, etc. It is,
however, specifically stated that Chartered Accountants in practice are not permitted
to undertake the activities of broking, underwriting and portfolio management services.
Thus, a chartered accountant in practice is not permitted to manage portfolios of his
clients.
In view of this, P would be guilty of misconduct under the Chartered Accountants Act,
1949.
Quest-4 Mr. Dice, a practising Chartered Accountant was ordered to surrender his Certificate of
May-18 Practice and he was suspended for one year on certain professional misconduct against
him. During the period of suspension, Mr. Dice, designating himself as GST Consultant,
did the work of filing GST returns and made appearance as a consultant before various
related authorities. He contended that there is nothing wrong in it as he, like any other
GST consultant, could take such work and his engagement as such in no way violates the
order of suspension inflicted on him. Is he right in his cont ention?
Ans: Filing of GST Returns and Appearance as GST Consultant: A chartered accountant not
holding certificate of practice cannot take up any other work in the capacity of Chartered
Accountant in practice because it would amount to violation of the relevant provisions
of the Chartered Accountants Act, 1949.
In case a member is suspended and is not holding Certificate of Practice, he cannot in
any other capacity take up any practice separable from his capacity to practices as a
member of the Institute. This is because once a member becomes a member of the
Institute, he i s bound by the provisions of the Chartered Accountants Act, 1949 and its
Regulations.
In case he files GST returns and appears as a consultant before various related
authorities in his capacity as a chartered accountant and a member of the Institute,
having bound himself by the said Act and its Regulations made thereunder, he cannot
then set the Regulations at naught by contending that even though he continues to be
a member and has been punished by suspension, he would be entitled to practice in
some other capacity. But if he is doing so in any other capacity such as GST Consultant
wherein his capacity is not chartered accountant in practice, he will not be held guilty
for misconduct.
In the instant case, Mr. Dice was a practicing chartered accountant and he was ordered
to surrender his certificate of practice and was suspended for one year. Mr. Dice is doing

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the work of filing GST returns and has appeared as a consultant before various related
authorities as GST Consultant which is not in capacity of a practicing chartered
accountant rather in capacity of authorized representative. Any person who has been
authorized to act as a GST Practitioner on behalf of the concerned registered person can
become authorized representative.

Thus, filing GST return and appearing as GST Consultant by Mr. Dice is not professional
misconduct. Therefore, Mr. Dice will not be held guilty for misconduct.
Quest-5 CA Natraj, in practice, accepted an assignment as·advisor and consultant to the public
[May-19] issue of shares by his client M/s Super Ltd.
Besides helping the company as an advisor, he also underwrote the public issue of the
company to the extent of 25% at a commission of 1%. Remaining shares were
underwritten by banks and other financial institutions at the same rate of commission.
He contends that above assignments are part of management consultancy work
permitted by the council of the Institute. Do you agree with the view of CA Natraj?
Decide in the light of applicable code of conduct.
Ans: Assignment as Advisor and Consultant: The Council of the Institute of Chartered
Accountants of India (ICAI) pursuant to Section 2(2)(iv) of the Chartered Accountants
Act, 1949 has passed a resolution permitting “Management Consultancy and other
Services” by a Chartered Accountant in practice.
A clause of the aforesaid resolution allows Chartered Accountants in practice to act as
advisor or consultant to an issue of securities including such matters as drafting of
prospectus, filing of documents with SEBI, preparation of publicity budgets, advic e
regarding selection of brokers, etc.
It is, however, specifically stated that Chartered Accountants in practice are not
permitted to undertake the activities of broking, underwriting and portfolio
management services.
In the instant case, CA Natraj accepted an assignment as advisor and consultant to the
public issue of shares by his client M/s Super Ltd. In addition, he also underwrite the
public issue of the company to the extent of 25% at a commission of 1%.

Contention of CA. Natraj that advisor, consultant and underwriting work is part of
management consultancy work and permitted by the council is not correct as Chartered
Accountants in practice are not permitted to undertake the activities of broking,
underwriting and portfolio management services.

Conclusion: In view of this, CA. Natraj would be guilty of misconduct under the Chartered
Accountants Act, 1949.
Quest-6 Mr. Sheetal is a practicing chartered accountant. Due to natural calamities and
[MTP-23] misfortune during the year 2021, he lost almost all of his wealth and became
undischarged insolvent. After a few court hearings, finally, in the year 2023, he was
declared discharged insolvent and obtained a certificate from the court stating that his
insolvency was caused by misfortune without a ny misconduct on his part. You are
required to comment on the above situation with reference to the Chartered
Accountants Act, 1949 and Schedules thereto, (especially from the point of section 8:
Entry of name in Register of Members).

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Ans
Section 8 of the Chartered Accountants Act, 1949 states the circumstances under which
a person is debarred from having his name entered in the Register of Members, which
are as follows:
(i) If he has not attained the age of 21 years at the time of his application for the entry
of his name in the Register of members; or
(ii) If he is of unsound mind and stands so adjudged by a competent court; or
(iii) If he is an undischarged insolvent; or
(iv) If he, being a discharged insolvent has not yet obtained from the court a certificate
stating that his insolvency was caused by misfortune without any misconduct on his part;
or
(v) If he has been convicted by a competent Court whether within or without India, of
an
• offence involving moral turpitude and punishable with imprisonment or
• an offence, not of a technical nature, committed by him in his professional
capacity
Unless in respect of the offence committed, he has either been granted a pardon or, on
an application made by him in this behalf, the Central Government has, by an order in
writing, removed the disability; or
(vi) If he has been removed from membership of the Institute on being found on inquiry
to have been guilty of professional or other misconduct;
In the given case, it is clearly stated that Mr. Sheetal was discharged insolvent, and he
has also obtained from the court a certificate stating that his insolvency was caused by
misfortune without any misconduct on his part.

Hence, Mr. Sheetal has not violated the provisions of Section 8, and he is not debarred
from having his name entered in the Register of Members.
Quest-7 Mr. G, a Chartered Accountant in practice as a sole proprietor has an office in Mumbai
[S.M.] near Church Gate. Due to increase in professional work, he opens another office in a
suburb of Mumbai which is approximately 80 kilometers away from the municipal limits
of the city. For running the new office, he employs three retired Income-tax Officers. Is
Mr. G guilty of professional misconduct?
Ans: In terms of section 27 of the Chartered Accountants Act, 1949,
If a chartered accountant in practice has more than one office in India, each one of these
offices should be in the separate charge of a member of the Institute.
There is however an exemption for the above
• if the second office is located in the same premises, in which the first office is
located; or
• the second office is located in the same city, in which the first office is located;
or
• the second office is located within a distance of 50 kms from the municipal limits
of a city, in which the first office is located.

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Since the second office is situated beyond 50 kms of municipal limits of Mumbai city, he
would be liable for committing a professional misconduct.

Quest-8 Mr. F, a Chartered Accountant, gave advisory services to PQR Pvt. Ltd. Further, he gave
[S.M.] them GST consultancy, compilation engagement for historical financial information and
helped in ERP set up. Later, the company turned out to be a part of a group of companies
involved in money laundering. Mr. F was asked to provide details of the companies. Mr.
F refused on the grounds that he gave only consultancy services to the company and
wasn’t supposed to keep any information about the company. Is Mr. F right as p er the
guidelines issued by the ICAI?
Ans:
Keeping in mind the highest standards of Chartered Accountancy profession in India, the
Council of ICAI issued such norms to be observed by the members of the profession who
are in practice.
The KYC Norms approved by the Council of ICAI are given below:
Where Client is a Corporate Entity
A. General Information
Name and Address of the Entity
Business Description
Name of the Parent Company in case of Subsidiary
Copy of last Audited Financial Statement
B. Engagement Information
Type of Engagement
C. Regulatory Information
Company PAN No.
Company Identification No.
Directors’ Names & Addresses
Directors’ Identification No

In the given situation, CA. F, gave GST consultancy, compilation engagement for
historical financial information and helped in ERP set up along with advisory services to
PQR Pvt. Ltd. and was asked to provide details of the companies

Contention of Mr. F that he gave only consultancy services and compilation engagement
for historical financial information to the company and wasn’t supposed to keep any
information about the company is not valid as Mr. F should have kept following
information in compliance with KYC Norms which are mandatory in nature and shall
apply in all assignments pertaining to attestation functions.
Quest-9 M & Co., a sole proprietary Chartered Accountant firm in practice with an office in a
MTP-18 busy belt of a city, had great difficulty in regularly attending to the consultancy needs of
his clients who are mostly located in an industrial cluster in a nearby outskirt which is

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situated at a distance of 26 kms from the office of the firm. To mitigate the difficulty and
to have ease of business, a facilitation centre was opened in the industrial cluster. The
proprietor managed, both the office and the facilitation centre, by himse lf. No
intimation was made to the Institute of Chartered Accountants of India. Examine
whether there, is any professional misconduct in this respect.
Ans: In terms of section 27 of the Chartered Accountants Act, 1949,
If a chartered accountant in practice has more than one office in India, each one of these
offices should be in the separate charge of a member of the Institute.
There is however an exemption for the above
• if the second office is located in the same premises, in which the first office is
located; or
• the second office is located in the same city, in which the first office is located;
or
• the second office is located within a distance of 50 kms from the municipal limits
of a city, in which the first office is located.
Further a member having two offices of the type referred to above, shall have to declare
which of the two offices is his main office, which would constitute his professional
address.

In the given case, M & Co., a sole proprietary Chartered Accountant firm in practice with
an office in a busy belt of a city and had great difficulty in regularly attending to the
consultancy needs of his clients.

Therefore, a facilitation centre was opened in the industrial cluster and the proprietor
is managing both the office and facilitation centre.

Though distance between his office and facilitation centre i.e. sort of second office is
within prescribed range i.e. 50 kilometres but M& Co., will be liable for misconduct as
prescribed intimation about facilitation centre and main office should be sent to the
Institute of Chartered Accountants of India.
Quest-10 Mr. A, Chartered Accountant in practice as a sole proprietor at Mumbai has an office in
[May-19] the suburbs of Mumbai. Due to increase in the income tax assessment work, he opens
another office near the income tax office, which is within the city and at a distance of
30 kms from his office in the suburbs. For running the new office, he has employed a
retired Income Tax Commissioner who is not a Chartered Accountant.
Examine the above with respect to the Chartered Accountants Act, 1949.
Ans: In terms of section 27 of the Chartered Accountants Act, 1949,
If a chartered accountant in practice has more than one office in India, each one of these
offices should be in the separate charge of a member of the Institute.
There is however an exemption for the above
• if the second office is located in the same premises, in which the first office is
located; or
• the second office is located in the same city, in which the first office is located;
or
• the second office is located within a distance of 50 kms from the municipal limits
of a city, in which the first office is located.

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In the given case, Mr. A, Chartered Accountant in practice as a sole proprietor at Mumbai
has an office in suburbs of Mumbai and due to increase in the work he opened another
branch within the city near the income tax office. He also employed a retired income tax
commissioner to run the new office and the second office is situated within a distance
of 30 kilometers from his office in the suburb.

Conclusion: In view of above provisions, there will be no misconduct if Mr. A will be in-
charge of both the offices. However, he is bound to declare which of the two offices is
the main office.
Quest-11 Mr. Z, a newly qualified chartered accountant started his practice in February 2018 by
[MTP-21] setting up an office in the hill station Kodaikanal. Initially, since he was getting very less
assignments, he decided to set up a temporary office in the nearby city Marudai,
situated at about 100 kms from the main office. As planned, he took an office space on
rent for the months of April, May & June. During these months, his regular office was
not closed and Mr. Z was in-charge for both the offices. Mrs. A, another newly qualified
chartered accountant w ho is also in practice in Marudai came to know about the new
office of Mr. Z. Thinking that he could be a potential competitor, she informed the
institute stating that Mr. Z had violated the provisions of the Chartered Accountant Act.
As a member of the Board of Discipline of ICAI, you are requested to analyse this
complaint.
Ans In terms of section 27 of the Chartered Accountants Act, 1949,
If a chartered accountant in practice has more than one office in India, each one of these
offices should be in the separate charge of a member of the Institute.

Failure on the part of a member or a firm to have a member in charge of its branch and
a separate member in case of each of the branches, where there is more than one,
would constitute professional misconduct.

This condition applies to any additional office situated at a place beyond 50 kms from
the municipal limits in which any office is situated.

However, exemption has been given to members practicing in hill areas

subject to certain conditions. The conditions are:
1. Such members/firm be allowed to open temporary offices in a city in the plains for a
limited period not exceeding 3 months in a year.
2. The regular office need not be closed during this period and all correspondence can
continue to be made at the regular office.
3. The name board of the firm in the temporary office should not be displayed at times
other than the period such office is permitted to function as above.
4. The temporary office should not be mentioned in the letterheads, visiting cards or any
other documents as a place of business of the member/firm.
5. Before commencement of every winter it shall be obligatory on the member/firm to
inform the Institute that he/it is opening the temporary office from a particular date and

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after the office is closed at the expiry of the period of permission, an intimation to that
effect should also be sent to the office of the Institute by registered post.

In the given case, Mr. Z has set up his regular office in the hill area of Kodaikanal, he
decided to set up a temporary office in the nearby city Marudai, situated at about 100
kms from the main office.

As planned, he took an office space on rent for the months of April, May & June. During
these months, his regular office was not closed. Further he was in-charge for both the
offices.

In view of abovementioned criteria’s, he is eligible to avail the benefits of the above

exemptions. Also, it is given that the temporary office was open in Madurai for only 3
months and not beyond that. The fact that Mr. Z is in-charge for both the offices, the
temporary office being set-up in the plains which is 100 kms away and the regular office
kept open during the 3 months does not constitute any violation of the provisions of the
Chartered Accountant Act.
Assuming Mr. Z has informed the Institute regarding such temporary office in the
prescribed manner.
Therefore, in the given case, no penal action needs to be taken on the basis of
complaint registered by Mrs. A, as Mr. Z is not guilty of professional misconduct.
Quest-12 Mr. Gautam & Mr. Mahaveer, partners of a Chartered Accountant Firm, one in-charge
[MTP-21] of Head Office and another in-charge of Branch at a distance of 80 km. from the
municipal limits, puts up a name-board of the firm in both premises and also in their
respective residences. Comment with reference to the Chartered Accountants Act,
1949, and Schedules thereto.
Ans: Putting Name Board of the Firm at Residence:
The council of the Institute has decided that with regard to the use of the name-board,
there will be no bar to the putting up of a name-board in the place of residence of a
member with the designation of chartered accountant, provided, it is a name-plate or
board of an individual member and not of the firm.
In the given case, partners Mr. Gautam and Mr. Mahaveer, put up a name board of the
firm in both offices but also in their respective residences.
Conclusion: Thus, Mr. Gautam and Mr. Mahaveer are guilty of misconduct. Distance
given in the question is not relevant for deciding.
Quest-13 Mr. Raj, a practicing Chartered Accountant was ordered to surrender his certificate of
[May-23] practice and he was suspended for two years for accepting the appointment as an
auditor of a company without ascertaining the requirements of section 139 and 140
read with section 141 of Companies Act, 2013. During the period of suspension, Mr. Raj,
designating himself as Data Privacy consultant, did the work of filing Data Privacy related
returns and made appearance as a consultant before various related authorities in other
capacity other than Chartered Accountant in Practice. He contended that there is
nothing wrong in it as he, like any other consultant, could take such work and his
engagement as such in no way violate the order of suspension inflicted on him.

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Kindly guide Mr. Raj whether can he appear before various Data Privacy related
authorities when he is under period of suspension in light of section 6 of the Chartered
Accountants Act, 1949.
Ans: Section 6 of the Chartered Accountants Act, 1949 provides that: -
No member of the Institute shall be entitled to practice whether in India or elsewhere
unless he has obtained from the Council a certificate of practice:
A member who is not in practice is precluded from accepting engagement to render
services of any of the types normally prescribed for a Chartered Accountant, even
though for doing so, he does not require special qualifications.
The Council of the institute is of view that-
(i) Once the person concerned becomes a member of the Institute, he is bound by the
provisions of the Chartered Accountants Act and its Regulations.
If and when he appears before the Income-tax Tribunal as an Income-tax representat ive
after having become a member of the Institute, he could so appear only in his capacity
as a Chartered Accountant and a member of the Institute.
(ii) A member of the Institute can have no other capacity in which he can take up such
practice, separable from his capacity to practice as a member of the Institute.”
Therefore, a Chartered Accountant whose name has been removed from the membership
for professional and/or other misconduct, during such period of removal, will not appear
before the various tax authorities or other bodies before whom he could have appeared
in his capacity as a member of this Institute.

Once the person concerned becomes a member of the Institute, he is bound by the
provisions of the Chartered Accountants Act and its Regulations. If and when he appears
before the Income -tax Tribunal as an Income-tax representative after having become a
member of the Institute, he could so appear only in his capacity as a Chartered
Accountant and a member of the Institute.

In the current case, Mr. Raj, designating himself as Data Privacy consultant, did the work
of filing Data Privacy related returns and made appearance as a consultant before
various related authorities in other capacity other than Chartered Accountant in
Practice.
As a result, he is not appearing in the capacity of Chartered Accountant in Practice and
hence he is not violating the suspension order.
QUESTIONS BASED ON FIRST SCHEDULE

Quest-14 Mr. C, Chartered Accountant, in practice allowed his brother -in-law Mr. P who is not a
[S.M.] Chartered Accountant, to practice in the name of CA. C. He also allowed CA T who is
employee in his firm to practice in the name. Whether Mr. C is correct in allowing his
brother-in-law Mr. P and CA T employee of his firm to practice in his name.
Ans Allowing to Practice in a Chartered Accountant’s name :
As per Clause (1) of Part I to the First Schedule to Chartered Accountants’ Act, 1949, a
Chartered Accountant in practice is deemed to be guilty of professional misconduct if

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he allows any person to practice in his name as a chartered accountant unless such
person is also a chartered accountant in practice and is in partnership with or employed
by him.
In the given situation Mr. C, Chartered Accountant who is in practice allowed a non-
Chartered Accountant his brother-in-law Mr. P to practice in the name of CA. C is not
correct in view of Clause 1 of Part I to the First Schedule. However, he can allow CA T
who is employee in his firm to practice in his name.
Conclusion: Thus, CA. C will be held guilty of professional misconduct for allowing Mr. P
who is not a Chartered Accountant to practice in his name as a chartered accountant as
per Clause (1) of Part I to the First Schedule.
Quest-15 Mr. Qureshi, Chartered Accountant, in practice died in a road accident. His widow
[S.M.] proposes to sell the practice of her husband to Mr. Pardeshi, Chartered Accountant, for
` 5 lakhs. The price also includes right to use the firm name - Qureshi and Associates.
Can widow of Qureshi sell the practice and can Mr. Pardeshi continue to practice in that
name as a proprietor?
Ans: Sale of Goodwill:
With reference to Clause (2) of Part I to the First Schedule to Chartered Accountants’
Act, 1949, the Council of the Institute of Chartered Accountants of India considered
whether the goodwill of a proprietary concern of chartered accountant can be sold to
another member who is otherwise eligible, after the death of the proprietor.
It lays down that the sale is permitted subject to certain conditions
One of such condition is that, the legal heir of the deceased member has to obtain the
permission of the Council within a year of the death of the proprietor concerned .
Conclusion: Thus, in a given case, the widow of Mr. Qureshi, who has proposed to sell
the practice for ` 5 lakhs is in effect proposing the sale of goodwill.
Thus, the act of Mrs. Qureshi is permissible and Mr. Pardeshi can continue to practice
in that name as a proprietor.
Quest-16 CA Sant, a newly qualified professional with certificate of practice, approached CA Pant,
[May-19] the auditor of his father's company M/s Max Ltd., to allow him to have some practical
and professional knowledge and experience in his firm before he can set up his own
professional practice. CA Pant allowed him to sit in his office for 6 month and allotted a
small chamber with other office infrastructure facility. In the course of his association
with CA Pant' s office, he used to provide tax consultancy independently to the client of
the firm and also filed few IT and GST return and re presented himself before various tax
authorities on behalf of the firm although no documents were signed by him. During his
association in CA Pant's office, he did not get any salary or share of profit or
commission but only re-imbursement of usual expenses like conveyance, telephone etc.
was made to him. After the end of the agreed period, he was given a lump sum amount
of ` 3,00,000 by CA Pant for his association out of gratitude.
Examine the case in the light of code of professional misconduct.
Ans: Clause (1) of Part I of the First Schedule to the Chartered Accountants Act, 1949 states
that
A chartered accountant in practice shall be deemed to be guilty of professional
misconduct if he allows any person to practice in his name as a chartered accountant
unless such person is also a chartered accountant in practice and is in partnership with
or employed by him.

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The above clause is intended to safeguard the public against unqualified accountant
practicing under the cover of qualified accountants. It ensures that the work of the
accountant will be carried out by a Chartered Accountant who may be his partner, or his
employee and would work under his control and supervision.

In the instant case, CA Pant allowed CA Sant (who is a newly qualified CA professional
with COP) to sit in his office for 6 months, and allowed him to provide tax consultancy
independently to his firm’s clients, filing of some IT and GST Returns. He also allowed
him to appear before various tax authorities on behalf of his firm. CA Sant was only
reimbursed with his usual expenses and was not paid any salary or share of profit for
the same. However, after the end of agreed period he was given a lump-sums of rupees
3,00,000 for his association out of gratitude.

Conclusion: - Thus, in the present case CA. Pant will be held guilty of professional
misconduct as per Clause (1) of Part I of First Schedule to the Chartered Accountants
Act, 1949 as he allowed CA Sant to practice in his name as Chartered accountant and CA
Sant is neither in partnership nor in employment with CA. Pant.
Quest-17 Mr. Avin, a practicing Chartered Accountant gave 50% of the audit fees received by him
MTP-19 to a non- Chartered Accountant, Mr. Lucky, under the nomenclature of office allowance
and such an arrangement continued for a number of years. Comment with reference to
the Chartered Accountants Act, 1949, and Schedules thereto.
Ans: Sharing of Audit Fees with Non-Member:
As per Clause (2) of Part I of First Schedule to the Chartered Accountants Act, 1949 a
member shall be held guilty if a Chartered Accountant in practice pays or allows or
agrees to pay or allow, directly or indirectly, any share, commission or brokerage in the
fees or profits of his professional business, to any person other than a member of the
Institute or a partner or a retired partner or the legal representative of a deceased
partner, or a member of any other professional body or with such other persons having
such qualification as may be prescribed, for the purpose of rendering such professional
services from time to time in or outside India.
In the instant case, Mr. Avin, a practising Chartered Accountant gave 50% of the audit
fees received by him to a non-Chartered Accountant, Mr. Lucky, under the
nomenclature of office allowance and such an arrangement continued for a number of
years. In this case, it is not the nomenclature to a transaction that is material but it is
the substance of the transaction, which has to be looked into.
Conclusion:- The Chartered Accountant had shared his profits and, therefore, Mr. Avin
will be held guilty of professional misconduct under the Clause (2) of Part I of First
Schedule to the Chartered Accountants Act, 1949.
Quest-18 CA Ravi, a practising Chartered Accountant, was proprietor of M/s Ravi & Associates. CA
[May-22] Ravi died on 15th September, 2020 due to cardiac arrest. Only family member left
behind CA Ravi was his wife, Roohi. On 30th September, 2021, Roohi sold the practice
of her husband to CA Balwan for ` 25 Lacs along with right to use the firm name i.e.,
M/s. Ravi & Associates and requested the Institute to consider the effect of such sale.
Give your comments on the following issues with reference to the Chartered
Accountants Act, 1949 and Schedules thereto:
(i) Whether Roohi can sell the practice to CA Balwan?
(ii) Can CA Balwan continue to practice as proprietor in name of M/s Ravi & Associates?
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Ans: Sale of Goodwill:
With reference to Clause (2) of Part I to the First Schedule to Chartered Accountants’
Act, 1949, the Council of the Institute of Chartered Accountants of India considered
whether the goodwill of a proprietary concern of chartered accountant can be sold to
another member who is otherwise eligible, after the death of the proprietor.
It is being resolved that the legal heir of the deceased member has to obtain the
permission of the Council within a year of the death of the proprietor concerned.
It further lays down that the sale is permitted subject to certain conditions like such a
sale is completed/effected in all respects and the Institute’s permission to practice in
deceased’s proprietary firm name is sought within a year of the death of such proprietor
concerned.
In respect of these cases, the name of the proprietary firm concerned would be kept in
abeyance upto a period of one year from the death of proprietor concerned as aforesaid.

In the given case, Mrs. Roohi, widow of Mr. Ravi, proprietor of M/s. Ravi & Associates,
has sold the practice along with right to use the firm name after one year of his death
for ` 25 lakhs. This sale is in effect the sale of goodwill.
From the discussion given above it can be concluded that:
(i) Mrs. Roohi cannot sell the practice of CA. Balwan with right to use the firm name.
(ii) CA Balwan cannot continue to practice in the name of the firm M/s. Ravi & Associates
as a proprietor because the name of the firm M/s. Ravi & Associates would be kept in
abeyance only up to a period of one year from the death of the proprietor.
Quest-19 CA. P is a newly qualified Chartered Accountant in practice and in order to increase his
[Nov-19] professional practice and client base, entered into an agreement with Mr. A, a qualified
and experienced registered valuer, to share 20% professional fees for all cases of
valuation referred to him by CA. P. Based on this, CA. P received ` 1,20,000 during the
year 2018-19 from Mr. A. Is CA. P guilty of misconduct under the Chartered Accountants'
Act, 1949?
Ans Sharing Professional Fees with Registered Valuer: As per Clause (3) of Part I of the First
Schedule to the Chartered Accountants Act, 1949, a chartered accountant will be guilty
of professional misconduct if he accepts or agrees to accept any part of the profits of
the professional work of a person who is not a member of the Institute.
A member cannot share his fees with a non-member similarly he is also not permitted
to receive and share the fees of others except for sharing with Member of such
professional body or other person having such qualification as may be prescribed
(Regulation 53A of the Chartered Accountants Regulations, 1988) by the Council.
Under the Regulation 53-A of the Chartered Accountants Regulations, 1988, registered
valuer is not included.
In the instant case Mr. P, who is a newly qualified Chartered Accountant in practice
entered into an agreement with Mr. A, a qualified and experienced registered valuer, to
share 20% professional fees for all case of valuation referred to him by CA. P. CA. P also
received rupees 1,20,000 for the same from Mr. A.
Conclusion: - Thus, CA P will be held guilty for misconduct under clause (3) of Part I of
the First Schedule to the Chartered Accountants Act, 1949.
Quest-20 Mr. X is a practising Chartered Accountant. Mr. Y is a practising advocate representing
[Nov-22] matters in the court of law. X and Y decided to help each other in matters involving their

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professional expertise. Accordingly, Mr. X recommends Mr. Y in all litigation matters in
the court of law and Y consults X in all matters relating to finance and other related
matters, which come to him in arguing various cases, consequently, they started sharing
profits of their professional work. Is Mr. X liable for professional misconduct?
Ans: According to Clause (2) of Part I of the First Schedule to the Chartered Accountants Act,
1949,
A Chartered Accountant in practice is deemed to be guilty of professional misconduct if
he pays or allows or agrees to pay or allow, directly or indirectly, any share, commission
or brokerage in the fees or profits of his professional business, to any person other than
a member of the Institute or a partner or a retired partner or the legal representative of
a deceased partner, or a member of any other professional body or with such other
persons having such qualifications as may be prescribed, for the purpose of rendering
such professional services from time to time in or outside India.

Further, as per Clause (3) of Part I of the First Schedule to the said Act states that a
Chartered Accountant in practice is deemed to be guilty of professional misconduct if
he accepts or agrees to accept any part of the profits of the professional work of a
person who is not a member of the Institute.
However, a practicing member of the Institute can share fees or profits arising out of his
professional business with such members of other professional bodies or with such
other persons having such qualifications as prescribed by the Council under Regulat ion
53-A of the Chartered Accountants Regulations, 1988. Under the said regulation, the
member of “Bar Council of India” (Advocate) is included.
Therefore, Mr. Y, a practicing advocate, a member of Bar Council, is allowed to share
part of profits of his professional work with Mr. X.
Conclusion:- Hence, Mr. X, a practicing Chartered Accountant, will not be held guilty
under any of the above-mentioned clauses for paying and accepting part of profits
to/from Mr. Y.

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