PROFESSIONAL ETHICS

2.1 Threats, Evaluation of Threats and Safeguards

A. Threats

4) SCHEDULES TO THE ACT

 FIRST SCHEDULE
PART I - Professional Misconduct in relation to Chartered Accountants in Practice A
Chartered Accountant in practice is deemed to be guilty of professional misconduct if he:
Clause (1): Allows any person to practice in his name as a chartered accountant
unless such person is also a chartered accountant in practice and is in partnership with or
employed by him.

Clause (2): Pays or allows or agrees to pay or allow, directly or indirectly, any
share, commission or brokerage in the fees or profits of his professional business, to any
person other than a member of the Institute or a partner or a retired partner or the legal
representative of a deceased partner, or a member of any other professional body or with
such other persons having such qualification as may be prescribed.
 Clause (3): Accepts or agrees to accept any part of the profits of the
professional work of a person who is not a member of the Institute.
Provided that nothing herein contained shall be construed as prohibiting a member
‘from entering into profit sharing or other similar arrangements, including receiving any
share commission or brokerage in the fees, with a member of such professional body or
other person having qualifications, as is referred to in item (2) of this part.

Referral fees amongst members: It is not prohibited for a member in practice to

charge Referral Fees, being the fees obtained by a member in practice from another
member in practice in relation to referring a client to him

Clause (4): enters into partnership, in or outside India, with any person other
than Chartered Accountant in practice or such other person who is a member of any
other professional body having such qualifications as may be prescribed, including a
resident who but for his residence abroad would be entitled to be registered as a member
under clause (v) of sub- section (1) of section 4 or whose qualifications are recognized by
the Central Government or the Council for the purpose of permitting such partnerships.

Clause (5): Secures either through the services of a person who is not an
employee of such Chartered Accountant or who is not his partner or by means which are
not open to a Chartered Accountant, any professional business.
Provided that nothing herein contained shall be construed as prohibiting any
agreement permitted in terms of item (2), (3) and (4) of this part.

Clause (6): 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 be construed as preventing or
prohibiting -
(i) Any Chartered Accountant from applying or requesting for or inviting or securing
professional work from another chartered accountant in practice; or
(ii) A member from responding to tenders or enquiries issued by various users of
professional services or organizations from time to time and securing professional
work as a consequence.

Clause (7): Advertises his professional attainments or services, or uses any

designation or expressions other than the Chartered Accountant on professional
documents, visiting cards, letter heads or sign boards unless
exception
it be a degree of a University established by law in India or recognized by the
Central Government or a title indicating membership of the Institute of Chartered
Accountants or of any other institution that has been recognized by the Central
Government or may be recognized by the Council.
Provided that a member in practice may advertise through a write up, setting out
the service provided by him or his firm and particulars of his firm subject to such
guidelines as may be issued by the Council.
 Clause (8): accepts a position as auditor previously held by another chartered
accountant or a certified auditor who has been issued certificate under the Restricted
Certificate Rules, 1932 without first communicating with him in writing. (NOC)
The professional reasons for not accepting an audit would be:
(a) Non-compliance of the provisions of Sections 139 and 140 of the Companies
Act.
(b) Non-payment of undisputed Audit Fees by auditees
(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 is satisfied that the attitude

Clause (9): accepts an appointment as auditor of a company without first

ascertaining from it whether the requirements of Section 225 of the Companies Act, 1956
(1 of 1956), in respect of such appointment have been duly complied with;
The relevant provisions are contained in Section 139 and 140 of Companies Act,
2013 Act (erstwhile Section 225 of Companies Act, 1956) and the Council has notified that
the provisions to be complied with under Clause (9) are those contained in Sections 139
and 140 of the Act.

Clause (10): Charges or offers to charge, accepts or offers to accept in respect of

any professional employment fees which are based on a percentage of profits or which
are contingent upon the findings, or results of such employment, except as permitted
under any regulations made under this Act.
(a) “In the case of a receiver or a liquidator, the fees may be based on a percentage of the
realization or disbursement of the assets;
(b) In the case of an auditor of a co-operative society, the fees may be based on a
percentage of the paid up capital or the working capital or the gross or net income or
profits;
(c) In the case of a valuer for the purposes of direct taxes and duties, the fees may be
based on a percentage of the value of property valued;
(d) in the case of certain management consultancy services as may be decided by the
resolution of the Council from time to time, the fees may be based on percentage.
(e) in the case of certain fund raising services, the fees may be based on a percentage of
the fund raised;
(f) in the case of debt recovery services, the fees may be based on a percentage of the
debt recovered;
(g) in the case of services related to cost optimisation, the fees may be based on a
percentage of the benefit derived; and
(h) any other service or audit as may be decided by the Council

Clause (11): Engages in any business or occupation other than the profession of
chartered accountant unless permitted by the Council so to engage.
 Provided that nothing contained herein shall disentitle a chartered accountant from
being a director of a company (Not being managing director or a whole time director)
unless he or any of his partners is interested in such company as an auditor.
A. General Resolution
B. Permission granted generally
1. Employment under Chartered Accountants in practice
2. Private tutorship.
3. Authorship of books and articles.
4. Holding of Life Insurance Agency
5. Attending classes and appearing for any examination.
6. Holding of public elective offices
7. Honorary office leadership of charitable-educational
8. Acting as Notary Public, Justice of the Peace, Special Executive Magistrate
9. Part-time tutorship under the coaching organisation of the Institute.
10. Valuation of papers, acting as paper-setter, head-examiner or a moderator,
11. Editorship of professional journals.
12. Acting as Surveyor and Loss Assessor under the Insurance Act, 1938
13. Acting as recovery consultant in the banking sector
14. Owning agricultural land and carrying out agricultural activity

C. Specific Resolution
1. Full-time or part-time employment in business 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
4. Interest in family business concerns 5. Interest in an educational institution.
6. Part-time or full-time lectureship for courses other than those relating to the
Institute’s examinations.
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.

Clause (12): Allows a person not being a member of the institute in practice or a
member not being his partner to sign on his behalf or on behalf of his firm, any balance
sheet, profit and loss account, report or financial statements.
EXCEPTION
Signing a documents is not contain expression of opinion

PART II - Professional misconduct in relation to members of the Institute in service

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.

PART III - Professional misconduct in relation to members of the Institute generally

Clause (1): not being a fellow of the Institute, acts as a fellow of the Institute.

Clause (2): does not supply the information called for, or does not comply
with the requirements asked for, by the Institute, Council or any of its Committees,
Director (Discipline), Board of Discipline, Disciplinary Committee, Quality Review Board or
the Appellate Authority.

Clause (3): while inviting professional work from another chartered accountant or
while responding to tenders or enquiries or while advertising through a write up, or anything
as provided for in items (6) and (7) of Part I of this Schedule, gives information knowing it to
be false.

PART IV- Other misconduct in relation to members of the Institute generally

Clause (1): is held guilty by any civil or criminal court for an offence which is
punishable with imprisonment for a term not exceeding six months.
Clause (2): in the opinion 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.

1.1 THE SECOND SCHEDULE

Part I - Professional Misconduct in relation to Chartered Accountants in
Practice A Chartered Accountant in practice shall be deemed to be guilty of
professional misconduct, if he -
Clause (1): Discloses Information acquired in the course of his professional
engagement to any person other than his client so engaging him without the consent
of his client or otherwise than as required by any law for the time being in force.
✓ If disclosure is required as a part of performance of professional duty by a practicing
member in relation to a client, the fact that such performance is required by the client
would itself amount to the client consenting to such disclosure.
✓ If disclosure is required in other cases, it would be necessary to ensure that the
consent of the client is given by a person who is competent to accord such consent.
✓ There is a difference between sharing of working papers and sharing of information.
So far as the information is concerned, he can provide the same to the client or to a
Regulatory body after obtaining the consent of the client.

Clause (2): Certifies or submits in his name or in the name of his firm, a report
of an examination of financial statements unless the examination of such statements
and the related records has been made by him or by a partner or an employee in his firm
or by another chartered accountant in practice.
Clause (3): Permits his name or the name of his firm to be used in connection
with an estimate of earnings contingent upon future transactions in manner which may
lead to the belief that he vouches for the accuracy of the forecast.
 Clause (4): Expresses his opinion on financial statements of any business or
enterprise in which he, his firm, or a partner in his firm has a substantial interest.

Clause (5): Fails to disclose a material fact known to him which is not
disclosed in a financial statement, but disclosure of which is necessary in making such
financial statement where he is concerned with that financial statement in a professional
capacity.
Where a Chartered Accountant failed to report to the shareholders of a company
about the non- creation of a sinking fund in accordance with the Debenture Trust Deed and
did not make clear that the amounts shown as towards sinking fund were borrowed from
the managing agents of the company.

Clause (6): Fails to report a material misstatement known to him to appear

in a financial statement with which he is concerned in a professional capacity.

Clause (7): does not exercise due diligence, or is grossly negligent in the
conduct of his professional duties.

Clause (8): 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.

Clause (9): Fails to invite attention to any material departure from the generally
accepted procedure of audit applicable to the circumstances.

Clause (10): Fails to keep moneys 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.

PART II - Professional misconduct in relation to members of the 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.

Part III - Other misconduct in relation to members of the Institute generally

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.