FUNDAMENTAL PRINCIPLES OF ETHICS

Overview of Fundamental Principles

To achieve the objectives of the Accountancy profession, professional accountants must observe certain
prerequisites or Fundamental Principles, as per the Code of Ethics of ICAI:
Integrity
Objectivity
Professional Competence and Due Care
Confidentiality
Professional Behavior

Integrity
A professional accountant shall comply with the principle of integrity, which requires being straightforward
and honest in all professional and business relationships.
Integrity implies fair dealing and truthfulness.
A professional accountant shall not knowingly be associated with reports, returns, or communications
where they believe the information:
Contains a materially false or misleading statement.
Contains statements or information provided negligently.
Omits or obscures required information, making it misleading.
However, a professional accountant will not be considered in breach if they provide a modified report in
respect of such matters.
When an accountant becomes aware of being associated with misleading information, they must take
steps to be disassociated from it.

Objectivity
A professional accountant shall comply with the principle of objectivity, which requires accountants not to
compromise their professional or business judgment due to: bias, conflict of interest undue influence of
others
A professional accountant shall not undertake a professional activity if their professional judgment
regarding that activity is unduly influenced.

Professional Competence and Due Care

A professional accountant shall comply with the principle of professional competence and due care, which
requires them to:
Attain and maintain professional knowledge and skill at the level required to ensure that a client or
employer receives competent professional service, based on: current technical and professional standards
Relevant legislation
Act diligently in accordance with applicable technical and professional standards.
Serving clients and employers with competence requires the exercise of sound judgment in applying
professional knowledge and skills.
Maintaining professional competence requires a continuing awareness and understanding of technical,
professional, and business developments.
Continuing professional development (CPD) enables a professional accountant to develop and maintain
capabilities to perform competently.
Diligence means acting in accordance with assignment requirements, carefully, thoroughly, and on a
timely basis.
A professional accountant must take reasonable steps to ensure that those working under them have
appropriate training and supervision.

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If necessary, a professional accountant must make clients, employers, or other users aware of the
limitations inherent in the services provided.

Confidentiality
A professional accountant shall comply with the principle of confidentiality, which requires them to
respect the confidentiality of information acquired in professional and employment relationships.
Accountants must:
Be alert to possible inadvertent disclosure, including in social settings.
Maintain confidentiality within their firm or employing organization.
Maintain confidentiality of information disclosed by a prospective client or employer.
Not disclose confidential information outside the firm or organization without proper authority, unless
legally or professionally required.
Not use confidential information for personal advantage or that of a third party.
Not disclose confidential information even after the end of the professional relationship.
Take reasonable steps to ensure that personnel under their control respect confidentiality.
When Disclosure May Be Required
When required by law, such as:
Producing documents or evidence in legal proceedings.
Reporting violations of the law to authorities.
When permitted by law, with client or employer authorization.
Professional duty to disclose, when not prohibited by law:
Peer review or quality review by ICAI.
Regulatory body inquiries or investigations.
Protecting the accountant’s professional interests in legal proceedings.
Complying with technical and professional standards, including ethics requirements.

Professional Behavior
A professional accountant shall comply with relevant laws and regulations and avoid any conduct that
discredits the profession.
Conduct that might discredit the profession includes actions that:
A reasonable and informed third party would conclude adversely affects the reputation of the profession.
Impairs the integrity, objectivity, or good reputation of the profession.
Prohibited Actions
A professional accountant shall not knowingly engage in:
Employment, occupation, or activity that impairs integrity or objectivity.
Misleading promotions or advertisements:
Making exaggerated claims about qualifications, services, or experience.
Disparaging references or unsubstantiated comparisons to the work of others.
Advertising in violation of ICAI’s guidelines.
Advertising Guidelines
Advertisements must be truthful, conform to ICAI guidelines, and not mislead users.
If in doubt about an advertisement, the accountant should consult ICAI’s Ethical Standards Board.

Compliance with Fundamental Principles

Accountants must comply with all fundamental principles.
The conceptual framework requires accountants to:
Identify threats to fundamental principles.
Evaluate the threats identified.
Address the threats by eliminating or reducing them to an acceptable level.

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Conflict Between Fundamental Principles
Sometimes, complying with one principle may conflict with another.
Accountants should consult:
Within the firm or employing organization.
Those charged with governance.
ICAI or legal counsel.
Consultation does not remove the accountant’s responsibility to apply professional judgment.
Accountants should document issues, discussions, and decisions taken.

THREATS, EVALUATION OF THREATS, AND SAFEGUARDS

Overview of Threats
The Conceptual Framework specifies an approach for a professional accountant to:
Identify threats to compliance with the fundamental principles.
Evaluate the threats identified.
Address the threats by eliminating or reducing them to an acceptable level.
Threats to compliance with the Fundamental Principles fall into one or more of the following categories:
Definition
Self-Interest Threat: The threat that a financial or other interest will inappropriately influence a
professional accountant’s judgment or behavior.
Self-Review Threat: The threat that a professional accountant will not appropriately evaluate the results of
a previous judgment or activity performed by themselves or their firm.
Advocacy Threat: The threat that a professional accountant will promote a client’s or employer’s position
to the point that their objectivity is compromised.
Familiarity Threat: The threat that due to a long or close relationship with a client or employer, a
professional accountant will be too sympathetic to their interests.
Intimidation Threat: The threat that a professional accountant will be deterred from acting objectively due
to actual or perceived pressures.

Examples of Threats in Professional Services

1. Self-Interest Threats:
Having a direct financial interest in a client.
Quoting a low fee that might impact the quality of the engagement.
Having a close business relationship with a client.
Accessing confidential information that might be used for personal gain.
Discovering a significant error when reviewing past work performed by the accountant’s firm.

2. Self-Review Threats:
Issuing an assurance report on the effectiveness of financial systems after implementing the system.
Preparing original data that is later used for assurance engagements.

3. Advocacy Threats:
Promoting a client’s interests in financial matters.
Acting as an advocate in litigation or disputes.
Lobbying for legislation on behalf of a client.

4. Familiarity Threats:
A family member of the accountant being a director or officer of the client.
A former partner of the firm now being a key officer of the client.
An audit team member having a long-standing association with the audit client.

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5. Intimidation Threats:
Being threatened with dismissal over a disagreement.
Feeling pressured to agree with a client’s judgment.
Being informed that a promotion depends on agreeing with an improper accounting treatment.
Accepting a significant gift from a client and being threatened with public disclosure.

Examples of Threats in Professional Activities

1. Self-Interest Threats:
Holding a financial interest in an employer.
Participating in incentive compensation arrangements.
Having access to corporate assets for personal use.
Receiving gifts or special treatment from a supplier.

2. Self-Review Threats:
Determining accounting treatment after conducting a feasibility study for a business combination.

3. Advocacy Threats:
Manipulating information in a prospectus to obtain financing.

4. Familiarity Threats:
Being responsible for financial reporting while having a close family member in a decision-making role.
Having a long association with individuals influencing business decisions.

5. Intimidation Threats:
Facing dismissal threats for a disagreement about accounting principles.
Being pressured to award contracts to certain vendors.

Evaluation of Threats
An Acceptable Level – A professional accountant must determine whether a threat is at an acceptable
level using the Reasonable and Informed Third Party Test.
Reasonable and Informed Third-Party Test – A consideration of whether a third party with relevant
knowledge would likely conclude that the accountant complies with fundamental principles.
If threats are not at an acceptable level, the accountant must take action to eliminate or reduce them.

Addressing Threats
If a professional accountant determines that identified threats to compliance with fundamental principles
are not at an acceptable level, they must take action by:
Eliminating the circumstances creating the threat.
Applying safeguards, where available, to reduce threats to an acceptable level.
Declining or ending the professional activity if the threats cannot be reduced.

Safeguards
Safeguards are actions that effectively reduce threats to an acceptable level. They vary depending on the
facts and circumstances.
Examples of Safeguards:
Assigning additional time and qualified personnel to engagements.
Having a reviewer who was not involved in the engagement review the work.
Using separate engagement teams for audit and non-assurance services to an audit client.
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Involving another firm to perform or re-perform part of the engagement.
Separating teams dealing with confidential information.

Non-Compliance with Laws and Regulations (NOCLAR)

A professional accountant may encounter non-compliance with laws and regulations (NOCLAR) by a client,
employer, or those charged with governance.

Examples of NOCLAR:
Fraud, corruption, and bribery.
Money laundering, terrorist financing, and proceeds of crime.
Securities markets and trading violations.
Banking and financial product misconduct.
Data protection breaches.
Environmental protection violations.
Public health and safety violations.
Tax and pension liabilities and payments.

Responding to NOCLAR in India

For Professional Accountants in Service
Applies to Senior Professional Accountants in listed entities.
Includes directors, officers, and senior employees with significant influence.
For Professional Accountants in Public Practice
Applies to audits of listed entities with net worth of ₹250 crores or more
.
NOCLAR vs. SA 250
Aspect SA 250 NOCLAR
Scope Only applies to audits Applies to accountants in service and in
practice
Focus Laws with direct effects on financial statements Broader laws impacting the public
Stakeholders Does not define specific stakeholders Considers investors, creditors, and the public
Disclosure No provision for disclosure of imminent Allows disclosure to prevent substantial harm
breaches

Documentation Requirements in NOCLAR

A professional accountant must document:
How management or those charged with governance responded.
Actions taken, decisions made, and the rationale behind them.
How the accountant ensured compliance with the public interest responsibility.

MEMBERSHIP OF THE INSTITUTE

Membership of the Institute
On acceptance of the application by the Council, the applicant’s name shall be entered in the Register, and
a certificate of membership in the appropriate form shall be issued to the applicant.
Particulars of the Register (Section 19 of the Chartered Accountants Act, 1949)
The Register of Members includes the following details about every member:
Full name, date of birth, domicile, residential, and professional address.
Date of entry of name in the Register.
Qualifications.

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Whether the member holds a Certificate of Practice (COP).
Any other prescribed particulars.

Disabilities for the Purpose of Membership (Section 8 of the Chartered Accountants Act, 1949)
A person is debarred from having their name entered in or retained on the Register of Members under the
following circumstances:
If they have not attained the age of 21 years at the time of application for entry in the Register.
If they are of unsound mind, as adjudged by a competent court.
If they are an undischarged insolvent.
If they are a discharged insolvent but have not obtained a certificate from the court stating that the
insolvency was caused by misfortune without misconduct.
If they have been convicted by a competent court (in India or abroad) of an offence:
Involving moral turpitude and punishable with imprisonment.
Of a professional nature, not of a technical nature, unless granted a pardon or the Central Government
removes the disability upon application.
If they have been removed from membership for professional or other misconduct.
Additional Points
A person whose membership was removed for a specified period cannot have their name entered in the
Register until the expiry of such a period.
Failure to disclose any of the above disabilities constitutes professional misconduct.
If a member is found to have been subject to any of these disabilities, the Council can remove their name
from the Register.
Types of Members of the Institute (Section 5 of the Chartered Accountants Act, 1949)
The members of the Institute are divided into two classes:
Class of Members Designation
Associate Member A.C.A. (Associate Chartered Accountant)
Fellow Member F.C.A. (Fellow Chartered Accountant)
Associate Member
Any person whose name is entered in the Register becomes an Associate of the Institute.
They are entitled to use the letters A.C.A. after their name.
Fellow Member
The following members can apply to become a Fellow of the Institute on payment of the prescribed fee:
An Associate Member who has been in continuous practice in India for at least five years.
A member who has been an Associate for at least five years and possesses qualifications prescribed by
the Council, ensuring they have experience equivalent to continuous practice for five years.
Fellows are entitled to use the letters F.C.A. after their name.

Page 19.23 – Removal of Name from the Register (Section 20 of the Chartered Accountants Act, 1949)
The Council may remove a member’s name from the Register in the following cases:
If the member is dead.
If the member requests removal in writing.
If the member has not paid the prescribed fee.
If the member is found to be ineligible due to any of the disabilities under Section 8 or any other reason
making them ineligible.
If the Council passes an order under this Act, removing them from membership.
Reinstatement after Non-Payment of Fees
If a member’s name was removed for non-payment of fees, they can apply for re-entry by paying:
Arrears of annual fees.
Entrance fee.
Additional fee as determined by the Council.
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Page 19.23 – Restoration of Membership (Regulation 19 of the Chartered Accountants Regulations, 1988)
If a member’s name was removed for non-payment of fees, they may apply for restoration using the
approved form.
The Council may restore membership upon:
Receiving a complete application.
Payment of arrears of fees, entrance fees, and additional fees.
Effective Date of Restoration
Situation Effective Date of Restoration
Application and fees received within the same year of removal Restoration from the date of removal
Name removed under orders of the Board of Discipline, Disciplinary
Restoration as per the order
Committee, Appellate Authority, or High Court
Restoration from the date of receipt
Other cases
of application and fee

Page 19.24 – Penalty for Falsely Claiming to Be a Member (Section 24 of the Chartered Accountants Act,
1949)
A person shall be punished if they:
Claim to be a member of the Institute without being one.
Use the designation ‘Chartered Accountant’ without being a member.
Practice as a Chartered Accountant without holding a Certificate of Practice (COP).
Penalties for Misrepresentation
First conviction → Fine up to ₹1,000.
Subsequent conviction → Imprisonment up to six months and/or a fine up to ₹5,000.
Example Case
Case of Prem Batra (18.07.1989) – The Additional Chief Judicial Magistrate convicted an accused under
Section 24(i)(a) & (b) and Section 465 of IPC for falsely claiming to be a Chartered Accountant.
Punishment: A fine was imposed and failure to pay resulted in three months of rigorous imprisonment.

Significance of the Certificate of Practice

Requirement of COP
No member of the Institute shall be entitled to practice in India or elsewhere unless they have obtained a
Certificate of Practice from the Council.
This does not apply to individuals who were already in practice as Registered Accountants or holders of
restricted certificates before the commencement of the Act, for a period of one month from the first
meeting of the Council.
Annual Fee for COP
Every member holding a Certificate of Practice shall pay an annual fee, as determined by the Council, on or
before the 1st day of April each year.
Cancellation of COP
A Certificate of Practice may be cancelled by the Council under certain prescribed circumstances.

Engagement Restrictions Without COP

A member without a Certificate of Practicecannot accept engagements to provide services normally
undertaken by a Chartered Accountant.
Even if a special qualification is not required, such a member cannot perform such services.

Council’s View on Practice Restriction

Jurisdiction Under the Chartered Accountants Act

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Once an individual becomes a member of the Institute, they are bound by the provisions of the Act and
Regulations.
If a member appears before the Income Tax Tribunal after becoming a Chartered Accountant, they must do
so only in their professional capacity.
A suspended Chartered Accountant cannot bypass disciplinary action by claiming to practice in another
capacity.
Practice Restrictions for Suspended Members
A Chartered Accountant whose membership is suspended due to misconduct cannot appear before tax
authorities or other professional bodies where they would otherwise act as a Chartered Accountant.

Illustration
A Chartered Accountant in practice is suspended for six months and surrenders their COP.
During this period, they do not undertake audits, but they represent clients before tax authorities in their
capacity as a Chartered Accountant.
Conclusion: Since the individual is still a member of ICAI, they cannot practice in any capacity during the
period of suspension.
Verdict: The Chartered Accountant is guilty of professional misconduct.

Cancellation and Restoration of Certificate of Practice

Cancellation of COP (Regulation 10)
A Certificate of Practice is liable for cancellation if:
The holder’s name is removed from the Register.
The Council finds that the COP was issued based on incorrect, misleading, or false information.
A member ceases to practice.
A member fails to pay the annual COP fee by 30th September of the relevant year.
Surrender of COP
If a COP is canceled, the holder must surrender it to the Secretary of ICAI.
Restoration of COP (Regulation 11)
A member can apply for restoration if their COP was canceleddue to non-payment of fees.
The Council may restore the COP with effect from the date of cancellation if:
The application is complete.
The required fee is paid before the end of the relevant year.

Members Deemed to Be in Practice

Every member of ICAI can use the designation of Chartered Accountant.
Members in practice and those otherwise occupied are treated differently.
Definition of ‘In Practice’ (Section 2(2) of the Act)
A member is deemed ‘to be in practice’ when, individually or in partnership, they:
Engage in the practice of accountancy.
Offer or perform auditing, verification of financial transactions, preparation, verification, or certification
of financial statements.
Render professional services related to accounting procedures, financial reporting, and financial data
certification.
Provide services considered by the Council to be part of a Chartered Accountant’s professional scope.
Limited Purpose Deemed Practice
A member employed as a salaried employee under a Chartered Accountant or a firm shall be deemed to
be in practice for the limited purpose of training articled assistants.

Management Consultancy and Other Services

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Under Section 2(2)(iv), Chartered Accountants in practice can provide a range of advisory and consultancy
services, including:
Financial management and policy determination.
Capital structure planning and fundraising advice.
Working capital management.
Project reports and feasibility studies.
Cash budgets, cash flow statements, profitability projections.
Inventory management, pricing strategies, and cost control.
Human resource management, recruitment, and job evaluation.
Business valuation, mergers, and acquisitions.
Market research and demand analysis.
Acting as a Registered Valuer under the Companies Act, 2013.

Restricted Services Under Section 144 of the Companies Act, 2013

A Chartered Accountant in practice is prohibited from providing certain services to a company or its
holding/subsidiary company, including:
Accounting and bookkeeping services.
Internal audit.
Design and implementation of financial information systems.
Actuarial services.
Investment advisory and banking services.
Management services.
Outsourced financial services.

Use of Designations by Members in Practice

Members in practice can use ‘CA’ as a prefix.
A member in practice cannot use any other designation except:
Membership of another recognized accounting body (e.g., Cost Accountants, Company Secretaries).
Academic degrees recognized by ICAI.
Merchant Banking Registration
Members can register as Category IV Merchant Bankers with SEBI and act as Advisors to Capital Issues.
Improper Use of Designations
A Chartered Accountant is not allowed to:
Refer to themselves as an Income Tax Consultant, Cost Accountant, or Management Consultant.
Use ‘CPA’ (Certified Public Accountant) in professional documents.
Use the title ‘Corporate Lawyer’, as it is not permitted under the existing law.

Branch Offices and Their Regulation

If a Chartered Accountant firm has multiple offices, each office must be under the charge of a separate
member.
Exemption for Hill Areas – Chartered Accountants in hill areas can open temporary offices in cities for up
to three months per year, subject to ICAI conditions.
Name-Board Restrictions
A name-board at a Chartered Accountant’s residence is allowed for individual practice but not for a firm.
A firm cannot display its name at a Chartered Accountant’s residence.
Illustration
A firm displays name-boards at two locations, one at the Head Office and one at a Branch 80 km away.
The partners also display name-boards at their residences.
Conclusion: The Chartered Accountants are guilty of misconduct.
Regulation 191
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MANAGEMENT CONSULTANCY AND OTHER SERVICES
Under Section 2(2)(iv) of the Chartered Accountants Act, 1949, a Chartered Accountant in practice is
deemed to be engaged in practice if they provide Management Consultancy and Other Services.
Scope of Management Consultancy and Other Services
The Council of ICAI has passed a resolution permitting Chartered Accountants in practice to offer a wide
range of services, except statutory audits, tax representation, and certain other restricted activities.
The following services are included under Management Consultancy and Other Services:
Financial Management Planning and Financial Policy Determination.
Capital Structure Planning and Advice Regarding Raising Finance.
Working Capital Management.
Preparing Project Reports and Feasibility Studies.
Preparing Cash Budgets, Cash Flow Statements, Profitability Statements, and Statements of Sources and
Application of Funds.
Budgeting, Including Capital Budgets and Revenue Budgets.
Inventory Management, Material Handling, and Storage.
Market Research and Demand Studies.
Price Fixation and Other Management Decision Making.
Management Accounting Systems, Cost Control, and Value Analysis.
Control Methods and Management Information and Reporting.
Personnel Recruitment and Selection.
Setting Up Executive Incentive Plans, Wage Incentive Plans, etc..
Management and Operational Audits.
Valuation of Shares and Business and Advice Regarding Amalgamation, Merger, and Acquisition.
Acting as Registered Valuer under the Companies Act, 2013, read with The Companies (Registered Valuers
and Valuation) Rules, 2017.
Business Policy, Corporate Planning, Organization Development, Growth, and Diversification.
Organization Structure and Behavior, Development of Human Resources, Including Training Programmes,
Work Study, Job Description, and Job Evaluation.
Systems Analysis and Design, and Computer-Related Services, Including Hardware Selection and
Software Development.
Acting as an Advisor or Consultant to an Issue, including:
Drafting of prospectus and memorandum containing salient features of the prospectus.
Drafting and filing of listing agreements and completing formalities with Stock Exchanges, Registrar of
Companies, and SEBI.
Preparation of publicity budgets, advice on selection of:
Advertising media.
Investor/broker conferences.
Bankers to the issue.
Collection centers.
Underwriters and distribution channels.
Advice regarding selection of Registrars to Issue, Printers, and Advertising Agencies.
Advice on post-issue activities, including:
Listing of instruments.
Dispatch of certificates and refunds.
Explanation: The functions of broking, underwriting, and portfolio management are NOT permitted.
Investment Counselling in Respect of Securities (as defined in the Securities Contracts (Regulation) Act,
1956 and other financial instruments).
Acting as Registrar to an Issue and Transfer Agent for Shares/Other Securities.
Quality Audit.
Environmental Audit.
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Energy Audit.
Acting as a Recovery Consultant in the Banking Sector.
Insurance Financial Advisory Services Under the Insurance Regulatory & Development Authority Act,
1999, Including Insurance Brokerage.
Acting as an Insolvency Professional Under the Insolvency and Bankruptcy Code, 2016.
Administrative Services.

Administrative Services (Added by ICAI in its 388th Meeting)

Administrative services involve assisting clients with routine or mechanical tasks in the normal course of
business operations.
These services require little to no professional judgment and are clerical in nature.
Examples of Administrative Services:
Word processing services.
Preparing administrative or statutory forms for client approval.
Submitting statutory forms as instructed by the client.
Monitoring statutory filing dates and advising clients of deadlines.
Example: GST Practitioner Functions Under Rule 83(8) of the Central Goods and Services Tax Rules, 2017:
Furnishing details of outward and inward supplies.
Filing monthly, quarterly, annual, or final returns.
Making deposits into the electronic cash ledger.
Filing a claim for refund.
Submitting amendments or cancellations of registrations.
Filing e-way bills and challan details.

REGULATION 191 – CERTAIN APPOINTMENTS AND PROFESSIONAL ENGAGEMENTS

Scope of Regulation 191
Regulation 191 of the Chartered Accountants Regulations, 1988 states that a Chartered Accountant in
practice shall be deemed to be in practice if they perform specific roles in a professional capacity, rather
than in a personal or employee capacity.
Specific Appointments Covered Under Regulation 191
A Chartered Accountant is deemed to be in practice if they act as:
Liquidator.
Trustee.
Executor.
Administrator.
Arbitrator.
Receiver.
Adviser or representative for costing, financial, or taxation matters.
Appointee of the Central Government, State Government, or Court of Law.
Appointee of any other legal authority.
Company Secretary in practice (except on a full-time salary basis).
Key Clarifications
A member engaged in these activities in their personal capacity or as an employee is NOT deemed to be
in practice.
A Chartered Accountant performing these roles as part of their professional service is considered to be in
practice.

Important Considerations Under Regulation 191

A Chartered Accountant is deemed to be in practice even if they only offer services without having actual
clients.
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Setting up an office for offering services without active engagements still constitutes being in practice.
A member working in the Armed Forces is also deemed to be in practice.

Restrictions Under Section 144 of the Companies Act, 2013

A Chartered Accountant cannot provide the following services to a company or its holding/subsidiary
company:
Accounting and bookkeeping services.
Internal audit.
Design and implementation of financial information systems.
Actuarial services.
Investment advisory and banking services.
Management services.
Outsourced financial services.
Summary of KYC Norms for Chartered Accountants in Practice
Objective:
KYC norms ensure due diligence, risk assessment, and compliance with ethical and legal requirements
before accepting professional engagements.
Applicability:
Mandatory for all attestation (audit, certification) and non-attestation (advisory, taxation, consultancy)
services.
Key Requirements:
Client Identification:
Individuals: Name, DOB, Address, PAN, Aadhaar, Business Details.
Corporate Entities: Name, Business Address, Registration Details, Directors, UBO Details.
Risk Assessment & Due Diligence:
Verify business activities and financial background.
Identify high-risk clients (e.g., money laundering, fraud-prone businesses).
Decline engagement if unethical or illegal activities are detected.
Engagement Letter & Record-Keeping:
Formal engagement letter specifying scope, responsibilities, and fees.
Maintain confidential records and update KYC periodically.
ICAI Guidelines:
Periodic Review: Regularly update client information, especially for high-risk profiles.
Confidentiality: Ensure data security; disclose information only when legally required.
Non-Compliance Risks: Disciplinary action by ICAI, legal liabilities under financial laws.
Conclusion:
KYC norms protect CAs from legal and reputational risks, ensuring client legitimacy and professional
integrity.
Let me know if you need further refinements! 😊
CHARTERED ACCOUNTANTS IN SERVICE
A Chartered Accountant in service refers to a member of ICAI who is employed in an organization,
government body, financial institution, corporate entity, or any other sector rather than being engaged in
public practice. These members apply their professional skills in managerial, financial, and strategic roles.

Key Roles of Chartered Accountants in Service

Chartered Accountants in service typically work in the following areas:
1. Financial Management & Accounting
Preparation & analysis of financial statements.
Budgeting, forecasting, and financial planning.
Financial reporting as per accounting standards.
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2. Auditing & Internal Controls
Internal audit & risk assessment.
Ensuring compliance with internal controls & governance policies.
SOX compliance & corporate governance responsibilities.
3. Taxation & Regulatory Compliance
Direct & indirect tax planning & compliance.
Filing corporate tax returns & handling tax assessments.
GST compliance, transfer pricing, and international taxation.
4. Cost Management & Performance Analysis
Cost control & reduction strategies.
Variance analysis, pricing strategy, and cost efficiency measures.
Evaluating business profitability & cost optimization.
5. Corporate Law & Secretarial Functions
Ensuring compliance with the Companies Act, SEBI regulations.
Drafting & filing regulatory returns and disclosures.
Liaising with government authorities & regulatory bodies.
6. Business Strategy & Decision-Making
Mergers & acquisitions, investment decisions.
Financial restructuring & capital allocation strategies.
Advising management on financial risks & growth opportunities.

Ethical & Professional Responsibilities of CAs in Service

Chartered Accountants in service must adhere to ICAI’s Code of Ethics, including:
Integrity – Maintain honesty in financial reporting.
Objectivity – Avoid conflicts of interest & undue influence.
Confidentiality – Protect sensitive financial information.
Professional Competence & Due Care – Ensure accuracy & compliance.
Professional Behavior – Follow laws & regulations applicable to their role.

Responsibilities Under ICAI Code of Ethics

Avoid financial misrepresentation or fraud.
Report unethical practices if encountered (whistleblowing obligations).
Comply with Non-Compliance with Laws & Regulations (NOCLAR) provisions.

1. Professional Misconduct
Professional misconduct refers to violations of professional standards, ethics, and regulations as
prescribed in the First Schedule and Second Schedule of the Chartered Accountants Act, 1949.
A. Misconduct Under the First Schedule
A member is guilty of professional misconduct if they:
Allow their name to be used by an unauthorized person practicing as a Chartered Accountant.
Share fees or profits of professional work with an unqualified person.
Accept professional work that was obtained through solicitation or advertisements.
Fail to disclose conflicts of interest while performing professional duties.
Do not comply with accounting/auditing standards issued by ICAI.
Fail to obtain a Certificate of Practice (COP) but engage in public practice.
Negligently perform auditing, taxation, or advisory work.
Do not maintain client confidentiality or disclose client information without proper authorization.
B. Misconduct Under the Second Schedule
A member is guilty of more serious misconduct if they:
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Sign or certify financial statements without proper examination.
Give an incorrect report or misleading opinion knowingly.
Fail to obtain sufficient audit evidence before issuing a report.
Misuse their position for personal gain.
Indulge in fraud or professional negligence.
Accept fees or commissions for referring clients.
Undertake professional work without adequate training or competence.

2. Other Misconduct
Other misconduct refers to unethical behavior, illegal acts, or personal conduct that discredits the
profession, even if it is not directly related to professional duties.
Examples of Other Misconduct:
Conviction for a criminal offense involving moral turpitude.
Engagement in fraudulent activities or financial scams.
Misrepresentation of qualifications or false claims about expertise.
Breach of trust or dishonesty in business dealings.
Engagement in activities that bring disrepute to the CA profession.

Discipline Procedure Mechanism

Receipt of Complaint or Information
(i) Complaint along with prescribed fee
(ii) Information against a member of ICAI for alleged misconduct
Disciplinary Directorate- Prima Facie Opinion
Guilty in First Schedule or Second Schedule or Both.
If Falling in First Schedule
Matter placed before Board of Discipline
Decision: Accepted → Conduct enquiry and if found guilty:
(i) Reprimand the member
(ii) Remove name of the member up to a period of 3 months
(iii) Impose a fine up to ₹1, 00,000
Otherwise Rejected → Close the matter

If Falling in Second Schedule or Both

Matter placed before Disciplinary Committee
Decision: Accepted → Conduct enquiry and if found guilty:
(i) Reprimand the member
(ii) Remove name of the member permanently or for any duration as deemed fit
(iii) Impose a fine up to ₹5, 00,000
Otherwise Rejected → Close the matter

Not Guilty in First Schedule or Second Schedule or Both

Submission of Information & Complaints to Board of Discipline
Decision: Accepted → Proceed accordingly i.e. Close the matter
Decision: Rejected→ Advice Director (Discipline) to investigate further
Proceed with the matter →If allied to First Schedule
Refer to Disciplinary Committee→ if allied to Second Schedule or Both

If any member or Director (Discipline) aggrieved by the order of Board or Disciplinary Committee can
prefer an appeal within 90 days to Appellate Authority.

14
Appellate Authority’s Powers
It can
(i) Confirm, modify, or set aside the order
(ii) Impose, set aside, reduce, or enhance the penalty
(iii) Remit the case to the Board of Discipline or Disciplinary Committee for reconsideration
(iv) Pass such order as the Authority thinks fit

Part I of First Schedule of the Chartered Accountant Act ,1949

Clause (1): A Chartered Accountant in practice is 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.
Purpose: Prevents misuse of a CA’s name by unqualified individuals, ensuring only qualified CAs perform
professional work and maintaining public trust.
Rule:
A CA may allow another CA to practice in their name only if:
 The individual is a partner in the firm.
 The individual is employed under the CA’s supervision.
A CA cannot allow a non-CA to practice in their name.
Examples:
Allowed: A CA employs another CA to practice under their name.
Not Allowed: A CA permits a non-CA (e.g., relative or friend) to use their name for CA-related work.

Clause (2): A Chartered Accountant in practice is deemed to be guilty of professional misconduct if he

pays, 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
A partner or a retired partner
The legal representative of a deceased partner
A member of any other professional body or such other persons as may be prescribed for rendering such
professional services from time to time in India or outside India.
Purpose: Ensures professional independence by prohibiting CAs from profit-sharing with unqualified
individuals.
Rule: A CA cannot share professional fees with anyone except another CA or prescribed professionals.
Exceptions exist for partnerships allowed by regulations.
Example: Guilty – A practicing CA (Mr. A) pays a commission to a non-CA (Mr. X) for client referrals.

Regulation 53A (1) – Permitted Fee Sharing

As per the Chartered Accountants Regulations, 1988, Regulation 53A (1) allows CAs to share fees or profits
only with specified professional bodies:
 The Institute of Company Secretaries of India (ICSI)
 The Institute of Cost Accountants of India (ICMAI)
 The Bar Council of India
 The Indian Institute of Architects
 The Institute of Actuaries of India

Regulation 53A (3) – Permitted Partnerships

As per the Chartered Accountants Regulations, 1988, Regulation 53A (3) specifies professionals qualified to
partner with CAs:
Recognized professionals:
15
 Company Secretary
 Cost Accountant
 Actuary
Qualified individuals from recognized universities/institutions:
 Bachelor in Engineering
 Bachelor in Technology
 Bachelor in Architecture
 Bachelor in Law
 MBA from universities recognized by law or AICTE-approved technical institutions
Treatment of Goodwill
Scenario Key Points
1. In a Partnership Firm
(i) On Death of a Partner - Legal representative receives profit share only if the partnership
agreement permits.
- If silent, remaining partners decide on distribution.
(ii) On Simultaneous Death of - ICAI Council decision on goodwill sale applies.
All Partners
2. In a Proprietorship Firm
No Sharing of Fees - Between the deceased CA’s legal representative (e.g., widow) and buyer
of goodwill (another CA).
(i) Sale of Goodwill on Death of - Can be sold/transferred to an eligible ICAI member.
Sole Proprietor - Time limit: Must be completed within one year of the proprietor’s
death.
- Firm’s name: Kept in abeyance for one year to facilitate transfer.
- Disputed legal heir: ICAI must be informed within a year; firm’s name
remains in abeyance until one year after settlement.
(ii) Payment for Goodwill - Can be made in installments if the agreement allows.

Clause (3): 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.
The member is permitted to enter in profit-sharing or similar arrangement including receiving any share,
commission, or brokerage in the fees with another ICAI member, with a member of a recognized
professional body or with any other qualified person [(Regulation 53A) applicable to Clauses (2), (3), and
(5) of Part I of the First Schedule.]
Fee & Profit-Sharing Restrictions
Prohibited: A CA cannot share fees or profits from professional work with a non-member.
Restriction: CAs may engage or recommend other professionals but cannot accept a share of their fees
unless ICAI permits. This prevents conflicts of interest.
Referral Fees Amongst Members:
 A CA can charge referral fees from another CA for client referrals.
 Allowed if both are ICAI members and does not constitute misconduct.

Clause (4): A Chartered Accountant in practice is deemed guilty of professional misconduct if he enters
into a partnership, in or outside India, with any person other than a Chartered Accountant in practice or
such other person who is a member of a prescribed professional body as may be prescribed.
As per Regulations 53A & 53B, ICAI allows CAs to partner with members of the following professional
bodies:
Permitted Partnerships with Other Professionals
Profession Required Membership
16
Company Secretary The Institute of Company Secretaries of India (ICSI)
Cost Accountant The Institute of Cost Accountants of India (ICMAI)
Advocate The Bar Council of India
Engineer The Institution of Engineers or a recognized engineering degree holder
Architect The Indian Institute of Architects
Actuary The Institute of Actuaries of India

General Restriction:
A CA in practice can only partner with another CA or the permitted professionals listed above.
Multi-Disciplinary Partnerships (MDPs):
Allowed only if the regulatory bodies of other professionals also permit partnerships with CAs.

Special Cases: Foreign and Resident Partners

A CA can partner with a resident abroad if:
 They would qualify for ICAI membership if in India. or
 Their qualifications are recognized by the Central Government or ICAI Council for partnership eligibility.

Clause (5): A Chartered Accountant in practice is deemed guilty of professional misconduct if he secures
professional business through the services of a person who is not his employee or partner or by any
means that are not open to a Chartered Accountant.
Any agreement permitted under Clauses (2), (3), and (4) of Part I of the First Schedule is not prohibited
under this clause. (e.g. partnerships and profit-sharing arrangements with permitted professionals are not
considered a violation.)
Prohibition on Canvassing & Solicitation
A CA cannot use intermediaries (agents, brokers, or marketing agencies) to secure professional work.
Clients must be obtained through reputation and expertise, not direct solicitation.
Strictly Prohibited: Canvassing or solicitation.
Required: Building goodwill, trust, and competence—not aggressive marketing.
Ethical Standard: A CA's reputation must be based on merit, not promotional tactics.

Clause (6): A Chartered Accountant in practice is deemed to be guilty of professional misconduct if he

solicits clients or professional work either directly or indirectly by circulars, advertisements, personal
communication, interviews or by any other means.
This clause does not prohibit: CAs from seeking work from other CAs in practice; or responding to
tenders or professional enquiries
ICAI Guidelines Summary
Tendering Guidelines
CAs cannot respond to tenders for services exclusively reserved for CAs (e.g., audit, attestation services).
Exception: CAs can respond where: A minimum fee is prescribed in the tender document and the work is
open to other professionals along with CAsMaintain cost sheets for tender expenses.
Security Deposit / Earnest Money Deposit – Allowed. Ethical standard board will review exorbitant cases.
Advertising of Coaching & Teaching Activities:
Prohibits direct advertisements for coaching activities by CAs in practice by hoardings, posters, banners,
and by any indirect advertising.
Allowed: A simple signboard outside the coaching premises with the name, contact details, and subjects
taught.
Advertising Restrictions:
CAs cannot advertise or personally canvass
Exceptions: Requesting work from another CA
Announcing partnership changes, address updates, telephone number (factual, limited distribution)
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Classified ads in Institute's journal for work/partnership (basic details only)
Empanelment for Audit Work:
Can request inclusion in government panels
No roving inquiries
Can quote fees on direct enquiries
Publications and Presentations:
Can use "CA" designation and firm name.
Cannot mention professional attainments.
Greetings and Invitations:
Only to clients, relatives and friends of the members concerned.
Professional designation, status, and qualifications etc - Not allowed.
Firm Celebrations:
Advertising allowed for silver, golden, diamond, platinum, centenary events
Publish in newspaper or newsletter
CA Firm Website Guidelines Summary
General Principles:
No prescribed format
"Pull" model, not "push" model
No circulation of information except on specific "pull" request
No solicitation to visit website
Website address can be on professional stationery and email Passport-style photographs allowed
Articles, professional updates, bulletin boards permitted
Educational videos on professional topics allowed
Document management for clients (with login)
Online advice to clients (free or paid)
Use "CA" and firm name allowed Allowed for ICAI Sponsorship: (Continuing Professional Education)
Directorate approval.
For CSR, use individual name with "CA" prefix (no firm name or logo)
Programme Organizing Unit events with CPE
Firm Profile:
Share only in response to specific client query
Media Credits:
Ensure name presentation matches other entries in the credits.
Representation under Companies Act:
No implied right to continue as auditor
Avoid publicity or solicitation
Focus on independent and conscientious work and may indicate willingness to continue as auditor.
Client Referrals:
Direct client work should be routed through the introducing member
Public Interviews:
Avoid publicity
Give factual responses only
Box Number Advertisements:
Prohibited for soliciting clients or work
Educational Videos:
No reference to CA firm
No contact details or website address
Permitted Information:
Firm name, establishment year, contact details
Nature of services (on "pull" request
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Partner details (name, qualifications, contact, experience (on pull request))
Employee details (name, designation, experience (on pull request))
Job vacancies (including articleship)
Number of articled assistants (on "pull" request)
Nature of assignments (on "pull" request)
Client Information:
Names and fees generally not allowed
Exception: When mandated by regulator (with specific note- stating it is per the regulator's requirement,
specifying the regulator, jurisdiction, and rule/directive.
Design and Content:
Should not solicit clients or work
Ensure client confidentiality
Content should benefit CA profession
May link to ICAI, government, regulatory bodies
Website Address:
Should be close to firm/individual name
Not amount to solicitation or advertisement
Ethical Standards Board to resolve difficulties

Information Accuracy:
Should not materially vary from ICAI record.

Clause (7): he advertises his professional attainments or services, or uses any designation or expressions
other than that of a Chartered Accountant on professional documents, visiting cards, letterheads, or
signboards unless it be a degree of a University established by law in India or recognized by the Central
Government or a title indicating membership of the Institute of Chartered Accountants or of any other
institution that has been recognized by the Central Government or may be recognized by the Council.
Purpose
Aligned with Section 7 of the Chartered Accountants Act, 1949, this restriction:
 Prevents advertising & misuse of designations to uphold professional dignity.
 Ensures fair practice by prohibiting overt or indirect self-promotion.
 Maintains independence & credibility to earn client respect based on merit.
 Clarifies professional identity without undue influence or unfair advantage.
Key Restrictions
Prohibition on Advertising:
 CAs cannot advertise their skills, qualifications, or services.
 Restrictions apply to circulars, ads, personal communication, interviews, or indirect solicitation.
Restriction on Designations:
 Practicing CAs must use only “Chartered Accountant” on professional documents, visiting cards,
letterheads, and signboards.

Permitted Exceptions & Conditions

Exception Conditions
University CAs may use degrees from universities established by law in India or recognized by the
Degrees Central Government.
Membership Members can use "CA" and titles from recognized institutions, including foreign
Titles accountancy bodies under MoU/MRA (e.g., A.C.M.A., F.C.M.A., Insolvency
Professional).
Write-up for CAs can advertise their services through a write-up, but it must comply with ICAI
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Services guidelines to maintain professional dignity.
Listing Partner A member being a partner in multiple firms can print the names of all firms on
Firms personal letterheads.
Website Posting firm details online is allowed but must follow ICAI’s website guidelines (e.g., no
Information flashy colors, client names, or fee disclosures).
Signboards for CAs engaged in coaching can display name, contact details, and subjects taught, but
Coaching not advertise via banners, hoardings, or posters.
Use of Prefix “CA” Allowed for all ICAI members (whether in practice or not), but firms may use
“Chartered Accountant” only on professional documents.
Prohibited Practices
Violation Example
Advertising Professional Using circulars, ads, interviews, or personal communication to attract
Achievements clients.
Use of Additional Listing "Tax Consultant" alongside "Chartered Accountant" on a visiting
Designations card.
Promotional Publicity Publishing a firm’s vision/mission statement on letterheads, visiting cards,
or stationery.
Publicizing Firm Providing firm details & achievements during a TV interview bio-data.
Achievements
Direct or Indirect Publishing advertisements with photos for office openings.
Solicitation
Improper Firm Name Usage Using "Chartered Accountant" on non-professional documents.
Mentioning Other Positions CAs cannot mention their roles in companies, political parties, clubs, or
other organizations to promote their practice.
Publishing Books/Articles No mention of firm affiliation in books/articles to avoid indirect solicitation.
Press Notices Announcing exam success should not include advertising elements.
Handing Over Bio-data Sharing detailed firm info during a TV or media interview (if read out
publicly, it’s solicitation).

Clause (7) of Part I of the First Schedule aligns with Section 7 of the Chartered Accountants Act, 1949,
which:
Restricts practicing CAs from using any designation other than "Chartered Accountant."
Prohibits additional or substitute descriptions alongside "Chartered Accountant."
Allows non-practicing members to use other descriptions if they do not claim to be a CA.
Permits practicing CAs to use titles indicating membership in recognized accountancy institutes or other
qualifications.

Clause (8): A Chartered Accountant in practice is deemed to be guilty of professional misconduct if he

accepts a position as an auditor previously held by another Chartered Accountant or a Certified Auditor
(under the Restricted Certificate Rules, 1932) without first communicating with him in writing.
Purpose:
Ensures ethical conduct by preventing unjustified auditor changes, misleading financial statements, and
misuse of auditor rotation. Safeguards auditor independence by avoiding undue pressure to overlook fraud
or misstatements.
Professional Reasons for Not Accepting an Audit:
1. Non-compliance with Sections 139 & 140 of the Companies Act, 2013
 If the previous auditor’s appointment or removal was not legally compliant, the new auditor must
refuse the engagement.
2. Non-payment of Undisputed Audit Fees

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 A new auditor cannot accept an appointment if statutory audit fees of the previous auditor remain
unpaid.
 Exception: Not applicable to sick units (negative net worth for at least five years).
3. Qualified Report by Previous Auditor
 If the outgoing auditor issued a qualified report due to misstatements or fraud, the new auditor must
assess the concerns before accepting.
 If concerns were valid, the engagement should be declined.

Communication with the Retiring Auditor:

 The incoming auditor must communicate with the outgoing auditor before acceptance.
 Acceptable Communication Methods:
o Registered post with acknowledgment due
o Hand delivery with written acknowledgment
o Email to ICAI-registered ID
o UDIN-based communication (per ICAI guidelines)
 If no response is received within a reasonable time, the new auditor may proceed.

Special Cases in Communication:

Premises Locked: If communication is returned with "Office found locked" on the acknowledgment slip, it
is deemed delivered.

Incorrect Registered Address: If returned with "No such office exists at this address," the letter is deemed
delivered unless the retiring auditor proves non-service.
The incoming auditor should coordinate with the outgoing auditor to maintain professional ethics.

Special Cases:
Government Audits: If time constraints exist (e.g., PSU/bank audits), the new auditor may conditionally
accept the appointment and clarify that it is subject to professional objections.
Special Audit under the Income Tax Act, 1961: Coordination with the statutory auditor is advisable.
Other Professionals Handling the Previous Engagement: Communication is not mandatory but is
considered good practice.
Applicable to All Types of Audits: Includes statutory audit, tax audit, GST audit, internal audit, concurrent
audit, etc.

Clause (9): A Chartered Accountant in practice shall be deemed to be guilty of professional misconduct if he
accepts an appointment as an auditor of a company without first ascertaining whether the requirements of
Sections 139 and 140 of the Companies Act, 2013, have been duly complied with.

Legal and Ethical Considerations Before Accepting an Audit Appointment

Aspect Details
Legal Compliance Before - Ensure compliance with Sections 139 & 140 of the Companies Act, 2013. -
Accepting Appointment Verify if the removal or resignation of the previous auditor was legally valid
before accepting the appointment.
Section 139 – - Board of Directors must appoint the first auditor within 30 days of
Appointment of Auditors incorporation (Section 139(6)). - If the Board fails, the members must appoint
the auditor in the first AGM (Section 139(7)). - Ensure that the general
meeting notice for appointment was properly issued and the resolution was
validly passed. - Verify if the Board filled a casual vacancy through a valid
resolution. - If vacancy arose due to resignation, confirm that members
21
 approved the appointment within 3 months (Section 139(8)).
Section 140 – Removal - Removal of an auditor before the expiry of tenure requires prior approval
and Resignation of from the Central Government (Section 140(1)). - A special resolution must be
Auditors passed in a general meeting for removal. - If an auditor resigned, verify that the
auditor filed a statement of resignation with the company and ROC.
Compliance with Section - Confirm that a special notice for removal was sent not earlier than 3 months
140(4) – Special Notice but at least 14 days before the general meeting. - Ensure the company sent a
Requirements copy of the special notice to all members at least 7 days before the meeting
(as per Section 115). - Verify that the special notice was sent to the retiring
auditor. - Ensure that any representation from the retiring auditor was sent to
the members. - Verify that the retiring auditor’s objections were properly
considered in the general meeting before passing the resolution.
Modes of Sending - Registered Post / Speed Post / Courier to the auditor’s registered address. -
Notices to the Outgoing Hand delivery with acknowledgment. - Electronic means (email) if applicable.
Auditor - If the outgoing auditor did not receive proper notice, the appointment may
be legally challenged later.
Verifications Before - Ensure that the outgoing auditor’s undisputed audit fees are paid. -
Accepting Appointment Exception: If the company is a sick unit, non-payment of fees may be
acceptable. - Accepting an audit without clearing past audit fees constitutes
professional misconduct under ICAI guidelines.
Professional Reasons for - Non-compliance with Sections 139 & 140 of the Companies Act. - If the
Not Accepting the Audit previous auditor’s appointment or removal was not done legally. - If the
outgoing auditor issued a qualified report due to fraud, misstatements, or
regulatory non-compliance. - If the company has a history of deliberately
rotating auditors to evade scrutiny.
Documentary Evidence The incoming auditor must maintain proof of: - Proper notice, resolutions, and
of Compliance approvals. - Communication with the previous auditor. - Clearance of audit
fees.
Communication with the - The incoming auditor must communicate with the previous auditor before
Retiring Auditor accepting the appointment. - This ensures there are no professional reasons
that would prevent acceptance. - The communication must be verifiable—a
mere certificate of posting is not sufficient proof.
Acceptable Methods of - Registered post with acknowledgment due. - Hand delivery with written
Communication acknowledgment. - Email to the auditor’s registered ICAI email. - UDIN-based
communication as per ICAI guidelines.
Premises Found Locked / - If the communication is returned as "Office found Locked", it is deemed
Firm Not Found at delivered. - If returned with "No such office exists", it is deemed delivered only
Registered Address if the address matched ICAI records. - If the outgoing auditor proves non-
service, the delivery is not valid.
Special Audit under the - If a CA is appointed for a special audit under the IT Act, they should
Income Tax Act, 1961 communicate with the statutory auditor to maintain professional coordination.
Communication The requirement to communicate with the previous auditor applies to: -
Requirement for All Statutory Audits - Tax Audits - GST Audits - Internal Audits - Concurrent
Types of Audits Audits - Other Audits
Assignments Previously - If the prior assignment was done by a non-CA professional, communication is
Handled by Non-CAs not mandatory but considered good practice.
Lack of Time in - If the appointment is made at the last moment, and there is no time to wait
Government Audits for a reply from the previous auditor: - The new auditor may accept the
appointment conditionally. - Work can begin after sending communication. -
The appointment letter should state acceptance is subject to objections from
22
 the previous auditor.
Actions to Avoid - Do not accept an appointment if proper notice or statutory approvals are
missing. - Do not rely solely on a management certificate—verify the
company’s official records. - Do not ignore pending audit fees, except for sick
units. - Do not accept an audit if the previous auditor was removed
unjustifiably.
Role of the Ethical - Examines cases of unjustified removal to safeguard auditor independence. -
Standards Board (ESB) Reviews complaints and reports to the ICAI Council for further action. -
Investigates removals by government agencies or regulators.
Outgoing Auditor’s - Must send a written resignation to the Board of Directors, stating reasons. - If
Communication resignation involves professional concerns (e.g., fraud, irregularities), a copy
Requirements must be sent to ICAI. - The incoming auditor must obtain and review this
communication before accepting the appointment.
Steps If an Auditor Was - The outgoing auditor must file a statement with ICAI explaining non-
Not Reappointed reappointment. - If this statement was sent to members, a copy must also be
submitted to ICAI. - The incoming auditor must review this before accepting
the appointment.
ESB Actions in Case of - Requests additional information from the outgoing/incoming auditor and
Unjustified Removal company. - Determines whether the removal was justified or violated ethical
standards. - Reports to the ICAI Council, which may recommend disciplinary
action.
Possible ICAI Actions for - Direct the incoming auditor to refuse the appointment. - Blacklist the
Violations company from appointing another CA until compliance is met. - Initiate
disciplinary action against CAs involved in unethical removals.

Clause (10): A Chartered Accountant in practice shall be deemed to be guilty of professional misconduct if:
he charges or offers to charge, accepts or offers to accept in respect of any professional employment fees
which are: based on a percentage of profits, or Contingent upon the findings or results of such
employment, except as permitted under any regulations made under this Act.
Regulation 192 – Restriction on Fees
As per Regulation 192 of the Chartered Accountants Regulations, 1988, a Chartered Accountant in
practice is prohibited from charging or accepting fees based on a percentage of profits or fees contingent
upon the findings or results of any professional work. This restriction is in place to uphold professional
independence, objectivity, and ethical standards.
However, certain exceptions allow a Chartered Accountant to charge percentage-based or contingent fees
in specific cases, as permitted by the ICAI Council:
1. Receiver or Liquidator – Fees may be based on a percentage of realization or disbursement of assets.
2. Auditor of a Co-operative Society – Fees may be based on a percentage of paid-up capital, working
capital, gross or net income, or profits.
3. Valuer for Direct Taxes and Duties – Fees may be based on a percentage of the value of the property
being valued.
4. Management Consultancy Services – Fees may be based on a percentage or contingent upon the
findings/results.
5. Fund Raising Services – Fees may be based on a percentage of funds raised.
6. Debt Recovery Services – Fees may be based on a percentage of the debt recovered.
7. Cost Optimisation Services – Fees may be based on a percentage of the benefit derived.
8. Other Services Permitted by the Council, including:
o Acting as an Insolvency Professional.
o Providing Non-Assurance Services to Non-Audit Clients.

23
These exceptions are specifically provided to allow flexibility in areas where performance-based
compensation is customary and does not impact professional independence. Any fees outside these
permitted areas must strictly comply with Regulation 192 to avoid professional misconduct.

Clause (11): A Chartered Accountant in practice shall be deemed to be guilty of professional misconduct if
he engages in any business or occupation other than the profession of Chartered Accountant, unless
permitted by the Council.
Note: He can be a director (Not MD or WTD} but he or his partner must not be the interested in the
company.
Independence of Auditors
An auditor of a subsidiary company cannot be a director in the holding company to ensure independence
and avoid conflicts of interest. Chartered Accountants must interpret independence requirements strictly
and should not place themselves in positions that compromise or jeopardize their independence.
Independence is a condition of both mind and personal character.

Regulation 190A – Permissible Activities for Chartered Accountants

General Permission
Category Permitted Activities Limitations
Employment Under a practicing CA or CA firm No restrictions
Private Tutorship Teaching in an individual capacity Max 25 teaching hours
per week
Part-time Tutorship Under ICAI’s coaching organization Allowed
Authorship of Books & Articles Writing professional or general No restrictions
books, contributing to journals
Editorship of Professional Journals Editing journals related to No restrictions
Chartered Accountancy and
Finance
Attending Classes & Appearing for Pursuing further education No restrictions
Examinations
Valuation of Examination Papers Acting as a paper-setter, head- No restrictions
examiner, or moderator
Holding Public Elective Offices Serving as MP, MLA, MLC, or No restrictions
similar positions
Honorary Office in Charitable, Educational, Includes roles such as trustee, No remuneration
or Non-Commercial Organizations treasurer, leadership positions should be received

Acting as Notary Public, Justice of the Permitted No restrictions

Peace, Special Executive Magistrate, etc.
Surveyor and Loss Assessor under the Allowed if otherwise eligible Subject to applicable
Insurance Act, 1938 laws
Recovery Consultant in the Banking Sector Allowed No restrictions

Holding a Life Insurance Agency License Only for renewal commission, not No new business
for active agency work solicitation
Owning Agricultural Land & Agricultural Permitted No restrictions
Activities

Specific Permission Required from ICAI (Prior Approval Mandatory)

24
Category Requires ICAI Approval Conditions
Employment in Business Full-time or part-time employment in Allowed only if the CA &
Concerns business concerns relatives do not hold
"substantial interest"
Employment in Non-Business Full-time or part-time employment Requires ICAI approval
Concerns
Managing Director (MD) or Allowed only if engaged exclusively in The company must register
Whole-Time Director (WTD) in a Management Consultancy & Other with ICAI and obtain name
Body Corporate Services (MCOS) approval
Interest in Family Business If ownership is inherited, devolved, or Requires declaration &
Concerns acquired, and the CA does not actively supporting documents
manage the business
Interest in an Educational Holding interest in an educational ICAI approval required
Institution institution
Part-time or Full-time If the teaching is not related to ICAI’s ICAI approval required
Lectureship courses
Part-time or Full-time Tutorship If under any educational institution ICAI approval required
other than ICAI’s coaching organization
Editorship of Non-Professional If editing journals not related to ICAI approval required
Journals Chartered Accountancy or Finance
Engaging in Any Other Business If not explicitly covered under general Allowed only if approved by
or Occupation permission ICAI’s Executive Committee

All unlisted business or employment activities must receive explicit ICAI approval before engagement.

Clause (12): A Chartered Accountant in practice shall be deemed guilty of professional misconduct if he
allows a person not being a member of the Institute in practice or a member not being his partner to sign
on his behalf or on behalf of his firm, any balance sheet, profit and loss account, report, or financial
statements.
Section 26 of the Chartered Accountants Act, 1949
 No person other than a member of ICAI shall sign any document on behalf of a Chartered Accountant
in practice or a firm of Chartered Accountants in its professional capacity.
 Only a qualified CA in practice can express a professional opinion on financial or non-financial matters.
 Financial Statements (FS) and Reports that are meant for final submission to external authorities must
be signed by a Chartered Accountant only.
Permissible Delegation of Routine Tasks (Non-Professional Opinion Matters)
The Council has clarified that certain routine activities not involving professional opinion or authentication
may be delegated to staff members. These include:
Category Tasks That Can Be Delegated
Audit Queries & Information Requests - Issuing audit queries during an audit.
- Asking for information or issuing questionnaires.
Drafting & Preliminary Communication - Forwarding draft observations/financial statements.
- Routine correspondence with clients.
Administrative & Internal Audit Work - Stamping vouchers and schedules prepared for audit.
- Issuing memoranda for cash verification and physical
verifications.
- Acknowledging receipt of records from clients.
Billing & Payments - Raising bills and issuing acknowledgements for payments.
Tax Matters (Subject to Section 288 of the - Attending to routine tax matters that do not require

25
Income Tax Act, 1961) professional judgment or certification.

Restriction on Signing Professional Reports

 Any report requiring a professional opinion or authentication (such as audit reports, certifications, and
attestation engagements) must be signed by a Chartered Accountant.
 Delegation of signing rights in professional matters is strictly prohibited.
This ensures professional integrity, accountability, and compliance with legal requirements under Section
26 of the CA Act, 1949.

Part II of the First Schedule of the Chartered Accountants Act, 1949

Clause (1): A member of the Institute (other than a member in practice) shall be deemed guilty of
professional misconduct if he, being an employee of any company, firm, or person, pays or allows or
agrees to pay directly or indirectly to any person any share in the emoluments of the employment
undertaken by him.
Prohibition on Sharing Salary or Emoluments
Members in service (employees) are prohibited from sharing their salary or emoluments with another
person as a consideration for securing or retaining employment.
Objective: To uphold professional dignity by ensuring employment is based on merit and competence, not
financial inducements.
Exceptions: This restriction does not apply to voluntary financial support among relatives, dependents, or
friends, provided:
 It is not linked to procuring or retaining employment.
 It is not a consideration for securing the job.

Clause (2): A member of the Institute (other than a member in practice) shall be deemed guilty of
professional misconduct if he accepts or agrees to accept any part of fees, profits, or gains from a lawyer,
a Chartered Accountant, a broker engaged by such company, firm, or person, or from an agent or
customer of such company, firm, or person, by way of commission or gratification.
Prohibition on Receiving Payments from Third Parties
A Chartered Accountant in employment is prohibited from accepting any form of payment, whether direct
or indirect, from agents, customers, or any third party dealing with their employer.
Purpose: To ensure professional integrity and independence, preventing conflicts of interest that may
arise from receiving undisclosed financial benefits. This clause upholds ethical standards and avoids
situations where financial incentives could influence professional duties.
Scope of Prohibition
 Applies to both direct and indirect payments, regardless of the nature or intent.
 Covers gifts, incentives, commissions, or any other financial benefits received in a professional
capacity.
Exceptions
 Regular salary, bonuses, or employer-approved incentives are not restricted under this clause.
 This restriction does not apply to payments among relatives, dependents, or friends, provided that:
o There is no connection between the payment and securing or retaining employment.
o The payment is not a consideration for obtaining a job.

Part III of the First Schedule of the Chartered Accountants Act, 1949

Clause (1): A member of the Institute, whether in practice or not, shall be deemed to be guilty of
professional misconduct if he not being a fellow of the Institute, acts as a fellow of the Institute.
A member of the Institute is classified into
An associate member is one whose name is entered in the Register of Members of the Institute.
26
A fellow member is one who has been an associate for at least five years and meets additional prescribed
qualifications.
The distinction between ACA and FCA is important as fellows are presumed to have greater experience.

Clause (2): A member of the Institute, whether in practice or not, shall be deemed to be guilty of
professional misconduct if he does not supply the information called for, or does not comply with the
requirements asked for, by the:
Institute, Council, or any of its Committees, Director (Discipline), Board of Discipline, Disciplinary
Committee, Quality Review Board, or the Appellate Authority.
Hint: {does not supply, does not comply| ICC |DD, BC, DC, QRB, AA}
This clause mandates compliance with requests for information made by ICAI authorities. It applies to all
members of the Institute.
The information must be supplied in the format and within the timeline prescribed by the authority
making the request. (Fundamental principles breached: Professional Behaviour & due care)

Clause (3) : A member of the Institute of Chartered Accountants of India (ICAI), whether in practice or not,
shall be deemed to be guilty of professional misconduct if: while inviting professional work from another
Chartered Accountant or while responding to tenders or enquiries or while advertising through a write-
up, or anything as provided for in items (6) and (7) of Part I of this Schedule, gives information knowing it
to be false.
The clause prohibits a CA from providing false information in any form while:
Inviting professional work from another CA.
Responding to tenders or enquiries.
Advertising through a write-up.
Engaging in any means of solicitation as mentioned under items (6) and (7) of Part I of the First Schedule.
The intentional act of supplying false information leads to professional misconduct under this clause.

Part IV of the First Schedule of the Chartered Accountants Act, 1949

Clause (1): A member of the Institute of Chartered Accountants of India (ICAI), whether in practice or not,
shall be deemed to be guilty of other misconduct if he is held guilty by any civil or criminal court for an
offence which is punishable with imprisonment for a term not exceeding six months.
This clause applies to any member, irrespective of whether the misconduct is related to professional work
or not.

Clause (2): A member of the Institute of Chartered Accountants of India (ICAI), whether in practice or not,
shall be deemed to be guilty of other misconduct if in the opinion of the Council, if a member brings
disrepute to the profession or the Institute as a result of his action, whether or not related to his
professional work.

Part I of the Second Schedule of the Chartered Accountants Act, 1949

A Chartered Accountant in practice shall be deemed to be guilty of professional misconduct if he:
Clause (1): Discloses information/ acquired in the course of his professional engagement/ to any person
other than his client so engaging him/ without the consent of his client/ or otherwise than as required by
any law for the time being in force.
Purpose: This duty of confidentiality continues even after the completion of the assignment, except when
disclosure is necessary for the performance of professional duties or when mandated by law.

27
Clause (2): Certifies or submits in his name or in the name of his firm, a report of an examination of
financial statements unless the examination of such statements and the related records has been/made
by him /or by a partner/ or an employee in his firm /or by another chartered accountant in practice .
Purpose: This ensures that the member directly or under their supervision carries out the work before
issuing a report. (Professional competency and due care). applies to all certifications. {employee of the
firm/can be a semi qualified CA}

Clause (3): Permits his name or the name of his firm to be used in connection with an estimate of
earnings contingent upon future transactions in a manner which may lead to the belief that he vouches
for the accuracy of the forecast.
Purpose: To prevent CAs from lending their credibility to financial forecasts in a way that suggests they
guarantee the accuracy of those forecasts. {SAE 3400: Examination of PFI | source, basis, assumption, and
clear declaration of does not vouch for the accuracy of the forecast}

Clause (4): Expresses his opinion on financial statements of any business or enterprise in which he, his
firm, or a partner in his firm has a substantial interest.
Purpose: To ensure auditor independence and objectivity, preventing conflicts of interest that could
compromise professional judgment and integrity. Maintaining public trust and confidence in financial
reporting is paramount.
Exception: Does not apply to internal statements prepared by employed members solely for their
employer’s use, provided they are not intended for external submission.

Council’s Guidelines and Clarifications on Auditor Independence

Guideline Clarification
Applicability to Attest Clause applies to all types of attest functions, including Tax Audit, GST
Functions Audit, Concurrent Audit of Banks, and other statutory audits. The principle
of independence is critical across all engagements.
Director Simplicitor Even if a CA has general permission to be a Director (Simplicitor) in a
company, the Council prohibits such a member from auditing that company,
irrespective of whether they hold a substantial interest.
Whole-Time or Managing A CA who has obtained specific permission from the Council to act as a
Director Whole-Time or Managing Director cannot perform attest functions
(including audits) or hold a substantial interest in that company.
Independence Principle in Even though Section 141 of the Companies Act, 2013 applies only to
Other Audits company audits (prohibiting officers and employees from being auditors),
the principle of independence of mind applies equally to all other audits,
such as Tax Audits and GST Audits.
Definition of Financial FS includes reports and certificates that are issued after examination of
Statements (FS) for accounts or statutory enactments (e.g., Income Tax Assessments).
Independence However, this does not apply to internal reports prepared by employed
Consideration members for internal use within their organization.
Partner’s Interest under Section 141(3)(d)(i) of the Companies Act, 2013 prohibits an auditor’s
Companies Act appointment if they, their relative, or their partner holds any security or
financial interest in the company, its subsidiary, holding company, or fellow
subsidiary.
Threshold for Relative’s - If the relative’s security in a company is ₹1,00,000 or below (FV) – No
Financial Interest disqualification.
- If the security value exceeds ₹1,00,000, the auditor must rectify the
violation within 60 days.
- If the relative’s financial interest in a company is ₹1,00,000 - auditor
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 guilty under Clause 4.
Cross-Reference to Clause Clause 11 of the First Schedule deals with a CA in practice engaging in other
11 (First Schedule) businesses and is closely linked to Clause 4, reinforcing the principle of
substantial interest.
Examples of Restrictions - A CA cannot accept an audit of a college if they are working as a part-time
lecturer at the same institution.
- A CA cannot accept an audit of a trust if their partner is an employee or
trustee of that trust.

Clause (5): Fails to disclose a material fact known to him, which is not disclosed in a financial statement
but disclosure of which is necessary to make the financial statements not misleading, where he is
concerned with that financial statement in a professional capacity.

Clause (6): Fails to report a material misstatement known to him to appear in a financial statement with
which he is concerned in a professional capacity. Materiality is a key consideration in determining
misconduct under this clause.

Clause (7): Does not exercise due diligence or is grossly negligent in the conduct of his professional
duties. This can include certifying figures without proper examination or failing to obtain sufficient
information.

Clause (8): Fails to obtain sufficient information which is necessary for the expression of an opinion or its
exceptions are sufficiently material to negate the expression of an opinion.

Clause (9): Fails to invite attention to any material departure from the generally accepted procedure of
audit applicable to the circumstances. The audit should be performed following generally accepted audit
procedures, and any material departures should be reported

Clause (10): Fails to keep moneys of his client in a separate bank account or to use such moneys for the
purposes for which they are intended. This applies when a member in their professional capacity is
entrusted with clients' funds.

Part II of the Second Schedule of the Chartered Accountants Act, 1949

Clause (1): Contravenes any of the provisions of this Act or the regulations made there under or any
guidelines issued by the Council.
For instance, a practicing Chartered Accountant failing to maintain a record of tax audit assignments
accepted in the prescribed format by the Council would be a contravention of the guidelines issued by the
Council and would constitute professional misconduct under this clause.
Another example would be a member in practice engaging in a business or occupation other than the
profession of accountancy without obtaining the specific permission of the Council, as per Regulation
190A and related Council resolutions. In the case of CA Moksh, who was engaged in the occupation of
editorship of journals other than professional journals without specific permission, he would be deemed
guilty of professional misconduct under Clause (11) of Part I of the First Schedule, which is related to
engaging in other businesses without permission, highlighting the importance of adhering to Council
permissions. This principle of needing permission extends to various engagements outside the profession.

Clause (2): Being an employee of any company, firm or person, discloses confidential information
acquired in the course of his employment except as and when required by any law for the time being in
force or except as permitted by the employer.

29
Consider a scenario where a Chartered Accountant working as an internal auditor of a company shares
sensitive financial projections with a competitor without the employer's consent or a legal obligation to
do so. This would be a direct breach of confidentiality and an act of professional misconduct. Even after the
employment ends, the accountant must continue to comply with the principle of confidentiality and not
disclose any confidential information acquired during that relationship.
Clause (3): Includes in any information, statement, return or form to be submitted to the Institute,
Council or any of its Committees, Director (Discipline), Board of Discipline. Disciplinary Committee,
Quality Review Board or the Appellate Authority any particulars knowing them to be false.
An example of this could be a member submitting a false declaration regarding their qualifications or
experience to the Institute while applying for a specific empanelment or for fellowship . If the member
knowingly provides incorrect details, it would constitute professional misconduct under this clause.
Similarly, falsely stating partnership status when applying for fellowship of the Institute would also be a
violation, as mentioned in our previous discussion.

Clause (4): Defalcates or embezzles money received in his professional capacity.

A clear example of this would be a Chartered Accountant who receives fees from a client for professional
services but misappropriates those funds for personal use instead of depositing them in the firm's
account. This act of embezzlement of client money received in a professional capacity is a serious breach of
trust and constitutes professional misconduct under this clause.
As we discussed before, if the Director (Discipline) believes a member has committed any professional or
other misconduct mentioned in the Second Schedule or both Schedules, the matter will be referred to the
Disciplinary Committee.

Part III of the Second Schedule of the Chartered Accountants Act, 1949

Clause 1 of Part III of the Second Schedule states that a member of the Institute, whether in practice or
not, shall be deemed to be guilty of other misconduct if he is held guilty by any civil or criminal court for
an offence which is punishable with imprisonment for a term exceeding six months.
This clause focuses on convictions in civil or criminal courts for offenses that carry a significant term of
imprisonment. The key aspect here is the duration of the imprisonment, which must exceed six months
for this clause to be applicable.
Important Points:
1. Whether in Practice or Not: This provision applies to all members of the Institute, regardless of
whether they are actively practicing as Chartered Accountants or are employed or otherwise occupied.
2. Nature of the Offence: The clause does not explicitly state that the offence must be related to
professional work. Therefore, a conviction in a civil or criminal court for any offense punishable by
imprisonment exceeding six months can lead to disciplinary action under this clause.
3. Distinction from Part IV of First Schedule: It's important to differentiate this from Clause (1) of Part IV
of the First Schedule, which deals with being found guilty by a civil or criminal court for an offence
punishable with imprisonment for a term not exceeding six months. If the imprisonment term is six
months or less, it falls under "other misconduct" in the First Schedule, and if it exceeds six months, it
falls under "other misconduct" in the Second Schedule.
4. Major Offence: Imprisonment awarded for a term exceeding six months in any civil/criminal matter is
treated as a major offence under ‘other misconduct’ and is included in this Schedule.
5. Disciplinary Action: If the Director (Discipline) is of the opinion that a member is guilty of such
misconduct, the matter will be placed before the Disciplinary Committee. The Disciplinary Committee
has the authority to take disciplinary action against the member based on the findings.

Council General Guidelines

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Independence of auditor:
 Judgement of a person should not be subordinate to the wishes or direction of another person specifically who
have engaged him or to his own self-interest.
 Ability to form an opinion w/o being affected by any influence.
 Ability to Act with Integrity, Objectivity, Professional skepticism
 Not possible to define precisely
 Rules are framed with objectives, cannot ensure independence.
 Independence is a condition of mind and appearance.

Here is a collated response incorporating the topics previously identified as left off and drawing on
information from the new source:
Here are some of the ethical guidelines and clarifications provided by the Council of the Institute of
Chartered Accountants of India (ICAI) that were previously noted as being discussed within the chapter on
"PROFESSIONAL ETHICS & LIABILITIES OF AUDITORS" but not necessarily structured as part of the named
chapters of the "Council General Guidelines, 2008" [various].
 Guidelines on Mentioning Qualifications:
o Members are permitted to mention membership of a foreign Institute of Accountancy, which
has been recognized by the Council through a Memorandum of Understanding (MoU) /
Mutual Recognition Agreement (MRA) with the said Institute.
o With regard to other qualifications of a member, the observations of the Supreme Court in
Institute of Chartered Financial Analyst of India (ICFAI) vs Council of the Institute of Chartered
Accountants of India (ICAI) are relevant.
 Guidelines on Earnest Money Deposit (EMD)/Security Deposit: The Council is of the view that
while interference with the practices prevailing for requirement of EMD/Deposit is not required, the
Ethical Standards Board may look into the matter on a case-to-case basis upon receiving a
complaint/instance of exorbitant EMD/Deposit. In respect of a non-exclusive area in a tender (other
than audit), members are permitted to pay a reasonable amount towards earnest money/security
deposits. Members responding to tenders should maintain a cost sheet detailing the costs incurred.
 Guidelines on Publications, Articles, and Presentations: It is not permissible for a member to
mention in a book or an article published by him, or a presentation made by him, any professional
attainment(s), whether of the member or the firm of chartered accountants. However, he may
indicate in a book, article, or presentation the designation “Chartered Accountant” as well as the
name of the firm.
 Guidelines on Greeting Cards and Invitations: The Council does not approve of the issue of greeting
cards or personal invitations by members indicating their professional designation, status, and
qualifications. However, the designation “Chartered Accountant” as well as the name of the firm
may be used in greeting cards and invitations for marriages, religious ceremonies,
opening/inauguration of office, change in office premises, and change in telephone numbers,
provided they are sent only to clients, relatives, and friends.
 Guidelines on Accepting Work Introduced by Another Member: The Council has decided that a
member should not accept the original professional work emanating from a client introduced to
him by another member. If any professional work of such a client comes to him directly, it should be
his duty to ask the client to go through the other member dealing generally with their original work.
 Guidelines for Empanelment for Allotment of Audit Work: Government departments, government
companies/corporations, courts, co-operative societies, banks, and other similar institutions
prepare panels of chartered accountants for allotment of audit and other professional work. Where
the existence of such a panel is known to a member, they are free to write to the concerned
organization to place their name on the panel. However, making roving inquiries by applying to any

31
 such organization for inclusion in any such panel is not proper. It is permissible to quote fees on
inquiries received from such bodies that maintain such panels.
 Guidelines for Mentioning "Insolvency Professional": A Chartered Accountant empaneled as IP
(Insolvency Professional) can mention “Insolvency Professional” on their visiting cards, letterheads,
and other communication, as this is a title recognized by the Central Government.
 Guidelines on Communication with the Previous Auditor:
o Clause (8) of Part I of the First Schedule to the Chartered Accountants Act, 1949 states that
accepting a position as auditor previously held by another chartered accountant without
first communicating with them in writing is professional misconduct. This requirement
applies to all types of audits where the previous auditor was a Chartered Accountant in
practice, including Statutory Audit, Tax Audit, GST Audit, Internal Audit, and Concurrent
Audit.
o The object of this communication is for the incoming auditor to ascertain whether there are
any circumstances that warrant them not to accept the appointment, such as a qualified
report or the previous auditor wishing not to continue due to issues with the business
administration. The retiring auditor may provide information about the condition of
accounts or reasons for qualifying their report. The incoming auditor must carefully consider
this information before accepting the audit.
o Members should communicate in a manner that provides positive evidence of delivery, such
as registered post with acknowledgement due, by hand with acknowledgement, or via email
registered with the Institute or the last known official email address. A mere posting under a
certificate of posting is insufficient without proof of receipt.
o If communication is returned marked "Office found Locked" at the registered address, it is
deemed delivered. Similarly, if returned with "No such office exists," it's deemed delivered
unless the retiring auditor proves non-service was not their responsibility.
o In the case of government audits with tight deadlines, conditional acceptance is permitted
after sending communication to the previous auditor, with the client informed that final
acceptance is subject to any professional objections.
 Guidelines Related to Taking Over Audit Assignments:
o Clause (9) of Part I of the First Schedule to the Chartered Accountants Act, 1949, states that
a member in practice is guilty of professional misconduct if they accept an appointment as
auditor of a company without first ascertaining from it whether the requirements of Section
225 of the Companies Act, 1956 (now Sections 139 and 140 of the Companies Act, 2013),
regarding such appointment have been duly complied with.
o The incoming auditor needs to ascertain compliance with Sections 139 and 140 by verifying
relevant company records, not just accepting management's certificate. This includes
verifying special notices, their communication to members and the retiring auditor, receipt
and consideration of the retiring auditor's representation, and the passing of the resolution
at the general meeting. A copy of the relevant minutes should be obtained. If the company
doesn't allow verification, the audit assignment should not be accepted.
o Before accepting the audit, the incoming auditor should communicate in writing with the
outgoing auditor as per Clause (8).
o If an auditor willing for reappointment has not been reappointed, they should file a
statement with the Institute. The incoming auditor should obtain and consider this
statement before accepting the appointment.
o The Ethical Standards Board (ESB) may examine cases of auditor removal and resignation
and report to the Council.
 Guidelines on Fees Based on a Percentage of Results: Clause (10) of Part I of the First Schedule to
the Chartered Accountants Act, 1949, generally prohibits fees based on a percentage of profits or
contingent upon the findings or results of professional employment, except as permitted by
32
 regulations. This is because such arrangements can undermine integrity and independence.
However, the Council has formulated Regulations 190A and 191 specifying activities where a
member in practice can associate with or without the Council's permission.
 General and Specific Permissions for Engaging in Other Businesses or Occupations:
o Regulation 190A states that a chartered accountant in practice shall not engage in any other
business or occupation other than the profession of accountancy except with the permission
granted in accordance with a resolution of the Council.
o The Council has granted general permission for certain categories like employment under
practicing CAs/firms, interest in educational institutions, part-time/full-time lectureships for
non-Institute courses, part-time/full-time tutorship outside the Institute's coaching,
editorship of non-professional journals, and other businesses/occupations approved by the
Executive Committee. However, the Council can refuse permission in individual cases.
o Specific prior approval from the Council is required for holding the office of a managing
director or a whole-time director in a company, especially if the member and/or their
partners and relatives hold a substantial interest in such a company. Substantial interest is
defined based on voting power in companies or profit entitlement in other concerns.
o A member in practice engaged as Karta of a HUF doing family business is within limits if
investments are from HUF funds only and the member is not actively engaged in
management.
o Direct teaching hours under both general and specific permissions should not exceed 25
hours a week for those undertaking attest functions. Engaging in any business or occupation
other than the profession without permission is professional misconduct.
 Guidelines on Delegation of Signing Authority:
o Clause (12) of Part I of the First Schedule to the Chartered Accountants Act, 1949, deems it
professional misconduct if a practicing CA allows a non-member or a non-partner member
to sign any balance sheet, profit and loss account, report, or financial statements on their or
their firm's behalf.
o However, the Council has clarified that the power to sign routine documents not requiring a
professional opinion or authentication may be delegated. Examples include issuing audit
queries, asking for information, forwarding draft observations/financial statements, initiating
vouchers, routine correspondence, cash/physical verification memos, issuing
acknowledgements, raising bills, routine tax matters (subject to Section 288 of the Income-
tax Act, 1961), and other matters incidental to office administration.
o Delegation of signing authority does not absolve the CA or firm from responsibility in case of
professional misconduct. If a statutory requirement exists to disclose the member's name
while signing, it should be done; otherwise, signing in the firm's name is permissible.
Revised SA 700 mandates mentioning Membership No. and Firm Registration No., and
members should follow UDIN Guidelines.
 Guidelines on Disclosure of Client Information:
o Clause (1) of Part I of the Second Schedule to the Chartered Accountants Act, 1949,
considers it professional misconduct for a practicing CA to disclose information acquired
during a professional engagement to anyone other than the client without their consent or
unless required by law. This duty continues even after the assignment ends.
o Disclosure may be permissible if legally compelled and if it's not legally permissible to claim
privilege under the Evidence Act, 1872 (Section 126). However, expert legal advice may be
sought before such disclosure. Disclosure may also be required as part of performing
professional duties.
 Guidelines on Joint Audits:
o Clause (2) of Part I of the Second Schedule to the Chartered Accountants Act, 1949, restricts
a member from certifying or submitting a report on financial statements unless the
33
 examination was done by them, a partner, an employee of their firm, or another practicing
CA. This ensures the work is carried out under their direct supervision or by a qualified
professional. Joint assignments between members are permitted.
o In joint audits, work can be divided based on identifiable units, areas, items, or time periods,
and this division should be documented and communicated to the auditee. Matters
requiring discussion or judgment by all joint auditors must be communicated before the
report submission.
o Each joint auditor is responsible only for the work allocated to them, but all are jointly and
severally responsible according to SA 299. Each joint auditor decides on test checks and
audit procedures for their allocated work. Obtaining and evaluating management
explanations is a joint responsibility unless specifically distributed.
 Guidelines on Reporting on Profit Forecasts: Clause (3) of Part I of the Second Schedule to the
Chartered Accountants Act, 1949, prohibits permitting one's name or firm's name to be used in
connection with an earnings estimate contingent upon future transactions in a way that suggests
vouching for the forecast's accuracy. A CA can participate in preparing or reviewing profit/financial
forecasts if their report clearly states information sources, forecast basis, and major assumptions,
and they do not vouch for accuracy. This also applies to projections based on hypothetical
assumptions. Members should also refer to the "Guidance Note on Reports in Company
Prospectuses (Revised 2019)".
 Guidelines on Independence Concerning Substantial Interest: Clause (4) of Part I of the Second
Schedule to the Chartered Accountants Act, 1949, states that a member in practice is deemed guilty
of professional misconduct if they accept an assignment as auditor of a concern in which they or
their firm or a partner has a substantial interest. Substantial interest for non-companies is defined in
Appendix 9 of the Chartered Accountants Regulations, 1988. The independence of mind is
fundamental. The requirements of Clause (4) apply to all attest functions, including Tax Audit, GST
Audit, and Concurrent Audit. The Council has clarified various situations regarding substantial
interest and other statutory prohibitions. Members should not write books of account for their
audit clients. A Statutory Auditor cannot be the Internal Auditor simultaneously. An Internal Auditor
cannot be the Tax or GST Auditor simultaneously. A cooling-off period of two years is required after
completing a tenure as Director before accepting the audit of the same company.
 Guidelines on Certifying Circulation Figures of Newspapers: Members certifying the circulation of
newspapers, magazines, etc., for the Audit Bureau of Circulations Ltd. (ABC) should adhere to ABC's
rules and regulations. They are also expected to report any lapses, even if insignificant, as per the
agreed terms.
 Guidelines on Verification on Behalf of Banks: Verifications conducted on behalf of banks often
have specific rules and procedures different from those under the Companies Act, and members
must be familiar with and act according to these special procedures.
 Guidelines Related to the Format for Maintaining Tax Audit Records: A Chartered Accountant in
practice shall maintain a record of the tax audit assignments accepted by them in each assessment
year in a format as may be prescribed by the Council. The limit on the number of tax audit
assignments may be distributed among partners as per SQC 1. The audit of a head office and its
branches is considered one assignment. Part-time practicing partners are not counted for reckoning
the firm's tax audit assignments.
 Guidelines for Maintaining Records of Audit Assignments: A Chartered Accountant in practice as
well as a firm of Chartered Accountants in practice shall maintain a record of the audit assignments
accepted by them or by the firm, or by any partner in their individual name or as a partner of any
other firm, as far as possible in the prescribed format. Part-time practicing partners are not counted
for reckoning the audit assignments of the firm. The audit of a head office and its branches is
considered one audit assignment. The number of partners on the date of acceptance is considered.

34
  Guidelines on Associate Concerns of Statutory Auditors: When a statutory auditor or their
associate concern renders other permitted services to the same undertaking, the aggregate
remuneration for such other services plus the statutory audit fee should not exceed the statutory
audit fee. An "associate concern" is defined as a corporate body or partnership firm rendering
permitted services where the statutory auditor's proprietor/partners and/or their relatives are
directors/partners and/or hold a substantial interest.
 Detailed Explanation of What Constitutes a Network: The guidelines provide criteria for
determining if a larger structure of firms constitutes a network. This assessment is based on
whether a reasonable and informed third party would likely conclude a network exists, considering
all specific facts and circumstances consistently throughout the structure. A network is deemed to
exist when the larger structure aims at cooperation and involves profit or cost sharing (beyond
immaterial costs or costs limited to developing audit methodologies, etc.), common ownership,
control, or management, shared common quality control policies and procedures, a common
business strategy (agreement to achieve common strategic objectives, excluding mere joint
responses to proposals), sharing a common brand name (including initials or common names used
in firm names or when signing reports), or sharing a significant part of professional resources
(including common systems, partners/staff, technical departments, audit methodology, and
training). Forms of networks can include companies. Network firms can be sole practitioners,
partnerships, or other permitted entities. A firm can join only one network, and firms with common
partners must join the same network. The network name needs Institute approval and should
include "& Affiliates" without "& Co." or "& Associates". Provisions of Regulation 190 apply to
network names. Changes in a network's constitution must be communicated to the Institute.
Registration of a network is considered public notice, and client consent is deemed obtained.
Networks should formulate internal by-laws covering aspects like a managing committee,
administration, membership fees, identifying engagement partners, dispute settlement, training,
newsletters, software, databases, library, technical director, resource allocation, compensation, and
peer review.
 Detailed Guidelines on the Content and Operation of CA Firm Websites: [The source mentions M/s
XYZ having a website with a bright green color and using "push" technology to display partner
names and major clients without regulator disclosure. This was considered not in compliance with
ICAI guidelines as it would amount to soliciting work by advertisement. The guidelines generally
specify permissible information on websites and prohibit solicitation.]
 Self-Regulatory Measures: The Council encourages the practice of associating a practicing firm with
less than five members as Joint auditors for large companies. Senior firms should not object to such
appointments. A practicing firm engaged in audit work should ideally have at least one member for
every five non-qualified staff (excluding articled/audit assistants, typists, peons). Auditors should
disclose payments received for other services through different firms where they are a partner or
proprietor. The Institute has issued revised Minimum Scale of Fees for professional assignments,
recommended separately for Class-A, B, and C cities. Specific disclosure requirements exist for non-
Public Interest Entities (PIEs) and PIEs regarding gross annual professional fees from an audit client
exceeding certain percentages of the firm's total fees for two consecutive years.
 Guidelines on Representations by Retiring Auditors: Representations made by retiring auditors
under Section 140(4)(iii) of the Companies Act, 2013, should not include content that aims to solicit
their continuance as auditor, such as highlighting contributions made in strengthening control
procedures.
This collated response provides a more comprehensive overview of the ethical guidelines and clarifications
discussed within the source material, addressing the topics previously identified as left off and citing the
relevant sources. The use of bolding and bullet points aims to enhance readability and understanding.

Here is a note on the CA logo based on the sources:

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The Institute of Chartered Accountants of India (ICAI) has introduced a new and unique CA India logo for
all its members, whether in practice or not, with guidelines for its use issued in 2023. This initiative aims to
promote the brand of the CA profession and enhance the identity of its members.
The new CA India logo has the following design elements:
 The letters 'CA' are in blue color.
 It includes a tri-color tick mark (upside down).
 The background of the logo is white.
 The word 'India' is also part of the logo.
The symbolism behind the logo's components is as follows:
 The blue color represents creativity, innovativeness, knowledge, integrity, trust, truth, stability, and
depth.
 The upside-down tick mark, traditionally used by Chartered Accountants, symbolizes the wisdom
and value of the professional.
 The inclusion of 'India' epitomizes the Institute's connection to the 'India First' approach and its
commitment to serving the Indian economy in the public interest.
The guidelines for using the new CA India logo specify certain restrictions to maintain its uniformity and
professional appearance:
 There should be no alteration of the font (color, bold/unbold, size), spacing, or dimensions.
 The design and colors, including the white background, should not be changed.
 The logo should not be rotated or tilted.
 It should not be shrunk or distorted, which would change the original proportions.
While members are encouraged to use the new CA India Logo on letterheads, visiting cards, websites, etc.,
a transition period of one year was provided to allow for the use of existing stationery and signage.
It is important to note that previously, the Council had prohibited the use of logos by practicing members or
firms on their stationery and other display materials if the logos were unconnected with the first letter of
the firm's or its partners' names, as this could be seen as advertisement or publicity. The introduction of
the common CA India logo provides a unified symbol for the profession.

Here are detailed notes for Clause 6 and Clause 7 of Part 1 of the First Schedule to the Chartered
Accountants Act, 1949, along with relevant guidelines and examples from the sources:
Clause (6): Soliciting Clients or Professional Work
Definition: Clause (6) of Part I of the First Schedule states that a Chartered Accountant in practice is
deemed to be guilty of professional misconduct if he "solicits client or professional work either directly or
indirectly by circular, advertisement, personal communication or interview or by any other means".
Key Concepts and Guidelines:
 Prohibition of Solicitation: This clause generally prohibits any form of direct or indirect solicitation
of clients or professional work. The intention is to maintain the independence of judgment of
members and ensure they command the respect of prospective clients.
 Direct Methods: These include directly approaching potential clients through circulars,
advertisements, personal communication, or interviews.
 Indirect Methods: Members should not adopt any indirect methods to promote their professional
practice with a view to gaining publicity and thereby soliciting clients or professional work.
 Tenders:
o For services other than audit, members can respond to any tender.
o In respect of a non-exclusive area, members are permitted to pay reasonable earnest
money/security deposits when responding to tenders. However, the Ethical Standards Board
may review cases of exorbitant EMD/Deposit.
o Members should maintain a cost sheet when responding to tenders, detailing costs incurred.
o A member in practice shall not respond to any tender issued by an organization or user of
professional services in areas of services which are exclusively reserved for chartered
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 accountants, such as audit and attestation services, unless the minimum fee is prescribed
or the areas are open to other professionals.
 Write-ups: A member in practice may advertise through a write-up setting out the services
provided by him or his firm and particulars of his firm, subject to guidelines issued by the Council.
These write-ups must maintain the profession's good reputation and dignity.
o The contents must be honest and truthful.
o There should be no exaggerated claims, disparaging references, or unsubstantiated
comparisons.
o The write-up should not bring the profession into disrepute, contain testimonials,
endorsements, client names, or fee details.
o Information about achievements/awards (except government/regulatory body awards),
other positions held, or accreditations is not allowed.
o Use of monograms or catchwords is prohibited.
o The Membership No./FRN is mandatory.
o Font size should not exceed 14.
o The write-up should not violate any provisions of the Chartered Accountants Act,
Regulations, or Code of Ethics.
o Permitted information in a write-up includes the name of the member/firm, year of
establishment, professional address, working hours, contact details, number of
partners/employees, names and particulars of partners/proprietor/employees, services
provided, and position as Director in a registered Management Consultancy Company.
 Websites: Members/firms may display certain information on their websites, including name, year
of establishment, address, contact details, nature of services (upon "pull" request), and partner
details. Disclosure of client names and fees is permitted only when required by a regulator and to
the extent of that requirement.
 Box Numbers in Advertisements: Members/firms are prohibited from inserting advertisements
soliciting clients under box numbers.
 Educational Videos: While members can upload educational videos, they should not refer to their
Chartered Accountants Firm or include contact details/website addresses.
 Networking Guidelines: Members of a permitted network may advertise to the extent allowed by
the Institute's Advertisement Guidelines.
 Panels Maintained by Organizations: If a member is aware of a panel of Chartered Accountants
maintained by government departments, government companies, courts, etc., they are free to
request their name be placed on the panel. However, making roving inquiries to be included in any
such panel is not proper. Quoting fees upon receiving inquiries or responding to tenders from such
organizations is permissible.
 Bio-data during Interviews: Handing over a bio-data during a TV interview that promotes the firm's
name and achievements would be considered solicitation.
Examples of Misconduct under Clause (6):
 A Chartered Accountant wrote letters to Army Canteens giving details about himself, his firm, and
audit fees, which was held as a violation of Clauses (5) & (6) (though Clause 5 is not directly under
discussion here, the case highlights solicitation).
 Advertising coaching/teaching activities by a member in practice may amount to indirect
solicitation. Members are advised to abstain from advertising their association with such activities
through hoardings, posters, etc.. Only a signboard at the coaching premises with basic details is
permissible.
 Publishing a book and including detailed professional experience as the author is considered
indirect solicitation.
 M/s XYZ having a website with unrestricted colours and failing to satisfy the guidelines regarding
"pull" technology and not giving client names/fees was held liable for soliciting work.
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  A Chartered Accountant handing over a bio-data during a TV interview that highlighted the firm's
and partner's expertise was held guilty of solicitation.
 Mr. X, who passed his CA examination and started practice, offering 1% profits of his firm over and
above the stipend to an articled clerk was objected to by ICAI as it could be seen as soliciting
articleship, which is linked to securing future professional work.
Clause (7): Advertising Professional Attainments or Services
Definition: Clause (7) of Part I of the First Schedule states that a Chartered Accountant in practice is
deemed to be guilty of professional misconduct if he "advertises his professional attainments or services,
or uses any designation or expressions other than that of a chartered accountant on professional
documents, visiting cards, letter heads or sign boards unless it be a degree of a University established by
law in India or recognized by the Central Government or a title indicating membership of the Institute of
Chartered Accountants or of any other institution that has been recognized by the Central Government
or may be recognized by the Council".
Key Concepts and Guidelines:
 General Prohibition on Advertising: This clause generally restricts advertising professional
attainments or services. The focus is on maintaining the dignity of the profession.
 Restricted Advertising through Write-up: A member in practice may advertise through a write-up
subject to the Council's guidelines (as detailed under Clause 6).
 Permitted Designations: Only the designation "Chartered Accountant" should generally be used on
professional documents, visiting cards, letterheads, or signboards. Exceptions include:
o Degrees from a recognized University.
o Titles indicating membership of ICAI.
o Titles indicating membership of other institutions recognized by the Central Government or
the Council.
 Mention of Firm Name: It is not proper for a Firm of Chartered Accountants to use the designation
'Chartered Accountant' except on professional documents, visiting cards, letterheads, or signboards
and under the circumstances clarified under Clause (6). However, an individual member may use
the prefix “CA” with their name.
 Date of Setting up Practice: A member is not permitted to specify the date of setting up practice or
establishment of the firm on letterheads.
 Mentioning Partner Firms on Personal Letterheads: There is no prohibition on printing the names
of all the firms in which a member holding a Certificate of Practice is a partner on their personal
letterheads.
 Use of "Insolvency Professional": A Chartered Accountant empaneled as an IP can mention
"Insolvency Professional" on their visiting cards, letterheads, and other communication as it is a title
recognized by the Central Government.
 Notice in the Press Relating to Success in an Examination: Such notices should not contain any
element of undesirable publicity in relation to the articled/audit assistant, employee, or the
member/firm they served with. While publishing news of local interest is not discouraged, restraint
is needed. Permissible information includes the candidate's name, address, school, examination
passed with details of prizes, and the name/firm/town of the principal.
 Logo Guidelines: While the new CA India logo is now promoted, previously, using logos
unconnected with the firm's or partners' names could be seen as advertisement [See conversation
history].
 Vision/Mission Statements: A firm is not permitted to publish its vision or mission statement on
letterheads, visiting cards, or stationery. It can be printed on the firm profile and provided upon
specific request.
 Guidelines for Elected Members/Office Bearers: Specific guidelines exist for the use of designation
and manner of printing letterheads and visiting cards for elected members of the Council and office
bearers of Regional Councils (refer to Appendix 'F' of the Code of Ethics publication).
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Examples of Misconduct under Clause (7):
 A Chartered Accountant stating in his documents that he is a "Cost Accountant" would be improper
unless "Cost Accountant" is a membership of an accountancy body approved by the Council.
 Using any designation other than "Chartered Accountant" on professional documents, visiting cards,
etc., without it being a recognized degree or membership title, amounts to misconduct.
It is important to note that these clauses and guidelines are subject to interpretation and further
clarifications issued by the Council of the ICAI from time to time.

Quick Glance
The First Schedule of the Chartered Accountants Act, 1949
Part I - Professional Misconduct for Chartered Accountants in Practice
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A Chartered Accountant in practice shall be guilty of professional misconduct if he:
1. Allows any person to practice in his name unless such person is also a CA in practice and is a partner or
employee.
2. Shares professional fees with unauthorized persons.
3. Accepts profits from non-members for professional work.
4. Enters into partnerships with non-CAs for professional work.
5. Secures work from means not available to CA.
6. Solicits clients directly or indirectly through advertisements, circulars, personal communication, or
interviews.
7. Advertises his professional attainments or services beyond what is allowed under ICAI guidelines.
8. Accepts an audit assignment without communicating with the previous auditor.
9. Accepts an assignment where he has a substantial interest without proper disclosure.
10. Does not comply with ICAI Council directives regarding professional conduct.
11. Engages in another business without permission from ICAI.
12. Allows unauthorized persons to sign financial statements on his behalf.

Part II - Professional Misconduct for Members in Service

A CA in service shall be guilty of professional misconduct if he:
1. Shares professional fees or commission with unauthorized persons.
2. Discloses confidential information from his employment without permission or legal requirement.

Part III - Professional Misconduct for Members Generally

A CA shall be guilty of professional misconduct if he:
1. Expresses an opinion without obtaining sufficient information.
2. Fails to supply or comply to information requested by ICAI.
3. Includes false information in documents submitted to ICAI. (Related to Clause 6 &7 of Part I)

Part IV - Other Misconduct in Relation to Members Generally

A CA shall be guilty of misconduct if he:
1. Is convicted by a civil or criminal court for an offence punishable by up to six months of imprisonment.
2. Brings disrepute to the CA profession or ICAI through any action, whether or not related to
professional work.

The Second Schedule of the Chartered Accountants Act, 1949

Part I – Professional Misconduct for Chartered Accountants in Practice

A Chartered Accountant in practice shall be deemed guilty of professional misconduct if he:
1. Discloses confidential client information without consent or legal requirement.
2. Certifies financial statements without proper examination.
3. Allows his name to be used for misleading earnings forecasts.
4. Expresses an opinion on financial statements where he has a substantial interest.
5. Fails to disclose material facts necessary for a true financial statement.
6. Fails to report a material misstatement in financial statements.
7. Does not exercise due diligence or is grossly negligent in professional duties.
8. Fails to obtain sufficient audit evidence before expressing an opinion.
9. Does not highlight material departures from auditing standards.
10. Fails to keep client information confidential.

Part II – Professional Misconduct for Members Generally

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A member of the Institute, whether in practice or not, is guilty of misconduct if he:
1. Contravenes provisions of the CA Act, Regulations, or Council Guidelines.
2. Furnishes false information to ICAI.
3. Fails to supply required information or documents to ICAI.
4. Commits any act of professional misconduct as defined in Part I.

Part III – Other Misconduct in Relation to Members

A member is guilty of misconduct if:
1. He is convicted by a court for an offence involving moral turpitude (punishable by imprisonment of
more than six months).
2. His actions bring disrepute to the profession or ICAI, even if unrelated to his professional work.

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