CHAPTER 04 PROFESSIONAL ETHICS-SUMMARY 4.

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PROFESSIONAL ETHICS-SUMMARY
PROFESSIONAL ETHICS-SUMMARY
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The Chartered Accountant Act, 1949

Part I

1. Fundamental Principles to be followed by Professional Accountants

(a) Integrity – Subsection 111
1. A professional accountant shall comply with the principle of integrity, which requires an
accountant to be straightforward and honest. Integrity implies fair dealing and truthfulness.
2. A professional accountant shall not knowingly be associated with information that contains
materially false or misleading statement.

(b) Objectivity- Subsection 112

 A professional accountant shall comply with the principle of objectivity, which requires an
accountant not to compromise professional or business judgment because of bias, conflict of
interest or undue influence of others.

(c) Professional Competence and Due Care – Subsection 113

1. A professional accountant shall comply with the principle of professional competence and due
care, which requires an accountant to: Attain and maintain professional knowledge and skill at
the level required and act diligently in accordance with applicable technical and professional
standards.
2. Maintaining professional competence requires a continuing awareness and an understanding of
relevant technical, professional and business developments.
3. Diligence encompasses the responsibility to act in accordance with the requirements of an
assignment, carefully, thoroughly and on a timely basis.
4. In complying with the principle of professional competence and due care, a professional
accountant shall take reasonable steps to ensure that those working in a professional capacity
under the accountant’s authority have appropriate training and supervision.
(d) Confidentiality- Subsection 114
1. A professional accountant shall comply with the principle of confidentiality, which requires an
accountant to respect the confidentiality of information acquired as a result of professional and
employment relationships.
2. Circumstances where disclosure is appropriate –
(a) Disclosure is required by law, For Example : Sec. 143(12)
(b) Disclosure is permitted by law and is authorized by the client or the employing
organization, For Example : Statutory Filing on behalf of client.
(c) There is a professional duty or right to disclose, when not prohibited by law,
For Example : During Peer Review or Quality Review or Investigation.
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3. Considerations before disclosing information

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In deciding whether to disclose confidential information, professional accountants should

consider the following points:
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a) Whether the interests of any party, including third parties whose interests might be
affected, could be harmed if the client or employing organization consents to the disclosure
of information by the professional accountant;
b) Whether all the relevant information is known and substantiated, to the extent it is
practicable; and
c) The proposed type of communication, and to whom it is addressed;
d) Whether the parties to whom the communication is addressed are appropriate recipients.
Points to Remember :

 A professional accountant shall continue to comply with the principle of confidentiality even
after the end of the relationship between the accountant and a client or employing organization.
 When changing employment or acquiring a new client, the accountant is entitled to use prior
experience but shall not use or disclose any confidential information acquired or received as a
result of a professional or employment relationship.

(e) Professional Behaviour- Subsection 115

1. A professional accountant shall comply with the principle of professional behaviour, which
requires an accountant to comply with relevant laws and regulations.
2. When promoting himself and his work, a professional accountant shall not bring the profession
into disrepute. A professional Accountant is required to conduct his affairs in a manner that he
remains outside the boundaries of professional and other misconduct. A professional accountant
shall be honest and truthful and should not make:
(a) Exaggerated claims for the services they are able to offer, the qualifications they possess,
or experience they have gained; or
(b) Disparaging references or unsubstantiated comparisons to the work of others.
(c) Any direct or indirect measures to advertise any professional/other facts which are in
violation of Advertisement Guidelines issued by the Council of the Institute from time to
time.

2. Threats, Evaluation of Threats and Safeguards

The conceptual framework specifies an approach for a professional accountant to:
(i) Identify threats to compliance with the fundamental principles;
(ii) Evaluate the threats identified; and
(iii) Address the threats by eliminating or reducing them to an acceptable level.
2.1 Threats
Threats to compliance with the fundamental principles fall into one or more of the following categories:
 Self-interest threat- the threat that a financial or other interest will inappropriately influence a
professional accountant’s judgment or behaviour;
 Self-review threat– the threat that a professional accountant will not appropriately evaluate the
results of a previous judgment made; or an activity performed by the accountant or by another
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individual within the accountant’s firm or employing organization, on which the accountant will rely when
forming a judgment as part of performing a current activity;

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 Advocacy Threat- the threat that a professional accountant will promote a client’s or employing
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organization’s position to the point that the accountant’s objectivity is compromised;
 Familiarity threat– the threat that due to a long or close relationship with a client, or employing
organization, a professional accountant will be too sympathetic to their interests or too accepting of
their work; and
 Intimidation threat– the threat that a professional accountant will be deterred from acting objectively
because of actual or perceived pressures, including attempts to exercise undue influence over the
accountant.
A. The following are examples of facts and circumstances within each of those categories of threats
that might create threats for a professional accountant when undertaking a professional service
(CA in Practice) :
Example : Self-interest Threats
 A professional accountant having a direct financial interest in a client.
 A professional accountant quoting a low fee to obtain a new engagement and the fee is so low that
it might be difficult to perform the professional service in accordance with applicable technical
and professional standards for that price.
 A professional accountant having a close business relationship with a client.
Example : Self-review Threats
 A professional accountant issuing an assurance report on the effectiveness of the operation of
financial systems after implementing the systems.
 A professional accountant having prepared the original data used to generate records that are
the subject matter of the assurance engagement.
Example : Advocacy Threats
 A professional accountant promoting the interests of, or shares in, a client.
 A professional accountant acting as an advocate on behalf of a client in litigation or disputes
with third parties.
 A professional accountant lobbying in favour of legislation on behalf of a client.
Example : Familiarity Threats
 A professional accountant having a close or immediate family member who is a director or officer
of the client.
 A director or officer of the client, or an employee in a position to exert significant influence
over the subject matter of the engagement, having recently served as the engagement partner.
 An audit team member having a long association with the audit client.
Example : Intimidation Threats
 A professional accountant being threatened with dismissal from a client engagement or the firm
because of a disagreement about a professional matter.
 A professional accountant feeling pressured to agree with the judgment of a client because the
client has more expertise on the matter in question.
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 A professional accountant being informed that a planned promotion will not occur unless the
accountant agrees with an inappropriate accounting treatment.
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 A professional accountant having accepted a significant gift from a client and being threatened
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that acceptance of this gift will be made public.”
B. The following are examples of facts and circumstances within each of those categories that might
create threats for a professional accountant when undertaking a professional activity (CA in
Service) :
Example : Self-interest Threats
 A professional accountant holding a financial interest in, or receiving a loan or guarantee from,
the employing organization.
 A professional accountant participating in incentive compensation arrangements offered by the
employing organization.
 A professional accountant having access to corporate assets for personal use.
 A professional accountant being offered a gift or special treatment from a supplier of the
employing organization.
Example : Self-review Threats
 A professional accountant determining the appropriate accounting treatment for a business
combination after performing the feasibility study supporting the purchase decision.
Example : Advocacy Threats
 A professional accountant having the opportunity to manipulate information in a prospectus in
order to obtain favourable financing.
Example : Familiarity Threats
 A professional accountant being responsible for the financial reporting of the employing
organization when an immediate or close family member employed by the organization makes
decisions that affect the financial reporting of the organization.
 A professional accountant having a long association with individuals influencing business decisions.
Example : Intimidation Threats
 A professional accountant or immediate or close family member facing the threat of dismissal
or replacement over a disagreement about:
 The application of an accounting principle.
 The way in which financial information is to be reported.
 An individual attempting to influence the decision-making process of the professional accountant,
for example with regard to the awarding of contracts or the application of an accounting principle.
Note: Tax Services to Audit Clients [Subsection 604]
1. Providing tax services to an audit client might create a self- review or advocacy threat.
In case of Assistance in the resolution of Tax disputes, the term “Court” is explained as under:
“For the purpose of this subsection, “Court” does not include a Tribunal”
2.2 Evaluation of Threats:
The conditions, policies and procedures described above might impact the evaluation of whether a threat to
compliance with the fundamental principles is at an acceptable level.
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(i) Acceptable level: An acceptable level is a level at which a professional accountant using the reasonable
and informed third party test would likely conclude that the accountant complies with the fundamental

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principles.
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(ii) Reasonable and Informed Third Party (RITP Test):
 The reasonable and informed third party test is a consideration by the professional accountant
about whether the same conclusions would likely be reached by another party.
 The reasonable and informed third party does not need to be an accountant but would possess
the relevant knowledge and experience to understand and evaluate the appropriateness of the
accountant’s conclusions in an impartial manner.
2.3 Addressing Threats
The accountant shall do so by:
(i) Eliminating the circumstances, including interests or relationships, that are creating the threats;
(ii) Applying safeguards, where available and capable of being applied, to reduce the threats to an
acceptable level; or
(iii) Declining or ending the specific professional activity.
Actions to Eliminate Threats :
 Depending on the facts and circumstances, a threat might be addressed by eliminating the
circumstance creating the threat. However, there are some situations in which threats can only be
addressed by declining or ending the specific professional activity.
 This is because the circumstances that created the threats cannot be eliminated and safeguards
are not capable of being applied to reduce the threat to an acceptable level.
2.4 Safeguards:
Examples:
a) Assigning additional time and qualified personnel to required tasks when an engagement has been
accepted might address a self-interest threat.
b) Having an appropriate reviewer, who was not a member of the team, review the work performed or
advise as necessary might address a self-review threat.
c) Using different partners and engagement teams with separate reporting lines for the provision of
non- assurance services to an assurance client might address self- review, advocacy or familiarity
threats.
d) Involving another firm to perform or re-perform part of the engagement might address self-interest,
self-review, advocacy, familiarity or intimidation threats.
e) Separating teams when dealing with matters of a confidential nature might address a self- interest
threat.

3. Non-Compliance with Laws and Regulations (NOCLAR)

Non-compliance with laws and regulations (“non-compliance”) comprises of acts of omission or commission,
intentional or unintentional, which are contrary to the prevailing laws or regulations committed by:
 a client/professional accountant’s employing organisation;
 those charged with governance of a client or employing organisation;
 management of a client/ employing organisation; or
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 other individuals working for or under the direction of a client/ employing organisation.
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However, NOCLAR under Revised Code of Ethics does not address the personal misconduct unrelated to
the business activities of the client/ employing organisation and non-compliance by parties other than listed
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out in the definition of NOCLAR.
3.1 Examples of NOCLAR
As per the International Ethics Standards Board for Accountants (IESBA), following examples would be
covered in NOCLAR. Fraud, corruption and bribery, Money laundering, terrorist financing and proceeds of
crime, Securities markets and trading, Banking and other financial products and services, Data protection,
Environmental protection, Public health and safety, Tax and pension liabilities and payments.
3.2 Some important facts about NOCLAR are given below:
i. Applicable if a professional accountant encounters, or is made aware of, non-compliance or suspected
non-compliance in the course of providing a professional service to a client.
ii. A professional accountant is expected to apply knowledge and expertise, and exercise professional
judgment. {However, expertise of law not reqd}
iii. Matters that are clearly inconsequential, or relating to personal misconduct pertaining to business
activities of the client not covered.
iv. Disclosure, which is Contrary to Law not Required.
3.3 NOCLAR vs. SA 250
1. SA 250 is applicable only on Audit, and not on other Assurance engagements. However, NOCLAR is
applicable on professional accountants in service, and in practice.
2. SA 250 talks of auditor’s responsibilities for laws having direct effect on the determination of material
amounts and disclosures in the financial statements (such as tax and labour laws); and other laws and
regulations that do not have a direct effect on the determination of the amounts and disclosures in the
financial statements, but compliance with which may be fundamental to the operating aspects of the
business. NOCLAR, while being alike to SA 250 till this point, is further ahead of it in that it takes
into account non-compliance that causes substantial harm resulting in serious consequences in financial
or non-financial terms.
3. SA 250 does not define stakeholders. NOCLAR is related to effect of non-compliance on investors,
creditors, employees as also the general public.
4. As per NOCLAR, in exceptional circumstances, the professional accountant might become aware of an
imminent breach of a law or regulation that would cause substantial harm to investors, creditors,
employees or the general public. This provision is not existent in SA 250.
3.4 Applicability of NOCLAR in India
1. Responding to Non-Compliance with Laws and Regulations (NOCLAR) applicable to Professional
Accountants in service (Section 260): Applicable to Senior Professional
Accountants{directors/officers/senior employees} in service, being employees of listed entities.
2. Responding to Non-Compliance with Laws and Regulations (NOCLAR) applicable to Professional
Accountants in public practice (Section 360) : Applicable to Audit engagements of entities the shares
of which are listed on recognized stock exchange(s) in India and have net worth of 250 crores of rupees
or more.
3.5. Steps to Responding to NOCLAR

 Obtaining understanding of matter

 Addressing matter
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 Seeking advice

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 Determining if further action is needed.
 Documentation
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 Imminent Breach
 Determining whether to disclose matter to appropriate authority.
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Part II
PROFESSIONAL ETHICS-SUMMARY

4. Relevant Provisions of CA ACT, 1949

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PART A-Provisions Related to Membership

Section 19- Register of Member

On acceptance of 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.
Section 5- ACA and FCA
Once the CA becomes the member of ICAI, he can use the letter ACA. Upon completion of 5 years with
continuous practice, letters FCA can be used by informing and obtaining the approval of the council.
Section 8 -Disabilities for purpose of membership
Under any of the following six circumstances a person is debarred from having his name entered in the
register of members :
 If he has not attained the age of 21 years at the time of his application for the entry of his name in
the Register.
 If he is of unsound mind as adjudged by a competent court.
 If he being a discharged insolvent, has not obtained from the court a certificate stating that his
insolvency was caused by misfortune without any misconduct on his part.
 If he has been convicted by a competent court of an offence involving moral turpitude.
 If he has been removed from membership of the Institute for being guilty of professional or other
misconduct.
Note: A person who has been removed from membership for a specified period, shall not be entitled to have
his name entered in the register until the expiry of such period.
Section 20 - Removal of Name from the Register of Member
As per Section 20 of the Act, the name of the member can be removed in the following cases:
(i) who is dead; or
(ii) from whom a request has been received to that effect; or
(iii) who has not paid any prescribed fee required to be paid by him; or
(iv) who is found to have been subject at the time when his name was entered in the Register, or who at
any time thereafter has become subject, to any of the disabilities mentioned in Section 8, or who for
any other reason has ceased to be entitled to have his name borne on the Register.
Regulation 19 - Restoration of Membership
Effective date of restoration in the given situations
(A) If application for restoration and requisite fees are made within the same year of removal-
Restoration shall be with effect from the date on which it was removed from the register.
(B) If application for restoration and requisite fees are not made within the same year of removal-
Restoration shall be with effect from the date on which the fee was received.
(C) Removal of name in accordance with the order of Board of Discipline or the Disciplinary Committee
or the Appellate Authority or the High Court- Removal shall be in accordance with such orders.
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Section 24- Falsely representing to be a Member

PROFESSIONAL ETHICS-SUMMARY
Any person who not being a member of the Institute represents that he is a member of the Institute or uses
the designation Chartered Accountant being a member of the Institute, but not having a certificate of
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practice, represents that he is in practice or practices as a Chartered accountant, shall be punishable.
 On 1st conviction with fine which may extend to ₹ 1000/-.
 On any subsequent conviction with imprisonment which may extend to 6 months or with fine which
may extend to ₹ 5000/- or with both.
 Failure to pay fine-rigorous imprisonment for 3 months.
PART B-Provisions Related to Certificate of Practice

Section 2(2) - Members deemed to be in Practice

A member of the Institute shall be deemed “to be in practice“ when individually, or in partnership with
Chartered Accountants in practice, he, in consideration of remuneration received or to be received:
1. Engages himself in the practice of accountancy.
2. Offers to perform or performs service involving the auditing or verification of financial transactions,
books, accounts or records, or the preparation, verification or certification of financial accounting and
related statements or holds himself out to the public as an accountant; or
3. Renders professional services or assistance in or about matters of principle or detail relating to
accounting procedure or the recordings, presentation or certification of financial facts or data; or
4. Renders such other services as, in the opinion of the council, are or may be rendered by a Chartered
Accountant in practice.
“Management Consultancy and other Services”
The expression “Management Consultancy and other Services” shall not include the function of statutory or
periodical audit, tax (both direct taxes and indirect taxes) representation or advice concerning tax matters
or acting as liquidator, trustee, executor, administrator, arbitrator or receiver, but shall include the
following-
(i) Financial management planning and financial policy determination.
(ii) Capital structure planning and advice regarding raising finance.
(iii) Working capital management.
(iv) Preparing project reports and feasibility studies.
(v) Preparing cash budget, cash flow statements, profitability statements, statements of sources and
application of funds etc.
(vi) Budgeting including capital budgets and revenue budgets.
(vii) Inventory management, material handling and storage.
(viii) Market research and demand studies.
(ix) Price-fixation and other management decision making.
(x) Management accounting systems, cost control and value analysis.
(xi) Control methods and management information and reporting.
(xii) Personnel recruitment and selection.
(xiii) Setting up executive incentive plans, wage incentive plans etc.
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(xiv) Management and operational audits.

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(xv) Acting as Registered Valuer under Section 247 of Companies Act, 2013
(xvi) Business Policy, corporate planning, organisation development, growth and CHAPTER
diversification.
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(xvii) Organisation structure and behaviour, development of human resources including design and conduct
of training programmes, work study, job-description, job evaluation and evaluation of workloads.
(xviii) Professional services relating to Electronic Data Processing.
(xix) Acting as advisor or consultant to an issue, including such matters as: Drafting of prospectus
and memorandum ,filing of documents with SEBI, preparation of publicity budget, advice regarding
selection of brokers and underwriters etc.
(xx) Investment counselling in respect of shares and securities.
(xxi) Acting as registrar to an issue and for transfer of shares/other securities. (In doing so, the
relevant provisions of the Code of Ethics must be kept in mind).
(xxii) Quality Audit.
(xxiii) Environment Audit.
(xxiv) Energy Audit.
(xxv) Acting as Recovery Consultant in the Banking Sector.
(xxvi) Insurance Financial Advisory Services under the Insurance Regulatory & Development Authority
Act, 1999, including Insurance Brokerage.
(xxvii) Acting as Insolvency Professional in terms of Insolvency and Bankruptcy Code, 2016
(xxviii) Administrative services requiring little to no professional judgement.{ example- word processing
services , preparing and submitting forms , and services which normally a GST practitioner
performs}.
Prohibited services for a CA in Practice:
 Broking activities, Underwriting activities, Portfolio Management Activities (section 2 (2)(iv) of CA Act,
1949, NRI fund management, Cash collection services and Insurance agency services. If a CA in practice
provides the prohibited management consultancy services given above, he shall be guilty under clause
11 of part 1 of First Schedule.
Correlation of Section 144
Section 144 of the Companies Act, 2013 prescribes certain services not to be rendered by the auditor
directly or indirectly to the company or its holding company or subsidiary company.

Section 6-Significance of COP

1. No member of the institute can practice (whether in India or elsewhere) until and unless he has
obtained a COP.A member who is not in practice cannot accept assignments to render services normally
prescribed for a Chartered Accountant.
2. A member of the Institute having COP can also hold COP’s of other institutes simultaneously subject
to permission of other institutes. However, he can practise only in the capacity of a Chartered
Accountant. The provisions of the CA Act shall apply to the member even in the period of suspension,
when he has been removed temporarily by the institute due to professional or other misconduct.
3. A member of ICAI can have no other capacity in which he can take up such practice separable from
his capacity to practice as a member of the institute.
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Regulation 10 - Cancellation of Certificate of Practice

PROFESSIONAL ETHICS-SUMMARY
(i) Name of holder of certificate is removed from the register.
(ii) The Council is satisfied
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certificate was issued on the basis of incorrect, misleading or false information.
(iii) A member has ceased to practice.
(iv) A member has not paid annual fees till 30th Sept of the relevant year.
Where COP is cancelled, the holder shall surrender the same to the secretary.
Regulation 11 - Restoration of Certificate of Practice
Council may restore the COP with effect from the date on which it was cancelled, to a member whose
certificate has been cancelled due to non-payment of the annual fee for the COP and whose application,
complete in all respects, together with the fee, is received by the Secretary before the expiry of the
relevant year.
Section 27 -Maintenance of branch offices
Office : A place where a name – board is fixed or where such place is mentioned in the letter – head or any
other documents as a place of business:
1. If a CA in practice or a firm of CA has more than one office in India. Each one of such offices should
be in the separate In-charge of a member of the Institute, who may be either partner/employee &
resided at the place where the office is situated for atleast 182 days in a year.
2. Exemption has been given to members practicing in hilly areas subject to certain conditions which are:
a) Such members / firm be allowed to open temporary offices in a city in the plains for a limited
period of not more than 3 months in a year.
b) Name board of the firm in the temporary office should be not displayed at times other than the
period such offers is permitted to function.
c) Regular office need not be closed during above period.
d) Temporary office should not be mentioned as a place of business of the member / firm on
letterheads or visiting cards or any other documents.
e) Before commencement of every winter it shall be obligatory on the member / firm to inform the
Institute that he / it is opening the temporary office from a particular date.
f) Intimation to that effect should also be sent to the office of the institute by registered post.
3. Exemption has been given to a member or a firm of CAs in practice to have a 2nd office without such
2nd office being under the separate charge of a member of the Institute, provided:
 The 2nd office is located in the same premises in which the 1st office is located or
 The 2nd office is located in the same city in which the 1st office is located
 The 2nd office is located within a distance of 50 km from the municipal limits of a city in which
the 1st office is located
Note :
1. The use of the name-board: No bar to be putting up of a name – board in the place of residence of
a member with the designation of Chartered Accountant, provided it is a name – plate or a name –
board of an individual member and not of the firm.
2. Regulation 189 requires that a CA in practice or a firm of such CAs shall inform the Council within
one month of the opening or closing of a branch office.

PART C-Other Provisions

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Section 7 - Member in practice is prohibited from using a designation other than a Chartered Accountant
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1. Member in practice cannot use any other designation other than “Chartered Accountant” but a
member who is not in practice and does not use designation Chartered Accountant may use other
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description.
2. However, use of title/ letters/ initials is allowed (C.A/C.S/C.M.A. etc). Not permitted to use the initial
CPA.
3. Committee on ethical standards, allowed the use of 'Dr' with the designation 'CA'.
4. It is improper for a CA to state in his professional documents that he is an Income Tax Consultant,
Company Secretary, Cost Consultant or Management Consultant or Corporate Lawyer or Cyber
Security Expert.
5. Members are permitted to mention membership of a foreign institute of accountancy subject to
Memorandum of understanding / Mutual Recognition Agreement.
6. The members may apply for and obtain registration as category IV Merchant Banker/Advisor to an
issue under the SEBI’s rules and regulations and act as Advisor or Consultant to an issue. The same
can be mentioned in client offer documents. However, the name and address of such Chartered
Accountant/firm of Chartered Accountants should not appear prominently. Also cannot mention in
his visiting card.

Section 25 - Companies not to engage in Accountancy

Section 25 of the Chartered Accountants Act, 1949 provides that :
 No company, whether incorporated in India or elsewhere, shall practise as chartered accountants
 If any company contravenes this provision- every director, manager, secretary and any other officer
thereof who is knowingly a party to such contravention shall be punishable with fine which may extend
on first conviction to ₹ 1,000 and on any subsequent conviction to ₹ 5,000.
 Note-LLP not having any company as its partner, can be engaged into practicing and thus take audit
assignments

Section 26- Unqualified Persons not to sign documents

 No person other than a member of the Institute shall sign any document on behalf of a CA in practice
or a firm of such CA’s in his or its professional capacity.
Penalty for Contravention-
 First Conviction - Upto ₹ 1000
 Subsequent Conviction- Upto ₹ 5000 or 6 months imprisonment or both.

Section 21- Disciplinary Procedure-

Matter to be placed before Board of Discipline Matter to be placed before Disciplinary
Committee.
 If a member is guilty of any professional or  If a member is guilty of any professional or
other misconduct mentioned in First other misconduct mentioned in Second
Schedule, the Disciplinary Directorate shall Schedule, the Disciplinary Directorate shall
place the matter between BOD. place the matter between DC.
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 Powers of BOD if CA found guilty of  Powers of DD if CA found guilty of misconduct

misconduct

PROFESSIONAL ETHICS-SUMMARY
a) Reprimand the member;
a) Reprimand the member; b) Remove the name of the member
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b) Remove the name of the member from permanently or for such period, as it
the register for a period of three thinks fit;
months; c) Impose fine up to ₹ 5 lakhs.
c) Impose fine up to ₹ 1 lakh.
Section 28A - Quality Review Board

Composition Functions
 Chairperson  To make recommendations to the Council with
 Ten other members regard to quality of services provided by the
members of institute;
 Chairperson and members of Board shall be
 To review the quality of services provided by
appointed from amongst the persons of
the members of the institute including audit
eminence having experience in the field of
law, economics, business, finance or services; and
accountancy.  To guide the members of the Institute to
 5 members to be nominated by Council. 5 improve the quality of services and adherence
members to be nominated by CG. to various statuary and other regulatory
requirements.

5. Schedules to the Act

First Schedule Part I– Professional Misconduct in relation to member in practice

Clause 1 – A CA in practice is deemed to be guilty of professional misconduct if “he allows any person to
practice in his name as a CA, unless such person is also a CA in practice and in partnership with or employed
by him”.
Analysis of the clause:
 A CA in practice can allow another person to practice in his name only if he is a CA in practice and his
partner/employee.
Clause 2 – A CA in practice is deemed to be guilty of professional misconduct if he
i. Pays / allows / agrees to pay or allow, directly or indirectly, any share, commission or brokerage
in fees or profits of his professional business to any person other than
a. A member, or
b. Partner, or
c. Retired partner, or
d. Legal representative of deceased partner, or
e. Member of any other professional bodies, or
f. With such persons having prescribed qualification
for the purpose of rendering such professional services from time to time in or outside India.
Points to remember
 4.14 PROFESSIONAL ETHICS-SUMMARY CHAPTER 04

1. In case of partnership firm, when there are 2 or more partners and one of them dies, the widow of
the decreased partner can continue to receive a share of the firm, only if partnership agreement
PROFESSIONAL ETHICS-SUMMARY

provides such provision.

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2. In case of proprietorship, Goodwill of a proprietary firm of Chartered Accountant can be sold or
transferred to another eligible member. of the institute, after the death of the proprietor
concerned.
Transfer of goodwill of the firm of Chartered Accountants are permitted subject to fulfilment of
the following procedure:
 An application in writing should be forwarded by a member, holding COP, intimating his intention
to purchase goodwill.
 The application should be made within 1 year from the death of the member.
 The name of the firm shall be kept in abeyance for 1 year from the death of
proprietor/settlement of dispute if any.
3. The professional bodies and persons with prescribed qualification given in Regulation 53 A of CA
Regulations, 1988. { CS , CMA, Advocate, Architect, Actuary, MBA, Bachelor in
Engineering/Technology/Law}.

Clause 3 – A CA in practice is deemed to be guilty of profession misconduct if he “Accepts / Agrees to

accept any part of the profits of the professional work of a person who is not a member of the
Institute”.
However, such a restriction does not apply in respect of following:
1. Member of any other professional bodies, or
2. With such other persons having prescribed qualification as referred to in clause 2.
Just as a member cannot share his profits with a non-member, he is also not permitted to receive and share
the fees of others except from members and professional bodies and persons specified in Regulation 53 A.
The object of the clause is to ensure that a CA in practice don’t work as commission agent. However, referral
fees amongst members in practice for referring a client is allowed.
Clause 4 – A CA in practice is deemed to be guilty of professional misconduct if he “Enters into partnership
in or outside India with any persons other than the following.
1. C.A in practice; or
2. Member of any other professional body having prescribed qualifications; or
3. A person resident without India who but for his residence abroad would be entitled to be registered
as a member; or
4. A person whose qualification are recognized by central Govt. or council of the purpose of permitting
such partner ships.”
Analysis of the clause:
 Reg 53 B-A CA can enter into partnership with CA in Practice, CS, CWA, LLB, Actuary, Architect, and
Engineer.
 Sharing in clause 2 and 3 can be done with a member not in practice but partnership can be entered
only with a CA in practice.

 Members cannot form multi-disciplinary partnership, till other professional regulators permit and
also guidelines of council are issued in this regard. (The implication is that CA in practice will not be
able to enter into partnership with an advocate even though permitted as per regulation 53 B until the
Bar council also permits it).
 CHAPTER 04 PROFESSIONAL ETHICS-SUMMARY 4.15

 Members in practice cannot become a partner / designated partner (non-working an without

remuneration) in LLP not carrying out professional work

PROFESSIONAL ETHICS-SUMMARY
CHAPTER 04

Clause 5 – A CA in practice is deemed to be guilty of professional misconduct if he “Secures any professional

business through the services of a person who is not an employee or not his partner or by means which
are not open to a CA”.
Clause 6 – A CA in practice is deemed to be guilty of professional misconduct if he solicits clients or
professional work either directly or indirectly, by circular, advertisement, personal communication or
interview or by any other means.
Provided that nothing herein contained shall construed as preventing or prohibiting - (1) Any CA from
applying, requesting for or inviting or securing professional work from another Chartered Accountant in
practice, or (2) A member from responding to tenders or enquiries issued by various users of professional
services or organisations from time to time and secure professional work as a consequence.
Some forms of soliciting work which the council has prohibited as discussed below: -
A. Advertisement and note in press
1. Members should not advertise for soliciting work.
Exceptions to above rule
a) Changes in partnerships, or
b) Of any change in address of practice and telephone numbers
However, such announcements should be limited to a bare statement of facts and consideration given
to the opportunities of the area of distribution of the newspaper or magazine and number of insertions
2. A member is also permitted to issue a classified advertisement in the journal / newsletter of the
Institute which is
a) Intended to give information for sharing professional work on assignment basis, or
b) For seeking partnership or salaried employment of an accountancy nature, provided it only
contains the contains the accountant’s name, address or telephone number, fax number, e – mail
address and address of social networking sites of members.
3. Mere factual position of experience and area of specialization relevant to seek response of
advertisement are permissible.
B. Empanelment of allotment of audit / professional work
1. The Governments departments Government companies / corporations and other similar Institutions
prepare panels of chartered Accountant for allotment of audit and other professional work.
2. Where the existence of such a panel is within the knowledge of a member, he is free to write to the
concerned organizations with a request to place his name on the panel.
3. Roving enquiries for existence of such panel is not permitted.
4. It is permissible to quote fees on enquires being received from such bodies, which maintain such panel.
5. Printed or xerox copies of scale of fees in reply to such enquires is not permitted.
C. Publications in telephone / other directories {CGG, 2008}
The council has held that it would be permissible for a Chartered Accountant to have entries in telephone
directory either by making a special request or by means of an additional payment. It has decided to permit
such entries subject to the following restrictions:
 4.16 PROFESSIONAL ETHICS-SUMMARY CHAPTER 04

1. The entry should appear in the section/category of “Chartered Accountant”.

PROFESSIONAL ETHICS-SUMMARY

2. The member / firm should belong to the town/city in respect of which the directory is being published.
3. The entry should be in normal type of letters. Entry in bolder type or abnormal type of
CHAPTER 04letters or in a
box is not permissible.
4. The order of the entries should be alphabetical and logical.
5. The entry should not appear in a manner giving the impression of publicity / Advertisement.
6. The payment, if any for the entry should not be unreasonable.
7. The entries should be open to all the CA’s / farms of CA’s in a particular city / town.
D. Responding to Tenders, Advertisements and Circulars : {CGG, 2008}
 It is not prohibited to the members to respond to tenders and requests made by users of professional
work. This is however subject to conditions that may be issued by the Council from time to time.
 A member of the Institute 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
Accountants, such as audit and attestation services. However, such restriction shall not be applicable
where minimum fee of the assignment is prescribed in the tender document itself or where the areas
are open to other professionals along with the Chartered Accountants.
 The “minimum fee” for this purpose should be such that it commensurate with size, value, volume,
manpower requirement and nature of work.
 EMD/Security Deposit : Permitted but A cost sheet be maintained by members of the Institute
responding to tenders, incorporating details of the costs being incurred therein having regard to
number of persons involved, hours to be spent, etc, so that the same may be called for by the Institute
for perusal.
E. Website (212th meeting and 242nd meeting of the council)
 No standard format prescribed, No colour restriction.
 Individual members would also be permitted to have their web pages in their trade name or individual
name.
 Websites are permitted to run on a “pull “model and not a “push “model of the technology to ensure
that only a person who wishes to locate the CAs or CAs’ firms would have access to the information.
 The CAs would be permitted to mention the websites address on their professional stationary only.
 Websites may contain : Member /trade / firm name, year of establishment, Member / firm ‘s address
(both head office and branches), Tel. no (s), Fax No (s),E – mail ID (s),Nature of service rendered (to
be displayable only on specific “pull” request),Partners – partner name, year of qualification (s) tell. no,
direct, res, mobile, e–mail, address, area of experience, (to be displayable only on specific “pull”
request),Details of employee – name, designation, area of experience (to be displayable only on specific
“pull” request),Job vacancies for the Chartered Accountant / firm of Chartered Accounts (including
article ship),No. of articled clerks (to be displayable only on specific “pull “request),Nature of
assignments handled (to be displayable only on “pull” request),Name of clients and fee charged cannot
be given, Usage of approval logo of ICAI on website. Any other logo should not be used and educational
videos on topic of professional relevance are permissible.
 No photographs of any sort are permitted. Display of passport size photographs is permitted
 The chat rooms can be provided which permit chatting amongst members of the ICAI and between the
Firms and its clients. The confidentiality protocol would have to be observed. 10. CAs can
 CHAPTER 04 PROFESSIONAL ETHICS-SUMMARY 4.17

provide only advice to their clients who specifically requests for the Advice whether free of charge or
on payment.

PROFESSIONAL ETHICS-SUMMARY
 Listing on suitable search engine should be permitted. However, the field of search should be
CHAPTER 04
restricted only to the field of “chartered Accountant s “or “CA” or “Indian CA “. “Indian CPA “” Indian
Chartered Accountant “or any permutation or combination related there to.
 The detail in the website should be so designed that it does not amount the soliciting client or
professional work or advertisement of professional attainments or services.

 The website may provide a link to website of ICAI, Regional Council and Branches. Govt
websites, Regulatory authorities, other professional bodies etc.
F. Roving Enquiries
 It is not permissible for a member to address letters or circulars to persons who are likely to require
services of a CA since it would tantamount to advertisement.
G. Publication of books and articles
 It is not permissible for a member to maintain 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, with which he is associated.
 However, he may be indicate in a book, article or presentation the designation “ Chartered Accountant”
as well as the name of the firm.
H. Issue of greeting Cards
 The Council does not approve of the issue of greeting cards or personal invitations by members
indicating their professional designation, status and qualifications etc.However, the Council is of the
view that the designation “Chartered Accountant” as well as the name of the firm may be used in
greeting cards, invitations for marriages and religious ceremonies and any invitations for opening or
inauguration of office of the members, change in office premises and change in telephone numbers,
provided that such greeting cards or invitations etc. are sent only to clients, relatives and friends of
the members concerned.

Points to Remember :

 Indicating their professional designation, status and qualification etc. are prohibited
 Issuing the same to clients and relatives of the partner shall amount to professional
misconduct.

I. seeking work from professional colleagues

 issue of an advertisement or a circular by a CA seeking work from professional colleagues is not
permitted. Only classified advertisement in newsletter/journal is permissible in this regard.
J. scope of representation u/s 140(4) of companies Act 2013
 Representation should not be used to secure needless publicity and soliciting for his continuance as an
auditor.
K. acceptance of work, emanating from a client introduced by other CA
 The council has decided that a member should not accept the original professional work emanating from
a client introduced to him by another member.
L. Public interview
 4.18 PROFESSIONAL ETHICS-SUMMARY CHAPTER 04

 While giving any interview, the member should ensure that it should not result in publicity and due care
must be given to ensure that professional attainments are not highlighted.
PROFESSIONAL ETHICS-SUMMARY

{ Interview in Electronic Media-Firm name allowed but not allowed in physical interview}
CHAPTER 04
M. Advertisement for Silver, Golden, Platinum or Centenary celebrations :
 It is not permitted to advertise the events organized by a Firm of Chartered Accountants. However,
considering the need of interpersonal socialization/relationship of the members ,it may be published in
newspaper or newsletter.
N. Sponsoring Activities
a. A member in practice or a Firm of Chartered Accountants is not permitted to sponsor an event.
However, such member or Firm may sponsor an event conducted by a Programme Organizing Unit (PoU)
of the ICAI, provided such event has the prior approval of Continuing Professional Education (CPE)
Directorate of the ICAI.
b. Members sponsoring activities relating to Corporate Social Responsibility may mention their individual
name with the prefix “CA”. However, the mention of Firm name or CA Logo is not permitted.
O. Advertisement of Teaching/Coaching activities by members:
 Members are advised to abstain from advertising their association with Coaching /teaching activities
through hoardings, posters, banners and by any other means, failing which they may be liable for
disciplinary action. Such members may put, outside their Coaching/ teaching premises, sign board
mentioning the name of Coaching/teaching Institute, contact details and subjects taught therein only.
As regards the size and type of sign board, the Council Guidelines as applicable to Firms of Chartered
Accountants would apply.
P. Educational Videos:
 While the videos of educational nature may be uploaded on the internet by members, no reference
should be made to the Chartered Accountants Firm wherein the member is a partner/ proprietor.
Further, it should not contain any contact details or website address.
Q. Sharing Firm profile with prospective client:
 It is not permitted to share Firm profile with a prospective client unless it is in response to a proposed
client’s specific query, and otherwise not prohibited to be used by the client.
R. Television or movie credit:
 Firm name is allowed but exhibition of name should not be made differently as compared to others.
S. Online Third Party Platforms { CGG, 2008}
CA/CA firms can provide consultation and advice through online 3rd third party platforms. However, firm
name and contract address shall not be provided.
T. Application based Service Provider Aggregators { CGG, 2008}
Not permissible for members to list themselves with online Application bases service provider Aggregators
wherein other aggregators are also listed.
It is permissible to get registered on govt portals since it does not amount to listing on aggregator.

Clause 7- A CA in practice is deemed to be guilty of professional misconduct if he: “Advertise his

professional attainments or services, or uses any designation or expressions other than CA on professional
documents, visiting cards, letter heads or sign boards.”
 CHAPTER 04 PROFESSIONAL ETHICS-SUMMARY 4.19

However, a recognised degree of university or title indicating membership of ICAI or any other institution
that has been recognised by Central government or council may be used.

PROFESSIONAL ETHICS-SUMMARY
Provided that a member in practice may advertise through a write up, setting out the service provided by him
CHAPTER 04
or his firm and particulars of his firm’s subject to such guidelines as may be issued by the council.
Points to remember
 A member empanelled as Insolvency Professional or Registered Valuer can mention the designation
Insolvency Professional or Registered Valuer respectively on his visiting card and letterhead.
 Income tax consultant, cost consultant or management consultant on professional documents – NOT
ALLOWED.
 Publication of photographs and brief particulars of member in magazines is permissible provided that
no payment should be made for the same and there is no advertisement of professional attainments.
 Inclusion of the name of a member of the Institute in the prospectus or public announcements or other
public communication issued by the companies in which the member in a director – ALLOWED.
 Use of logo – NOT ALLOWED only common logo permitted by ICAI is allowed.
 Printing photograph on the visiting card is not permissible. However, Quick Response Code may be
printed on visiting card provided that the Code does not contain information that is not otherwise
permissible to be printed in visiting card.
 It is not permissible for CA Firm to print its vision and values behind the visiting cards, as it would
result in solicitation and therefore would be violative of the provisions of Clause (6) Of Part-I of First
Schedule to the Chartered Accountants Act, 1949.
 Members are permitted to mention a title on their visiting cards to indicate membership of a
foreign institute of Accountancy, which has been recognised by council. Example: CPA, ICAEW
 Date of setting up practice or establishment of firm on letter heads and other professional documents
should not be mentioned.
 Member is allowed to print names of all firms on personal letter heads in which he is a partner.
 Use the glow signed board / light or large size board – NOT ALLOWED, he may have a name board to
himself at residence but not of a firm.
 On success of candidate in exams- Name, address, local background and success details of the
candidate can be mentioned. name of the firm can be mentioned but there should no undesirable
publicity of article / principal / firm.
 Advertisement in Press-Not Allowed
Exception-
 Advertisement for recruiting staff in the members own office
 Advertisements inserted on behalf of clients requiring staff or wishing to acquire or dispose of
business or property
 Advertisement for the sale of a business or property by a member acting in a professional
capacity as trustee, liquidator or receiver

Clause 8 – A CA in practice is deemed to be guilty of professional misconduct if “he accepts a position as

auditor previously held by another Chartered Accountant or certified auditor who has been issued
certificate under the Restricted Certificate Rules 1932, without first communicating with him in
writing.”
Important points
1. The professional reasons for not accepting an audit could be:
A. Non–compliance of the provisions of section 139 & 140 of Companies Act, 2013.
 4.20 PROFESSIONAL ETHICS-SUMMARY CHAPTER 04

B. Non – payment of undisputed audit fees by auditees other than in case of sick units (sick unit
shall mean a unit registered for not less than 5 years, which has at the end of any F.Y.
PROFESSIONAL ETHICS-SUMMARY

accumulated losses equal to or exceeding its entire net worth).

CHAPTER 04
C. Issuance of a qualified report
In the first two cases, an auditor who accepts the audit would be guilty of professional
misconduct. In the last case, however, he may accept the audit if he satisfied that the attitude
of the retiring auditor was not proper and justified.
2. Communication should be by way of RPAD (Registered Post Acknowledgment Due), Courier with proof
of delivery, by hand delivery against an acknowledgment in writing, e-mail through e-mail id registered
with ICAI of last known official e-mail id, (UDIN) generated on UDIN portal (subject to separate
guidelines issued by the council. Certificate of Posting not a conclusive proof of communication, mere
posting of a letter under Certificate of Posting is not sufficient to establish communication.
3. It is duty of outgoing auditor to reply as early as possible, if outgoing auditor does not reply, the
incoming auditor may act after waiting for reasonable time. Apply to all audit assignment including
internal concurrent tax audit, however not applicable for special Audits, But as per healthy practice
for special audit u/s 142(2A) of IT Act also.
4. Duty of communication is absolute and required in every case, even when appointment is made by
government or when if previous auditor knows about the appointment. The mandatory communication
with the previous auditor being a Chartered Accountant is required even in case where the previous
auditor happens to be an auditor for a year other than the immediately preceding year.
5. Communication required for all kinds of audit: The requirement for communicating with the previous
auditor being a Chartered Accountant in practice would apply to all types of Audit viz., Statutory Audit,
Tax Audit, GST Audit, Internal Audit, Concurrent Audit or any other kind of audit.
6. Premises found locked: The communication received back by the incoming auditor with “office found
locked” written only Acknowledgement due shall be deemed as having being delivered to the retiring
auditor.
7, Firm not found at the given registered address: If the communication send by the incoming auditor
is received back with remarks “no such office exists at this address” and the address of communication
is the same as registered with institute on the date of dispatch, the letter will be deemed to be
delivered, unless the retiring auditor proves that it was not really served and that he was not
responsible for such non-service.
8. Communication in case of Assignments done by other professionals: Not mandatory but a healthy
practise to communicate.
9. Lack of time in acceptance of Government Audits :
 In case the time schedule given for the assignment is such that there is no time to wait for the
reply from the outgoing auditor, the incoming auditor may give a conditional acceptance of the
appointment and commence the work which needs to be attended to immediately after he has sent
the communication to the previous auditor in accordance with this clause.
 In his acceptance letter, he should make clear to the client that his acceptance of appointment is
subject to professional objections, if any, from the previous auditors and that he will decide about
his final acceptance after taking into account the information received from the previous auditor.
Clause 9 – A CA in practice is deemed to be guilty of professional misconduct if he “Accepts an appointment
as auditor of a company without ascertaining whether requirements of sec 225 of companies Act, 1956
(Section 139, 140 read with 141), in respect of such appointment have been duly complied with.”
 CHAPTER 04 PROFESSIONAL ETHICS-SUMMARY 4.21

Clause 10 – A CA in practice is 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, fee which is based on a

PROFESSIONAL ETHICS-SUMMARY
percentage of profits or which are contingent upon findings, or results of such employment, except as
CHAPTER
permitted under 04
regulations.”

Points to remember
a) Fees will not be treated contingent if fixed by a court or other public authority.
b) Regulation 192 (Exemption to clause 10).
 In the case of a receiver or a liquidator, the fees may be based on a percentage of the realisation
or disbursement of the assets
 In the case of an auditor of a co – operative society, the fee may be based on a percentage of
the paid-up capital or the working capital or the gross or net income or profits.
 In the case of a valuer for the purposes of direct taxes and duties, the fee may be based on a
percentage of the value of property valued
 in the case of certain fund-raising services, the fees may be based on a percentage of the fund
raised
 in the case of debt recovery services, the fees may be based on a percentage of the debt
recovered
 in the case of services related to cost optimisation, the fees may be based on a percentage of
the benefit derived; and
 any other service or audit as may be decided by the Council (Following activities have been
decided by the Council under “h” above :-(i) Acting as Insolvency Professional;(ii) Non-Assurance
Services to Non-Audit Clients).

Clause 11- A CA in practice is deemed to be guilty of professional misconduct if he “Engages in any business
or occupation other than profession of CA unless permitted by council so to engage. However, a member
may become director (not being M. D or whole-time director) in a company provided he or any of his partners
is not interested in such company as an auditor.”
General Permission
Permission granted generally - Members of the Institute in practice be generally permitted to engage in
the following categories of occupations, for which no specific permission from the Council would be necessary
in individual cases:
(1) Employment under Chartered Accountants in practice or firms of such chartered accountants.
(2) Private tutorship.
(3) Authorship of books and articles.
(4) Holding of Life Insurance Agency License for the limited purpose of getting renewal commission.
(5) Attending classes and appearing for any examination.
(6) Holding of public elective offices such as M.P., M.L.A. and M.L.C.
(7) Honorary office leadership of charitable-educational or other non-commercial organisations.
(8) Acting as Notary Public, Justice of the Peace, Special Executive Magistrate and the like.
(9) Part-time tutorship under the coaching organisation of the Institute.
 4.22 PROFESSIONAL ETHICS-SUMMARY CHAPTER 04

(10) Valuation of papers, acting as paper-setter, head-examiner or a moderator, for any examination.
PROFESSIONAL ETHICS-SUMMARY

(11) Editorship of professional journals.

(12) Acting as Surveyor and Loss Assessor under the Insurance Act, 1938 provided they04are otherwise
CHAPTER
eligible.
(13) Acting as recovery consultant in the banking sector
(14) Owning agricultural land and carrying out agricultural activity (w.e.f. August 9th, 2008).

PTR- Teaching hours should not exceed 25 hours a week.

Specific Permission -
Members of the Institute in practice may engage in the following categories of business or occupations, after
obtaining the specific and prior approval of the Council in each case:
(1) Full-time or part-time employment in business concerns provided that the member and/or his relatives
do not hold “substantial interest” in such concerns.
(2) Full-time or part-time employment in non-business concern.
(3) Office of managing director or a whole-time director of a body corporate within the meaning of the
Companies Act, 1956 (now Companies Act, 2013) provided that the member and/or any of his relatives
do not hold substantial interest in such concern.
(4) Interest in family business concerns (including such interest devolving on the members as a result of
inheritance / succession / partition of the family business) or concerns in which interest has been
acquired as a result of relationships and in the management of which no active part is taken.
(5) Interest in an educational institution.
(6) Part-time or full-time lectureship for courses other than those relating to the Institute’s examinations
conducted under the auspices of the Institute or the Regional councils or their branches.
(7) Part-time or full-time tutorship under any educational institution other than the coaching organization
of the Institute.
(8) Editorship of journals other than professional journals.
(9) Any other business or occupation for which the Executive Committee considers that permission may be
granted.
However, it is open to the Council to refuse permission in individual cases though covered under any of the
above categories. For the purpose of the above resolution:
Regulation 191
A CA in practice can accept the appointment [ provided it is not on salary – cum – full time basis]
1. As a liquidator, trustee, executor, administrator, arbitrator, receiver, advisor or
2. As representative for costing, financial or taxation matters or
3. Any appointment made by central or state Government or court of Law or any other legal authority
4. As a secretary.
 CHAPTER 04 PROFESSIONAL ETHICS-SUMMARY 4.23

Clarifications by the Council :

PROFESSIONAL ETHICS-SUMMARY
1. Directors of the Company-A member in practice is permitted generally to be a Director Simplicitor
in anyCHAPTER
Company 04
including a board-managed Company and as such he is not required to obtain any
specific permission of the Council in this behalf unless he or any of his partners is interested in such
Company as an auditor, irrespective of whether he and/or his relatives hold substantial interest in
that Company
2. Promoter/Promoter Director - There is no bar for a member to be a promoter / signatory to the
Memorandum and Articles of Association of any company. Therefore, members are not required to
obtain specific permission of the Council in such cases.
3. Member in practice in a HUF doing business –
 A member of the Institute can acquire interest in family business in any of the following manner- as
a proprietary firm/ partnership firm/ name and style of HUF as its Karta /member.
 It would be necessary for the members to provide evidence that interest in the family business
concern devolved on him as a result of inheritance / succession / partition of the family business.
It is also necessary for the member to show that he was not actively engaged in carrying on the
said business and that the family business concern in question was not created by himself. To
establish his case, the member should furnish a declaration in the prescribed format and the
documents evidencing above for consideration to the concerned Decentralized Office.”
 A member in practice engaged as Karta of a HUF doing family business, will be within the limit
prescribed by Council if he makes investments from the funds pertaining to HUF only, provided, he
is not actively engaged in the management of the said business.
4. Auditor of subsidiary company cannot be a director of its holding co, as it will affect independence
of auditor.

Clause 12 : A CA in practice is deemed to be guilty of professional misconduct if he “Allows a person not

being a member of ICAI in practice or a member not being in partner to sign on his behalf or his firm,
any Balance sheet, Profit and loss account, report or financial statements”.
For example: If CA in practice allows his audit assistants, who are not members, to sign the bills for audit
fees on behalf of firm of CA then it shall not be deemed to be professional misconduct.
Additional Reference: -
The Council has clarified that the power to sign routine documents on which a professional opinion or
authentication is not required to be expressed may be delegated in the following instances and such
delegation will not attract provisions of this clause:
(i) Issue of audit queries during the course of audit.
(ii) Asking for information or issue of questionnaire.
(iii) Letter forwarding draft observations/financial statements.
(iv) Initiating and stamping of vouchers and of schedules prepared for the purpose of audit.
(v) Acknowledging and carrying on routine correspondence with clients.
(vi) Issue of memorandum of cash verification and other physical verification or recording the results
thereof in the books of the clients.
(vii) Issuing acknowledgements for records produced.
(viii) Raising of bills and issuing acknowledgements for money receipts.
 4.24 PROFESSIONAL ETHICS-SUMMARY CHAPTER 04

(ix) Attending to routine matters in tax practice, subject to provisions of Section 288 of Income Tax Act.
PROFESSIONAL ETHICS-SUMMARY

(x) Any other matter incidental to the office administration and routine work involved in practice of
accountancy.
CHAPTER 04
First Schedule Part II– Professional Misconduct in relation to member in Service

A member of the Institute (other than member in practice) is deemed to be guilty of professional
misconduct if he
Clause 1 – “Pays or allows or agrees to pay directly or indirectly to any person any share in the
emoluments of the employment undertaken by him”.
Clause 2 – “Accepts or agrees to accept any part of fees, profits or gains from a lawyer, a Chartered
Accountant or broker engaged by such company, firm or person or agent or customer of such company,
firm or person by way of commission or gratification”

First Schedule Part III– Professional Misconduct in relation to members generally

A Member of the Institute, whether in practice or not is deemed to be guilty of professional misconduct if he
Clause 1 – A CA in general is deemed to be guilty of professional misconduct if he “Not being a fellow of
the Institute, but acts as a fellow of the Institute”.
Clause 2 – A CA in general is 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 of the appellate authority”
Clause 3 – A CA in general is deemed to be guilty of professional misconduct if he: “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 clauses (6) and (7) of Part I of this
schedule, gives information knowing it to be false”.
Example: - A CA firm disclosed Mr. Ram as their partner ever though Mr. Ram is not a partner to another
organization to procure work.

First Schedule Part IV– Other Misconduct in relation to members generally

A Member of the Institute, whether in Practice or not, shall be deemed to be guilty of other misconduct
if he
1. Is held guilty of any civil or criminal court for an offence which is punishable with imprisonment for a
term not exceeding six months.
2. In the option of the council brings disrepute to the profession or the Institute as a result of his action
whether or not related to his professional work.

Second Schedule Part I “Professional Misconduct in relation to Members in Practice”

Clause 1 – A chartered Accountant in practice shall be deemed to be guilty of professional misconduct, if he
“Discloses the 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 of the
time being in force.”
Important Points :
1. The accountant’s duty not to disclose continues even after the completion of his assignment.
 CHAPTER 04 PROFESSIONAL ETHICS-SUMMARY 4.25

2. An auditor is not required to provide the client or other auditors of the same enterprise or its related
enterprise such as a parent or a subsidiary, access to his audit working papers. However, as per

PROFESSIONAL ETHICS-SUMMARY
section 143(12) of the Companies Act, 2013, if an auditor of a company, in the course of the
CHAPTER
performance of 04
his duties as auditor, has reason to believe that an offence involving fraud is being
or has been committed against the company by officers or employees of the company, he shall
immediately report the matter to the Central Government within 60 days of his knowledge.

Clause 2 – A Chartered Accountant in practice shall be deemed to be guilty of professional misconduct, if he

"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 CA in practice."
Clause 3 – A chartered Accountant in practice shall be deemed to be guilty of professional misconduct, if he
"Permits his name or the name of his firm to be used in connection with an estimate of earnings
contingent upon future transactions in manner which may lead to the belief that he vouches for the accuracy
of the forecast."
Important Points:
As per SAE 3400, A CA in practice can associate his name with the forecasts. He can participate in
preparation of profits or final forecasts and can review them subject to the following conditions:
1. Source of information is mentioned.
2. The basis of forecasts is mentioned.
3. He gives in the report the major assumptions made in arriving at the forecasts.
4. He does not vouch for accuracy of forecasts.

Clause 4 – A chartered Accountant in practice shall be deemed to be guilty of his professional misconduct,
if he "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."
Important Points
(i) A member of the Institute shall not express his opinion on financial statements of any business or
enterprise in which one or more persons, who are his “relatives“ within the meaning of AS 18 related
party disclosures, have either by themselves or in conjunction with such members a substantial
interest in the said business or enterprise.
(ii) It is not permissible for a member to undertake the assignment of certification, wherein the client
is relative of the member. The "relative" for this purpose would refer to the definition mentioned in
Accounting Standard (AS)-18.The meaning of term “relative“ is taken as per AS 18 and covers person
such as father, mother, son, daughter, brother, sister, spouse. Apart from above holding company,
subsidiary company, key management personnel, relatives of director and KMP, associate and Joint
Venture.
(iii) The words “financial statements” used in this clause would cover both reports and certificates.
(iv) In this connection, the Council has decided not to permit a Chartered Accountant in employment
to certify the financial statements of the concern in which he is employed, or of a concern under
the same management as the concern in which he is employed, even though he holds certificate of
practice and that such certification can be done by any Chartered Accountant in practice. This
restriction would not however apply where the certification is permitted by any law. The Council has
also decided that a Chartered Accountant should not by himself or in his firm name: -
1. accept the Auditorship of a college, if he is working as a part-time lecturer in the college.
 4.26 PROFESSIONAL ETHICS-SUMMARY CHAPTER 04

2. accept the Auditorship of a Trust where his partner is either an employee or a trustee of the
Trust.
PROFESSIONAL ETHICS-SUMMARY

(v) The Council has, in this connection, issued the following guidelines:
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Requirements of Clause applicable to all Attest Functions
Many new areas of professional work have been added, e.g., Tax Audit, GST Audit, Concurrent Audit
of Banks, Concurrent Audit of Borrowers of Financial institutions, Audit of non-corporate borrowers
of Banks and Financial Institutions, Audit of Stock Exchange, Brokers, etc. The Council wishes to
emphasize that the aforesaid requirement of Clause (4) are equally applicable while performing all
types of attest functions by the members.
vi) Public conscience is expected to be ahead of the law. Members, therefore, are expected to interpret
the requirement as regards independence much more strictly than what the law requires.
vii) Member must take care to see that they do not land themselves in situations where there could be
conflict of interest and duty.
For example, where a Chartered Accountant is appointed the Liquidator of a Company, he should not
qua a Chartered Accountant himself, audit the Statement of Accounts to be filed under Section
348(1) of the Companies Act, 2013. The audit in such circumstances should be done by a Chartered
Accountant other than the one who is the Liquidator of the Company.
viii) An accountant is expected to be not independent in the discharge of his duties as a tax consultant
or a financial advisor than as auditor.
(ix) Members are not permitted to write the books of accounts of their auditee clients.
(x) Statutory auditor should not be appointed as the internal auditor simultaneously of the same entity.
(xi) An internal auditor cannot be appointed as tax auditor of same entity.
(xii) The internal auditor cannot undertake GST Audit of the same entity.
(xiii) Cooling off period after completion of tenure as Director: A member shall not accept the
assignment of audit of a Company for a period of two years from the date of completion of his tenure
as Director, or resignation as Director of the said Company.
(xiv) Members to satisfy whether appointment is as per the statute: A member should satisfy himself
before accepting an appointment as an auditor of an entity that his appointment is in accordance with
the statute governing the entity.
(xv) In case the appointment is to be authorised by the regulatory authorities such as in the case of co-
operative societies, trusts etc. then the member must satisfy whether such regulatory authorities
have authorised the managing committee of the society/trust for appointment of the auditors.
(xvi) Section 288 of Income Tax Act, 1961 describe the disqualifications for the purpose of Tax Audit.
(xvii) Substantial interest means having 20 % voting power.

Clause 5 – A Chartered Accountant in practice shall be deemed to be guilty of professional misconduct if he

“Fails to disclose a material fact known to him which is not disclosed in a financial statements, but
disclosure of which is necessary in making such financial statement not misleading where he is concerned with
that financial statement in a professional capacity”.

Note- The word “financial statements” used in this clause would cover both reports and certificate. The
definition of materiality is given in SA 320.
 CHAPTER 04 PROFESSIONAL ETHICS-SUMMARY 4.27

Clause 6 - A Chartered Accountant in practice shall be deemed to be guilty of professional misconduct, if

he “Fails to report a material misstatement known to him to appear in a financial statement with which he

PROFESSIONAL ETHICS-SUMMARY
is concerned in a professional capacity”.
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Clause 7 - A Chartered Accountant in practice shall be deemed to be guilty of professional misconduct, if
he “Does not exercise due diligence, or is grossly negligent of the conduct of his professional duties."
{ It is a vital clause which gets attracted whenever it is necessary to judge whether CA has honestly
discharged his duties. The expression negligence covers wide field from fraud to minor negligence.}
Important Points
Examples of Gross Negligence
a. Failure to check the bank balances with the passbooks of the banks and to obtain certificates of
balances from the bankers.
b. Issuing clean report on the balance sheets whereas the reports on the special audit conducted
subsequently revealed few irregularities.
c. Accepting arbitrary valuation of stock without its physical verification.
d. Issuing wrong consumption certificate in respect of raw materials and components without examining
stock register.
e. Not completing his work in due course of time, delaying it unnecessarily.

Clause 8 – A Chartered Accountant in practice shall be deemed to be guilty of professional misconduct, if he

“Fails to obtain sufficient information which is necessary for expression of an opinion or its exceptions
are sufficiently material to negate the expression of an opinion”.
Important Points :
1. A CA should express his opinion about the truth and fairness of statement of accounts only after
obtaining required data and information.
2. He has to determine extent to which information is required.
3. In case of inadequacy of information or data, he should clearly express his disclaimer in no uncertain
terms.
For example, if the auditor has not seen any evidence of the existence and/or valuation of the
investment which constitute the only asset of a company, he should not say that:
"Subject to the verification of the existence and value of the investments the balance sheet shows
a true and fair view”

Clause 9 – A Chartered Accountant in practice shall be deemed to be guilty of professional misconduct if he

“Fails to invite attention to any material departure from the generally accepted procedure of audit
applicable. “

Few examples
 Audit of Listed Companies shall be done by only those auditors who have subjected themselves to the
Peer Review process of the Institute, and hold a valid certificate issued by the Peer Review Board of
the ICAI.
 FRN and Membership No.: The members are required to mention the Membership number and Firm
registration number to all reports issued pursuant to any attestation engagements, including
certificates, issued by them as proprietor of/ partner in the said firm.
 4.28 PROFESSIONAL ETHICS-SUMMARY CHAPTER 04

 A member of the Institute in practice shall generate Unique Document Identification Number (UDIN)
for all kinds of the certification, GST and Tax Audit Reports and other Audit, Assurance and
PROFESSIONAL ETHICS-SUMMARY

Attestation functions undertaken/signed by him.

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Clause 10 – A Chartered Accountant in practice shall be deemed to be guilty of professional misconduct if
he “Fails to keep money of his client other than fees or remuneration or money meant to be expended
in a separate banking account or to use such moneys for purposes for which they are intended within a
reasonable time.”
Important Points
1. The aforesaid money received by the auditor should be deposited into a separate bank account.
2. It is the duty of CA to use the money as per client’s instructions or for the purpose instructed by
the client.
3. An advance received by a CA against the services to be rendered does not fall under these clauses.
4. Money received for expenses to be incurred which are not intended to be spent within reasonably
short time, should be put in a separate bank account immediately.
5. Money received by a Chartered Accountant, in his capacity as trustee, executor, liquidator, etc. must
be put in a separate bank account immediately.

Second Schedule - Part II “Professional Misconduct in relation to Members of Institute Generally”

A member of the Institute, whether in practice or not, shall be deemed to be guilty of professional
misconduct, if he
Clause 1 –, Contravenes any of the provisions of this Act or the regulations made there under or any
guidelines issued by the council.
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.
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.
Clause (4) Defalcates or embezzles money received in his professional capacity.
Defalcation and embezzlement of moneys received in professional capacity amounts to fraud (Covered in SA-
240) and such member will be deemed to be guilty of professional misconduct under this clause.

Second schedule- Part III “Other Misconduct in relation to Members of Institute Generally”
Clause 1 - 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.
Imprisonment awarded for a term exceeding six months in any civil/criminal matter treated as a major
offence under ‘other misconduct’ is included in this Schedule.
 CHAPTER 04 PROFESSIONAL ETHICS-SUMMARY 4.29

6. Council General Guidelines, 2008

PROFESSIONAL ETHICS-SUMMARY
Chapter I - Preliminary
Chapter II -CHAPTER
Conduct 04
of a Member being an employee
A member of the Institute who is an employee shall exercise due diligence and shall not be grossly negligent
in the conduct of his duties.
Chapter III- Appointment of a Member as Cost Auditor-Omitted
Chapter IV - Opinion on financial statements when there is substantial interest- Omitted
Chapter V- Maintenance of books of account
A member of the Institute in practice or the firm of Chartered Accountants of which he is a partner, shall
maintain and keep in respect of his / its professional practice, proper books of account including the following-
(i) a Cash Book;
(ii) a Ledger.
Chapter VI - Tax Audit assignments under Section 44 AB of the Income-tax Act, 1961
 A member of the institute in practice shall not accept, in a financial year, more than 60 tax audit
assignments under Section 44 AB of the Income Tax Act, 1961 whether in respect of corporate or
non- corporate assesses.
 According to a clarification on Tax Audit Assignments by Committee on Ethical Standards Board) of
the Institute, even 1 partner can sign all tax audit reports on behalf of other partners.
 The audit of the head office and branch offices of a concern shall be regarded as one tax audit
assignment. The audit of one or more branches of the same concern by one Chartered Accountant in
practice shall be construed as only one tax audit assignment.
Chapter VII - Appointment of an Auditor in Case of non-payment of undisputed fees
A member of the Institute in practice shall not accept the appointment as auditor of an entity in case the
undisputed audit fee of another Chartered Accountant for carrying out the statutory audit under the
Companies Act, 2013 or various other statutes has not been paid: Provided that in the case of sick unit, the
above prohibition of acceptance shall not apply.
For this purpose, “sick unit” shall mean a unit registered for not less than five years, which has at the end
of any financial year accumulated losses equal to or exceeding its entire net worth.
Chapter VIII - Specified numbers of Audit Assignments
A member of the Institute in practice shall not hold at any time appointment of more than 30 audit
assignments whether in respect of private Companies or other Companies, with the exception of one person
Companies and dormant companies. {In case of firm, it will be considered 30 per partner}.
However, under Section 141 (3) (g), a person who is in full time employment elsewhere or a person or a
partner of a firm holding appointment as its auditor, if such persons or partner is at the date of such
appointment or reappointment holding appointment as auditor of more than 20 companies other than one
person companies, dormant companies, small companies and private companies having paid-up share capital
less than one hundred crore rupees. No of partners on date of acceptance to be considered.
Chapter IX - Appointment as Statutory Auditors
a member of the Institute in practice shall not accepts the appointment as a statutory auditor of a
PSUs’/Govt company(ies)/Listed company(ies) and other public company(ies) having a turnover of ₹ 50 crores
or more in a year and where he accepts any other work(s) or assignment(s) or service(s) in regard to same
 4.30 PROFESSIONAL ETHICS-SUMMARY CHAPTER 04

undertaking(s) on a remuneration which in total exceeds the fee payable for carrying out the statutory audit
of the same undertaking.
PROFESSIONAL ETHICS-SUMMARY

For this purpose, the other work/services include Management Consultancy and all other professional services
CHAPTER 04
permitted by Council excluding audit under any other statute, Certification work required to be done by the
statutory auditor and any representation before an authority.
Author’s note- Applicability of these guidelines seems to be redundant in case of companies as section 144
prohibits the auditor from rendering such services including management services directly /indirectly to
company or its holding company or its subsidiary company.
Chapter X - Appointment of an Auditor when he is indebted to a concern
A member of the Institute in practice or a partner of a firm in practice or a firm or a relative of such member
or partner shall not accept appointment as auditor of a concern while indebted to the concern or given any
guarantee or provided any security in connection with the indebtedness of any third person to the concern,
for limits fixed in the statute and in other cases for amount exceeding 1,00,000/-.
Points to Remember :

1. Recovery of fees on progressive basis doesn’t mean indebtedness.

2. As per Section 141(3) of companies act, 2013, the limits of indebtness is ₹ 5 lakh and for guarantee
or security is ₹ 1 lakh .

Chapter XI - Directions in case of unjustified removal of auditors A member of the Institute in

practice shall follow the direction given, by the Council or an appropriate Committee or on behalf of any of
them, to him being the incoming auditor(s) not to accept the appointment as auditor(s), in the case of
unjustified removal of the earlier auditor(s).
Chapter XIII - Guidelines on Tenders- covered in clause vi
Chapter XIV - Unique Document Identification Number (UDIN) Guidelines
A member of the Institute in practice shall generate Unique Document Identification Number (UDIN) for
all kinds of the certification, GST and Tax Audit Reports and other Audit, Assurance and Attestation
functions: -
 For all Certificates w.e.f. 1st February, 2019.
 For all GST and Tax Audit Reports w.e.f. 1st April, 2019.
 For all other Audit, Assurance and Attestation functions w.e.f. 1st July, 2019.
Chapter XV - Guidelines for Networking Note: Covered separately.
Chapter XVI - Logo Guidelines
 Logo consists of letter ‘CA’ with tri colour tick mark (upside down) with white background .
 Letters CA have been put in blue, which not only stands out on background but also denotes creativity,
innovativeness, knowledge, integrity, trust, truth, stability & depth
 Upside down tick mark typically used by CAs, symbolize wisdom & value of profession.
 'India' is also added in logo, as it epitomizes Institute's connection to India First approach and
commitment to serve Indian economy in public interest .
 Use logo as it is. Do not change design, font, spacing, dimensions & colours. Refrain from rotating or
tilting logo
 A transition time of 1 year has been provided to use existing stationary/signage replacement etc .
 CHAPTER 04 PROFESSIONAL ETHICS-SUMMARY 4.31

PROFESSIONAL ETHICS-SUMMARY
CHAPTER 04

Chapter XVII - Guidelines for Corporate Form of Practice

 The Council decided to allow members in practice to hold the office of Managing Director, Whole-time
Director or Manager of a body corporate within the meaning of the Companies Act provided that the
body corporate is engaged exclusively in rendering Management Consultancy and Other Services
permitted by the Council in pursuant to Section 2(2)(iv) of the Chartered Accountants Act, 1949.
 The members can retain full time Certificate of Practice besides being the Managing Director,
Whole-time Director or Manager of such Management Consultancy Company.
 There will be no restriction on the quantum of the equity holding of the members, either individually
and/ or along with the relatives, in such Company. Such members shall be regarded as being in full-
time practice and therefore can continue to do attest function either in individual capacity or in
Proprietorship/Partnership firm in which capacity they practice and wherein they are also entitled to
train articled/audit assistants.

7. Council Guidelines For Advertisement, 2008

1. Advertisement through write-up
The write-up shall comply with the following conditions: -
A. It shall be honest and truthful.
B. There shall be no exaggerated claims for the services offered by the member or the Firm, or the
qualifications or experience of the member or any of the partners or any other person associated
with the Firm.
C. It must not make any disparaging references or unsubstantiated comparisons to the work of
others.
D. It should not be of a nature that may bring the profession into disrepute.
E. It should not contain testimonials or endorsements concerning Member(s) or names of clients
(both the past and present) or the fees charged.
F. It should not contain any information about achievements /awards (except the awards given by
the Central or State Governments or Regulatory bodies) or any other position held , or
accreditation(s) granted by any organisation.
G. Monogram of any kind or use of any kind of catch words is not permissible.
H. The Membership No./FRN (as may be applicable) is mandatory to be mentioned in the write- up.
I. It should not be of font size exceeding 14.
 4.32 PROFESSIONAL ETHICS-SUMMARY CHAPTER 04

J. It must not be violative of any provisions of Chartered Accountants Act, 1949, Chartered
Accountants Regulations, 1988, Code of Ethics, 2020 or any Guideline of the Council.
PROFESSIONAL ETHICS-SUMMARY

The Institute of Chartered Accountants of India may issue a reasoned directive for removal or
CHAPTER 04
withdrawal of the whole write-up or of any part(s) thereof.
2. Guidelines for website, online 3rd party platforms, publication in telephone directories, Application
based service aggregators
Covered under CGG, 2008.

8. Council Guidelines on Network and Network Firm

What constitutes a network/Common attribute that must exist for a firm to be called a Network? It's
a large structure aimed at co-operation, profit or cost sharing , common control , management or
ownership, common quality control policies, common business strategies, common brand name.

Clarifications on What will not constitute a Network

1. The sharing of immaterial costs does not in itself create a network. In addition, if the sharing of
costs is limited only to those costs related to the development of audit methodologies, manuals, or
training courses, this would not in itself create a network.
2. An association between a firm and an otherwise unrelated entity to jointly provide a service or developa
product does not in itself create a network.
3. An entity is not deemed to be a network firm merely because it co-operates with another entity solely
to respond jointly to a request for a proposal for the provision.
4. Where the shared resources are limited to common audit methodology or audit manuals, with no
exchange of personnel or client or market information, it is unlikely that the shared resources would
be significant and hence such an association would not constitute a network.
Forms of the Network
1. A network can be constituted as a mutual entity which will act as a facilitator for the constituents of
the Network. In such a case the Network itself will not carry out any professional practice.
2. A network can be constituted as a partnership firm subject to the condition that the total number of
partners does not exceed twenty.
3. A network can be constituted as a Limited Liability Partnership subject to the provision of the
Chartered Accountant Act and Rules and such other laws as may be applicable.
4. A network can be constituted as company subject to the guidelines prescribed by Institute for
corporate form of practice and formation of management consultancy services company.
5. Network Firms shall consist of sole Practitioner/proprietor, partnership or any such entity of
professional accountants as may be permitted by the Act
6. A firm is allowed to join only one network.
7. Firms having common partners shall join only one Network.
Approval of Name of Network amongst firms registered with Institute:
1. The Network may have distinct name which should be approved by the Institute. To distinguish a
“Network” from a “firm” of Chartered Accountants, the words “& Affiliates” shall be used after the
name of the network and the words “& Co.” / “& Associates” shall not be used. The prescribed format
of application for approval of Name for Network is at Form ‘A’ (enclosed). Illustrative examples of
names of Network: -
 CHAPTER 04 PROFESSIONAL ETHICS-SUMMARY 4.33

(a) If the Network is a Mutual Entity or Partnership Firm: AB & Affiliates

PROFESSIONAL ETHICS-SUMMARY
(b) If the Network is a LLP: AB Affiliates LLP
(c) IfCHAPTER
the Network
04 is a Limited Company: AB Affiliates P. Ltd/Limited
2. The Institute shall approve or reject the name of the Network and intimate the same to the Network
at its address mentioned in Form ‘A’ within a period which shall not be later than 30 days from the
date of receipt of the said Form.
3. Mere approval of the name of the Network shall not entitle the Network to carry on practice in its own
name.
Registration of Network with entities in India
1. After the name of a Network is approved as per provision under Guideline 5, the Institute same shall
reserve such name for a period of three (3) months from the date of approval.
2. The Network shall get itself registered with the Institute by applying in Form B within the period of
3 months, failing which the name assigned shall stand cancelled on the expiry of the said period.
3. Registration of Network with Institute is mandatory.
4. If different Indian firms are networked with a common Multinational Accounting Firm, they shall be
considered as a part of network.
Listing of Network with entities outside India
1. The duly authorized representative(s) of the Indian Member firm (s)/Member constituting the
Network with entities outside India shall file a declaration with the Institute in Form ‘D’ for Listing of
such Network within 30 days from the date of entering into the Network arrangement.
2. Proprietary/individual members, partnership firms as well as members in LLP or any such other entity
of members as may be permitted by the Act, shall be permitted to join such network with entities
outside India provided that the proprietary/individual members, partnership firms as well as members
in LLP or any such other entity of members are allowed to join only one network and firms having common
partners shall join only one such network.
Change in constitution of registered Network:
In case of change in the constitution of registered Network on account of any entry into or exit from the
Network, the network shall communicate the same to the Institute by filing Form ‘C’ within a period of
thirty (30) days from the date of change in the constitution.
Ethical Compliance:
Once the relationship of network arises, it will be necessary for such a network to comply with all applicable
ethical requirements prescribed by the Institute from time to time in general and the following requirements
in particular: -
1. If one firm of the network is the statutory auditor of an entity then the associate [including the
networked firm(s)] or the said firm directly/indirectly shall not accept the internal audit or book-
keeping or such other professional assignments which are prohibited for the statutory auditor firm.
2. The guidelines of ceiling on non-audit fees is applicable in relation to a Network as follows: -
i) For a Network firm who is doing statutory audit (including its associate concern and/or firm(s)
having common partnership), it shall be the same as mentioned in the said notification; and
ii) For other firms of the same Network collectively, it shall be 3 times of the fee payable for
carrying out the statutory audit of the same undertaking/ company.
 4.34 PROFESSIONAL ETHICS-SUMMARY CHAPTER 04

3. In those cases where rotation of firms is prescribed by any regulatory authority, no member firm of
the network can accept appointment as an auditor in place of any member firm of the network which is
PROFESSIONAL ETHICS-SUMMARY

retiring.
CHAPTER 04
4. The Network may advertise the Network to the extent permitted by the Advertisement Guidelines
issued by Institute. The firms constituting the network are permitted to use the words “Network
Firms” on their professional stationery.
Consent of Client:
The effect of registration of network with Institute will be deemed to be a public notice of the network and
therefore consent of client will be deemed to be obtained.
Framework of Internal Byelaws of Network:
To streamline the networking, a network shall formulate operational bye-laws. Bye-laws may contain the
following clauses on which the affiliates of the network may enter into a written agreement among
themselves:
(i) Appointment of a Managing Committee, including minimum and max no of members.
(ii) Administration of the network
(iii) Contribution of membership fees to meet the cost of the administration of the network.
(iv) Identifying a partner of any of the member firms of the network to be responsible for the assignment
(engagement partner)
(v) Dispute settlement procedures through arbitration and conciliation
(vi) Development of training materials for members of the network
(vii) Issue of News-letters for staff and clients
(viii) Development of software for different types of assignments
(ix) Development and maintenance of data bases relevant for different types of assignments
(x) Library
(xi) Appointment of a technical director to whom references can be made
(xii) Determining the methodology for drawing resources from each member firm
(xiii) Determining compensation to member firms for resources to be drawn from them
(xiv) Peer review of the member firms

Part III

9. Mandatory KYC Norms for a CA in Practice

1. Where Client is an Individual/ Proprietor
A. General Information
 Name of the Individual
 PAN No. or Aadhar Card No. of the Individual
 Business Description
 Copy of last Audited Financial Statement
B. Engagement Information
 Type of Engagement
 CHAPTER 04 PROFESSIONAL ETHICS-SUMMARY 4.35

2. Where Client is a Corporate Entity

PROFESSIONAL ETHICS-SUMMARY
A. General Information
Name and
CHAPTER 04 Address of the Entity
 Business Description
 Name of the Parent Company in case of Subsidiary
 Copy of last Audited Financial Statement
B. Engagement Information
 Type of Engagement
C. Regulatory Information
 Company PAN No.
 Company Identification No.
 Directors’ Names & Addresses
 Directors’ Identification No.
3. Where Client is a Non-Corporate Entity
A. General Information
 Name and Address of the Entity Copy of PAN No.
 Business Description
 Partner’s Names & Addresses (with their PAN/Aadhar Card/DIN No.)
 Copy of last Audited Financial Statement
B. Engagement Information
 Type of Engagement

10. RECOMMENDED SELF-REGULATORY MEASURES BY COUNCIL OF ICAI

The more important of these recommendations are as under:
10.1 Branch Audits
The branch audits of a company should not be conducted by its statutory auditors consisting of ten or more
members, but should be conducted by the local firms of auditors consisting of less than ten members. This
restriction may not apply in the following cases.
(i) where the accounting records of the branches are maintained at the head office of the respective
companies, and
(ii) where significant operations of an undertaking or a company are carried out at its branch office.
10.2 Joint Audit
In the case of large companies, the practice of associating a practicing firm with less than five members as
Joint auditors should be encouraged. Where a client desires to appoint such a firm as joint auditor, the senior
firm should not object to the same.
10.3 Ratio Between Qualified and Unqualified Staff
In the Council’s view, a practicing firm of Chartered Accountants engaged in audit work should have at least
one member for every five non-qualified members of the staff, excluding articled and audit assistants,
typists, peons and other persons not engaged directly in such professional work.
 4.36 PROFESSIONAL ETHICS-SUMMARY CHAPTER 04

10.4 Disclosure of Interest by Auditors in other Firms

PROFESSIONAL ETHICS-SUMMARY

The Council has decided that as a good and healthy practice, auditors should make a disclosure of the
payments received by them for other services through the medium of a different firm or firms in which the
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said auditor may be either a partner or proprietor.
10.5 Recommended Minimum Scale of Fees
The Institute has issued revised Minimum scale of Fees for the professional assignments of the members of
ICAI. The recommended scale of Fees is to be charged as per the work performed for various professional
assignments. The Fees has been recommended separately for Class-A, B and C cities.
10.5.1 Fees - Relative Size:
Differentiated disclosure requirements for non-public interest entities and public interest entities are
following: -
1. For Non-Public Interest Entities (PIE)-Disclosure is required where for two consecutive years, the
gross annual professional fees from an audit client represent more than 40% of the total fees of the
firm.
2. For public interest entities- Disclosure is required where for two consecutive years, the gross annual
professional fees from an audit client represent more than 20% of the total fees of the firm.
Exemption from applicability of the above provision will be in case where total Fees received by Firm
does not exceed 20 lacs of rupees.
In addition, exemption from applicability of the above provision is also given in the case of audit of
government Companies, public undertakings, nationalised banks, public financial institutions, regulators or
where appointments of auditors are made by the Government.
Recent Decisions of Ethical Standards Board (Additional)

1. CA in Practice being a statutory auditor cannot prepare BRSR study to Audit Clients. However, he may
provide advisory services on the same. He also can be "Assurance provider of BRSR core" for the same
client .
2. Statutory auditor is not permitted to engage in compilation engagement, of that entity .
3. CA in Practice can engage in services assessment/performance audit of centres of skill development
council of Govt as it is permitted under Mgt Consultancy and other services.
4. CA in Practice can accept assignment of Mystery Audit.
5. CA in Practice can mention position as promoter/Director on portal of a Company. He cannot mention
his professional attainments and his firm name. He shall not violate clause (6) and (7) of Part-1 of First
Schedule
6. CA in Practice can become professional director in Board of Management of a Co-operative Bank.
7. CA can set up practice in IFSC/GIFT city.
8. CA can render professional services to IFSC units from offices outside IFSC.
9. A firm is not permitted to publish its vision or mission statement on letter head, visiting card or
stationery etc. The vision and mission statement may be printed on the firm profile and may be provided
in response to a specific request.
10. It is not permissible for a member/ firm being the statutory Auditor of a Bank to accept the assignment
of ASM (Additional Surveillance Measure by SEBI) of a customer of the same Bank simultaneously. He
can accept either of the Assignments at one time.
11. CA in Practice cannot be appointed as an Internal Auditor and Procurement officer simultaneously in an
organization.
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12. CA in Practice can charge fees on a percentage of utilization amount of an educational Institute for
certifying the amount (utilization) spent by an educational Institute out of grant.

PROFESSIONAL ETHICS-SUMMARY
13. CA in Practice can be a non-executive/independent director in a Co-operative Bank, provided he is not
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into day-to-day activity, nor he or any of his partners are interested in Bank as auditor.