18

PROFESSIONAL ETHICS

LEARNING OUTCOMES

After studying this chapter, you will be able to:

 Understand the Application of the Code of Ethics theoretically/practically.
 Learn the Application of Fundamental Principles of Professional Ethics by
Professional Accountants while conducting Audit, Assurance and other
services.
 Identifying threats and Safeguards measures while Compliance of Fundamental
Principles of Professional Ethics.
 Determine and apply knowledge of Code of Ethics to your professional
practice.

© The Institute of Chartered Accountants of India

 18.2 ADVANCED AUDITING AND PROFESSIONAL ETHICS

CHAPTER OVERVIEW

This Professional Ethics chapter encapsulates the relevant professional ethics guidelines,
requirements and the standards of conduct expected from a Chartered Accountant. The
Chapter has been divided into various sections to facilitate systematic and easy learning by
the students.

Chartered Accountants in Practice

Membership of the Institute

Chartered Accountants in Service

Overview of the Code of Ethics
Professional Ethics

Professional
The Chartered Accountants Act, 1949:
Types of Misconduct:

Other Misconduct,
Council Guidelines Disciplinary Procedure

First Schedule

Recommended Self- Regulatory MeasuresSchedules to the Act

Second Schedule

1. INRODUCTION
The term “Ethics” means moral principles which govern a person’s behaviour or the conducting of an
activity. It is the branch of knowledge that deals with moral principles, whereas “Professional Ethics”
consist of personal, organizational and corporate standards of behaviour expected for professionals.
1. A doctor lies to a patient about the serious condition of his health, thinking
that disclosing the seriousness of health may cause more distress to the
patient. This would be morally wrong as the doctor is hiding imperative
information from the patient. However, here, improvement in health is given
moral priority and hence it is justifiable to contravene other morals.

© The Institute of Chartered Accountants of India

 2. A lawyer is responsible to his immediate client only. It doesn’t matter
whether the client has committed an offence or not, the lawyer has to defend
him before the court of law, whereas a Chartered Accountant, as an auditor,
has the responsibility to highlight and bring to the knowledge of stakeholders
about where the client has flawed. This implies that there can be different moral codes to
different sections of society or professionals.
Chartered Accountants as professionals are engaged in building trust to vast variety of users, whether
shareholders, government, banks, investors, employees or others, which imposes a public interest responsibility on
their profession. Like other professionals, Chartered Accountants also have some set of code of ethics. This
Code of Ethics establishes ethical requirements for Professional Accountants.
A Chartered Accountant, either in practice or in service, has to abide by
these ethical behaviours. They are expected to follow the fundamental
principles of professional ethics while performing their jobs. Service
users of professionals should be able to feel secure that there exists
a framework of professional ethics which governs the
provision of those
services. Any deviation from the ethical responsibilities brings
the disciplinary mechanism into action against the Chartered Fig: Professional Ethics
Accountants.

Code of Ethics– Its Necessity: Ethics are as old as human civilization. It is nothing but the laws or rules
of acceptable behaviour. The whole foundation of any profession, particularly CA profession, is its
credibility. The sole purpose of Code of Ethics is to ensure and uphold this credibility. The main ingredient of our
profession is independence. An auditor needs to be independent while carrying out his audit. The provisions
discussed in the same ensure that the independence of members of the Institute is not affected.
Our Institute’s Motto – ‘Ya Esha Supteshu Jagrati’ is adopted from Kathopanishad and it denotes
‘eternal vigilance’ – awakening when the world is asleep.
A distinguishing feature of the accountancy profession is its acceptance of the responsibility
to act in the public interest. Code of Ethics seeks to protect the interests of the profession as a whole. It
is a shield that enables us to command respect.

2. OVERVIEW OF THE CODE OF ETHICS

The revised Code of Ethics contains the following material:
 Part 1 – Complying with the Code, Fundamental Principles and Conceptual Framework,
which includes the fundamental principles and the conceptual framework and is
applicable to all professional accountants.
 Part 2 – Professional Accountants in Service, which sets out additional material that
applies to professional accountants in service when performing professional activities.
Professional accountants in service include professional accountants employed,
engaged or contracted in an executive or non-executive capacity in, for example:
o Commerce, industry or service.
o The public sector.
o Education.
o The not-for-profit sector.
o Regulatory or professional bodies.
Part 2 is also applicable to individuals who are professional accountants in public
practice when performing professional activities pursuant to their relationship with the
firm as an employee.
 Part 3 – Professional Accountants in Public Practice, which sets out additional material
that applies to professional accountants in public practice when providing
professional services.
 Independence Standards, which sets out additional material that applies to
professional accountants in public practice when providing assurance services,
as follows:
o Part 4A – Independence for Audit and Review Engagements, which applies when
performing audit or review engagements.
o Part 4B – Independence for Assurance Engagements Other than Audit and
Review Engagements, which applies when performing assurance engagements
that are not audit or review engagements.
 Glossary, which contains defined terms (together with additional explanations where
appropriate) and described terms which have a specific meaning in certain parts of the
Code. For example, as noted in the Glossary, in Part 4A, the term “audit engagement”
applies equally to both audit and review engagements. The Glossary also includes lists
of abbreviations that are used in the Code and other standards to which the Code
refers.
 Overview of the Code of Ethics

Part 1 Part 2 Part 3 Independence Standards

Complying with the Code, Fundamental Principles and Conceptual Framework

Professional Accountants in Public Practice
Part 4A Par
Professional Accountants in Service

Independence for Assurance Engagements

Independence for Audit and Review Engag

The Code contains sections which address specific topics. Some sections contain
subsections dealing with specific aspects of those topics.
Each section of the Code is structured, where appropriate, as follows:
 Introduction – sets out the subject matter addressed within the section, and introduces
the requirements and application material in the context of the conceptual framework.
Introductory material contains information, including an explanation of terms used,
which is important to the understanding and application of each Part and its sections.
 Requirements – establish general and specific obligations with respect to the subject
matter addressed.
 Application material – provides context, explanations, suggestions for actions or
matters to consider, illustrations and other guidance to assist in complying with the
requirements.
A professional accountant shall comply with the Code. There might be circumstances where
laws or regulations preclude an accountant from complying with certain parts of the Code. In
such circumstances, those laws and regulations prevail, and the accountant shall comply
with all other parts of the Code.
2.1 Fundamental Principles
In order to achieve the objectives of the Accountancy profession, professional accountants have to observe a
number of prerequisites or fundamental principles. The fundamental principles as discussed in Code of
Ethics of ICAI, to be complied, are given below:

Integrity

Objectivity

Professional Competence and Due Care

Confidentiality

Professional Behaviour

(a) Integrity – Subsection 111

1. A professional accountant shall comply with the principle of integrity, which requires an
accountant to be straightforward and honest in all professional and business
relationships. Integrity implies fair dealing and truthfulness.
2. A professional accountant shall not knowingly be associated with reports, returns, communications
or other information where the accountant believes that the information:
(a) Contains a materially false or misleading statement;
(b) Contains statements or information provided negligently; or
(c) Omits or obscures required information where such omission or obscurity would be misleading.
However, a professional accountant will not be considered to be in breach of matters mentioned
above in paragraph 2 if the professional accountant provides a modified report in respect of such above
mentioned matter.
 3. When a professional accountant becomes aware of having been associated with information described in
paragraph 2, the accountant shall take steps to be disassociated from that information.
(b) Objectivity- Subsection 112

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(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:
(a) Attain and maintain professional knowledge and skill at the level required to
ensure that a client or employing organization receives competent professional
service, based on current technical and professional standards and relevant
legislation; and
(b) act diligently in accordance with applicable technical and professional
standards.
2. Serving clients and employing organizations with professional competence requires the
exercise of sound judgment in applying professional knowledge and skill when
undertaking professional activities.
3. Maintaining professional competence requires a continuing awareness and an
understanding of relevant technical, professional and business developments.
4. Continuing professional development enables a professional accountant to develop and
maintain the capabilities to perform competently within the professional environment.
5. Diligence encompasses the responsibility to act in accordance with the requirements of an
assignment, carefully, thoroughly and on a timely basis.
6. 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.
Where appropriate, a professional accountant shall make clients, the employing organization,
or other users of the accountant’s professional services or activities, aware of the limitations
inherent in the services or activities.
(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. An accountant shall:
Be alert to the possibility of inadvertent disclosure, including in a social environment, and
particularly to a close business associate or an immediate or a close family member;
Maintain confidentiality of information within the firm or employing organization;
Maintain confidentiality of information disclosed by a prospective client or employing
organization;
Not disclose confidential information acquired as a result of professional and employment
relationships outside the firm or employing organization without proper and specific authority,
unless there is a legal or professional duty or right to disclose;
Not use confidential information acquired as a result of professional and employment
relationships for the personal advantage of the accountant or for the advantage of a third party;

Not use or disclose any confidential information, either acquired or received as a result of a
professional or employment relationship, after that relationship has ended; and
Take reasonable steps to ensure that personnel under the accountant’s control, and individuals
from whom advice and assistance are obtained, respect the accountant’s duty of confidentiality.

2. Confidentiality serves the public interest because it facilitates the free flow of information from the
professional accountant’s client or employing organization to the accountant in the knowledge that the
information will not be disclosed to a third party. Nevertheless, the following are circumstances where
professional accountants are or might be required to disclose confidential information or when such
disclosure might be appropriate:
(a) Disclosure is required by law,
Production of documents or other provision of evidence in the course of legal proceedings.
Disclosure to the appropriate public authorities of infringements of the law that come to light
 (b) Disclosure is permitted by law and is authorized by the client or the employing
organisation;
(c) There is a professional duty or right to disclose, when not prohibited by law:
(i) To comply with the requirements of Peer Review or Quality Review of the
Institute;
(ii) To respond to an inquiry or investigation by a professional or regulatory body;
(iii) To protect the professional interests of a professional accountant in legal
proceedings; or
(iv) To comply with technical and professional standards, including ethics
requirements.
3. In deciding whether to disclose confidential information, professional accountants
should consider the following points:

(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.
4. 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 and avoid any conduct that accountant
knows or should know might discredit the profession.
Conduct that might discredit the profession includes conduct that a reasonable and informed third party
would be likely to conclude adversely affects the good reputation of the profession.
 A professional accountant shall not knowingly engage in any employment, occupation or activity that
impairs or might impair the integrity, objectivity or good reputation of the profession, and as a result
would be incompatible with the fundamental principles.
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.
The professional accountant should ensure that the contents of an advertisement are true to the best of
his knowledge and belief, and are in conformity with the Advertisement Guidelines, and be aware that the
Institute does not own any responsibility, whatsoever, for such contents or claims by him. However, if a
professional accountant is in doubt about whether a form of proposed advertising is appropriate, the
accountant is encouraged to consult with the Ethical Standards Board of ICAI.

A professional accountant shall comply with each of the fundamental principles.

The fundamental principles of ethics establish the standard of behaviour expected
of a professional accountant.
The conceptual framework establishes the approach which an accountant is
required to apply to assist in complying with those fundamental principles.
A professional accountant might face a situation in which complying with one
fundamental principle conflicts with complying with one or more other fundamental
principles. In such a situation, the accountant might consider consulting, with:

 Others within
the firm or  Those charged
with  The Institute  Legal
counsel. employing
organization. governance.

However, such consultation does not relieve the accountant from the responsibility
to exercise professional judgment to resolve the conflict or, if necessary, and
unless prohibited by law or regulation, disassociate from the matter creating the
conflict.
 The professional accountant is encouraged to document the substance of the issue,
the details of any discussions, the decisions made and the rationale for those
decisions.

2.2 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.
A. Threats
Threats to compliance with the fundamental principles fall into one or more of the following
categories:

the threat that a financial or other interest will inappropriately

influence a professional accountant’s judgment or behaviour;

Self-interest threat –

the threat that a professional accountant will not appropriately evaluate the results of a previous judgment made; or an ac
y another individual within the accountant’s firm or employing organization, on which the accountant will rely when forming a jud
Self-review threat –

threat that a professional

Threats accountant will promote a client’s or employing organization’s position to the point that the accountant
Advocacy threat –

Familiarity
ue to a long or close relationship with athreat
client,–or employing organization, a professional accountant will be too sympathetic to the

Intimidation threat –
a professional accountant will be deterred from acting objectively because of actual or perceived pressures, including attempts to

Circumstances that may create self-interest threats

Having a direct financial interest in a client
Undue dependence on total fees from a client. Having
a close business relationship with a client.
Concern about the possibility of losing a client.
 Potential employment with a client.
Having access to confidential information of the client that might be used for personal gain.

Examples of Circumstances that may create Self Review Threat

 A loan to or from an assurance client or any of its directors or officers
 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.
Examples of circumstances that may create advocacy threats:
Acting as an advocate
Promoting shares in a on behalf of an lobbying in favor
entity when that entity is assurance client in of legislation on a
financial statement behalf of a
audit client. li tigation or disputes client.
with third parties.

Examples of circumstances that may create familiarity threats

1. A member of the engagement team having a close or immediate family
relationship with a director or officer of the client.
2. A member of the engagement team having a close or immediate family
relationship with an employee of the client who is in a position to exert direct and significant
influence over the subject matter of the engagement.
3. A former partner of the firm being a director or officer of the client or an employee in a position
to exert direct and significant influence over the subject matter of the engagement.
4. Long association of an audit team member with the audit client.

Examples of circumstances that may create intimidation threats

1. Being threatened with dismissal or replacement in relation to a client engagement
because of a disagreement about a professional matter.
2. Being feeling pressured to agree with the judgment of a client because the client
has more expertise on the matter in question.
3. Being informed that a planned promotion will not occur unless the accountant agrees with an
inappropriate accounting treatment.
Specific circumstances give rise to unique threats to compliance with one or more of the
fundamental principles. Such unique threats cannot be categorized. In either professional or
business relationships, a professional accountant in public practice should always be on the
alert for such circumstances and threats.
B. 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.
(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 principles.
(ii) Reasonable and Informed Third Party : 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. Such consideration is made from the
perspective of a reasonable and informed third party, who weighs all the relevant facts
and circumstances that the accountant knows, or could reasonably be expected to
know, at the time the conclusions are made. 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.
C. Addressing Threats
If the professional accountant determines that the identified threats to compliance with the
fundamental principles are not at an acceptable level, the accountant shall address the
threats by eliminating them or reducing them to an acceptable level. 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.
D. Safeguards :
Safeguards are actions individually or in combination that the accountant takes that
effectively reduce threats to an acceptable level. Safeguards vary depending on the facts and
circumstances. Examples of actions that in certain circumstances might be safeguards
to address threats include:
 Assigning additional time and qualified personnel to required tasks
when an engagement has been accepted might address a self-interest threat.
 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.
 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.
 Involving another firm to perform or re-perform part of the engagement might
address self-interest, self-review, advocacy, familiarity or intimidation threats.
 Separating teams when dealing with matters of a confidential nature might address
a self-interest threat.

3. MEMBERSHIP OF THE INSTITUTE

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.
Particulars of the Register: Section 19 of the the Chartered Accountants Act, 1949 provides the particulars
to be included in the Register about every member of the Institute, namely-

Full name, date of birth, domicile, residential and professional address;

Date of entry of name in the Register; Qualifications;
Whether the member holds a COP; and Any other prescribed particulars.

3.1 Disabilities for the Purpose of Membership

Section 8 of the Chartered Accountants Act, 1949 enumerates the circumstances under which a person is
debarred from having his name entered in or borne on the Register of Members, as follows:
(i) If he has not attained the age of 21 years at the time of his application for the entry of his name in
the Register; or
(ii) If he is of unsound mind and stands so adjudged by a competent court; or
(iii) If he is an undischarged insolvent; or
(iv) If he, being a discharged insolvent, has not obtained from the court a certificate stating that his
insolvency was caused by misfortune without any misconduct on his part; or
(v) If he has been convicted by a competent Court whether within or without India, of an offence involving
moral turpitude and punishable with transportation or imprisonment or of an offence, not of a technical
nature, committed by him in his professional capacity unless in respect of the offence committed he
has either been granted a pardon or, on an application made by him in this behalf, the Central
Government has, by an order in writing, removed the disability; or
(vi) If he has been removed from membership of the Institute on being found on inquiry to have been
guilty of professional or other misconduct;
It may be noted that 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.
In addition, failure on the part of a person to disclose the fact that he suffers from any one of the disabilities
aforementioned would constitute professional misconduct. The name of the person, who is found to have been
subject at any time to any of the disabilities aforementioned, can be removed from the Register of Members by
the Council.
3.2 Types of Members of the Institute
Section 5 of the Chartered Accountants Act, 1949 provides the division of members of the Institute. The
members shall be divided into two classes designated as Associates and Fellows.
Associate Member: Any person, whose name has
Classes of Members of the Institute been entered in the Register, shall be deemed to
have become an Associate of the Institute and shall
also be entitled to use the letters A.C.A. after his
name to indicate that he is an Associate Member of
the Institute.
Fellow Member: The name of following types of
Associates Fellows
members shall be entered into the Register as a
Fellow of the Institute, on payment of such fees
along with the application made and
granted in the prescribed manner-
(i) An associate member who has been in continuous practice in India for at least 5 years,
(ii) A member who has been an associate for a continuous period of not less than 5 years and who
possesses such qualifications as may be prescribed by the Council with a view to ensuring that he has
experience equivalent to the experience normally acquired as a result of continuous practice for a
period of 5 years as a Chartered Accountant.
The abovementioned members shall be entitled to use the letters F.C.A. after his name to indicate that he is a
Fellow Member of the Institute.
3.3 Removal of Name from the Register
As per section 20 of the Act, the Council may remove, from the Register, the name of any member of the
Institute 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.
The Council shall remove the name of any member from the Register in respect of whom an order has been
passed under this Act removing him from membership of the Institute.
If the name of any member has been removed from the Register for non-payment of prescribed fee as
required to be paid by him, then, on receipt of an application, his name may be entered again in the
Register on payment of the arrears of annual fee and entrance fee along with such additional fee, as may
be determined by the Council.

3.4 Restoration of Membership

In addition to the provisions of the section 20 of the Chartered Accountants Act, 1949 (as discussed in above
Para), Regulation 19 of the Chartered Accountants Regulations, 1988, states that the name of the member may
be restored by the Council in the Register on an application, in the appropriate Form, received in this behalf
whose name has been removed from the Register for non-payment of prescribed fee as required to be paid by him,
if he is otherwise eligible to such membership, on his paying the arrears of annual membership fee, entrance
fee and additional fee determined by the Council under the Act.
However, the effective date in case of restoration of cancelled membership, in different situations, shall be in
the following manner:
 Application for restoration and requisite fees are made
Restoration within
shall thee
be with

Removal of name under the orders of the Board of Discipline or the Disciplinary Committe
Restorati

Restoration shall be with eff

In other cases

3.5 Penalty for Falsely Claiming to be a Member etc.

Section 24 of the Chartered Accountants Act, 1949 provides that any person who-
(i) not being a member of the Institute;
(a) represents that he is a member of the Institute; or
(b) uses the designation Chartered Accountant;
(ii) being a member of the Institute, but not having a certificate of practice, represents that he is in
practice or practices as a Chartered Accountant,
shall be punishable on first conviction with fine which may extend to ` 1000, and on any subsequent conviction
with imprisonment which may extend to 6 months or with fine which may extend to
` 5,000, or with both.
The provision may be understood with a case, where, the Court of Additional Chief Judicial Magistrate had
by its judgement found the accused guilty under Section 24(i)(a) & (b) of the Chartered Accountants Act,
1949 and Section 465 of the Indian Penal Code. The Court imposed a fine on the accused and in the event of
his failure to pay the fine, sentenced to rigorous imprisonment for three months. (Case of Prem Batra decided
on 18.7.1989)

4. CHARTERED ACCOUNTANTS IN PRACTICE

A practicing Chartered Accountant is a person who is a member of the Institute and is holding Certificate of
Practice; and includes such members of the Institute who are deemed to be in Practice in accordance with the
provisions of the Chartered Accountants Act, 1949.
4.1 Significance of the Certificate of Practice
Section 6 of the Chartered Accountants Act, 1949 provides that: -
(1) No member of the Institute shall be entitled to practise whether in India or elsewhere unless
he has obtained from the Council a certificate of practice:
It may be noted that this provision is not applicable to any person who, immediately before
the commencement of this Act, has been in practice as a registered accountant or a holder
of a restricted certificate until one month has elapsed from the date of the first meeting of the
Council.
(2) Every such member shall pay such annual fee for his certificate as may be determined, by
notification, by the Council [..]
(3) The certificate of practice obtained under sub-section (1) may be cancelled by the Council
under such circumstances as may be prescribed.
A member who is not in practice is precluded from accepting engagement to render services of any of the
types normally prescribed for a Chartered Accountant, even though for doing so, he does not require special
qualifications.
The Council of the institute is of view that-
(i) Once the person concerned becomes a member of the Institute, he is bound by the provisions of the
Chartered Accountants Act and its Regulations. If and when he appears before the Income-tax
Tribunal as an Income-tax representative after having become a member of the Institute, he could so
appear only in his capacity as a Chartered Accountant and a member of the Institute. Having, as it
were, brought himself within the jurisdiction of the Chartered Accountants Act and its Regulations, he
could not set them at naught by contending that even though he continues to be a member of the Institute
and has been punished by suspension from practice as a member, he would be entitled, in substance,
to practice in some other capacity.
(ii) A member of the Institute can have no other capacity in which he can take up such practice,
separable from his capacity to practice as a member of the Institute.”
Therefore, in nutshell, a Chartered Accountant whose name has been removed from the
membership for professional and/or other misconduct, during such period of removal, wil l
not appear before the various tax authorities or other bodies before whom he could have
appeared in his capacity as a member of this Institute.

Illustration 1
A Chartered Accountant in practice has been suspended from practice for a period of 6 months
and he had surrendered his Certificate of Practice for the said period. During the said period of suspension,
though the member did not undertake any audit assignments, he undertook representation assignments for
income tax whereby he would appear before the tax authorities in
his capacity as a Chartered Accountant.
 Solution
Undertaking Tax Representation Work: A chartered accountant not holding certificate of practice
cannot take up any other work because it would be violation of the relevant provisions of the Chartered
Accountants Act, 1949.
In case a member is suspended and is not holding Certificate of Practice, he cannot in any other capacity take up
any practice separable from his capacity to practice as a member of the Institute. This is because once a
person becomes a member of the Institute; he is bound by the provisions of the Chartered Accountants
Act, 1949 and its Regulations.
If he appears before the income tax authorities, he is only doing so in his capacity as a chartered accountant and
a member of the Institute. Having bound himself by the said Act and its Regulations made there under,
he cannot then set the Regulations at naught by contending that even though he continues to be a member
and has been punished by suspension, he would be entitled to practice in some other capacity.
Conclusion: Thus, in the instant case, a chartered accountant would not be allowed to represent before the
income tax authorities for the period he remains suspended. Accordingly, in the present
case he is guilty of professional misconduct.

4.2 Cancellation and Restoration of Certificate of Practice

Regulation 10 provides that a Certificate of Practice (COP) shall be liable for cancellation, if:

(i) the name of the holder of the certificate is removed from the Register; or
(ii) the Council is satisfied, after giving an opportunity of being heard to the person concerned, that
such certificate was issued on the basis of incorrect, misleading or false information, or by mistake
or inadvertence; or
(iii) a member has ceased to practise; or
(iv) a member has not paid annual fee for certificate of practice till 30 th day of September of the
relevant year.

Where a COP is cancelled, the holder shall surrender the same to the Secretary.
Further, Regulation 11 on restoration of COP states that, on an application made in the approved Form and on
payment of such fee, the 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.
4.3 Members - deemed to be in Practice
Every member of the Institute is entitled to designate himself as a Chartered Accountant. There are two classes
of members, those who are in practice and those who are otherwise occupied. In Section 2(2) of the Act, the
term deemed “to be in practice” has been defined as follows:
“A member of the Institute shall be deemed “to be in practice” when individually or in partnership with
Chartered Accountants in practice, or in partnership with members of such other recognised professions as
may be prescribed, he, in consideration of remuneration received or to be received

(i) engages himself in the practice of accountancy; or

(ii) 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

(iii) renders professional services or assistance in or about matters of principle or detail relating to
accounting procedure or the recording, presentation or certification of financial facts or data; or

(iv) renders such other services as, in the opinion of the Council, are or may be rendered by a
Chartered Accountant in practice;

and the words “to be in practice” with their grammatical variations and cognate expressions shall be construed
accordingly.
Explanation – An associate or a fellow of the Institute who is a salaried employee of a Chartered
Accountant in practice or a firm of such Chartered Accountants or firm consisting of one or more chartered
accountants and members of any other professional body having prescribed qualifications shall, notwithstanding
such employment, be deemed to be in practice for the limited purpose of the training of Articled Assistants”.
Pursuant to Section 2(2)(iv) above, the Council has passed a resolution permitting a Chartered
Accountant in practice to render entire range of “Management Consultancy and other Services”.
The 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.
(xiv) Management and operational audits.
(xv) Valuation of shares and business and advice regarding amalgamation, merger and acquisition. Acting
as Registered Valuer under the Companies Act, 2013 read with The Companies
(Registered Valuers and Valuation) Rules, 2017.(incorporated pursuant to decision of
Council at its 388th Meeting)
(xvi) Business Policy, corporate planning, organisation development, growth and diversification.
(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) Systems analysis and design, and computer related services including selection of hardware and
development of software in all areas of services which can otherwise be rendered by a Chartered
Accountant in practice and also to carry out any other professional services relating to EDP.

(xix) Acting as advisor or consultant to an issue, including such matters as:

(a) Drafting of prospectus and memorandum containing salient futures of prospectus. Drafting and filing
of listing agreement and completing formalities with Stock Exchanges, Registrar of Companies
and SEBI.
(b) Preparation of publicity budget, advice regarding arrangements for selection of (i) ad- media, (ii)
centres for holding conferences of brokers, investors, etc., (iii) bankers to issue,

* Consideration of “tax implications” while rendering the services at (i), (ii), (iii) and (iv) above will be
considered as part of “Management Consultancy and other services”.
 (iv) collection centres, (v) brokers to issue, (vi) underwriters and the underwriting arrangement,
distribution of publicity and issue material including application form, prospectus and brochure and
deciding on the quantum of issue material (In doing so, the relevant provisions of the Code of
Ethics must be kept in mind).
(c) Advice regarding selection of various agencies connected with issue, namely Registrars to Issue,
printers and advertising agencies.
(d) Advice on the post issue activities, e.g., follow up steps which include listing of instruments and
dispatch of certificates and refunds, with the various agencies connected with the work.
Explanation - For removal of doubts, it is hereby clarified that the activities of broking,
underwriting and portfolio management are not permitted.

(xx) Investment counselling in respect of securities [as defined in the Securities Contracts (Regulation)
Act, 1956 and other financial instruments.] (In doing so, the relevant provisions of the Code of
Ethics must be kept in mind).
(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
(incorporated pursuant to decision of Council at its 362nd Meeting).
(xxviii) Administrative Services. (incorporated pursuant to decision of Council at its 388th
Meeting) Administrative services involve assisting clients with their routine or
mechanical tasks within the normal course of operations. Such services require little
to no professional judgment and are clerical in nature.
Examples of administrative services include:
 Word processing services.
 Preparing administrative or statutory forms for client approval.
 Submitting such forms as instructed by the client.
 Monitoring statutory filing dates, and advising an audit client of those dates.
For example, the functions of a GST practitioner as specified under Rule 83(8) of Central
 Goods and Services Tax Rules, 2017:-
(a) furnish the details of outward and inward supplies;
(b) furnish monthly, quarterly, annual or final return;
(c) make deposit for credit into the electronic cash ledger;
(d) file a claim for refund;
(e) file an application for amendment or cancellation of registration;
(f) furnish information for generation of e-way bill;
(g) furnish details of challan in form GST ITC-04;
(h) file an application for amendment or cancellation of enrolment under rule 58; and
(i) file an intimation to pay tax under the composition scheme or withdraw from the
said scheme.

Pursuant to Section 2(2)(iv) of the Chartered Accountants Act, 1949, read with Regulation 191 of Chartered
Accountants Regulations, 1988 a member shall be deemed to be in practice if he, in his professional capacity
and neither in his personal capacity nor in his capacity as an employee, acts as a liquidator, trustee, executor,
administrator, arbitrator, receiver, adviser or representative for costing, financial or taxation matters or takes
up an appointment made by the Central Government or a State Government or a court of law or any other
legal authority or acts as a Secretary unless his employment is on a salary-cum-full-time basis.
It is necessary to note that a person is deemed to be in practice not only when he is actually engaged in the
practice of accountancy but also when he offers to render accounting services whether or not he in fact does
so. In other words, the act of setting up of an establishment offering to perform accounting services would
tantamount to being in practice even though no client has been served.
It may also be noted that a member of the Institute is deemed to be in practice during the period he
renders ‘service with armed forces’.
The above provisions need to be correlated with the provisions of section 144 of the Companies Act, 2013
which prohibits an auditor of the company from rendering certain services directly or indirectly to the
company or its holding company or its subsidiary company.
(Students may refer Chapter 6 ‘The Company Audit’ of the Study Material for detailed understanding
of provisions on section 144 of the Companies Act, 2013)

Illustration 2
Mr. A, a practicing Chartered Accountant agreed to select and recruit personnel, conduct training
programmes for and on behalf of a client. Is this a professional misconduct?
 Solution
Providing Management Consultancy and Other Services: Under Section 2(2)(iv) of the
Chartered Accountants Act, 1949, a member of the Institute shall be deemed “to be in practice” when
individually or in partnership with Chartered Accountants in practice, he, in consideration of
remuneration received or to be received renders such other services as, in the opinion of the Council, are or
may be rendered by a Chartered Accountant in practice. Pursuant to Section 2(2)(iv) above, the Council
has passed a resolution permitting a Chartered Accountant in practice to render entire range of
“Management Consultancy and other Services”.
The definition of the expression “Management Consultancy and other Services” includes Personnel
recruitment and selection. Personnel Recruitment and selection includes, development of human resources
including designing and conduct of training programmes, work study, job description, job evaluation and
evaluations of workloads.
Conclusion: Therefore, Mr. A is not guilty of professional misconduct.

4.4 Companies not to Engage in Accountancy

Section 25 of the Chartered Accountants Act, 1949 provides that:
(1) No company, whether incorporated in India or elsewhere, shall practise as chartered accountants.
Here, the term “company” shall include any limited liability partnership which has company as its
partner for the purpose of this section.
(2) If any company contravenes this provision then, without prejudice to any other proceedings which may
be taken against the company, 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.
In addition, as per section 141(2) of the Companies Act, 2013, where a firm (including a limited liability
partnership) is appointed as an auditor of a company, then, only the partners who are chartered accountants
shall be authorised to act and sign on behalf of the firm.
Thought the LLPs are allowed to be appointed as an auditor in accordance with the Companies Act, 2013,
however, it can not be engaged into practice, if it has company as its partner, as per the Chartered
Accountants Act, 1949.
Therefore, it can be inferred that the LLP not having any company as its partner, can be engaged into
practicing and thus take audit assignments.
4.5 Member in Practice Prohibited from using a Designation Other Than
Chartered Accountant
(i) Members of the Institute are now permitted to use the word 'CA' as prefix before their name
irrespective of the fact that they are in practice or not.
(ii) Under Section 7 of the Chartered Accountants Act, 1949 a member in practice cannot use any
designation other than that of a Chartered Accountant, nor he can use any other description, whether
in addition thereto or in substitution therefor, but a member who is not in practice and does not use
the designation of a Chartered Accountant may use any other description. Nevertheless a member in
practice may use any other letters or description indicating shall be deemed to prohibit any such
person from adding any other description or letters to his name, if entitled thereto, to
membership of such other Institute of accountancy, whether in India or elsewhere, as may be
recognised in this behalf by the Council, or any other qualification that he may possess, or to
prohibit a firm, all the partners of which are members of the Institute and in practice, from
being known by its firm name as Chartered Accountants.
Merchant Banker / Advisor to an issue: The members may apply for and obtain registration
as category IV Merchant Banker under the SEBI’s rules and regulations and act as Advisor or
Consultant to an issue. In client Companies’ offer documents and advertisements regarding
capital issue, name and address of the Chartered Accountant or firm of Chartered
Accountants acting as Advisor or Consultant to the Issue could be indicated under the
caption “Advisor/Consultant to the Issue”. However, the name and address of such Chartered
Accountant/firm of Chartered Accountants should not appear prominently.
Directors of Companies, Members of political parties, position in clubs, etc.: The members of
the Institute who are also Directors in Companies, members of Political parties or Chartered Accountants
Cells in the political parties, holding different positions in clubs or other organisations are not permitted to
mention these positions as these would be violative of the provisions of Section 7 of the Act.
Members who are also Cost Accountants: Though a member cannot designate himself as a Cost
Accountant, he can use the letters A.C.M.A (Associate) or F.C.M.A (Fellow) after his name, when he is a
member of that Institute.
Permission to mention qualifications of certain Institutions: The members are permitted to mention
membership of a foreign Institute of Accountancy, which has been recognized by the Council through a
Memorandum of Understanding (MoU) / Mutual Recognition Agreement(MRA) with the said Institute.
Other Qualifications of the member
With regard to the other qualifications of a member, which he is permitted to mention, the following observations of
the Supreme Court in Institute of Chartered Financial Analyst of India (ICFAI) vs Council of the Institute of
Chartered Accountants of India (ICAI) dated 16th May, 2007 are relevant:
“The expression 'any other qualification that he may possess', therefore, must be read as
qualification other than conferred upon the member by other Institutes of Accountancy. Such
qualification of accountancy may be conferred even by other Institutes. But as noticed hereinbefore,
an exemption had been granted by reason of a resolution of the Institute in relation to the Institute
of Cost and Works Accountants. Furthermore, a degree conferred by any university also is subject
to an exemption from the rigour of the provisions of Section 7 of the Act. There cannot, therefore,
be any doubt whatsoever that 'the other qualification' would mean a qualification other than granted
by an Institute of Accountancy, subject of course to recognition thereof by the Institute.”

3. For example, though a member cannot designate himself as a Cost

Accountant, he can use the letters A.C.M.A.(Associate) or F.C.M.A. (fellow) after
his name, when he is a member of that Institute.
It is improper for a Chartered Accountant to state on his professional documents that he is an Income-tax
Consultant, Cost Accountant, Company Secretary, Cost Consultant or a Management Consultant.
Member are allowed to appear before the various authorities including Company Law Board, Income Tax
Appellate Tribunal, Sales Tax Tribunal where the law has permitted the same, so far as the designation
“Corporate Lawyer” is concerned, the Council was of the view that as per the existing provisions of law, a
Chartered Accountant in practice is not entitled to use the designation “Corporate Lawyer”.
Further, the members are not permitted to use the initials ‘CPA’ (standing for Certified Public
Accountant) on their visiting cards.
Members of the Institute in practice who are otherwise eligible may also practice as Company Secretaries
and/or Cost Accountants. Such members shall, however, not use designation/s of the aforesaid Institute/s
simultaneously with the designation “Chartered Accountant”.
4.6 Maintenance of Branch Offices
In terms of Section 27 of the Act, if a Chartered Accountant in practice or a Firm of Chartered Accountants
has more than one office in India, each one of such offices should be in the separate charge of a member of
the Institute. Failure on the part of a member or a firm to have a member in charge of its branch and a
separate member in case of each of the branches, where there is more than one, would constitute
professional misconduct.
However, exemption has been given to members practicing in hill areas subject to certain
conditions. The conditions are:

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

Above conditions apply to any additional office situated at a place beyond 50 kms from the municipal limits in
which any office is situated.
It is necessary to mention that the Chartered Accountant in-charge of the branch of another firm should be
associated with him or with the firm either as a partner or as a paid assistant. If he is a paid assistant, he must
be in whole time employment with him.
The requirement of Section 27 in regard to a member being in charge of an office of a
Chartered Accountant in practice or a firm of such Chartered Accountants shall be satisfied
only if the member is actively associated with such office. Such association shall be deemed
to exist if the member resides in the place where the office is situated for a period of not less
than 182 days in a year or if he attends the said office for a period of not less than 182 days
in a year or in such other circumstances as, in the opinion of the Executive Committee,
establish such active association.
However, a member can be in-charge of two offices if they are located in one and the same
Accommodation. In this context some of the Council’s decisions are as follows:
(1) With regard to the use of the name-board, there will be no bar to the putting up of a name- board in the
place of residence of a member with the designation of Chartered Accountant, provided it is a name-
plate or a name-board of an individual member and not of the firm.

Illustration 3
Mr. X & Mr. Y, partners of a Chartered Accountant Firm, one in-charge of Head Office and
another in-charge of Branch at a distance of 80 km. from the municipal limits, puts up a
name-board of the firm in both premises and also in their respective residences.
Putting Name Board of the Firm at Residence: The council of the Institute has decided that
with regard to the use of the name-board, there will be no bar to the putting up of a name-board in
the place of residence of a member with the designation of chartered accountant, provided, it is a
name-plate or board of an individual member and not of the firm.
In the given case, partners of XY & Co., put up a name board of the firm in both offices but not
in their respective residences.
Conclusion: Thus, the chartered accountants are guilty of misconduct. Distance given in the
question is not relevant for deciding.
(2) The exemption may be granted to a member or a firm of Chartered Accountants in practice to have a
second office without such second office being under the separate charge of a member of the
Institute, provided-
(a) the second office is located in the same premises, in which the first office is located or,
(b) the second office is located in the same city, in which the first office is located or,
City X
1st Office

2nd Office

(c) the second office is located within a distance of 50 km. from the municipal limits of a city,
in which the first office is located.
City X Municipal Limit City Y
1st Office 2nd Office
(Head Office) (Branch Office)
15 km 10 km
35 km

Effective distance from 1st Office = 35 km + 10 km = 45 km

A member having two offices of the type referred to above shall have to declare, which of the two
offices is his main office, which would constitute his professional address.

Illustration 4
Mr. K, Chartered Accountant practicing as a sole proprietor has an office in the suburbs of
Chennai. Due to increase in the income tax assessment work, he opens another office near the income
tax office, which is within the city and at a distance of 30 km. from his office in the suburb. For
running the new office, he has employed a retired Income Tax Commissioner who is not a
Chartered Accountant.
Solution:
Maintenance of Branch Office in the Same City: As per section 27 of the Chartered
Accountants Act, 1949 if a chartered accountant in practice has more than one office in India,
each one of these offices should be in the separate charge of a member of the Institute. However, a
member can be in charge of two offices if the second office is located in the same premises or in
the same city, in which the first office is located; or the second
office is located within a distance of 50 km. from the municipal limits of a city, in which
 the first office is located.
In the given case, Mr. K, Chartered Accountant in practice as a sole proprietor at Chennai has an
office in suburbs of Chennai, and due to increase in the work he opened another branch within the
city near the income tax office. He also employed a retired income tax commissioner to run the
new office and the second office is situated within a distance of 30 kilometers from his office in
the suburb.
Conclusion: In view of above provisions, there will be no misconduct if Mr. K will be in-
charge of both the offices. However, he is bound to declare which of the two offices is the main
office.

4.7 KYC Norms for CA in Practice

The financial services industry globally is required to obtain information of their clients and comply with
Know Your Client Norms (KYC norms). Keeping in mind the highest standards of Chartered Accountancy
profession in India, the Council of ICAI issued such norms to be observed by the members of the profession
who are in practice.
In light of this background, the Council of ICAI approved the following KYC Norms which are mandatory in
nature and shall apply in all assignments pertaining to attest ation functions.
The KYC Norms approved by the Council of ICAI are given below:

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

2. Where Client is a Corporate Entity

A. General Information
Name and Address of the Entity
Business Description
Name of the Parent Company in case of Subsidiary
Copy of last Audited Financial Statement
 B. Engagement Information
Type of Engagement
C. Regulatory Information
Company PAN No.
Company Identification No.
Directors’ Names & Addresses
Directors’ Identification No.

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

5. CHARTERED ACCOUNTANTS IN SERVICE

In accordance with the definitions provided under the Code of Ethics, a Professional Accountant in Service or
Chartered Accountant in Service means a professional accountant employed or engaged in an executive or non-
executive capacity in areas such as commerce, industry, service, the public sector, education, the not for profit
sector, regulatory bodies or professional bodies, or a professional accountant contracted by such entities.

6 DISCIPLINARY PROCEDURE
Sections 21, 21A, 21B, 21C, 22-A and 22-G of the Chartered Accountants Act read with The
Chartered Accountants (Procedure of Investigations of Professional and Other Misconduct
of Cases) Rules, 2007 have laid down the following procedure in regard to the investigation
of misconduct of members which has been summarized as under:-
 Flow Chart of Discipline Procedure Mechanism
Receipt of (i) Complaint along with prescribed fee, or (ii) Information,
against member of ICAI of alleged misconduct

Disciplinary Directorate

Prima Facie Opinion

Guilty Not Guilty

Submit all information &

Falling in Falling in complaints to
First Schedule Second Schedule or Both Board of Discipline
Place the matter Place the matter
before Board of Discipline before Accepted Rejected
Disciplinary Committee
Accepted Rejected
Accepted Rejected Advice the Director
Conduct Close the (Discipline) to further
enquiry matter investigate
Conduct Close the
enquiry matter
Found guilty
May proceed with the
Found guilty matter, if it’s allied to
Yes the First Schedule
No
Yes No
It can,
(i) reprimand the member It can, Refer the matter to the
(ii) remove name of the (i) reprimand the member Disciplinary
member upto a period of 3 (ii) remove name of the Committee, if it’s allied
months member permanently or for to the Second
(iii) impose fine upto any duration, it thinks fit Schedule or Both
` 1,00,000 (iii) impose fine upto
` 5,00,000

Any member or Director (Discipline) aggrieved by order of Board or

Disciplinary Committee can prefer an appeal within 90 days

Appellate Authority

It can,
(i) Confirm, modify or set aside the order.
(ii) Impose,
(ii) Impose, Set
Set aside,
aside, Reduce
Reduce or
or enhance
enhance penalty.
penalty.
(iii) remit
(iii) remitthe
thecase to to
case thethe
Board
Boardof of
Discipline or Disciplinary
Discipline Committee
or Disciplinary Committee for
for reconsideration.
reconsideration.
(iv) Pass
(iv) Pass such
such order
order as
as the
the Authority
Authority thinks
thinks fit.
fit.
[For detailed knowledge with respect to Disciplinary Procedure, students are advised to refer
Chartered Accountants Act, 1949 produced under Annexure 2 at the end of this Chapter.]

7 TYPES OF MISCONDUCT: PROFESSIONAL OR OTHER

MISCONDUCT
According to section 22 of the Act, for the purposes of this Act, the expression “professional or other misconduct”
shall be deemed to include any act or omission provided in any of the Schedules, but nothing in this section
shall be construed to limit or abridge in any way the power conferred or duty cast on the Director
(Discipline) under sub-section (1) of section 21 to inquire into the conduct of any member of the Institute
under any other circumstances.
A member is liable to disciplinary action under Section 21 of the Chartered Accountants Act, if he is found guilty
of any Professional or Other Misconduct.
7.1 Professional Misconduct
Professional misconduct has been defined in part I, II and III of the First Schedule; and part I and II of the
Second Schedule. A member who is engaged in the profession of accountancy whether in practice or in service
should conduct/restrict his actions in accordance with the provisions contained in the respective parts of the
schedules. If the member is found guilty of any of the acts or omissions stated in any of the respective parts of the
Schedule, he/she shall be deemed to be guilty of professional misconduct.
7.2 Other Misconduct
Other misconduct has been defined in part IV of the First Schedule and part III of the Second Schedule. These
provisions empower the Council to inquire into any misconduct of a member even it does not arise out of his
professional work. This is considered necessary because a chartered accountant is expected to maintain the
highest standards of integrity even in his personal affairs and any deviation from these standards, even in his
non-professional work, would expose him to disciplinary action.

4. For example, a member who is found to have forged the will of a relative,
would be liable to disciplinary action even though the forgery may not have
been done in the course of his professional duty.
Other misconduct would also relate to conviction by a competent court for an offence involving moral turpitude
punishable with transportation or imprisonment to an offence not of a technical nature committed by the
member in his professional capacity. [See section 8(v) of the Act].
 Some illustrative examples, where a member may be found guilty of “Other
Misconduct”, under the aforesaid provisions, rendering himself unfit to be
member are:
(i) Where a chartered accountant retains the books of account and documents of the client and fails
to return these to the client on request without a reasonable cause.
(ii) Where a chartered accountant makes a material misrepresentation.
(iii) Where a chartered accountant uses the services of his articled or audit assistant for purposes
other than professional practice.
(iv) Conviction by a competent court of law for any offence under Section 8 (v) of the
Chartered Accountants Act 1949.
(v) Misappropriation of money by office-bearer of a Regional Council of the Institute and
utilisation thereof for his personal use.
(vi) Not replying within a reasonable time and without a good cause to the letter of the public
authorities.
(vii) Where certain assessment records of income tax department belonging to a client of a Chartered
Accountant were found in the almirah of the bed-room of the chartered accountant.

(viii) Where a chartered accountant had adopted coercive methods on a bank for having a loan
sanctioned to him.

8. SCHEDULES TO THE ACT

Acts or omissions which comprise professional misconduct within the meaning of Section 22 of the Chartered
Accountants Act are defined in two Schedules viz. the First Schedule and the Second Schedule. The First
Schedule is divided into four parts, Part I of the First Schedule deals with the misconduct of a member in
practice which would have the effect generally of compromising his position as an independent person. Part II
deals with misconduct of members in services. Part III deals with the misconduct of members generally and
Part IV deals with other misconduct in relation to members of the institute generally.
The Second Schedule is divided into three parts. Part I deals with misconduct in relation to a member in
practice, Part II deals with misconduct of members generally and Part III deals with other misconduct in
relation to members of the Institute generally.
 Part I: Professional misconduct in relation to Chartered Accountants
No. ofinClauses:
practice 12

Part II: Professional misconduct in relation to Members of the Institute

No. ofinClauses:
service 2

First Schedule
Part III: Professional misconduct in relation to Members of the Institute generally
No. of Clauses: 3
Types of Schedules

Part IV: Other misconduct in relation to Members of the Institute generally

No. of Clauses: 2

Part I: Professional misconduct in relation to Chartered Accountants in practice

No. of Clauses: 10

Part II: Professional misconduct in relation to Members of the Institute generally

Second Schedule No. of Clauses: 4

Part III: Other misconduct in relation to Members of the Institute generally

No. of Clause: 1

The implications of the different clauses in the schedules are discussed below:

8.1 THE FIRST SCHEDULE

Where the Director (Discipline) is of the opinion that member is guilty of any professional or other misconduct
mentioned in the First Schedule; he shall place the matter before the Board of Discipline.

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.
 Who can be allowed to
practice in a CA’s name?

Non- Chartered Accountant Chartered Accountant in practice

Not allowed Partner Employee Others

Not Allowed

Allowed Allowed

The above clause is intended to safeguard the public against unqualified accountant practicing under the cover
of qualified accountants. It ensures that the work of the accountant will be carried out by a Chartered
Accountant who may be his partner or his employee and would work under his control and supervision.
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, for the purpose of rendering such
professional services from time to time in or outside India.
Explanation - In this item, “partner” includes a person residing outside India with whom a chartered accountant in
practice has entered into partnership which is not in contravention of item (4) of this Part.
It is in order for a member to share his fees or profits with another member of the Institute and/or a firm of
Chartered Accountants. A practicing Member of the Institute can share fees or profits arising out of his
professional business with such members of other professional bodies or with such other persons having such
qualifications as may be prescribed from time to time by the Council.

The Council has prescribed [Regulation 53A (1) of the Chartered Accountants Regulations, 1988]
the professional bodies, which are as under: -
(a) The Institute of Company Secretaries of India established under the Company Secretaries
Act, 1980.
(b) The Institute of Cost & Works Accountants of India established under the Cost & Works
Accountants Act, 1959.
(c) Bar Council of India established under the Advocates Act, 1961.
(d) The Indian Institute of Architects established under the Architects Act, 1972.
(e) The Institute of Actuaries of India established under the Actuaries Act, 2006.
 Further, the Council has also prescribed [Regulation 53A (3) of the Chartered Accountants
Regulations, 1988] the persons qualified in India, which are as under:
(i) Company Secretary within the meaning of the Company Secretaries Act, 1980;
(ii) Cost Accountant within the meaning of the Cost and Works Accountants Act, 1959;
(iii) Actuary within the meaning of the Actuaries Act, 2006;
(iv) Bachelor in Engineering from a University established by law or an Institution recognised by law;
(v) Bachelor in Technology from a University established by law or an institution recognised by law;
(vi) Bachelor in Architecture from a University established by law or an institution recognised by
law;
(vii) Bachelor in Law from a University established by law or an institution recognised by law;
(viii) Master in Business Administration from Universities established by law or technical institutions
recognised by All India Council for Technical Education.

The Institute came across certain Circulars/Orders issued by the Registrars of various State Co- operative
Societies wherein it has been mentioned that certain amount of audit fee is payable to the concerned State
Government and the auditor has to deposit a percentage of his audit fee in the state Treasury by a prescribed
challan within a prescribed time of the receipt of Audit fee. The Council considered the issue and while noting
that the Government is asking auditors to deposit such percentage of their audit fee for recovering the
administrative and other expenses incurred in the process, the Council decided that as such there is no bar in
the Code of Ethics to accept such assignment wherein a percentage of professional fee is deducted by the
Government to meet the administrative and other expenditure.

Considering the case where a Chartered Accountant gave 50% of the audit fees received by him to the
complainant, who was not a Chartered Accountant, under the nomenclature of office allowance and such
an arrangement continued for a number of years, it was held by the Council that in substance the
Chartered Accountant had shared his profits and, therefore, was guilty of professional misconduct under
the clause. It is not the nomenclature to a transaction that is
material but it is the substance of the transaction, which has to be looked into.
Treatment of Goodwill –

Share of Profit / Sale

of Goodwill

Partnership Proprietorship
Firm Firm

There are two or No sharing of fees between

more partners and Goodwill of a proprietary firm
Legal Representative of single of chartered accountant can be
one of them dies member firm and purchaser of sold/transferred to another
Goodwill of the firm on the eligible member of the
death of the Sole Proprietor of Institute, after the death of the
the firm proprietor concerned.
Legal
Representative Payments may be made in * The Council permitted the
(say, widow) of the instalments, provided the sale/transfer of goodwill for
deceased partner agreement of the sale of such cases in the following
can continue to goodwill contains such manner:
receive a share of provision
the firm,
only if the
partnership Death of proprietor
agreement Death of proprietor concerned occurred on Death of proprietor
contains such concerned occurred on or concerned had occurred on
or after 30.8.1998 and
provision after 30.8.1998 there existed a dispute or before 29th August,
1998
as to the legal heir of
the deceased proprietor
Provided such sale is
completed in all aspects within Provided the information
a year of the death of such as to the existence of the Provided such
proprietor concerned. dispute is received by the sale/transfer is
The name of the concerned Institute within a year of completed/effected and
firm would be kept in the death of the proprietor the Institute's permission
abeyance (i.e. not removed on concerned. to practice in the
receipt of information about deceased's proprietary
The name of concerned firm name is sought for
the death of the proprietor as firm shall be kept in
is being done at present) only by 28th August, 1999 and
abeyance till 1 year from the firm name concerned
upto a period of 1 year from the date of settlement of
the death of proprietor is still available with the
dispute Institute
concerned as aforesaid

* In case of a partnership firm when all the partners die at the same time, the above Council decision would also be
applicable.

Illustration 5
Mr. Qureshi, Chartered Accountant, in practice died in a road accident. His widow proposes to sell the
practice of her husband to Mr. Pardeshi, Chartered Accountant, for ` 5 lakhs. The price also includes
right to use the firm name - Qureshi and Associates. Can widow of Qureshi sell
the practice and can Mr. Pardeshi continue to practice in that name as a proprietor?
 Solution
Sale of Goodwill: With reference to Clause (2) of Part I to the First Schedule to Chartered
Accountants’ Act, 1949, the Council of the Institute of Chartered Accountants of India considered
whether the goodwill of a proprietary concern of chartered accountant can be sold to another member
who is otherwise eligible, after the death of the proprietor.
It lays down that the sale is permitted subject to certain conditions discussed in the above flowchart. It
further resolved that the legal heir of the deceased member has to obtain the permission of the Council
within a year of the death of the proprietor concerned.
Conclusion: Thus, in a given case, the widow of Mr. Qureshi, who has proposed to sell the practice for
` 5 lakhs is in effect proposing the sale of goodwill. Thus, the act of Mrs. Qureshi is permissible and Mr.
Pardeshi can continue to practice in that name as a proprietor.

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.
Just as a member cannot share his fees with a non-member, he is also not permitted to receive and share the
fees of others except for sharing with Member of such professional body or other person having such
qualification as may be prescribed (Regulation 53A of the Chartered Accountants Regulations, 1988) by the
Council for the purpose of Clause (2), (3) and (5) of Part I of First Schedule. Such a restriction is necessary so
that a Chartered Accountant who is often required to engage or to recommend for engagement by his clients,
the services of the members of other professions, cannot share the fees received by other persons who are
otherwise not permitted by the Council in terms of provision of this clause.

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.
The Council has prescribed Regulation 53A (3) (as discussed under clause (2) of this part)
and Regulation 53B of the Chartered Accountants Regulations, 1988 for the persons qualified
and the professional bodies.
The Regulation 53B prescribes the membership of following professional bodies for entering into partnership:
(a) Company Secretary, member, The Institute of Company Secretaries of India, established under
the Company Secretaries Act, 1980;
(b) Cost Accountant, member, The Institute of Cost and Works Accountants of India established under
the Cost and Works Accountants Act, 1959;
(c) Advocate, member, Bar Council of India established under the Advocates Act, 1961;
(d) Engineer, member, The Institution of Engineers, or Engineering from a University established by law
or an institution recognized by law.
(e) Architect, member, The Indian Institute of Architects established under the Architects Act, 1972;
(f) Actuary, member, The Institute of Actuaries of India, established under the Actuaries Act, 2006.
A Chartered Accountant in practice is not permitted to enter into partnership with any
person other than a Chartered Accountant in practice or such other persons as may be
prescribed by the Council from time to time. The members may however take note of the
fact that they cannot form Multi-Disciplinary partnerships till such time that Regulators of
such other professionals also permit partnership with chartered accountants, and
guidelines in this regard are issued by the Council.

Some of the decisions of the Council under this clause are given below:
Where a Chartered Accountant had engaged himself as a partner in two business firms and Managing Director
in two Companies and was also holding Certificate of Practice without obtaining permission of the Institute. Held
that he was guilty of professional misconduct inter alia under Clauses (4) and (11). (Harish Kumar in re:-
Pages 286 of Vol. VIII (2) of Disciplinary cases – Council’s decision dated 1st to 3rd August, 2001)
The Respondent was a Taxation Advisor of a group of Companies. During search and seizure under Section 132 of
The Income Tax Act, 1961 of the group and also of the Chartered Accountant, the Complainant found that the
Respondent was colluding with this group in evasion of tax. The Respondent had signed two sets of financial
statements of the same auditee, for the same financial year. The two financial statements showed different
figures of contract receipts, net profits and balance sheet. He was grossly negligent in the conduct of his
professional duties. The Respondent admitted that he was the managing partner/partner in two partnership firms
where there were other
partners who were not Chartered Accountants. Held, the respondent is guilty under Clause (4) o f Part I of
First Schedule and under Clauses (5), (6) & (7) of Part I of Second Schedule. [Assistant Director of Income
Tax (investment), Calicut v. P Subramanian. Council Decision of 281 st Meeting held in October,
(2008)].
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.
“A man must stand erect, and not to be kept erect by others”, is a dictum by Marcus Aurelius which though
applicable for a man in every walk of life is more so in the case of a professional life. A Chartered Accountant
must seek work not through any agency, but by the respect, that he is able to command for his professional talent
and skill and by the confidence he is able to inspire by his reputation. All forms of canvassing on that account
are regarded unethical and are prohibited. The decision of the Council under this clause is given below:
A Chartered Accountant wrote various letters to officers of different Army Canteens giving details about him
and his experience, his partner & office and the norms for charging audit fees. He was held guilty for
violation of Clauses (5) & (6). (Jethanand Sharda vs. Deepak Mehta – Council’s decision dated 1st to 4th
July, 1998 – Page 61 of Volume VIII(2) of Disciplinary Cases).
It may further be noted that the acts of partners and employees of the Firm towards securing
professional work are subject to the provisions of Clauses (6) and (7) of Part-I of First
Schedule of Chartered Accountants Act, 1949.
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.
However, as per the guideline issued by the Council of the Institute of Chartered Accountants
of India, 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.
Further, keeping in view the broad purview of Clause (6) of Part I of the First Schedule to the
Chartered Accountants Act, 1949, an advertisement of Coaching /teaching activities by a
member in practice may amount to indirect solicitation, as well as solicitation by any other
means, and may therefore be violative of the provisions of Clause (6) of Part I of the First
Schedule to the Chartered Accountants Act, 1949.
In view of the above, such 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, as per the provisions of Chartered Accountants Act, 1949 and Rules/Regulations framed
thereunder. However, it may be noted that subject to the above prohibition, 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.
It is an elaboration of the principle propounded in the preceding clause enjoining that for securing professional
work the help of others should not be sought. This clause further enjoins on a member not to solicit
professional work by means of advertisement, circular, personal communication or interview or by any other
means. The members should not adopt any indirect methods to adventure their professional practice with a
view to gain publicity and thereby solicit clients or professional work. Such a restraint must be practiced so
that members may maintain their independence of judgment and may be able to command the respect of their
prospective clients.
The professional work cannot be secured either by advertisement or by circulars or by solicitation. It can
only be obtained by a member gradually building confidence in his ability and integrity. The service tendered
by an accountant is of a personal and intimate nature and its value can be appraised only by personal contact
and experience. A public advertisement is likely to lead to an impression that the professional person is over
anxious to win confidence, which however will have the opposite effect. The satisfaction of clients would be
the best advertisement, which would lead to other clients. Unabashed advertisement would affect the public
esteem in which the profession is held and would act to the disadvantage of its members. An advertisement is
not a key to success in the profession. It is the quality service, which attracts and retains the clients.
Some forms of soliciting work which the Council has prohibited are discussed below:
(a) Advertisement and note in the press – Members should not advertise for soliciting work or advertise
in a manner which could be interpreted as soliciting or offering to undertake professional work. They
are also not permitted to use the less open method of circulating letters to a small field of possible
clients. Personal canvassing or canvassing for clients of previous employer through the help of the
employees are also not permitted. The exceptions to the above rule are:
(i) A member may request another Chartered Accountant in practice for professional work.
 (ii) a member may advertise changes in partnerships or dissolution of a firm, or of any change in
address of practice and telephone numbers. Such announcements should be limited to a bare
statement of facts and consideration given to the appropriateness of the area of distribution of
the newspaper or magazine and number of insertions.
(iii) a member is also permitted to issue a classified advertisement in the journal/ newsletter of the
Institute intended to give information for sharing professional work on assignment basis or
for seeking partnership or salaried employment of an accountancy nature, provided it only
contains the accountant’s name, address or telephone number, fax number, e-mail address and
address(es) of social Networking sites of members. However, mere factual position
of experience and area of specialization, relevant to seek response to the
advertisement, are permissible.
(b) Application for empanelment for allotment of audit and other professional work – The
Government departments, government companies/Corporations, courts, co-operative societies and
banks and other similar institutions prepare panels of chartered accountants for allotment of audit and other
professional work. Where the existence of such a panel is within the knowledge of a member, he is
free to write to the concerned organization with a request to place his name on the panel. However, it
would not be proper for the Chartered Accountant to make roving enquiries by applying
to any such organization for having his name included in any such panel. It is permissible
to quote fees on enquiries being received from such bodies, which maintain such panel.
(c) Responding to Tenders, Advertisements and Circulars : 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.
The Council has issued Guidelines No. 1-CA(7)/03/2016 dated 7th April 2016 (see Appendix ‘J’)
which stipulate that 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 commensurates with size, value, volume, manpower
requirement and nature of work .
EMD/Security Deposit : The Council is of the view that while interference with the practices prevailing
for requirement of EMD/Deposit is not required. However, on having received complaint/ instance of
exorbitant EMD/Deposit, the Ethical Standards Board may look into the matter on case to case
basis.
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.
(d) Publication of Books, Articles or Presentation: It is not permissible for a member to mention
in a book or an article published by him, or a presentation made by him, any professional
attainment(s), whether of the member or the firm of chartered accountants, with
which he is associated. However, he may indicate in a book, article or presentation
the designation “Chartered Accountant” as well as the name of the firm.
(e) Issue of Greeting Cards or Invitations : 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.
(f) Advertisement for Silver, Golden, Platinum or Centenary celebrations : It is not
permitted to advertise the events organised by a Firm of Chartered Accountants.
However, considering the need of interpersonal socialization/relationship of the
members through such get together occasions, the advertisement for Silver, Golden,
Diamond, Platinum or Centenary celebrations of the Chartered Accountants Firms may
be published in newspaper or newsletter.
(g) 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.
(h) Advertisement of Teaching/Coaching activities by members : The members engaged in
teaching /coaching activities, while advertising such teaching /coaching activities,
shall comply with the Regulation 190A of the Chartered Accountants Regulations,
1988(discussed in the Chapter in Clause 11).
Keeping in view the broad purview of Clause (6) of Part I of the First Schedule to the
Chartered Accountants Act, 1949, an advertisement of Coaching /teaching activities by
a member in practice may amount to indirect solicitation, as well as solicitation by any
other means, and may therefore be violative of the provisions of Clause (6) of Part I of
the First Schedule to the Chartered Accountants Act, 1949.
 In view of the above, such 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, as per
the provisions of Chartered Accountants Act, 1949 and Rules/Regulations framed
thereunder.
Subject to the above prohibition, 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.
(i) 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.
(j) Television or Movie Credits : While sharing name of the member or Firm of Chartered
Accountants for inclusion in Television or Movie Credits , it must be taken care of that exhibition of
name is not made differently as compared to other entries in the credits.
(k) Soliciting professional work by making roving enquiries: It is not permissible for a member
to address letters, emails or circulars specifically to persons who are likely to require services of a
Chartered Accountant since it would tantamount to advertisement.
(l) Seeking work from Professional Colleagues : The issue of an advertisement or a circular by a
Chartered Accountant, seeking work from professional colleagues on any basis whatsoever except as
provided above would be in violation of this clause.
(m) Scope of representation which an auditor is entitled to make under Section 225(3) of
the Companies Act, 1956 (Section 140(4) of the Companies Act, 2013) : The right to make
representation does not mean that an auditor has any prescriptive right or a lien to an audit. The
wording of his representation should be such that, apart from the opportunity not being abused to
secure needless publicity, it does not tantamount directly or indirectly to canvassing or soliciting for
his continuance as an auditor. The letter should merely set out in a dignified manner how he has been
acting independently and conscientiously through the term of office and may, in addition, indicate if
he so chooses, his willingness to continue as auditor if reappointed by the shareholders.
(n) Acceptance of original professional work by a member emanating from the client
introduced to him by another member: The Council has decided that a member should not accept the
original professional work emanating from a client introduced to him by another member. If any
professional work of such client comes to him directly, it should be his duty to ask the client that he
should come through the other member dealing generally with his original work.
 (o) Giving Public Interviews: While giving any interview or otherwise furnishing details about
themselves or their firms in public interviews or to the press or at any forum, the members should
ensure that, it should not result in publicity. Due care should be taken to ensure that such interviews or
details about the members or their firms are not given in a manner highlighting their professional
attainments. Any detail which is given must, in addition to meeting the above requirements, be given
only as a response to a specific question, and of factual nature only.
(p) Members and/or firms who publish advertisements under Box numbers: Members/Firms are
prohibited from inserting advertisements for soliciting clients or professional work under box numbers
in the newspapers. This practice is in violation of this clause.
(q) 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.
Some of the decisions of the Council/High Courts on this clause are given below:
Solicitation –
A chartered accountant sent a printed circular to a person unknown to him offering his services in profit
planning and profit improvement programmes. The circular conveyed the idea that it was meant for strangers
only. Held, the chartered accountant was guilty of professional misconduct under the clause as he used the
circulars to solicit clients and professional work. [B.S.N. Bhushan (1965)]
A chartered accountant wrote several letters to Assistant Registrars/ Registrars of Co-operative Societies,
Government of West Bengal requesting for allotment of audit work and to enroll his name- on panel of
auditors. Held he was guilty of professional misconduct under the clause. The activities of the chartered
accountant went much beyond the instructions of the Council to the effect that roving enquiries should not be made
with the Government Department for empaneling the name unless it had been ascertained in advance that
specific panel was being maintained. It was also held that an auditor of co-operative societies under a license
granted by co-operative department was not its employee and, therefore, he could not solicit work. [Chief
Auditor of Co-operative Societies, West Bengal vs. B.B. Mukherjee (1967)]
A Chartered Accountant approached the principal of a secondary school through a third person known to the
principal for his appointment as auditor of that school. Further, the chartered accountant misrepresented to the
pervious Auditor that he had been offered appointment as auditor of the school and enquired whether he had
any objection to his accepting the same though it was a fact that the appointment of chartered accountant was
not made - the chartered accountant was held guilty of professional misconduct under the clause. It was further
held that writing letter by the Chartered Accountant to the previous auditor offering his services to audit the
accounts of school was not wrong as it was an offer to professional colleague and not to a prospective client.
[M. L. Agarwal (1973)]
An advertisement was published in a newspaper containing the member’s photograph wherein he was
congratulated on the occasion of the opening ceremony of his office. He was found guilty by the Council and later,
by High Court of violating the Clause (soliciting work by advertisement). The following observations of the
High Court may be relevant.
(a) The advertisement which had been put in by the member is a noticeable one and the profession of
Chartered Accountancy should maintain high standards of integrity, professional ethics and
efficiency.
(b) If soliciting of work is allowed the independence and forthrightness of a Chartered Accountant in the
discharge of duties cannot be maintained and therefore some discipline must be maintained by the
profession. [G.P. Agrawal (1982)]
A member who got an advertisement published in a newspaper offering his “services in matters of Accounts,
Income Tax, Labour laws, Law matters and Management Services” was found guilty in terms of this clause
as also under Clause (7). [Anil K. Garg (1987)]
Where a Chartered Accountant had sent a letter to another firm of Chartered Accountants, in which he had
introduced his firm as pioneer in liasoning with Central Government Ministries and its allied Departments for
getting various Government clearances for which he had claimed to have expertise and had given a list of his
existing clients and details of his staff etc . Held that he was guilty under the clause. [Bijoy Kumar,
(1991)]
Where a Chartered Accountant had addressed an undated but signed letter to a bank requesting for empanelment of
his firm as auditor along with the particulars of his firm showing the past experience and other details of the
firm; and a Member of Parliament had also sent a letter to the bank recommending the name of the said
Chartered Accountant’s firm for immediate empaneling for Internal Audit/Inspection Audit/Management
Audit, Expenditure Audit. Held that the member was guilty under Clause (6) of Part I of the First Schedule.
[Naresh C.Aggarwal (1992)]
Where a Chartered Accountant had sent a letter on the letterhead of his firm to a non-member introducing
himself as a chartered accountant giving details of services rendered by him and the schedule of his fees for
rending various kinds of services. Held that he was guilty under the clause. [Vijay Kumar Goel (1994)]
A Chartered Accountant sent New Year Greeting Cards bearing his name, qualif ication, the name and address
of his firm and also contain: “List of super hit books written by Suresh D. Chauhan. Guide to win girls –
Income-Tax raid. Contact for any type of bank for institutional loans or deposits”. Held that the Chartered
Accountant contravened Clause (6) & (7) of Part-I of the First Schedule to the Chartered Accountants Act,
1949 in having solicited assignment relating to any type of bank or institutional loans or deposits. [S.D.
Chauhan, (2001)]
 Illustration 6
Mr. S, a Chartered Accountant published a book and gave his personal details as the author. These details also
mentioned his professional experience and his present association as partner with M/s RST, a firm.
Soliciting Professional Work: Clause (6) of Part I of the First Schedule to the Chartered Accountants
Act, 1949 refers to professional misconduct of a member in practice if he solicits client or professional work
either directly or indirectly, by circular, advertisement, personal communication or interview or by any
other means. Therefore, members should not adopt any indirect methods to advertise their professional
practice with a view to gain publicity and thereby solicit clients or professional work. Such a restraint must
be practiced so that members may maintain their independence of judgement and may be able to command
the respect of their prospective clients. While elaborating forms of soliciting work, the Council has specified
that a member is not permitted to indicate in a book or an article, published by him, his association with any
firm of chartered accountants. In this case, Mr. S, a Chartered Accountant published the book and
mentioned his professional experience and his association as a partner with M/s RST, a firm of chartered
accountants.
Conclusion: Mr. S being a chartered accountant in practice has committed the professional misconduct by
mentioning that at present he is a partner in M/s. RST, a chartered accountants firm.

Illustration 7
M/s XYZ, a firm of Chartered Accountants created a website “www.xyzindia.com”. The website besides
containing details of the firm and bio-data of the partners also contains the passport size photographs of all the
partners of the firm.
Hosting Details on Website: As per detailed guidelines of the ICAI laid down in Clause (6)
of Part I of the First Schedule to the Chartered Accountants Act, 1949, a chartered accountant of the firm
can create its own website using any format subject to guidelines. However, the website should be so
designed that it does not solicit clients or professional work and should not amount to direct or indirect
advertisement. The guidelines of the ICAI to allow a firm to put up the details of the firm, bio-data of
partners and display of a passport size photograph.
Conclusion: In the case of M/s XYZ, all the guidelines seem to have been complied and there appears to
be no violation of the Chartered Accountants Act, 1949 and its Regulations.

Illustration 8
M/s LMN, a firm of Chartered Accountants responded to a tender from a State Government for
computerization of land revenue records. For this purpose, the firm also paid ` 50,000 as earnest deposit as part
of the terms of the tender.
Responding to Tenders: Clause (6) of Part I of the First Schedule to the Chartered Accountants Act,
1949 lays down guidelines for responding to tenders, etc. As per the guidelines if a matter
 relates to any services other than audit, members can respond to any tender. Further, in respect of a non-
exclusive area, members are permitted to pay reasonable amount towards earnest money/security deposits.
Conclusion: In the instance case, since computerization of land revenue records does not fall within
exclusive areas for chartered accountants, M/s LMN can respond to tender as well as deposit
` 50,000 as earnest deposit and shall not have committed any professional misconduct.

Illustration 9
Mr. Honest, a Chartered Accountant in practice, wrote two letters to M/s XY Chartered Accountants a firm of
CAs; requesting them to allot him some professional work. As he did not have a significant practice or clients he
also wrote a letter to M/s ABC, a firm of Chartered Accountants for securing professional work. Mr. Clever,
another CA, informed ICAI regarding Mr. Honest's approach to secure the professional work. Is Mr. Honest
wrong in soliciting professional work?
Securing Professional Work: Clause (6) of Part I of the First Schedule to the Chartered Accountants
Act, 1949 states that a Chartered Accountant in practice shall be deemed to be guilty of misconduct if he
solicits clients or professional work either directly or indirectly by a circu lar, advertisement, personal
communication or interview or by any other means. Provided that nothing herein contained shall be construed as
preventing or prohibiting any Chartered Accountant from applying or requesting for or inviting or securing
professional work from another chartered accountant in practice.
Such a restraint has been put so that the members maintain their independence of judgment and may be
able to command respect from their prospective clients.
Conclusion: In the given case, Mr. Honest wrote letters only to other Chartered Accountants, M/s XY and
M/s ABC requesting them to allot some professional work to him, which is not prohibited under Clause (6)
as explained above. Thus, Mr. Honest has not committed any professional misconduct by soliciting
professional work.

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 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.
This clause prohibits advertising of professional attainments or services of a member. However, the services can be
advertised in a restricted way through a write up subject to the Guidelines of the Council issued from time to
time. Refer chapter 3 of the book. It also restrains a member from using
any designation or expression other than that of a Chartered Accountant in documents through which the
professional attainments of the member would come to the notice of the public.
Other Designations: It is improper for a Chartered Accountant in practice to state on his professional
documents that he is an Income-tax Consultant, Cost Accountant, Company Secretary, Cost Consultant or a
Management Consultant.
While noting that it had already allowed its members to appear before the various authorities including
Company Law Board, Income Tax Appellate Tribunal, Sales Tax Tribunal where the law has permitted the
same, so far as the designation “Corporate Lawyer” is concerned, the Council was of the view that as per the
existing provisions of law, a Chartered Accountant in practice is not entitled to use the designation
“Corporate Lawyer”.
A member must not use the designation such as ‘Member of Parliament’, ‘Municipal Councilor’ nor
any other functionary in addition to that of Chartered Accountant.
A member empanelled as Insolvency Professional or Registered Valuer can mention
“Insolvency Professional” or “Registered Valuer” respectively on his visiting card and
letter head.
Permission to mention qualifications of certain Institutions : The 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 the Council e.g. South African Institute of Chartered Accountants (SAICA), Institute of
Certified Public Accountants (CPA Ireland) and Institute of Chartered Accountants in England and Wales
(ICAEW).
Date of setting-up practice: The date of setting up the practice by a member or the date of establishment
of the firm on the letter heads and other professional documents etc. should not be mentioned.
Practice as Advocate : Members of the Institute in practice who are otherwise eligible may practise as
advocates subject to the permission of the Bar Council but in such case, they should not use designation
‘Chartered Accountant’ in respect of the matters involving the practice as an advocate. In respect of other
matters they should use the designation ‘Chartered Accountant’ but they should not use the designation
‘Chartered Accountant’ and ‘Advocate’ simultaneously.
Practice as Company Secretary/Cost Management Accountant : Members of the Institute in
practice who are otherwise eligible may also practice as Company Secretaries and/or Cost Management
Accountants. Such members shall, however, not use designation/s of the aforesaid Institute/s simultaneously
with the designation “Chartered Accountant”.
It is clarified that in the event of the permission being granted to a member in practice to also hold COP of
sister Institute(s)/Bar Council, such a member be treated as a member in full-time practice.
Mention of Firm name except on Professional Documents : It is not proper for a Firm of Chartered
Accountants to use the designation ‘Chartered Accountant’ except on professional documents,
visiting cards, letter heads or sign boards and under the circumstances clarified under Clause (6).
However, an individual member may use the prefix “CA” with his name.
Notice in the Press relating to the Success in an Examination: Notice in the press relating to the
success in an examination of an individual candidate, should not contain any element of undesirable publicity
either in relation to the articled/audit assistant or an employee or the member or the firm with whom he
was served.
It is usual for local papers to publish details of the examination success of local candidates. Some biographical
information is often included. The rule aforementioned is not intended to discourage the printing of news of
local interest but is intended to indicate the need for restraint. The candidate’s name and address, school and local
background, examination passed with details of any prize or place gained, the name of the principal, firm and
town in which the principal practices may be published.
Reports and Certificates : The reports and certificates issued by a Chartered Accountant bring him to the
notice of the public in a greater or lesser degree. It is therefore incumbent upon him to ensure that the extent and
manner of publication of certificates are limited to what is necessary to enable the report or certificate to serve
its proper purpose. The members may however note that they should use letterhead of their Firm for issuing
reports and certificates.
Appearance of Chartered Accountants on Electronic Media (including Internet) : Members may
appear on television, films and Internet and agree to broadcast in the Radio or give lectures at forums and may
give their names and describe themselves as Chartered Accountants. Special qualifications or specialised
knowledge directly relevant to the subject matter of the programme may also be given. Firm name may also be
mentioned, however, any exaggerated claim or any kind of comparison is not permissible. What he may say or
write must not be promotional of him or his firm but must be an objective professional view of the topic
under consideration.
Publicity is permitted for appointments to positions of local or national importance or for the views of
members on matters of similar importance. Mention of the membership of the Institute is desirable in such
cases. What should be aimed at is to achieve suitable publicity for the Institute and its members generally.
Members giving talks or lectures or attending conference may describe themselves as Chartered Accountants
only when they are acting in their capacity as Chartered Accountants. However, reference to the professional
firm of the member should not be given.
Organising Training Courses, Seminars etc. for his staff: A Chartered Accountant in practice
holding training courses, seminars etc. for his staff may also invite the staff of other Chartered Accountants
and clients to attend the same. However, undue prominence should not be given to the name of the Chartered
Accountant in any booklet or document issued in connection therewith.
Writing Articles or Letters to the Press: Members writing articles or letters to the Press on subjects connected
with the profession may give their names and use the description Chartered Accountants.
Size of Sign Board: With regard to the size of sign board for his office that a member can put up, it is a
matter in which the members should exercise their own discretion and good taste while keeping
in mind the appropriate visibility and illumination (limited to the sake of visibility). However, use of glow
signs or lights on large-sized boards as is used by traders or shop-keepers is not permissible. A member can
have a name board at the place of his residence with the designation of a Chartered Accountant, provided it is a
name plate or name board of an individual member and not of the firm.
Public Announcements with details of Directors: The Council’s attention has been drawn to the fact
that more and more Companies are appointing Chartered Accountants as Directors on their Boards. The
prospectus or public announcements issued by these Companies often publish descriptions about the
Chartered Accountant’s expertise, specialisation and knowledge in any particular field or add appellations or
adjectives to their names. Attention of the members in this context is invited to the provisions of Clause (6)
and (7) of Part I of the First Schedule to the Chartered Accountants Act.
In order that the inclusion of the name of a member of the Institute in the prospectus or public announcements
or other public communications issued by the Companies in which the member is a director does not contravene
the above noted provisions, it is necessary that the members should take necessary steps to ensure that such
prospectus or public announcements or public communications do not advertise his professional
attainments and also that such prospectus or public announcements or public communications do not directly
or indirectly amount to solicitation of clients for professional work by the member. While it may be
difficult to lay down a rigid rule in this respect, the members must use their good judgement, depending
upon the facts and circumstances of each case to ensure that the above noted provisions are complied with
both in letter and spirit.
It is advisable for a member that as soon as he is appointed as a director on the Board of a Company, he should
specifically invite the attention of the management of the Company to the aforesaid provisions and should
request that before any such prospectus or public announcements or publ ic communication mentioning the name of
the member concerned, is issued, the material pertaining to the member concerned should, as far as
practicable be got approved by him. The use of the expression ‘Chartered Accountant’ is permissible.
However, the member must ensure that descriptions about his expertise, specialisation and knowledge in any
particular field or other appellations or adjectives are not published with his name. Particulars about
directorships held by the member in other Companies can, however, be given, but the name of the firm of
Chartered Accountants in which the member is a partner, should not be given.
Network Firms and Networking Guidelines : The Council has permitted Network amongst the
Firms registered with the Institute. A member of the Network may advertise to the extent
permitted by the Advertisement Guidelines issued by Institute.

Note:
Students are required to refer Para 9 of this Chapter for Guidelines for Networking
discussed in Chapter XV of Council General Guidelines 2008.
Advertisement Guidelines issued by Institute are being given in details in the Chapter
Use of Logo : For use of logos by Members on letter heads, visiting cards etc. the Council had decided that
the logos unconnected with the first letter of the name of the firm or its partners or proprietors would not be
permitted for use by members in practice/firms of Chartered Accountants on their letter heads, visiting cards
etc. as the same would have amounted to advertisement or smacking of publicity. Subsequent to above, the
Institute came across cases of registration of firm name in circumvention of the provisions contained in the
Regulation 190 of the Chartered Accountants Regulations, 1988. The members/firms by themselves or through
engineered name had been seeking to obtain firm name approval based on the name of the partner/s selected in
the manner that logo of the firm would be identical to the firm name which would have not otherwise been
permissible as firm name under Regulation 190.
In order to ensure compliance with the Regulations, the Council decided that the use of logo/monogram
of any kind/form/ style/design/colour etc. whatsoever on any display material or media e.g. paper stationery,
documents, visiting cards, magnetic devices, internet, sign board, by the members in practice and/or the firm
of Chartered Accountants, be prohibited. Use/printing of member/firm name in any other manner
tantamounting to logo/monogram was also prohibited.
Common CA Logo : To promote the brand of CA profession and responding to the long felt
need to have a symbol of CA Profession in India, ICAI came up with a unique logo which could
be used by all members, whether in practice or not. Encapsulating the current beliefs,
attitudes and values of the profession, the CA Logo seeks to enhance the identity of the
members. The logo consists of the letters ‘CA’ with a tick mark (upside down) inside a
rounded rectangle with white background. The letters ‘CA’ have been put in blue, the
corporate colour which not only stands out on any background but also denotes creativity,
innovativeness , knowledge, integrity, trust, truth, stability and depth. The upside down tick
mark, typically used by the chartered accountants, has been included to symbolize the
wisdom and value of the professional. The green colour in the tick mark signifies growth,
prosperity, harmony and freshness. Members are encouraged to use this logo. The Council
has decided that use of CA logo in the stamp is permissible, subject to CA logo guidelines.
[Students are advised to refer Chapter XVI on Logo Guidelines under Para no 9 Council
Guidelines.]
Guidelines for elected Members of the Council/ office Bearers of the Regional Council in
the context of use of designation etc. and manner of Printing of Letter-heads and visiting
cards.
The guidelines/directions laid down by the Council as revised by the Council from time to time for use of
designation etc. and manner of printing letter-heads and visiting cards of the President, Vice- President of the
Institute, Members of the Council, Chairmen of various non-standing Committees of the Institute;
Chairmen, other office bearers and Members of the Regional Councils; Chairmen, other office-bearers and
Members of the Managing Committees of the Branches are appearing in Appendix ‘F’ to Code of Ethics
publication.
Some of the decisions of the Council/High Courts on this clause are given below:

A chartered accountant wrote several letters to Government Department, inter alia, pointing out seniority of
his firm, sending his life sketch and stating that he had a glorious record of service to the country as
well as to the organisation of accountancy profession with a view to get the audit work. These letters were
clearly in the nature of advertising professional attainments. Held, he was guilty of professional
misconduct under the clause. [Sirdar P.S. Sodhbans (1969)]

Where a Chartered Accountant had issued two insertions in a Journal published by a Chamber of
Commerce expressing his willingness to offer the concession in respect of all services offered by him.
Held that he was guilty under Clauses (6) & (7). [N.O. Abraham Isaac Raj (1992)]

Where a Chartered Accountant had addressed a letter to the Managing Director of a company offering
his services as a practicing chartered accountant and giving impression that the letter had been addressed
to more than one organization for the above purpose, it was held that the member had contravened the
provisions of Clauses (6) & (7). [Yogash Gupta (1996)]

Illustration 10
A practising Chartered Accountant uses a visiting card in which he designates himself, besides as
Chartered Accountant, as a Tax Consultant
Tax Consultant: Section 7 of the Chartered Accountants Act, 1949 read with Clause (7) of Part I of the
First Schedule to the said Act prohibits advertising of professional attainments or services of a member.
It also restrains a member from using any designation or expression other than that of a chartered
accountant in documents through which the professional attainments of the member would come to
the notice of the public.
Under the clause, use of any designation or expression other than chartered accountant for a chartered
accountant in practice, on professional documents, visiting cards, etc. amounts to a misconduct unless it
be a degree of a university or a title indicating membership of any other professional body recognised by
the Central Government or the Council.
Conclusion: Thus, it is improper to use designation "Tax Consultant" since neither it is a degree of a
University established by law in India or recognised by the Central Government nor it is a recognised
professional membership by the Central Government or the Council.

Illustration 11
B, a Chartered Accountant in practice is a partner in 3 firms. While printing his personal letter heads, B
gave the names of all the firms in which he is a partner.
Advertisement of Professional Attainments: Clause (7) of Part I of the First Schedule to the
Chartered Accountants Act, 1949 prohibits advertising of professional attainments or services of a
member. It also restrains a member from using any designation or expression other than
 that of a Chartered Accountant in documents through which the professional attainments of the member would
come to the notice of the public. Even a member is not permitted to specify the date of setting up of
practice or establishment of firm on letterheads. However, there is no prohibition for printing names of
all the three firms on the personal letterheads in which a member holding Certificate of Practice is a
partner.
Conclusion: Thus, B is not guilty of any misconduct under the Chartered Accountants Act, 1949.

Illustration 12
The offer document of a listed company in which Mr. D, a practising Chartered Accountant is a director
mentions the name of Mr. D as a director along with his various professional attainments and spheres of
specialisation.
The Council of the ICAI has in a communication to members stated that if a public company, in which a
chartered accountant in practice is a director, issues a prospectus or gives any announcement that gives
descriptions about the Chartered Accountant’s expertise, specialisation and knowledge in any particular
field, it shall constitute a misconduct under Clauses (6) and (7) of Part I of the First Schedule to the Chartered
Accountants Act, 1949. The Council has further stated that in such cases the member concerned has to take
necessary steps to ensure that such prospectus or public announcements or public communications do not
advertise his professional attainments and also that such prospectus or public announcements or public
communications do not directly or indirectly amount to solicitation of clients for professional work by
the members.
Conclusion: Thus, in the instant case, Mr. D would be held to be guilty of professional mis-
conduct and liable for disciplinary action.

Where a Chartered Accountant allegedly propagating his services subsequent to demonetization, an

objective of Government of eradicating black money, through mass SMS alongwith his mobile number
offering his services towards conversion of cash with minimum tax liability.
Held guilty of Professional Misconduct falling within the meaning of Clause (6) & (7) of Part I and “Other
Misconduct” falling within the meaning of Clause (2) of Part IV of First Schedule read with section 22 of the
Chartered Accountants Act, 1949. (Kailash Shankarlal Mantry)
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.
It must be pointed out that professional courtesy alone is not the major reason for requiring a member to
communicate with the existing accountant who is a member of the Institute or a certified auditor. The
underlying objective is that the member may have an opportunity to know the reasons for the change in order
to be able to safeguard his own interest, the legitimate interest of the public and the independence of the existing
accountant. It is not intended, in any way, to prevent or obstruct the
change. When making the inquiry from the retiring auditor, the one proposed to be appointed or already
appointed should primarily find out whether there are any professional or other reasons why he should not
accept the appointment.
It is important to remember that every client has an inherent right to choose his accountant also that he may,
subject to compliance, with the statutory requirements in the case of limited companies, make a change
whenever he chooses, whether or not the reasons which had impelled him to do so are good and valid. The
change normally occurs where there has been a change of venue of business and a local accountant is
preferred or where the partner who has been dealing with the client’s affairs retires or dies; or where
temperaments clash or the client has some good reasons to feel dissatisfied. In such cases, the retiring auditor
should always accept the situation with good grace.
The existence of a dispute as regards the fees may be root cause of an auditor being changed. This would not
constitute valid professional reasons on account of which an audit should not be accepted by the member to
whom it is offered. However, in the case of an undisputed audit fees for carrying out the statutory audit under
the Companies Act, 2013 or various other statutes having not been paid, the incoming auditor should not
accept the appointment unless such fees are paid. In respect of other dues, the incoming auditor should in
appropriate circumstances use his influence in favour of his predecessor to have the dispute as regards the fees
settled. 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, 2013
as mentioned in Clause (9) of the Part - I of First Schedule to The Chartered
Accountants Act, 1949 ; and
(b) Non-payment of undisputed Audit Fees by auditees other than in case of Sick Units for carrying out
the Statutory Audit under the Companies Act, 2013 or various other statutes; and
(c) Issuance of a qualified report.
In the first two cases, an auditor who accepts the audit would be guilty of professional misconduct. In this
connection, attention of members is invited to the Council General Guidelines, 2008 appearing in Chapter-4. In
the said Guidelines, Council has explained that the provision for audit fee in accounts signed by both the
auditee and the auditor along with other expenses, if any, incurred by the auditor in connection with
the audit, shall be considered as “undisputed audit fee” and “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.
In the last case, however, he may accept the audit if he is satisfied that the attitude of the retiring auditor was
not proper and justified. If, on the other hand, he feels that the retiring auditor had qualified the report for
good and valid reasons, he should refuse to accept the audit. There is no rule, written or unwritten, which
would prevent an auditor from accepting the appointment offered to him in these circumstances. However,
before accepting the audit, he should ascertain the full facts of the case. For nothing will bring the
profession to disrepute so much as the knowledge amongst
the public that if an auditor is found to be “inconvenient” by the client, he could readily be replaced
by another who would not displease the client and this point cannot be too over-emphasised.
Where the Previous Auditor is not available for accepting payment of undisputed audit fees, and it is not
otherwise possible to transfer the payment to him electronically, the Incoming Auditor may advise the client
to purchase Demand Draft of the amount equivalent to undisputed Audit Fees of retiring auditor, and may
accept the Audit assignment after verifying the same. It will be the duty of the Incoming auditor to ensure the
payment of undisputed Audit Fees of the retiring auditor at the earliest possibility.
What should be the correct procedure to adopt when a prospective client tells you that he wants to change his
auditor and wants you to take up his work? There being two persons involved, the Company and the old
auditor, the former should be asked whether the retiring auditor had been informed of the intention to change.
If the answer is in the affirmative, then a communication should be addressed to the retiring auditor. If, however,
it is learnt that the old auditor has not been informed, and the client is not willing to make the first move, it
would be necessary to ask him the reason for the proposed change. If there is no valid reason for a change, it
would be healthy practice not to accept the audit. If he decides to accept the audit he should address a
communication to the retiring auditor.
As stated earlier, the object of the incoming auditor, in communicating with the retiring auditor is to ascertain from
him whether there are any circumstances which warrant him not to accept the appointment.
5. For example, whether the previous auditor has been changed on account of having
qualified his report or he had expressed a wish not to continue on account of something
inherently wrong with the administration of the business. The retiring
auditor may even ive out information regarding the condition of the accounts of the client or the reason
that impelled him to qualify his report. In all these cases it would be essential for the incoming auditor to
carefully consider the facts before deciding whether or not he shoul d accept the audit, and should he do
so, he must also take into account the information while discharging his duties and responsibilities.

Sometimes, the retiring auditor fails without justifiable cause except a feeling of hurt because of the change, to
respond to the communication of the incoming auditor. So that it may not create a deadlock, the auditor
appointed can act, after waiting for a reasonable time for a reply.
The Council has taken the view that a mere posting of a letter “under certificate of posting” is not sufficient to
establish communication with the retiring auditor unless there is some evidence to show that the letter has in
fact reached the person communicated with. A Chartered Accountant who relies solely upon a letter posted “under
certificate of posting” therefore does so at his own risk.
The view taken by the Council has been confirmed in a decision by the Rajasthan High Court in J.S. Bhati v.s. The
Council of the Institute of Chartered Accountants of India and another. The following observations of the Court
are relevant in this context:
“Mere obtaining a certificate of posting in my opinion does not fulfil the requirements of Clause (8) of
Schedule I as the presumption under Section 114 of the Evidence Act that the letter in due course reached the
addressee cannot replace that positive degree of proof of the delivery of the letter to the addressee which the
letters of the law in that case required. The expression ‘in ‘communication with’ when read in the light of the
instructions contained in the booklet ‘Code of Conduct’ (now Code of Ethics) cannot be interpreted in any
other manner but to mean that there should be positive evidence of the fact that the communication addressed
to the outgoing auditor by the incoming auditor reached his hands. Certificate of posting of a letter cannot,
in the circumstances, be taken as a positive proof of its delivery to the addressee”.
Members should therefore communicate with a retiring auditor in such a manner as to retain in their hands
positive evidence of the delivery of the communication to the addressee. In the opinion of the Council,
the following would in the normal course provide such evidence:-
(a) Communication by a letter sent through “Registered Acknowledgement due”, or
(b) By hand against a written acknowledgement, or
(c) Acknowledgement of the communication from retiring auditor’s vide email address
registered with the Institute or his last known official email address, or
(d) Unique Identification Number (UDIN) generated on UDIN portal (subject to separate
guidelines to be issued by the Council in this regard)
Premises found Locked : The communication received back by the Incoming Auditor with “Office found
Locked” written on the Acknowledgement Due shall be deemed as having been delivered to the retiring
auditor.
Firm not found at the given Registered address : If the Communication sent 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 the 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.
As a matter of professional courtesy and professional obligation it is necessary for the new auditor appointed
to act jointly with the earlier auditor and to communicate with such earlier auditor.
Special Audit under Income Tax Act, 1961 : It would be a healthy practice if a Tax Auditor appointed
for conducting special audit under the Income Tax Act,1961 communicates with the member who has
conducted the Statutory Audit.
The Council has also laid down the detailed guidelines on the subject as under:-
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.
Communication in case of Assignments done by other professionals: A Communication is
mandatorily required for all types of Audit/Report where the previous auditor is a Chartered Accountant. In
case of assignments done by other professionals not being Chartered Accountants, it would also be a
healthy practice to communicate.
Lack of time in acceptance of Government Audits: Although the mandatory requirement of
communication with previous auditor being Chartered Accountant applies, in uniform manner, to audits of
both government and Non-Government entities, yet in the case of audit of government Companies/ banks or
their branches, if the appointment is made well in time to enable the obligation cast under this clause to be
fulfilled, such obligation must be complied with before accepting the audit. However, 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.

Some of the decisions of the BOD/Council/High Courts on this matter are briefly given in
the following paragraphs:
A Chartered Accountant sent a registered letter to the previous auditor after the commencement of the audit by
him. Held he was guilty of professional misconduct under the clause. [Radhey Shyam vs. K.S. Dubey
(1974)]
The provision of Clause (8) requiring a communication with the previous auditor is absolute and applicable
even in respect of an appointment by the Government agencies and even in case where the member is aware
that the previous auditor had been made aware of the appointment. [Rajeev Kumar vs. R.K. Agrawal
(1988)]
The requirements of Clause (8) of Part I of the First Schedule can be considered to have been complied with
only:
(i) if there is evidence that a communication to the previous auditor had been by R.P.A.D.
(ii) if there was positive evidence about delivery of the communication to the previous auditor.
In the absence of both, the member should be found to have contravened this Clause. [R.M. Singhai vs. R.V.
Agarwal (1988)]
Where a Chartered Accountant had conducted tax audit of a firm without first communicating in writing with
the Complainant, who was the previous tax auditor of the said firm. Held that he was guilty under the clause.
[V.A. Parikh vs. R.I. Galledar (1991)]
The Respondent had accepted Statutory Audit of a non-corporate entity without first communicating with the
complainant in writing. It was observed that the Respondent adopted very casual approach
in the case and even he was not aware of the fact that No Objection Certificate (NOC) from previous auditor which
was required to be obtained for Audit. The Respondent was held guilty of Professional Misconduct falling within
the meaning of Clause (8) of Part I of the First Schedule to the Chartered Accountants Act, 1949. (Puneet
Bhatia vs. Arvind Kumar Munka [PR/77/16-DD/125/ 2016/BOD/ 391/ 2017]).
Where the Respondent had failed to communicate with the previous auditor before accepting the position of
Statutory Auditor of the Company and he certified the financial statements of two companies which gave
different opinion in respect of a same set of transaction relating to waiving off loan amount:
(i) In case of one company, the Respondent gave his opinion based on legal opinion given by the
Complainant, and
(ii) In case of another company, the Respondent expressed his inability to express an opinion which was
substantial amount in the financial statement as required by AS -28.
The Respondent was held guilty of professional misconduct falling within the meaning of Clause (8) of Part I
of First Schedule and Clauses (6) and (7) of Part I of the Second Schedule to the Chartered Accountants Act, 1949.
(H.N. Motiwalla vs. Nanalal Vishanji Parmar- Page 273 of Vol. II of the Disciplinary Cases of April,
2015 judgement delivered on 15th October, 2013).
Where a Chartered Accountant had couriered the letter to seek the NOC from the previous auditor but failed to
produce the POD of the said courier as a documentary evidence before the Board. Held guilty of “professional
misconduct” falling under Clause (8) of Part I of First Schedule to the Chartered Accountants Act, 1949.
(Sunil Prakash Goyal vs. Balraj Kalia - Page 1 of Vol. II Part I of Disciplinary Cases, Judgement
delivered on 8th August, 2013).
In this case the Respondent did not communicate with the Complainant being the previous auditor while
accepting the appointment of the aforesaid companies. The fact that the matter was impliedly in the
knowledge of the Complainant as contemplated by the Respondent in terms of the minutes of the meeting
held between the Complainant and the Respondent on 3rd October, 2001 does not absolve the
Respondent from ensuring the compliance with the requirements of Clause (8) of Part I of the First
Schedule to the Chartered Accountants Act, 1949. The onus lies on the incoming auditor to
communicate with the outgoing auditor which the Respondent has failed to do so. [CA. Manindra
Chandra Poddar vs. CA. Manas Ghosh (2013)]

Illustration 13
Mr. X, a Chartered Accountant accepted his appointment as tax auditor of a firm under Section
44AB, of the Income-tax Act, and commenced the tax audit within two days of his appointment
since the client was in a hurry to file Return of Income before the due date. After commencing
the audit, Mr. X realised his mistake of accepting this tax audit without sending any
 communication to the previous tax auditor. In order to rectify his mistake, before signing the tax audit
report, he sent a registered post to the previous auditor and obtained the postal acknowledgement. Will
Mr. X be held guilty under the Chartered Accountants Act?
Communication with the Previous Auditor: As per Clause (8) of Part I of First Schedule to the
Chartered Accountants Act, 1949, Mr. X will be held guilty since he has accepted the tax audit, without
first communicating with the previous auditor in writing. The object of the incoming auditor
communicating in writing with the retiring auditor is to ascertain whether there are any circumstances
which warrant him not to accept the appointment, for example, whether the previous auditor has been
changed on account of having qualified the report or he had expressed a wish not to continue on
account of something inherently wrong with the administration of the business. The retiring auditor
may even give out information regarding the condition of the accounts of the client or the reason that
impelled him to qualify his report. Under all circumstances, it would be essential for the incoming
auditor to carefully consider the facts before deciding whether or not he should accept the audit. As a
matter of professional courtesy and professional obligation it is necessary for the new auditor appointed
to communicate with such earlier auditor.
Conclusion: Therefore, Mr. X will be held guilty of professional misconduct.

Illustration 14
W, a Chartered Accountant has sent letters under certificate of posting to the previous auditor
informing him his appointment as an auditor before the commencement of audit by him.
Communication with the Previous Auditor: Clause (8) of Part I of the First Schedule to the Chartered
Accountants Act, 1949 requires communication by the incoming auditor with the previous auditor
before accepting a position by him. The Council of the Institute has taken the view that a mere posting
of a letter “under certificate of posting” is not sufficient to establish communication with the retiring
auditor unless there is some evidence to show that the letter has in fact reached the person communicated
with. A Chartered Accountant who relies solely upon a letter posted “under certificate of posting”
therefore does so at his own risk. Since the letters were sent by “W” to the previous auditor informing him
of his appointment as an auditor before the commencement of audit by him under Certificate of Posting is not
sufficient to prove communication with the retiring auditor. In the opinion of the Council,
communication by a letter sent “Registered Acknowledgement Due” or by hand against a written
acknowledgement would in the normal course provide positive evidence.
Conclusion: Hence “W” was guilty of professional misconduct under Clause (8) of Part I of
First Schedule to the Chartered Accountants Act, 1949

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 Companies Act, 2013 provides for the requirements which an auditor appointed in respect
of a Company should satisfy himself about, before he accepts the appointment. 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.
Section 139 contains several provisions in the matter of appointment of auditors in different
circumstances and situations whereas Section 140 lays down the procedure which must be
followed whenever a Company desires to change its auditors. In order that the validity of the
appointment of an auditor is not challenged or objected to by shareholders or the retiring
auditors at a later date, it has been made obligatory on the Incoming Auditor to ascertain from
the Company that the appropriate procedure in the matter of appointment has been faithfully
followed.
The following guidelines have been issued by the Council for this purpose:-
Clause (9) of Part I of the First Schedule to Chartered Accountants Act, 1949 provides that a
member in practice shall be deemed to be guilty of professional misconduct if he accepts an
appointment as auditor of a Company without first ascertaining from it whether the
requirements of Sections 139 and 140 of the Companies Act, 2013, in respect of such
appointment have been duly complied with. Under this clause it is obligatory on the incoming
auditor to ascertain from the Company that the appropriate procedure in the matter of his
appointment has been duly complied with so that no shareholder or retiring auditor may, at
a later date, challenge the validity of such appointment.
The steps to be taken by an Auditor of a Company who is appointed in the following
circumstances are indicated in the paragraphs below:
(a) When the auditor appointed is the First Auditor of the Company.
(b) When the auditor is appointed in place of an existing auditor who has resigned or
has been removed or has ceased to hold office for any other reason.
(c) When the auditor or auditors appointed by the Company were holding this office
jointly with others and one or more of such joint auditors are not reappointed.
(d) When one or more of the auditors appointed by the Company was/were not holding
this office earlier.
Note : Students are advised to refer Chapter 5 on Company Audit for more details regarding
Section 139 and 140, Section 139 of the Companies Act, 2013 laid down the procedure to be
followed by a Company for appointment of an auditor and Section 140 of the Companies Act,
2013 lays down the procedure for appointment of auditor other than the retiring auditor and
for removal of existing auditor.
The procedure to be followed by the Company is given below:-
 If a member of the Company wants that the retiring auditor should not be reappointed
 or that an auditor other than the retiring auditor should be appointed, he has to give a
special notice u/s 140(4) of Companies Act, 2013 to the Company for a resolution at the
Annual General Meeting for this purpose.
 Such special notice is also required to be given if a member of the Company wants to
remove the auditor before the expiry of his term of office. The special notice should be
given before the date of the General Meeting when the question of appointment or
reappointment of the auditor is to be considered.
 On receipt of the special notice of such a resolution, the Company has to send a copy
of the same to the retiring auditor forthwith, as required u/s 140(4) of Companies Act,
2013.
 The Company is also required to send the special notice to the members of the
Company at least seven days before the Meeting as per the provisions of Section 115
read with Section 20 of the Companies Act, 2013. According to these provisions, a
document may be served on a company or an officer thereof by sending it to the
company or the officer at the registered office of the company by registered post or by
speed post or by courier service or by leaving it at its registered office or by means of
such electronic or other mode as may be prescribed.
 After receipt of the above notice, the retiring auditor can submit his representation to
the members of the Company. Such representation, on receipt by the Company, is
required to be sent to its members as required under Section 140(4) of the Companies
Act.
 The representation received from the retiring auditor will have to be considered at the
General Meeting of the Company before the resolution proposed by the concerned
member is passed. The resolution proposed by the concerned member can be passed
only in accordance with the provisions of Section 114 of the Companies Act, 2013.
 Under Clause (9) of Part I of the First Schedule to the Chartered Accountants Act, 1949,
the incoming auditor has to ascertain whether the Company has complied with the
provisions of the above sections. The word "ascertain” means “to find out for certain”.
This would mean that the incoming auditor should find out for certain as to whether
the Company has complied with the provisions of Sections 139 and, 140 of the
Companies Act, 2013. In this respect, it would not be sufficient for the incoming auditor
to accept a certificate from the management of the Company that the provisions of the
above sections have been complied with. It is necessary for the incoming auditor to
verify the relevant records of the Company and ascertain as to whether the Company
has, in fact, complied with the provisions of the above sections. If the Company is not
willing to allow the incoming auditor to verify the relevant records in order to enable
him to ascertain as to whether the provisions of the above sections have been
complied with, the incoming auditor should not accept the audit assignment.
It is suggested that the incoming auditor should verify the following records of the Company:-
If the appointment of the auditor is being made for the first time after incorporation of the
Company, the auditor should verify as to whether the Board of Directors have passed the
resolution for his appointment within thirty days of the date of registration of the Company.
If the Board of Directors have not appointed the first auditor but the appointment is being
made by a general meeting of the Company, the auditor should verify as to whether a proper
notice convening the general meeting has been issued by the Company and whether the
resolution has been validly passed at the general meeting of the Company.
If the appointment is being made to fill a casual vacancy, the incoming auditor should verify
as to whether the Board of Directors have powers to fill the casual vacancy and whether the
Board of Directors have passed the resolution filling the casual vacancy.
If the vacancy has arisen due to resignation of the auditor, the incoming auditor should see
as to whether a proper resolution filling the vacancy has been passed at the General Meeting
of the Company.
If the vacancy has arisen as a result of removal of the auditor before the expiry of his term of
office, the incoming auditor should see that special resolution has been passed at the General
Meeting of the Company and that the previous approval of the Central Government has been
obtained by the Company.
Where the auditor other than the retiring auditor is proposed to be appointed, the incoming
auditor should ascertain whether the provisions of Sections 139 and 140 have been complied
with. These provisions equally apply where an auditor who was jointly holding office with
another auditor or auditors and any one or more of such joint auditors has not been
reappointed.
For the purpose of ascertaining whether the Company has complied with the provisions of
Section 140 of the Companies Act the incoming auditor should verify the records of the
Company in respect of the following matters:-
a. Whether a member of the Company has given special notice of the resolution as
required under Section 140 (4) of the Companies Act, 2013. The notice shall be sent by
members to the company not earlier than three months but at least fourteen days
before the date of the meeting at which the resolution is to be moved, exclusive of the
day on which the notice is given and the day of the meeting. A true copy of this notice
should be obtained by the incoming auditor.
b. Whether this special notice has been sent to all the members, of the Company as
required under Section 115 of Companies Act, 2013 at least 7 days before the date of
the General Meeting.
c. Whether this special notice has been sent to the retiring auditor forthwith as required
under Section 140 (4).
d. Whether the representation received from the retiring auditor has been sent to the
members of the Company as required under Section 140 (4) .
e. Whether the representation received from the retiring auditor has been considered at
the general meeting and the resolution proposed by the special notice has been
properly passed at the general meeting.
As regards the mode of sending the notice of the resolution to the members of the Company
as provided in Sections 139 and 140 and section 20 to be followed for service of documents,
which is as under:-
(A) A document may be served on a company or an officer thereof by sending it to the
company or the officer at the registered office of the company by registered post or by
speed post or by courier service or by leaving it at its registered office or by means of
such electronic or other mode as may be prescribed.
(B) As regards the mode of sending the notice of the resolution to the retiring auditor as
provided in Sections 224 & 225 of Companies act, 1956 (equivalent Sections being
Section 139 & 140 of Companies 2013) , attention is invited to the Department of
Company Affairs circular dated 17.10.1981 issued to all Chambers of Commerce, which
is reproduced below:-
“I am directed to say that it has been reported by the Institute of Chartered Accountants
of India that difficulties are being experienced by retiring Auditors in the operation of
the provisions of Section 225 of the Companies Act, 1956 whenever any appointment
of a new auditor takes place. Such difficulties arise because of the fact that the copy
of the special notice required to be served u/s 225(2) of the Act on the retiring auditors
are not effectively served and proof of such service is not available. To obviate such
difficulties; therefore, it is advisable that the copy of the special notice u/s 225(2) of
the Act should be sent to the retiring auditors by Registered A/D post.”
(C) Accordingly, it is necessary for the incoming auditor to satisfy himself that the notice
provided for in Sections 139 & 140 of Companies Act, 2013 has been effectively served
on the outgoing auditor (e.g. by seeing that the notice has been duly served through
hand delivery or by Regd. Post with A.D.). Production of a certificate of posting by the
Company would not be adequate for the purpose of the incoming auditor satisfying
himself about compliance with Sections 139/140. Acknowledgement received from the
outgoing auditor would be one of the forms in which such satisfaction can be obtained.
A copy of the relevant minutes of the general meeting where the above resolution is passed
duly verified by the Chairman of the meeting should also be obtained by the incoming auditor
for his records.
Sometimes the annual general meeting is adjourned without conducting any business or after
conducting business in respect of some of the items on the agenda. The items in respect of
which the business is conducted may or may not include the item relating to appointment of
auditors. Under Section 139(1) the retiring auditor holds office till the conclusion of every
sixth annual general meeting. Therefore, when the annual general meeting is adjourned in the
circumstances stated above, the retiring auditor will continue to hold the office of auditor till
the adjourned meeting is held and the business listed in the agenda of the meeting is
concluded. In case a new auditor is appointed at the original meeting (which is adjourned)
such auditor can assume office only after the conclusion of such adjourned meeting.
If any annual general meeting is adjourned without appointing an auditor, no special notice
for removal or replacement of the retiring auditor received after the adjournment can be taken
note of and acted upon by the Company, since in terms of Section 115 of the Companies Act,
special notice should be given to the Company at least fourteen clear days before the meeting
in which the subject matter of the notice is to be considered. The meeting contemplated in
Section 115 undoubtedly is the original meeting. Where at any annual general meeting, no
auditor is appointed or re-appointed, the existing auditor shall continue to be the auditor of
the company mentioned in Section 139.
If the incoming auditor is satisfied that the Company has complied with the provisions of
Sections 139 and 140 of the Companies Act, he should first communicate with the outgoing
auditor in writing as provided in Clause (8) of Part I of the First Schedule to the Chartered
Accountants Act, 1949 before accepting the audit assignment.
Unjustified removal of auditors : In order to examine various ethical issues and safeguard the
independence of the Auditors, the Council has set up a Ethical Standards Board (ESB). This
Board examines various issues concerning professional ethics governing the members of
the Institute which are either raised by the members or are taken up based on their
importance. The recommendations of the Board are forwarded to the Council for its
consideration. This Board is also charged with the responsibility of looking into the cases of
removal and resignation of auditors and making an appropriate report to the Council.

The following guidelines have been issued for the Board for looking into the cases of
Removal of Auditors:
A. Where an auditor resigns his appointment as an auditor of a Company or does not
offer himself for reappointment as auditor of such Company, he shall send a
communication, in writing, to the Board of Directors of the Company giving reasons
therefor, if he considers that there are professional reasons connected with his
resignation or not offering himself for re-appointment which, in his opinion, should be
brought to the notice of the Board of Directors, and shall send a copy of such
communication to the Institute. It shall be obligatory on the incoming auditor, before
accepting appointment, to obtain a copy of such communication from the Board of
Directors and consider the same before accepting the appointment.
B. Where an auditor, though willing for re-appointment has not been reappointed, he
shall file with the Institute a copy of the statement which he may have sent to the
management of the Company for circulation among the shareholders. It shall be
 obligatory on the incoming auditor before accepting the appointment, to obtain a copy of
such a communication from the Company and consider it, before accepting the
appointment.
C. The Ethical Standards Board, on a review of the communications referred to in
paras (A) and (B), may call for such further information as it may require from the
incoming auditor, the outgoing auditor and the Company and make a report to the Council
in cases where it considers necessary.
D. The above procedure is also followed in the case of removal of auditors by the
government and other statutory authorities.
Note : Students are advised to refer Appendix ‘G’ For the Mission Statement, Terms of
Reference and Procedure to be followed by the Board for dealing with the cases of Unjustified
Removal of Auditors.
Further, students may refer Chapter 5 of the Study Material for detailed knowledge on the
abovementioned sections.]

Illustration 15
CA Raja was appointed as the Auditor of Castle Ltd. for the year 2019 -20. Since he declined to accept the
appointment, the Board of Directors appointed CA Rani as the auditor in the place of CA Raja, which was
also accepted by CA Rani.
Board can appoint the auditor in the case of casual vacancy under section 139(8) of the Companies Act,
2013. The non-acceptance of appointment by CA. Raja does not constitute a casual vacancy to be filled
by the Board. In this case, it will be deemed that no auditor was appointed in the AGM.
Further, as per Section 139(10) of the Companies Act, 2013 when at any annual general meeting, no auditor
is appointed or re-appointed, the existing auditor shall continue to be the auditor of the company. The
appointment of the auditor by the Board is defective in law.
Clause (9) of Part I of First Schedule to the Chartered Accountants Act, 1949 states that a chartered
accountant is deemed to be guilty of professional misconduct if he accepts an appointment as auditor of a
company without first ascertaining from it whether the requirements of section 225 of the Companies
Act, 1956 (now Section 139, 140 and 142 read with Section 141 of the Companies Act, 2013), in
respect of such appointment have been fully complied with.
Conclusion: Hence, CA. Rani is guilty of professional misconduct since she accepted the appointment
without verification of statutory requirements.

Illustration 16
Mrs. X is a Director of ABC Pvt. Ltd. During the year 2020-21, the company appointed CA Mr. Y,
 Mrs. X's spouse, as its statutory auditor. Mr. Y used to deliver audit report without any comments or
disclosures, thereupon.
As per Section 141(3)(f) of the Companies Act, 2013, a person shall not be eligible for appointment
as an auditor of a company whose relative is a director or is in the employment of the company as a
director or key managerial personnel. The definition of ‘Relative’ includes husband and wife.
Clause (9) of Part I of the First Schedule to the Chartered Accountants Act, 1949, provides that a
member in practice shall be deemed to be guilty of professional misconduct if he accepts an appointment
as auditor of a company without first ascertaining from it whether the requirements of Section 225 of the
Companies Act, 1956 (now Section 139, 140 and 142 read with Section 141 of the Companies Act, 2013),
in respect of such appointment have been duly complied with.
In this case Mrs. X is a Director of ABC Pvt. Ltd. and the company has appointed Mr. Y, Chartered
Accountant, Mrs. X's spouse, as its statutory auditor. Mr. Y should not accept the appointment as
statutory auditor of the company, where his wife Mrs. X is a director. This is contravention of section 141 of
the Companies Act, 2013.
Conclusion: Therefore, Mr. Y is liable for misconduct under the said clause since he accepted the
appointment without first verifying the compliance of statutory requirements.

Some decisions of the BOD/Council/High Courts on this subject are given below:
The contention w.r.t. deeming provision is not tenable as Section 224(2)(b) of the Companies Act, 1956
specifically requires that the retiring auditor has to give a notice in writing of his unwillingness to be
reappointed and a mere silence in the matter cannot be taken as a ground to appoint any other auditor without notice
of an intended resolution to appoint some other person in place of the retiring auditor. In view of this, the Board is
of the view that the Respondent failed to assess and verify that the compliance of Sections 224 and 225 of the
Companies Act, before accepting his appointment was complied with by the Company. Accordingly, in view of
the Board, the Respondent is held guilty of professional misconduct falling within the meaning of Clause (9) of
Part I of First Schedule of the Chartered Accountants Act, 1949. [Anil Kumar Goel vs. CA. Anurag
Nirbhaya (2014)]
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.
What distinguishes a profession from a business is that professional services are not rendered with the sole
purpose of a profit motive. Personal gain is one but not the main or the only objective. Professional opinion,
therefore frowns upon methods where payment is made to depend on the basis of results. It is obvious that a
person who is to receive payment in direct proportion to the benefit received by his client, may be tempted to
exaggerate the advantage of his service or may adopt means that are not ethical. It will have the effect of
undermining his integrity and impairing his
independence. Therefore, members are prohibited from charging or accepting any remuneration based on a
percentage of the profits or on the happening of a particular contingency such as, the successful outcome of
an appeal in revenue proceedings.
Professional services should not be offered or rendered under an arrangement whereby no fee will be
charged unless a specified finding or result is obtained or where the fee is otherwise contingent upon the
findings or results of such services. However, fees should not be regarded as being contingent if fixed by a
court or other public authority.
The Council of the Institute has however framed Regulation 192 which exempts members from the operation of this
clause in certain professional services. The said Regulation 192 is reproduced -
192. Restriction on fees - No Chartered Accountant in practice shall charge or offer to charge, accept or
offer to accept, in respect of any professional work, fees which are based on a percentage of profits, or which
are contingent upon the findings or results of such work, provided that:
(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 basis which may be contingent upon
the findings, or results of such work;
(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. [Following activities have been
decided by the Council under “h” above :-(i) Acting as Insolvency Professional;(ii) Non-
Assurance Services to Non-Audit Clients ]
A Chartered Accountant had arranged accounting bills raised by 16 parties amounting to Rs.14.09 Crores and
made entries which were not genuine. He had charged commission @ 0.25% to 1% of the transactions for
arranging accounting entries. He had been involved in arranging bogus bills, accommodation entries and
circular transactions for trading in coal through bank LC limits for various other parties.
Held guilty of Professional and Other Misconduct falling within the meaning of Clause (10) of Part I and
Clause (2) of Part IV of the First Schedule to the Chartered Accountants Act, 1949.
(S S S B Ray, Commissioner of Income Tax (Central), Nagpur vs. Durga Prasad Sarda, Nagpur [PR- 142/2013-
DD/260/2013/ BOD /197/2016] Judgement delivered on 18th August, 2017).
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.
This is a provision introduced to restrain a member in practice from engaging himself in any business or
occupation other than that of chartered accountant except when permitted by the Council to be so engaged.
The objective is to restrain members from carrying on any other business in conjunction with the profession of
accountancy and combining such work with any business, which is not in keeping with the dignity of the
profession. Another reason for the introduction of such prohibition is that a chartered accountant, if permitted to
enter into all kinds of business, would be able to advertise for his other business and thereby secure an unfair
advantage in his professional practice.
The Council, on a very careful consideration of the matter, has formulated Regulation, 190A and 191 which
are reproduced below, specifying the activities with which a member in practice can associate himself with
or without the permission of the Council.

190A. Chartered Accountant in practice not to engage in any other business or

occupation.
“A chartered accountant in practice not to engage in any other business or occupation other than the
profession of accountancy except with the permission granted in accordance with a resolution of the
Council”.
191. Part-time employment a Chartered Accountant in practice may accept.
“Notwithstanding anything contained in Regulation 190A but subject to the control of the Council, a
Chartered Accountant in practice may act as a liquidator, trustee, executor, administrator, arbitrator,
receiver, adviser or representative for costing, financial or taxation matter, or may take up an appointment
that may be made by the Central Government or a State Government or a court of law or any other legal
authority or may act as a Secretary in his professional capacity, provided his employment is not on a
salary-cum-full-time basis”.

Appendix 9 C.A. Regulations, 1988

The General and specific Resolutions passed by the Council under the power vested in it under Regulation
190A as included in Appendix 9 of C.A. Regulations, 1988 are also reproduced below for information.
General Resolution
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.
(10) Valuation of papers, acting as paper-setter, head-examiner or a moderator, for any examination.
(11) Editorship of professional journals.
(12) Acting as Surveyor and Loss Assessor under the Insurance Act, 1938 provided they are otherwise
eligible.
(13) Acting as recovery consultant in the banking sector
(14) Owning agricultural land and carrying out agricultural activity (w.e.f. August 9 th, 2008).
Specific Resolution - 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:
(i) the expression “relative”, in relation to a member, means the husband, wife, brother or sister
or any lineal ascendant or descendant of that member;
(ii) a member shall be deemed to have a “substantial interest” in a concern -
(i) in a case where the concern is a Company, if its shares (not being shares entitled to a fixed
rate of dividend whether with or without a further right to participate in profits) carrying not
less than twenty per cent of voting power at any time, during the relevant years are owned
beneficially by such member or by any one or more of the following persons or partly by such
member and partly by one or more of the following persons:
(a) One or more relatives of the member;
(b) Any concerns in which any of the persons referred to above has a substantial interest;
(ii) in the case of any other concern, if such member is entitled or the other persons referred to
above or such member and one or more of the other persons referred to above are entitled in
the aggregate, at any time during the relevant years to not less than twenty percent of the
profits of such concern.
Attention of the members is also invited to para 3 of the above Resolution relating to the holding of office of a
managing director or a whole-time director in a company. In such cases, a member can accept the office of a
managing director or a whole- time director only after obtaining, the specific and prior approval of the Council.
Attention of the members is also invited to the provisions of Section 2(26) of the Companies Act, 1956 (now
Section 2(54) of the Companies Act, 2013) under which even where a person is not designated as a managing
director or a whole-time director, he can be
deemed to be a managing director or a whole-time director if he is entrusted with the whole or substantially the
whole of the management of the affairs of the company. It may be pointed out that a member cannot accept
and hold the office of a managing director or a whole-time director in a company if the member and/or his
partners and relatives hold substantial interest in such a company.
The Council has considered the question of permitting members in practice to become a Director, Managing
Director, full time/Executive Director etc. and related issues and the following decisions have been taken.
As regards the question of permitting member in practice to be a Director, Promoter/Promoter - Director,
Subscriber to the Memorandum and Articles of Association of any company including a board managed
company, it was decided that -
(a) Director of a Company
(i) The expression “Director Simplicitor” means an ordinary / simple Director who is not a Managing
Director or Whole time Director and is required only in the Board Meetings of the company and not
paid any remuneration except for attending such meetings.
(ii) A member in practice is permitted generally to be a Director Simplicitor in any Company 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.
A question arises, whether the auditor of a Subsidiary Company can be a Director of its Holding Company-
The Ethical Standard Board (ESB) noted that, in terms of Clause (11) of Part I of the First Schedule to the
Chartered Accountants Act, 1949 a Chartered Accountant in practice cannot engage (unless permitted by the
Council so to engage) in any business or occupation other that the profession of Chartered Accountant but he
can be a director of a Company (not being a managing director or whole-time director) wherein he or any of
his partners is not interested in such company as an auditor. The Board further noted that 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 and should not place themselves in positions
which would either compromise or jeopardise their independence. In view of the above, the Board, via a
clarification, decided that the auditor of a Subsidiary Company can’t be a Director of its Holding Company, as
it will affect the independence of an auditor.
(b) 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. There is also no bar for such a promoter /
signatory to be a Director Simplicitor of that company irrespective of whether the object of the company
include areas which fall within the scope of the profession of Chartered Accountants. Therefore, members are not
required to obtain specific permission of the Council in such cases. It
must be clarified that under Section 25 of the Chartered Accountants Act, no Company can
practise as a Chartered Accountant.
(c) 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:
(i) as a proprietary firm
(ii) as a partnership firm
(iii) in the name and style of Hindu Undivided Family as its Karta or a 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.
Students may also note that as per decision taken by appropriate authority in Council, Regulation 190A of the
Chartered Accountants Regulations, 1988 provides that a chartered accountant in practice shall not engage in
any business or occupation other than the profession of accountancy, except with the permission granted in
accordance with a resolution of the Council. The Council has passed a Resolution under Regulation 190A granting
general permission (for private tutorship, and part-time tutorship under Coaching organization of the Institute)
and specific permission (for part- time or full-time tutorship under any educational institution other than Coaching
organization of the Institute). Such general and specific permission granted is subject to the condition that the
direct teaching hours devoted to such activities taken together should not exceed 25 hours a week in order to be
able to undertake attest functions.
Some of the decisions of the BOD/Council/High Courts on this clause are given below:
A chartered accountant in practice entered into partnership with persons who were not the members of the
Institute, for the purpose of carrying on business. The share of the chartered accountant in the profit and
losses was 25%. He was to take part in the business and was entitled to represent the firm before Govt.
authorities etc. He was operating the Bank account of the firm , was receiving moneys from the customers and
was also looking after the affairs of the partnership. Held he was guilty of professional misconduct under the
clause, as he was engaged in the business, without the permission of the Council. [K.S. Dugar (1980)]
A member in practice was authorised by a resolution of the Board of Directors of a company held on
4.9.81 to look after the day to do affairs of the company and other more than 51% the said company. Later, on
8.5.82, he applied to the Council for permission to hold the office of the Executive Chairman of the said
company. It was held on the basis of facts and circumstances of the case tha t during the period 4.9.81 to 8.5.82
the member had engaged himself in ‘other occupation’ without the permission of the Council and was found
guilty in terms of this Clause. [M.K. Abrol and S.S. Bawa vs. V.P. Vijh (1988)]
Where a Chartered Accountant who had held a salaried employment as an Assistant Manager (Finance &
Accounts) in addition to the practice of chartered accountancy without obtaining permission of the Institute as
required was held guilty under Clause (11) of Part I of First Schedule. [Anil Kumar (1994)]
Where a Chartered Accountant while practicing as a chartered accountant had engaged himself in other
occupation as an LIC agent in another name. Held that he was guilty Clause (11) of First Schedule. [C.I.T.
(Admn.) vs. H.M. Giriya (1996)]
Where a Chartered Accountant had offered to help the Complainant in disposing of odd lot shareholding, sold
them at much lower rate than he had sent of the Complainant notes etc. and the said chartered accountant was
personally involved in the share transfer and broker's business besides his professional activities. Held that he
was guilty under Clause (11) of Part I.
Where a Chartered Accountant was in full time employment besides holding full time Certificate of Practice.
Though, the Respondent submitted that he did not carry out any attestation function during this period, yet the
same cannot absolve him for the non-compliance. Thus, the Board held the Respondent guilty of professional
misconduct falling within the meaning of Clause (11) of Part I of First Schedule to the Chartered Accountants
(Amendment) Act, 2006. [CA. Shivaputra Mohan Jotwar (2013)]

Illustration 17
A chartered accountant holding certificate of practice and having four articled clerks registered under him
accepts appointment as a full-time lecturer in a college. Also, he becomes a partner with his brother in a
business. Examine his conduct in the light of Chartered Accountants Act, 1949 and the regulations
thereunder.
Clause (11) of Part I of the First Schedule to the Chartered Accountants Act, 1949 debars a chartered
accountant in practice from engaging in any business or occupation other than the profession of chartered
accountancy unless permitted by the Council of the Institute so to engage. This clause, in effect, has
empowered the Council of the Institute to permit chartered accountants in practice to engage in any other
business or occupation considered fit and proper. Accordingly, the Council had formulated Regulations
190A and 191 to the Chartered Accountants Regulations, 1988 to provide a basis for considering
applications of chartered accountants seeking permission to engage in other business or occupation. A
member can accept full- time lecturer-ship in a
college only after obtaining the specific and prior approval of the Council as also becoming a
 partner in a business with his brother would require specific permission.
Conclusion: Thus, the chartered accountant is liable for professional misconduct since he failed to obtain
specific and prior approval of the Council in each case.
Illustration 18
Mr. A, a practicing Chartered Accountant, took over as the executive chairman of Software Company on
1.4.2019. On 10.4.2019 he applied to the Council for permission.
Specific Permission to be Obtained: As per Clause (11) of Part I of First Schedule to the Chartered
Accountants Act, 1949, a Chartered Accountant in practice will be deemed to be guilty of professional
misconduct if he engages in any business or occupation other than the profession of Chartered Accountant
unless permitted by the Council so to engage.
In the instant case, Mr. A took over as the executive chairman on 01.04.2019 and applied for permission on
10.04.2019. On the basis of these facts, he was engaged in other occupation between the period 01.04.2019
and 10.04.2019, without the permission of the Council. Conclusion: Therefore, Mr. A is guilty of
professional misconduct in terms of Clause (11) of Part I of First Schedule to the Chartered Accountants
Act, 1949.

Illustration 19
C.A. Prabhu is a leading income tax practitioner and consultant for derivative products. He resides in Mumbai
near to the ABC commodity stock exchange and does trading in commodity derivatives. Every day, he invests
nearly 50% of his time to settle the commodity transactions. Is C.A. Prabhu liable for professional
misconduct?
Engaging into a Business: As per Clause (11) of Part I of First Schedule of Chartered
Accountants Act, 1949, a Chartered Accountant in practice is deemed to be guilty of professional misconduct if
he engages in any business or occupation other than the profession of Chartered Accountant unless
permitted by the Council so to engage.
However, the Council has granted general permission to the members to engage in certain specific
occupation. In respect of all other occupations specific permission of the Institute is necessary.
In this case, CA. Prabhu is engaged in the occupation of trading in commodity der ivatives which is not
covered under the general permission.
Conclusion: Hence, specific permission of the Institute has to be obtained otherwise he will be deemed
to be guilty of professional misconduct under Clause (11) of Part I of First Schedule of Chartered
Accountants Act, 1949.

Where a Chartered Accountant had done arbitrage activity in National Stock Exchange of India through
another person and he incurred a loss of Rs. 10,00,713/-. That person had taken Rs. 1,15,000/- as security
deposit from him but the balance of Rs. 8,50,713/- had not been paid by him. He explained this income as fees
of an advisor but could not produce any documentary evidence. Held guilty of professional misconduct
falling under Clause (11) of Part I and Clause (2) of Part IV
of First Schedule to the Chartered Accountants Act, 1949. (Harish L. Sampat in Re: Page 71 of Vol I
Part I of Disciplinary Cases, Judgement delivered on 3rdFebruary 2011).
Where a Chartered Accountant was one of the Promoters and a Whole Time Director of Private Limited
Company, drawing remuneration besides practicing on a full time basis and besides holding full time COP.
Held guilty of professional misconduct falling under Clause (11) of Part I of First Schedule to the Chartered
Accountants Act, 1949. (Rohit B. Jain vs. Kishore Kumar Poddar - Page 22 of Vol I Part I of
Disciplinary Cases, Judgement delivered on 3rdFebruary, 2011).
Where it was established that a Chartered Accountant had deceived a person by assuring that he can sanction
a loan to him for business purpose. He had taken a sum of Rs 15,000/- for doing the same and thereafter,
started avoiding that person. Apart from that he was in full time employment with a University in spite of
holding full time COP and never disclosed about his employment to the Institute. He surrendered his COP only
after issuance of information letter from the Institute. He represented this as a mistake. Held guilty of
professional misconduct falling under Clause (11) of Part I of First Schedule to the Chartered Accountants Act,
1949. (Shivaputra Mohan Jotawar in Re: [DD/2/S/INF/11/Bod/113/13] Information letter received from Shri
Anant K. Kshirsagar Re: Page 136 of Vol. II Part I of Disciplinary Cases, Judgement delivered on
9th October, 2013).
Where a Chartered Accountant maintained the accounts and also acted as the Tax Auditor of a firm. Besides
holding the COP, he was also in active business association with a company being a Director of the company
without taking the permission of the Council. Held guilty of professional misconduct falling within the
meaning of Clause (11) of Part I of the First Schedule and Clause (4) of Part I of the Second Schedule to the
Chartered Accountants Act, 1949. (Sharadchandra M. Kulkarni vs. Mahen J. Dholam - Page 1 of Vol I
Part I of Disciplinary Cases, Judgement delivered on 12th September, 2011).
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.
The above clause prohibits a member from allowing another member who is not his partner to sign any
balance sheet, profit and loss account or financial statements on his behalf or on behalf of his firm.
This clause is to be read in conjunction with Section 26 of the Chartered Accountants Act, 1949 which
stipulates that ‘No person other than a member of the Institute shall sign any document on behalf of a
Chartered Accountant in practice or a firm of Chartered Accountants in his or its professional capacity’.
The term ‘financial statement’ for the purposes of this clause would cover an examination of the accounts or
of financial statements given under a statutory enactment or otherwise. A report, however, may cover a wider
range of documents but in the context in which it is used in this clause, it would mean only a report arising
out of a professional assignment undertaken by him or his firm and submitted by him or his firm to the
client(s) or where so required, to an outsider on behalf of
himself or on behalf of the firm. The subject matter of report should be the expression of a professional
opinion whether, financial or non-financial. The financial statements and the reports referred to in this clause
obviously means the financial statements and reports as ultimately finalized and submitted to the outside
authorities.
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.
(ix) Attending to routine matters in tax practice, subject to provisions of Section 288 of Income Tax Act.
(x) Any other matter incidental to the office administration and routine work involved in practice of
accountancy.
It is also clarified that where the authority to sign documents given above is delegated by a chartered accountant or
by a firm of chartered accountants the fact that the documents have not been signed by a chartered accountant
is not a defence to him or to the firm in an enquiry relating to professional misconduct.
However, the Council has decided that where a Chartered Accountant while signing a report or, a financial
statement or any other document is statutorily required to disclose his name, the member should disclose his
name while appending his signature on the report or document. Where there is no such statutory requirement,
the member may sign in the name of the firm. It may be noted that the revised SA 700 mandates mentioning of
Membership No. and Firm Registration No. Members’ attention is also drawn towards UDIN Guidelines of
the Institute in 2018.

Illustration 20
S, a practicing chartered accountant gives power of attorney to an employee chartered accountant to sign
reports and financial statements on his behalf.
Power of Signing Reports and Financial Statements: Under Clause (12) of Part I of First
 Schedule to the Chartered Accountants Act, 1949, a Chartered Accountant in practice is deemed to be
guilty of professional misconduct if he allows a person not being a member of the Institute in practice or
a member not being his partner to sign on his behalf or on behalf of his firm, any balance sheet, profit and
loss account, report or financial statements.
This clause read in conjunction with Section 26 of the Chartered Accountants Act, 1949 stipulates that no
person other than the member of the institute shall sign any document on behalf of a Chartered Accountant
in practice or a firm of Chartered Accountants in his or its professional capacity.
The term ‘Financial Statement’ for this purpose would cover an examination of the accounts or financial
statements given under a statutory enactment or otherwise.
Further, Clause (1) of Part II of the Second Schedule to the Chartered Accountants Act, 1949 states that a
member of the Institute, whether in practice or not, shall be deemed to be guilty of professional
misconduct, if he contravenes any of the provisions of this Act or the regulations made there under or any
guidelines issued by the Council.
Conclusion: Accordingly, S is guilty of professional misconduct under Clause (12) of Part I of First
Schedule and also under Clause (1) of Part II of Second Schedule for contravening Section
26.

Illustration 21
CA. Smart, a practicing Chartered Accountant was on Europe tour between 15-9-20 and 25-9-20. On 18-9-
20 a message was received from one of his clients requesting for a stock certificate to be produced to the
bank on or before 20-9-20. Due to urgency, CA. Smart directed his assistant, who is also a Chartered
Accountant, to sign and issue the stock certificate after due verification, on his behalf.
Allowing a Member Not Being a Partner to Sign Certificate: As per Clause (12) of Part I of the
First Schedule to the Chartered Accountants Act, 1949, a Chartered Accountant in practice is deemed to be
guilty of professional misconduct “if he 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”.
In this case, CA. Smart allowed his assistant who is not a partner but a member of the Institute of Chartered
Accountants of India to sign stock certificate on his behalf and thereby commits misconduct.
Conclusion: Thus, CA. Smart is guilty of professional misconduct under Clause (12) of Part I of First
Schedule to the Chartered Accountants Act, 1949.

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

A member of the Institute (other than a member in practice) shall be deemed to be guilty of professional
misconduct, if he being an employee of any company, firm or person-
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.
A member of the Institute in service is deemed to be guilty of professional misconduct, if he is an employee of
any company, firm or person and during that course whatever emoluments he receives, if he either pays or
allows to pay or agree to pay any part or share thereof whether directly or indirectly. However, this clause
dose not restricts such sharing or commitments among relatives, dependents, friends etc., if there is no
relationship in procuring or retaining the job and payment is not a consideration for job procurement or
retainership.
The clear verdict of this clause is that job must be procured and retained with own professional capabilities
and not by any financial deal impairing professional dignity.
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.
This clause restricts to accept or agrees to accept any part of fee, 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. The objective is that when a member is in employment, he
must maintain high level of ethics and should not accept any other amount from anyone for which he is not
entitled from employer under contractual agreement of service.
[Note: A member in the foregoing circumstances would be guilty of misconduct regardless
of the fact that he was in whole-time or part-time employment or that he was holding
Certificate of Practice along with his employment.]

Illustration 22
Mr. 'C', a Chartered Accountant holds a certificate of practice while in employment also, recommends a
particular lawyer to his employer in respect of a case. The lawyer, out of the professional fee received
from employer paid a particular sum as referral fee to Mr. 'C'.
Referral Fee from Lawyer: According to Clause (2) of Part II of First Schedule of the Chartered Accountant
Act, 1949, a member of the Institute(other than a member in practice) shall be guilty of professional
misconduct, if he being an employee of any company, firm or person accepts or agrees to accept any part of
fee, 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.
In the present case, Mr. C who beside holding a certificate of practice, is also an employee and by
referring a lawyer to the company in respect of a case, he receives a particular sum as referral fee from the
lawyer out of his professional fee.
Conclusion: Therefore, Mr. C is guilty of professional misconduct by virtue of Clause (2) of Part II of
First schedule.
 PART III - 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) 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 (11) of Part I and Clauses (1) and (3) of Part III where a Chartered Accountant had not disclosed to the
Institute at any time about his engagement as a proprietor of a non-chartered accountant’s firm while holding
certificate of practice and had not furnished particulars of his engagement as Director of a company despite
various letters of the institute which remained unreplied. Held that he was guilty under Clause (11) of Part I
and Clauses (1) and (3) of Part III of the First Schedule. [P.S. Rao (1992)]
Where a Chartered Accountant had continued to train an articled clerk though his name was removed from the
membership of the Institute and he had failed to send any reply to the Institute asking him to send his
explanation as to how he was training as his articled clerk when he was not a member of the Institute. Held
that he was guilty under Clause (2) of Part III of the First Schedule. [S.M. Vohra (1992)]

Illustration 23
1. Mr. 'G', while applying for a certificate of practice, did not fill in the columns which solicit information
about his engagement in other occupation or business, while he was indeed engaged in a business.
Disclosure of Information: As per Clause (2) of Part III of First Schedule to the Chartered Accountants
Act, 1949 a member shall be held guilty if a Chartered Accountant, in practice or not, 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;
In the given case, Mr. “G”, a Chartered Accountant while applying for a certificate of practice, did not fill
in the columns which solicit information about his engagement in other occupation or business, while he
was indeed engaged in a business. Details of engagement in business need to be disclosed while applying
for the certificate of practice as it was the information called for in the application, by the Institute.
Conclusion: Thus, Mr. G will be held guilty for professional misconduct under the Clause (2) of Part III
of First Schedule of the Chartered Accountants Act, 1949.
 Illustration 24
2. Mr. X, a Chartered Accountant, employed as a paid Assistant with a Chartered Accountant firm, leaves the
services of the firm on 31st December, 2019. Despite many reminders from ICAI he fails to reply
regarding the date of leaving the services of the firm.
Failed to Supply Information Called For: As per Clause (2) of Part III of the First Schedule to the
Chartered Accountants Act, 1949, a member, whether in practice or not, will be deemed to be guilty of
professional misconduct if he does not supply the information called for, or does not comply with the
requirements asked for, by the Institute, Council or any of its Committees, Director (Discipline), Board of
Discipline, Disciplinary Committee, Quality Review Board or the Appellate authority.
Conclusion: Thus, in the given case, Mr. X has failed to reply to the letters of the Institute asking him to
confirm the date of leaving the service as a paid assistant. Therefore, he is held guilty of professional
misconduct as per Clause (2) of Part III of the First Schedule to the Chartered Accountants Act, 1949.

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.
Any member of the Institute, in the course of procurement of professional work from another Chartered
Accountant or from any other source provides or renders any information which he knows to be false through
any documents, or acts (like tenders, enquiries, response to advertisement, CV type write ups etc.), he would
be deemed guilty of professional misconduct under Clause (3), Part III of First Schedule.
A member of the Institute, whether in practice or not, shall be deemed to be guilty of other misconduct,
PART IV- Other misconduct in relation to members of the Institute generally
if he -
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.

Illustration 25
YKS & Co., a proprietary firm of Chartered Accountants was appointed as a concurrent auditor of a bank.
YKS, the proprietor, used his influence to get a loan and thereafter failed to repay the loan.
This is a case which is covered under the expression in other misconduct of the Chartered Accountants
Act, 1949. As per Clause (2) of Part IV of First Schedule to the Chartered
 Accountants Act, 1949, a member of the Institute, whether in practice or not, shall be deemed to be guilty
of other misconduct, if he, 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. Here the Chartered Accountant is
expected to maintain the highest standards of integrity even in hi s personal affairs and any deviation from
these standards calls for disciplinary action.
In the present case, YKS & Co, being a concurrent auditor used his position to obtain the funds and failed
to repay the same to the bank. This brings disrepute to the profession of a Chartered Accountant. This act
of YKS & Co is not pardonable.
Conclusion: Therefore, YKS & Co will be held guilty of other misconduct under Clause (2) of Part IV of
First Schedule to the Chartered Accountants Act, 1949.

These Clauses (1) & (2) are self-explanatory and any of the member of the Institute is found
guilty by any civil or criminal court and prosecuted for an imprisonment in an offence
involving moral turpitude or his acts bring disrepute to the profession or the Institute,
irrespective of the fact whether such acts are related to profession or not, such member will
be deemed to be guilty of other misconduct in Part IV of First Schedule.
The important point to note is that if imprisonment tenure exceeds six months, this case will be covered in
the Clause of Part III of Second Schedule.
Where a Chartered Accountant had floated various Companies/Firms and availed huge limits from various

Banks in the name of the said Companies/Firms. The limits were availed fraudulently by him against
factory, land & building, machineries and other fixed assets in his name and others were already mortgaged
with a Bank. Furthermore, besides holding full time COP he was also the Proprietor/Director of
Firms/Private Limited Company for which he did not inform the Institute. Held, guilty of ‘Other
Misconduct’ falling under Clause (2) of Part IV of First Schedule to the Chartered Accountants Act, 1949
with respect to the charge of being Proprietors of other Firms he was guilty of ‘Professional Misconduct’
falling under Clause (11) of Part I of First Schedule to the Chartered Accountants Act, 1949. (Deputy
General Manager, Canara Bank vs. Prasanta Kumar Roy Burman - Page 47 of Vol I Part I of
Disciplinary Cases, Judgement delivered on 3rdFebruary, 2011).

Where a Chartered Accountant did not reveal the important information that his name has been removed from
the Register of Members w.e.f. 01.10.2005 due to non payment of fees and he was not authorised to
practice as a Chartered Accountant but he continued to sign the audit report and conducted audit of the
firm. Held, guilty of professional and other misconduct falling within the meaning of Clause (2) of Part
IV of First Schedule, and Clause (1) of Part II of the Second Schedule to the Chartered Accountants Act,
1949. (Naresh Mohan Mittal vs. Gulshan Kumar -- Page 20 of Vol I Part I of Disciplinary Cases,
Judgement delivered on 12th September, 2011).
 Where a Chartered Accountant had falsely verified Form No.32 filed with ROC in respect of appointment
of Directors of a company. He also had affixed fraudulently obtained digital signature in his name. Held,
guilty of ‘Other Misconduct’ falling within the meaning of Clause (2) of Part IV of First Schedule to the
Chartered Accountants Act, 1949. (Ashish Pradeep Deora, Mumbai vs. Jawahar Lal Beriwal, Delhi
[PR-171/13-DD/165/2013/BOD/198/2016] Judgement delivered on 13thDecember, 2018).

The accounts of the Complainant were maintained and audited by a Chartered Accountant. Even after the full
payment of fees he refused to complete the work and to file the Income Tax Returns. The Respondent Firm
was in the possession of all the original accounts and refused to hand over the same. Further on seeking
for the payments against the work done for the interior of the new office of the Firm, the Complainant was
abused and threatened. The Password of Income Tax account was also changed by him without knowledge of
the Complainant. The Respondent refused to accept the payment made by cheque. Held, guilty of ‘Other
Misconduct’ falling within the meaning of Clause (2) of Part IV of the First Schedule to the Chartered
Accountants Acts, 1949 read with section 22 of the said Act. (Kanchan Bhagchandani vs. Vaibhav
Kumar Mehta. [PR- 263/2014-DD/319/2014/BOD/251/2017] Judgement delivered on 12th
January, 2019).
The Respondent had been appointed to carry out the audit, Income Tax and ROC related work viz
preparation and filing of various Forms like Form No. 32, Form 18, 23 AC and 23 ACA, DIN 3 and
20B. The Respondent did not verify any other document, contract, etc.to filing e-forms with the ROC
which had certain incorrectness on account of the same being filed on the basis of tampered and forged
documents which resulted in bringing disrepute to the Chartered Accountancy Profession. The Respondent
was held guilty of ‘Other Misconduct’ falling within the meaning of Clause (2) of Part IV of the First
Schedule to the Chartered Accountants Act, 1949 read with Section 22 of the said act. (Gopal Bhatter
in Re:PPR/7/W/13/DD/10/W/INF/13/BOD/225/ 2016).

8.2 THE SECOND SCHEDULE

Where the Director (Discipline) is of the opinion that a member is guilty of any professional or other misconduct
mentioned in the second schedule or in both the Schedule, he shall place the matter before the Disciplinary
Committee.

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.
An accountant in public practice has access to a great deal of information of his client, which is of a highly
confidential character. It is important for the work of an accountant and for maintaining the
dignity and status of the profession that he should treat such information as having been provided to him,
only to facilitate the performance of his professional duties for which his services have been engaged. To divulge
such information would be a breach of professional confidence, which may give rise to the most serious
consequences, even to an action by the client for the loss suffered by him through such a breach. The
accountant’s duty not to disclose continues even after the completion of his assignment.
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. Thus, a member in practice submitting information to, say, exchange control authorities, while
performing his professional duties cannot be considered to have made disclosure without the aforesaid consent.
But, in all cases, the request or the initiative that the members does prefer the service, which would entail such
disclosure, must come from the client in relation to whose affairs the disclosure would be entailed.
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. Thus, in the case of a sole proprietary concern, the consent may
be given by the proprietor or his constituted attorney who is legally empowered to give such consent. In the
case of partnership firm, since in turn, every partner has the authority to bind the firm by his acts, the
consent may be given by any partner. In the case of a company, by virtue of section 179 of the Companies Act,
2013, the Board of Directors is empowered to do all that the company in a general meeting may do unless a
resolution by the company in general meeting is required by the Act or by the Memorandum or Articles of the
company. Hence, the consent may be sought from the Managing Director if the powers of the Board of
Directors are delegated to him comprehensively enough to include the power to give such consent, but if the
powers of the Board of Directors are not so delegated, the consent should be obtained by means of resolution
of the Board of Directors of the Company.
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. The main auditors of an enterprise do not
have right of access to the audit working papers of the branch auditors. In the case of a company, the
statutory auditor has to consider the report of the branch auditor and has a right to seek clarifications and/or
to visit the branch if he deems it necessary to do so for the performance of the duties as auditor. An auditor
can rely on the work of another auditor, without having any right of access to the audit working papers of the
other auditor. For this purpose, the term ‘auditor’ includes ‘internal auditor’.
However, the auditor may, at his discretion, in cases considered appropriate by him, make portions of or
extracts from his working papers available to the client.
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.
It is not possible to set out all the circumstances under which disclosure of information may be required by
law. If under any legal compulsion and if it is not legally permissible to claim privilege under the Evidence
Act, 1872 (Section 126), the disclosure made by a member of such information may not be considered as
misconduct. However, such matters involve niceties of law and expert legal advice may be sought prior to
such disclosure.
The only circumstance in which this duty of confidence may give rise to a difficulty is where the accountant
has reason to believe that the client has been guilty of some unlawful act or default. This matter is of special
significance in the case where the client is guilty of tax evasion.
Further, students may note that as per section 143(12) of the Companies Act, 2013, if an auditor of a
company, in the course of the performance of 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 and after
following the prescribed procedure.

Illustration 26
Mr. Parekh, a Chartered Accountant was invited by the Chamber of Commerce to present a paper in a
symposium on the issues facing Indian Leather Industry. During the course of his presentation he shared
some of the vital information of his client’s business under the impression that it will help the Nation to
compete with other countries at international level.
Disclosure of Client’s Information: Clause (1) of Part I of the Second Schedule to the Chartered
Accountants Act, 1949 deals with the professional misconduct relating to the disclosure of information
by a chartered accountant in practice relating to the business of his clients to any person other than his
client without the consent of his client or otherwise than as required by any law for the time being in
force would amount to breach of conduct. The Code of Ethics further clarifies that such a duty continues
even after completion of the assignment. The Chartered Accountant may however, disclose the information
in case it is required as a part of performance of his professional duties. In the given case, Mr. Parekh has
disclosed vital information of his client’s business without the consent of the client under the impression
that it will help the nation to compete with other countries at International level.
Conclusion: Thus, it is a professional misconduct covered by Clause (1) of Part I of Second Schedule
to the Chartered Accountants Act, 1949.

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.
The above clause restrains a member from subscribing to the report on a financial statement so long as it has
not been examined by him or by a partner or an employee of his firm or by another chartered accountant in
practice. It has been introduced to ensure that the work entrusted to him has been carried out by the member
either directly or under his supervision before he renders his report.
An exception however has been made in respect of an examination carried out by another chartered accountant in
practice. This enables two or more members to accept a joint assignment or enables a member also to carry
out the examination of financial statements by or with the assistance of all or either any chartered
accountant in practice.
Where the joint auditors are appointed, the work is normally divided among themselves in terms of
identifiable units or areas, or with reference to the items of liabilities, or income or expenditure or to the
period of time etc. Such division should be adequately documented and communicated to the auditee.
In the course of his work, where a joint auditor comes across matters requiring discussion with or application
of judgement by the joint auditors, he must communicate to the other joint auditors bef ore submission of the
report.
In respect of audit work divided among the joint auditors, each joint auditor is responsible only for the work
allocated to him, whether or not he has prepared a separate report on the work performed by him. On the other
hand, all the joint auditors are jointly and severally responsible in accordance with SA 299 “Joint Audit of
Financial Statements”:
Each joint auditor should decide for himself the appropriateness of using test checks or sampling, the nature,
timing and extent of audit procedures to be applied in relation to the work allotted to him.
Obtaining and evaluating the information and explanations from the management is the joint responsibility of
the joint auditors unless they agree upon a specific pattern of distribution of this responsibility. In case of
distribution of the responsibility, the liability of the joint auditors is limited to the area allotted to that
auditor.

Illustration 27
Mr. A, a Chartered Accountant was the auditor of 'A Limited'. During the financial year 2019-20, the
investment appeared in the Balance Sheet of the company of ` 10 lakhs and was the same amount as in
the last year. Later on, it was found that the company's investments were only ` 25,000, but the value of
investments was inflated for the purpose of obtaining higher amount of Bank loan.
Grossly Negligent in Conduct of Duties: As per Part I of Second Schedule to the Chartered
Accountants Act, 1949, 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 chartered accountant in practice, under
Clause (2); does not exercise due diligence, or is grossly negligent in the conduct of his professional duties,
under Clause (7); or 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, under Clause (8).
The primary duty of physical verification and valuation of investments is of the management .
However, the auditor’s duty is also to verify the physical existence and valuation of investments
 placed, at least on the last day of the accounting year. The auditor should verify the documentary evidence for
the cost/value and physical existence of the investments at the end of the year. He should not blindly rely
upon the Management’s representation.
In the instant case, such non-verification happened for two years. It also appears that auditors failed to
confirm the value of investments from any proper source. In case auditor has simply relied on the
management’s representation, the auditor has failed to perform his duty.
Conclusion: Accordingly, Mr. A, will be held liable for professional misconduct under Clauses (2), (7)
and (8) of Part I of the Second Schedule to the Chartered Accountants Act, 1949.

Where a Chartered Accountant issued false certificates to several parties for past exports for monetary
consideration without verifying any supporting records or documents. On the strength of these false
certificates, certain unscrupulous importers were able to obtain import license, effect imports and clear these
free of duty, perpetuating a fraud on Government revenue and depriving the Government of its legitimate revenue
to the tune of several Crores of Rupees.
On his statements to the Department he confessed the above fact and disclosed that he had issued these certificates
for monetary consideration and without verification of supporting documents on record.
Held that the respondent was guilty of professional misconduct within the meaning of clauses (2),
(7) & (8) of Part I of the second schedule of the Chartered Accountants Act, 1949 in terms of section 21 & 22
of the said Act.
(P.N. Vittal Dass, Addl. Collector of Customs, Mumbai vs. P.U. Patil -Page 827 of Vol. VIII – 1 –
21(6) of Disciplinary Cases - Judgement dated 13th August, 2004).
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.
As per the opinion of the Council while finalising the Guidance Note on Accountant’s Report on Profit Forecasts
and/or Financial Forecasts at its 100th meeting held on 22 nd through 24th July 1982, a chartered accountant can
participate in the preparation of profit or financial forecasts and can review them, provided he indicates
clearly in his report the sources of information, the basis of forecasts and also the major assumptions made
in arriving at the forecasts and so long as he does not vouch for the accuracy of the forecasts. The Council has
further opined that the same opinion would also apply to projections made on the basis of hypothetical
assumptions about future events and management actions which are not necessarily expected to take place so
long as the auditor does not vouch for the accuracy of the projection.
Further, the attention of the members is drawn to “Guidance Note on Reports in Company
Prospectuses (Revised 2019)” issued by the Council in January 2019. This Guidance Note provides
guidance on compliance with the provisions of the Companies Act, 2013 and the Securities and Exchange
Board of India (Issue of Capital and Disclosure Requirements) Regulations
 2018 relating to the reports required to be issued by chartered accountants in prospectus issued by the
companies for the offerings made in India.
A Chartered Accountant issued 97 Projection Statements for certain Individuals without verifying the basic
documents and on the basis of which the Bank had extended the loan amount. Afterwards, the Bank revealed
that persons for whom the Respondent had issued Financial Statements did not have any business/source for
repayment of loan. Held, guilty of professional misconduct falling within the meaning of Clauses (3), (7) and (8)
of Part I of the Second Schedule to the Chartered Accountants Act, 1949. (The DGM (Inspection),
Tamilnad Mercantile Bank Ltd. vs. R. B. K. Samuel - Page 126 of Vol I Part I of Disciplinary
Cases, Judgement delivered on 3rd October, 2011).
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.
(i) If the opinions of auditors are to command respect and the confidence of the public, it is essential that it
must be free of any interest which is likely to affect their independence. Since financial interest in the
business can be a substantial interest and one of the important factors which may disturb independence,
the existence of such an interest direct or indirect affects the opinion of the auditors. As per this
clause, an auditor should not express his opinion on financial statements of any business or enterprise
wherein he has a substantial interest. This is intended to assure the public as regards the faith and
confidences that could be reposed on the independent opinion expressed by the auditors.
(ii) For the purpose of this Clause, the expression “Substantial Interest” shall have meaning as is
assigned thereto, under Appendix (9) of the Chartered Accountants Regulations, 1988. (see Clause
11 of Part I of First Schedule).
(iii) The words “financial statements” used in this clause would cover both reports and certificates usually given
after an examination of the accounts or the financial statement or any attest function under any
statutory enactment or for purposes of income-tax assessments. This would not, however, apply to
cases where such statements are prepared by members in employment purely for the information of
their respective employers in the normal course of their duties and not meant to be submitted to any
outside authority.
(iv) 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 and should not
place themselves in positions which would either compromise or jeopardise their independence.
(v) Member must take care to see that they do not land themselves in situations where there could be
conflict of interest and duty.
appointed the Liquidator of a Company, he should not qua a Chartered Accountant himself, audit the Statement of Accounts
 2013. The audit in such circumstances should be done by a Chartered Accountant other than the
one who is the Liquidator of the Company.
(vi) 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 i s 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:-
a. accept the Auditorship of a college, if he is working as a part-time lecturer in the college.
b. accept the Auditorship of a Trust where his partner is either an employee or a trustee of the
Trust.
The Council has, in this connection, issued the following guidelines:
Requirements of Clause applicable to all Attest Functions
(vii) 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.
(viii) Some of the situations which may arise in the applicability of Clause (4) read with the definition of
“Substantial Interest” (see Clause 11 of Part I of First Schedule).and other statutory
prohibitions are discussed below for the guidance of members:-
1. Where the member, his firm or his partner or his relative has substantial interest in the business or
enterprise (not being a company).
The independence of mind is a fundamental concept of audit and/or expression of opinion on
the financial statements in any form and, therefore, must always be maintained. Nothing can
substitute for the essential and fundamental requirements of independence. Therefore, the
Council’s views are clarified in the following circumstances.
(a) An enterprise/concern of which a member is either an owner or a partner
The holding of interest in the business or enterprise (not being a company) by a
member himself whether as sole-proprietor or partner in a firm, in the opinion of the
Council, would affect his independence of mind in the performance of professional
duties in conducting the audit and/or expressing an opinion on financial statements of
such enterprise. Therefore, a member shall not audit financial statements of such
business or enterprise.
 (b) Where the partner or relative of a member has substantial interest
The holding of substantial interest by the partner or relative of the member in the
business or enterprise (not being a company) of which the audit is to be carried out and
opinion is to be expressed on the financial statement, may also affect the independence of
mind of the member, in the opinion of Council, in the performance of professional
duties. Therefore, the member may, for the same reasons as not to compromise his
independence, desist from undertaking the audit of financial statements of such
business or enterprise.
2. Where the member or his partner or relative is a director or in the employment of an Officer
or an Employee of the Company.
(a) Where the member is holding a position in the Company as Director , officer or
employee
Section 141(3)(b) of the Companies Act, 2013 specifically prohibits a member from
auditing the accounts of a Company in which he is an officer or employee of the
Company, or in the employment of an officer or an employee of the Company
(irrespective of the question of substantial interest).
Moreover, in case the member who is Director Simplicitor (general permission) in a
Company, the Council has prohibited such member from auditing the accounts of a
Company, whether or not he holds substantial interest in the Company.
In case the member seeks specific permission of the Council to be Whole Time or
Managing Director in a Company, he would , on grant of such permission, not be
entitled either to engage in attest functions (which includes audit), or to hold
substantial interest in the Company. Although the provisions of the aforesaid section
are not specifically applicable in the context of audits performed under other statutes,
e.g. Tax Audit, yet the underlying principle of independence of mind is equally
applicable in those situations also.
(b) Where the member is not holding a position in the Company, but holding any
security or interest
Section 141(3) (d)(i) of Companies Act, 2013 disqualifies a person from being Auditor
of a Company, if he holds any security or interest in the Company, or its subsidiary,
or holding or associate company or a subsidiary of such holding Company.
(c) Where the partner of the member is an officer or employee of a company
Section 141(3)(c) of Companies Act, 2013 disqualifies a member from being the
auditor of a Company, where the partner of such member is an officer or employee of
the Company.
 (d) Where the partner of the member is holding any security or interest in the
Company
Section 141(3) (d)(i) of Companies Act, 2013 bars a person from being auditor of a
Company, if his partner holds any security or interest in the Company, or its
subsidiary, or holding or associate company or a subsidiary of such holding Company.
(e) Where the relative of the member is a director or is in the employment of the
Company as a director or key managerial person
Section 141 (3) (f) of Companies Act, 2013 bars a person from accepting audit of a
Company where the relative of the member is director or is in the employment of
the Company as a director or key managerial person.
(f) Where the relative of the member is holding any security or interest in the
Company
Section 141(3)(d) (i) of Companies Act, 2013, read with Rule 10 of Companies (Audit and
Auditors) Rules, 2014 bars a person from being auditor of a Company, if his
relative holds security or interest in the Company, or its subsidiary, or holding or
associate company or a subsidiary of such holding Company of face value exceeding
Rupees One Lakh.
(ix) 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.
(x) An accountant is expected to be no less independent in the discharge of his duties as a tax consultant or
as a financial adviser than as auditor. In fact, it is necessary that he should bear the same degree of
integrity and independence of mind in all spheres of his work. Unless this is done, the accounts of
entities audited by Chartered Accountants or statements made by them during the course of
assessment proceedings would not be relied upon as correct by the authorities.
(xi) Members not to write Books of Account for auditee clients : The Council has clarified that
the members are not permitted to write the books of account of their auditee clients.
(xii) Statutory auditor not to be the Internal Auditor simultaneously : An Auditor appointed by an
entity under the Companies Act or any other statute shall not be the Internal Auditor of the same entity.
(xiii) Internal auditor not to be the Tax auditor simultaneously: An Internal Auditor of an
assessee, whether working with the organization or an independently practicing Chartered Accountant
irrespective of being an individual Chartered Accountant or a firm of Chartered Accountants cannot
be appointed as its Tax Auditor.
(xiv) Internal Auditor not to be the GST Auditor simultaneously: The Internal Auditor of an
entity cannot undertake GST Audit of the same entity.
(xv) 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.
(xvi) 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. In case the entity is constituted under a trust deed/instrument, the member
should satisfy whether his appointment is valid according to the instrument constituting the entity
and rules and regulations made thereunder.
(xvii) 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. In a case
where any entity is being managed by a Managing Committee or Board of Trustees or Board of
Governors by whatever name called he should ensure that his appointment is duly made by a
resolution passed of such Managing Committee or Board of Trustees or Board of Governors. Even in
case of partnership or sole proprietary concerns, the member must ensure that a letter of
appointment/engagement is given by the firm/sole proprietor before he accepts the appointment/
engagement.
(xviii) Section 288 of Income Tax Act, 1961 describe the disqualifications for the purpose of Tax Audit.
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 .
It may be observed that this clause refers to failure to disclose a material fact, which is known to him, in a
financial statement reported on by the auditor. It is obvious, that before a member could be held guilty of
misconduct, materiality has to be established. The determination of materiality has been provided in SA 320,
“Materiality in Planning and Performing an Audit”.
It should be borne in mind that there may be cases where an item may not be material from the point of view of
the balance sheet, but may have material significance in relation to the profit and loss account for that year
and vice-versa. It is therefore essential that care should be taken to ensure that the aspect of materiality
should be judged in relation to both the balance sheet and the profit and loss account.
The word “financial statements” used in this clause would cover both reports and certificate usually given after
an examination of the accounts or of financial statements under any statutory enactment, or/for purposes of
income tax assessments. This would not however, apply to cases where such statements are prepared by
members in employment purely for the information of their respective
employers in the normal course of their duties and not meant to be submitted to any outside authority.
Some of the decisions of the Courts on this clause are briefly given below-
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-Held, that the chartered
accountant was duty bound to see that the nature and subject matter of the charge over a security and the
nature and mode of valuation of the sinking fund investment were disclosed in the Balance Sheet in
accordance with Form F and he was found guilty of misconduct. [Davar & Sons Ltd. vs M.S.
Krishnaswamy (1952)]
Where a Chartered Accountant failed to examine how debts became bad and were written off -Held he was
guilty under Clause (5). [A. Doraiswami/ Naidu-vs. P.M. Raghavendra Rao (1965)]
Where a Chartered Accountant had not disclosed the fact that a large amount of loan have been given out of
the funds of an Employees Provident Fund to the Employer Company in contravention of the Rules of the
Provident Fund and had failed to report on the default in clearing the cheques received in re-payment of the
loan. Held by the High Court that he was not guilty of any non•disclosure to the individual subscribers of
the Provident Fund because he owed no duty to disclose to them and he was well within his rights to have
disclosed the irregularities to the trustees themselves and to the company which had appointed him. Held by the
Supreme Court on appeal that it was no defence for the chartered accountant to say that he had disclosed the
irregularities to the company as it was his duty to have made a disclosure thereof to the beneficiaries of the Provident
Fund in the statement of accounts signed by him as the legal position of the auditor in the present case was
similar to that of the auditor appointed under the Companies Act. He was therefore guilty of professional
misconduct under Clause (5). [Kishori Lal Dutta vs-P.K. Mukherjee (1968)]

Illustration 28
Mr. Joe, a Chartered Accountant during the course of audit of M/s XYZ Ltd. came to know that the
company has taken a loan of ` 10 lakhs from Employees Provident Fund. The said loan was not reflected
in the books of account. However, the auditor ignored t his information in his report.
Failure to Disclose Material Facts: As per Clause (5) of Part I of Second Schedule to the Chartered
Accountants Act, 1949, a chartered Accountant in practice will be held liable for misconduct if he fails to
disclose a material fact known to him, which is not disclosed in the financial statements but disclosure of
which is necessary to make the financial statements not misleading. In this case, Mr. Joe has come across
information that a loan of ` 10 lakhs has been taken by the company from Employees Provident Fund. This
is contravention of Rules and the said loan has not been reflected in the books of accounts. Further, this
material fact has also to be disclosed in the financial statements. The very fact that Mr. Joe has faile d to
disclose this fact in his report, he is attracted by the provisions of professional misconduct under Clause (5)
of Part I of Second Schedule to the Chartered Accountants Act, 1949.
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.
This clause refers to failure on the part of a member to point out in his report a material misstatement appearing in a
financial statement and he has knowledge of the same. Here also, it is obvious, that before a member could be held
guilty of misconduct, materiality has to be established and the observations made under the preceding Clause
(5), in this connection, will equally apply to this clause.
Some of the decisions of the Courts on this clause are briefly given below-
A Company did not provide for depreciation as required by Section 205 and Section 350 of the Companies
Act, 1956 (now Section 123 read with Schedule III of the Companies Act, 2013) and although the Chartered
Accountant was aware that the Company had underprovided depreciation, he did not bring out this fact in his
report- Held the Chartered Accountant was guilty of professional misconduct under the clause. He had failed to
disclose a material fact known to him but disclosure of which was necessary to make the financial
statement not misleading.
The Respondent, being the Statutory Auditor of a Company wrongly mentioned in his audit report the
amount of Authorised Capital of Rs. 5,00,000/- in place of Rs.50,00,000/-and also failed to report that the
allotment of 72,660 equity shares of Rs.10/- each on 31st March, 2009. It was observed that the allotment had
been done beyond the Authorised Capital as on that date.
Moreover, the Authorised Capital was increased by the Company only on 17th June, 2009. He did not check
as to when resolution for increase in Authorized Share Capital of the Company was passed and when a form to
this effect was filed with ROC. This led to the Respondent filing an incorrect Share Capital details of the
Company in the Balance Sheet.
The Respondent was held guilty of professional misconduct falling within the meaning of Clause (6) of Part I
of Second Schedule to the Chartered Accountants Act, 1949. [Rajev M. Bhingarde vs. Gouri Shanker
Chitlangia, (2014)]
The Respondent had failed to give disclosure of Contingent Liabilities in the Financial Statements for the
period ending in 2012 against the Corporate Guarantee given in favour of a Group Company. In this context,
the Respondent should have verified the charges created on the basis of material available with the
Company and Registrar of Companies.
Further, the charge of Rs.4.35 crores against the Balance Sheet size of Rs.26.12 crores was significant. Hence,
omission of such information from the Financial Statements makes them misleading and thereby reflects gross
negligence on the part of the Respondent in conducting audit and failing to report material misstatement in
the financial statements of the said period.
Held guilty of professional misconduct falling within the meaning Clauses (6) and (7) of Part I of the Second
Schedule to the Chartered Accountants Act, 1949. [Registrar of Companies, Ministry of Corporate
Affairs vs. Jitendra Nath Dhar, (2017)]
 Illustration 29
A practicing Chartered Accountant was appointed to represent a company before the tax authorities. He
submitted on behalf of his clients certain information and explanations to the authorities, which were
found to be false and misleading.
Submitting Information as Authorised Representative: As per Clause (5) of Part I of Second
Schedule to the Chartered Accountant Act, 1949, if a member in practice fails to disclose a material fact
known to him which is not disclosed in a financial statement, but disclosure of which is necessary to make
the financial statement not misleading, where he is concerned with that financial statement in a
professional capacity, he will be held guilty under Clause (5). As per Clause (6) of Part I of Second
Schedule if he fails to report a material misstatement known to him to appear in a financial statement with
which he is concerned in a professional capacity, he will be held guilty under Clause (6).
In given case, the Chartered Accountant had submitted the statements before the taxation authorities. These
statements are based on the data provided by the management of the company. Although the statements
prepared were based on incorrect facts and misleading, the Chartered Accountant had only submitted them
acting on the instructions of his client as his authorized representative.
Conclusion: Hence the Chartered Accountant would not be held liable for professional misconduct.

Clause (7) does not exercise due diligence, or is grossly negligent in the conduct of his
professional duties.
Though very simply worded, it is a vital clause which unusually gets attracted whenever it is necessary to
judge whether the accountant has honestly and reasonably discharged his duties. The expression negligence covers a
wide field and extends from the frontiers of fraud to collateral minor negligence. The meaning and significance of
this clause is well contained in the following passage quoted from the Judgement of the Karnataka High Court
in a disciplinary case which came before it in 1977:
“It is the duty of an auditor to bring to bear on the work he has to perform that skill, care and caution which a
reasonably competent, careful, and cautious auditor would use. What is reasonable skill, care and caution must
depend on the particular circumstances of each case. An auditor is not bound to be a detective, or, as was said,
to approach his work with suspicion or with a foregone conclusion that there is something wrong. He is a
watchdog but not a bloodhound. If there is anything calculated to excite suspicion he should probe it to the
bottom; but in the absence of anything of that kind he is only bound to be reasonably cautious and
careful.”
Professional misconduct is a term of fairly wide import but generally speaking, it implies fairly serious cases of
misconduct of gross negligence. Negligence per se would not amount to gross negligence in the case of
minor errors and lapses, which do not constitute professional misconduct and which,
therefore, don’t require a reference to the Disciplinary Committee, the Council would nevertheless bring the
matter to the attention of its members so that greater care may be taken in the future in avoiding errors and
lapses of a similar type.

Illustration 30
CA Chiranjiv who conducted ABC audit of a Haryana daily ‘New Era’ certified the circulation figures
based on Management Information System Report (M.I.S Report) without examining the books of Account.
According to Clause (7) of Part I of Second Schedule of Chartered Accountants Act, 1949, a Chartered
Accountant in practice is deemed to be guilty of professional misconduct if he “does not exercise due
diligence or is grossly negligent in the conduct of his professional duties”.
In the instant case, CA Chiranjiv did not exercise due diligence and is grossly negligent i n the conduct of his
professional duties since he certified the circulation figures without examining the books of accounts.
To ascertain the number of paid copies verification of remittances from the agents, credit allowed to the
agents for unsold copies returned, examination of books of account is essential. Further certification of
circulation figures based on statistical information without cross verification with financial records
amounts to gross negligence and failure to exercise due diligence.
Conclusion: Hence, CA Chiranjiv is guilty of professional misconduct as per Clause (7) of Part I of
Second Schedule of Chartered Accountants Act, 1949.

Some of the decisions of the DC/Courts on this clause are briefly mentioned below:
Where a Chartered Accountant failed to indicate the mode of valuation of investments in shares as required by the
Companies Act and also to draw attention to the inclusion of uniforms in the depreciation account- Held that
he was guilty under Clause (7). [M.C. Poddar vs-P.S. Sodhbans - page 259 of Vol. I of the Disciplinary
Cases and page 554 of March 1954 issue of the Institute’s Journal-Judgement delivered on 1st
April, 1954].
Where a Chartered Accountant wrongly certified the increase in Paid-up Share Capital of a Private Limited
Company in the Balance Sheet without proper evidence. Held guilty of professional misconduct falling within
the meaning of Clauses (7), (8) & (9) of Part I of Second Schedule t o the Chartered Accountants Act,1949.
[Ajit Singh Ahuja vs. Dinesh Kumar Goyal, (2012)]
Where a Chartered Accountant, appointed as auditor of the Madras branch of a limited company in Bombay was
charged with failure to report to the Bombay office that some entries in the bank pass book had not been
passed through the cash book of the branch. Held he was guilty of gross negligence. The High Court observed
that a small fee paid to the respondent should not come in the way of his doing duty without fear or favour,
although it involved unpleasant consequence namely, he might not be appointed again. [The Fairdeal
Corporation Ltd. Bombay vs K. Gopalakrishna (1957)]
A certificate issued by a Chartered Accountant to a proprietor of a firm in respect of the turnover of betel nuts
to enable the firm, which was not dealing in betel nuts, to obtain import license without checking the books
and documents himself, but relying on his articled clerk for its correctness. Held he was guilty of gross
negligence. [Sunder Lal Fatehpuria in Re: page 591 of Vol. Ill of the Disciplinary Cases and page
224 of January, 1959 issue of the Institute’s Journal-Judgement delivered on 14th November,
1958]
Where a Chartered Accountant failed in his duty to check the bank balances with the pass books of the banks
and failed to obtain certificates of balances from the bankers in respect of those balances. The Council found
him guilty of misconduct under Clauses (7) & (8) of Part I of the Second Schedule. Held there being no proof of
dishonesty or volume malafide on the part of the Chartered Accountant and in view of the circumstances of
the case, the High Court took no more serious view of the matter than to express disapprobation of the conduct of
the Chartered Accountant in the form of admonition. [Company Law Administration-vs-D.B. Kulkarni
(1960)]
In the course of some investigation of the affairs of a bank on liquidation, it was found that the authorities of
the bank failed to disclose the total indebtedness of the directors in the balance sheet and to report on the
numerous alterations and fictitious entries in the books of accounts of the bank. Held that no auditor could
escape from personal liability by taking shelter under the misconduct of his own employees. There was
nothing to indicate the status, qualifications or capacity of the assistants. Under the circumstances, the conduct
of the Chartered Accountant in abdicating his functions to his subordinates amounted to gross negligence.
[Superintendent of Police Madras vs
M. Rajamany (1961)]
Where a certificate issued by a Chartered Accountant to the Joint Chief Controller o f Imports & Exports,
Calcutta stating that a firm had exported a certain quantity of onions during a certain period contained false and
inaccurate particulars in respect of three items of invoice value the particulars themselves related to exports not
by this firm but by two other firms. Held he was guilty of the charge of gross negligence. [The Chief
Controller of Exports vs-G.P. Acharya (1962)]
Where a Chartered Accountant signed the accounts of an institution subject to separate notes. Held he was
guilty of gross negligence. In the view of the High Court, the essential part was the separate notes. Any one going
through his report would at least assume that those notes when prepared and were ready at the time when the
report was signed by him. It could not be supposed that those notes were not in existence at that time and were
written at some later date on some facts, which were still to be verified or ascertained. His act, though not
suffering from bad or vicious intention, was still an act of gross negligence. [Hitkarini Mahavidyalaya,
Jabalpur vs P.C, Madan (1963)]
Where a chartered accountant gave clean reports on the balance sheets whereas the reports on the special audit
conducted subsequently revealed certain irregularities which amounted to fail ure to examine the pass book and to
verify the cash balance. Held he was guilty under Clause (7). [Director of Accounts, Gujarat State,
Ahmedabad vs K.D. Patel (1968)]
Where a Chartered Accountant had not completed his work relating to the audit of the acc ounts of a
company and had not submitted his audit report in due time to enable the company to comply with the statutory
requirement in this regard. Held, he was guilty of professional misconduct under Clause (7). [Qaroon Trading
& Finance Pvt. Ltd.- vs Luxmi Narain Saxena and Jitendera Mohan Chadha (1969)]
In his audit report of a school, the auditor failed to point out wrong and misleading entries and a sum of `
7,000/- on account of reserve fund did not find a place at all in the original statement sent to the school. The
correction slip alleged to be sent by the Chartered Accountant was never received by the school. The Chartered
Accountant had not proved that the correction slip was sent to the school. Held the Chartered Accountant was
guilty of gross negligence in the conduct of professional duties and his conduct was quite unbecoming of a
professional person entrusted with responsibility of dealing with the accounts. [B.L. Shoulder vs-M.K.
Deb (1976)]
A Chartered Accountant adopted arbitrary valuation of closing stock and no verification at all was done by
him. Further he accepted the capitalization of a large sum of expenditure which was in the nature of revenue.
He had merely adopted an ad-hoc basis in deciding upon capitalization of expenditure and failed to apply his
mind and bring to bear on the subject the due diligence and care expected of a member of the profession. Held,
the Chartered Accountant was guilty of gross negligence in the performance of his duties. [B.
Shantharam Rao (1977)]
A Chartered Accountant was charged under Clauses (5), (6), (7) and (8) of Part I of Second Schedule in regard
to a loss of ` 1.84 lakhs in a bank of sale of some investments out of which only a sum of
` 21,500 was written off by the bank. The value of investment in the balance sheet was inflated and
it did not exhibit the correct position and the profit and loss account did not show a true balance of profit and
loss. Held, the respondent was guilty of misconduct so as to render him unfit to be a member of the institute.
[B.S. Waierker (1957)]
Where a Chartered Accountant issued two different certificates of circulation of a daily for one and the same
period showing different figures in respect of the number of copies printed and circulated. Held, he was guilty
under Clauses (7) and (8). [Registrar of Newspapers for India vs P.K. Mukherji (1971)]
Where a Chartered Accountant failed to make a reference in the “Income Certificates” prescribed by the ABC to
the report which he had separately submitted to the newspaper concerned which did represent the correct state
of affairs in all respects but which was not sent by the newspaper to the Bureau. Held, he was guilty under
Clauses (7) and (9). [Audit Bureau of Circulations Ltd., vs A.D. Shinde (1968)]
The Committee noted that the audited accounts of the Company for the year ended 2004 -05 and 2005-06 show an
amount of ` 53.44 lakhs as prior period adjustment from Shri Sushil Gupta. The said amount is mentioned as
an item of prior period adjustment amounts to ` 53.44 lacs which constitutes 58.02% of the total unsecured
funds and 55.03% of the total liabilities of the Company for the said year which itself speaks of its
materiality with respect to the Financial Statement in
question. The Respondent being the statutory auditor of the Company for the said year was statutorily required
to determine and consider the materiality of the said item for the purpose of audit and reporting. Where a
Chartered Accountant being the auditor has not only failed to exercise due diligence and also failed to gather
sufficient information to warrant an expression of opinion and also failed to invite attention to any material
departure from the generally accepted procedure of audit applicable to the circumstances. Thus, in conclusion,
in the opinion of the Committee, the Respondent is held guilty of professional misconduct falling within the
meaning of Clauses (7), (8) and (9) of Part I of the Second Schedule to the Chartered Accountants Act, 1949
. [Shri J.K.Teotia vs. CA. Gaurav Arora (2014)]
A Chartered Accountant was held guilty under Clause (7) of Part I of the Second Schedule and “other misconduct as
being a tax consultant and a tax auditor he failed to appear before the Income Tax Authorities for his client
even after having instructions from his client. In spite of being fully paid for his professional services and
provided all the books of account and other documents, he failed to satisfy the Income Tax Officer because of
his negligence and careless attitude. There were sev eral anomalies in the books of account. The opening and
closing balances as per the bank statements and pass-books were not re-produced correctly in the cash book.
[R.C.Dutta vs. Kailash C.Mishra, (2005)]
Where the resignation letter of the Complainant, being the Director of a Private Limited Company, was forged
as the signature of the Complainant was simply copied & pasted and the Respondent had certified Form 32 on
the Complainant’s forged resignation letter which had been filed with the ROC. It was observed that based on
his forged resignation letter, the resignation of the Complainant from Directorship of the said Company had
been occurred. It was noted that the Respondent had not taken any step to verify forged signature on resignation
letter which anyone would have taken in normal circumstances. The Respondent was held guilty of professional
misconduct falling within the meaning of Clause (7) of Part I of the Second Schedule of the Chartered
Accountants Act, 1949. [Shri Gunwant Singh Saluja, Director, M/s Mongia Steel Ltd. vs. Bijay Kumar
Sah, (2017)]
The Respondent was assigned by the Complainant with the task of verification of the data relating to the
retirement of the existing directors, appointment of new directors, increase in the authorized share capital of the
company and allotment of shares, in his professional capacity.In this regard, the Respondent in good faith had
handed over the password of his digital signature to his old client for e-filing the documents with the ROC.
Once the Respondent had passed the password of his digital signature to his client, he was accountable for the
misuse of the same, if any and cannot plead ignorance or negligence. Here, the Respondent should have diligent
enough not to have passed the password of his digital signature to his client. The Respondent was held guilty of
Professional Misconduct falling within the meaning of Clause (7) of Part I of Second Schedule to the
Chartered Accountants Act,1949. [M/s Anjaneya Bisanpur Agro Industries Pvt. Ltd., vs. Narender
Kumar Kaushik, (2014)]
 Illustration 31
Mr. D, a practicing Chartered Accountant, did not complete his work relating to the audit of the accounts of
a company and had not submitted his audit report in due time to enable the company to comply with the
statutory requirements.
Not Exercising Due Diligence: According to Clause (7) of Part I of Second Schedule of Chartered
Accountants Act, 1949, a Chartered Accountant in practice is deemed to be guilty of professional
misconduct if he does not exercise due diligence or is grossly negligent in the conduct of his professional
duties.
It is a vital clause which unusually gets attracted whenever it is necessary to judge whether the accountant
has honestly and reasonably discharged his duties. The expression negligence covers a wide field and
extends from the frontiers of fraud to collateral minor negligence.
Where a Chartered Accountant had not completed his work relating to the audit of the accounts a
company and had not submitted his audit report in due time to enable the company to comply with the
statutory requirement in this regard. He was guilty of professional misconduct under Clause (7).
Since Mr. D has not completed his audit work in time and consequently could not submit audit report in due
time and consequently, company could not comply with the statutory requirements, therefore, the auditor is guilty
of professional misconduct under Clause (7) of Part I of the Second Schedule to the Chartered Accountants
Act, 1949.

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.
It is expected of a Chartered Accountant to express his opinion on the t ruth and fairness of statements of
accounts after examining their authenticity with reference to information and explanations given to him. A
Chartered Accountant must determine the extent of information, which, should be obtained by him before he
expresses an opinion on the financial statements submitted to him for report.
The chartered accountant should not express an opinion before obtaining the required data and information.
The latter part of the clause enjoins that where due to inadequacy of information or data the report has to be
circumscribed to an extent that it would cease to be of any expression of a categorical opinion, the auditor
should clearly express his disclaimer in no uncertain terms.
7. 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 etc.”
For manner of auditor’s reporting in such situations, reference may be made to SA 705(Revised),
“Modifications to the Opinion in the Independent Auditor’s Report”.
Some of the decisions of the DC/Courts on this subject are briefly presented below:
A Chartered Accountant without examination of stock register and other relevant matters issued a wrong
consumption certificate on the basis of which licence of higher value, for which the unit was not entitled, was
issued by Controller of Imports & Exports. The examination done by the Chartered Accountant was so restricted
that he could not have obtained the information necessary to warrant the expression of an opinion regarding
consumption of raw material and components. Held the chartered accountant was guilty of professional
misconduct under Clause (8). [T.S. Vaidyanatha lyer (1977)]
Where a Chartered Accountant issued a certificate of circulation of a periodical without going into the most
elementary details of how the circulation of a periodical was being maintained i.e. by not looking into the
financial records, bank statements or bank pass books, by not examining evidence of actual payment of
printers bills and by not caring to ascertain how many copies were sold and paid for. Held he was guilty under
Clause (8). [Registrar of Newspapers for India vs K. Rajinder Singh (1971)]
“a certificate is a written confirmation of the accuracy of the facts stated therein and does not involve
any estimate or opinion.” A Chartered Accountant is required to clearly state his limitations/assumptions
in his certificates, while in the said matter, the Respondent in none of the 12 certificates either mentioned
his limitation or assumptions. Though, in his written statements he submitted that his job was not to
verify the assets physically or verification of original bills or whether promoters contribution have come
in actually in the Bank account etc. If his assignment did not include the same, he ought to have
disclosed or mentioned in the certificates that while issuing the certificate he had relied upon the
following documents, so as not to mislead the users of the said certificate(s). In the instant matter, the
Respondent did not disclose any assumptions/limitations whatsoever while issuing the certificates. Moreover,
the Respondent in none of the certificates issued by him had mentioned the basis/papers relied upon by
him. Consequently, the same misled the IDBI Bank in approving the loan based on such certificates
which did not mention the basis of issuance.
The Respondent while issuing the Certificates ought to have exercised diligence but he failed to do so.
Accordingly, the Committee is of the view that the Respondent was grossly negligent in conduct of his
professional duties and also failed to obtain sufficient information while issuing the aforestated
certificates. Thus, he was guilty under clause (7) and (8). [Shri R. Hitendra vs. Prakash Ram
Chandran(2012)]

The Committee noted that since the transaction of land took place between the Shivdarshan Firm i.e., a
partnership firm and Siddheshwari Developers, the same should have been reflected in the books of
Shivdarshan Firm and not in the books of Shivdarshan Construction which was a proprietary concern. The
Respondent being the auditor of Shivdarshan Construction failed to report the said
discrepancy in his audit report. Since, the amount of loan was material and the Respondent failed to submit
any evidence based on which he had chosen not to qualify the appearance of housing loan from Navsarjan
Industrial Co. Op. Bank Ltd in the financial statements, hence, the Committee is of the view that the
Respondent is guilty of professional misconduct falling within the m eaning of Clauses (6), (7) and (8) of Part I of
the Second Schedule to the Chartered Accountants Act, 1949 [Shri Mukesh M. Kelawala vs. CA.
Sukhdev Manilal Soni (2013)]
Where the Respondent had failed to report on the Bank Account which was opened by the c lient in the
capacity as a proprietor which included lot of variations, i.e., Account Number was different and the capacity in
which Account was opened was also different. As a Professional, the Respondent ought to have copies of
Bank Account which could easily establish the fact that the Bank Account was opened and operated
proprietary name but he could not do that. Hence, it was observed that the Respondent was not only negligent
in his duties in respect of auditing of bank transactions but also, failed to obtain sufficient information for
expressing an opinion. The Respondent was held guilty of professional misconduct falling within the meaning
of Clauses (7) & (8) of Part I of the Second Schedule to the Chartered Accountants Act 1949. [P. Arun vs. N.
Raja Ganesh, (2014)]

Illustration 32
Z, a practicing Chartered Accountant issued a certificate of circulation of a periodical without going into
the most elementary details of how the circulation of a periodical was being maintained
i.e. by not looking into the financial records, bank statements or bank pass books, by not examining
evidence of actual payment of printer’s bills and by not caring to ascertain how many copies were sold
and paid for.
Failure to Obtain Information: Clause (8) of Part I of Second Schedule to the Chartered Accountants
Act, 1949 states that if a Chartered Accountant in practice fails to obtain sufficient information to warrant
the expression of an opinion or his exceptions are sufficient material to negate the expression of an
opinion, the chartered accountant shall be deemed to be guilty of a professional misconduct.
In the instant case Mr. Z, a practicing Chartered Accountant issued a certificate of circulation of a
periodical without going into the most elementary details of how the circulation of a periodical was being
maintained i.e., by not looking into the financial records, bank statements or bank pass books, by not examining
evidence of actual payment of printer’s bills and by not caring to ascertain how many copies were sold and
paid for.
The chartered accountant should not express his opinion before obtaining the required data and information. As
an auditor, Mr. Z ought to have verified the basic records to ensure the correctness of circulation figures.
Conclusion: Thus, in the present case Mr. Z will be held guilty of professional misconduct as per Clause (8) of
Part I of Second Schedule to the Chartered Accountants Act, 1949.
Clause (9) Fails to invite attention to any material departure from the generally accepted
procedure of audit applicable to the circumstances.
This clause implies that the audit should be performed in accordance with “generally accepted procedure of
audit applicable to the circumstances” and if for any reason the auditor has not been able to perform the audit in
accordance with such procedure, his report should draw attention to the material departures from such procedures.
What constitutes “generally accepted audit procedure” would depend upon the facts and circumstances of
each case, but guidance is available in general terms from the various pronouncements of the Institute is issued by
way of Engagement and Quality Control Standards, Statements, General Clarifications, Guidance Notes Technical
Guides, Pract ice Manuals, Studies and Other Papers. (ref.)
Audit of Listed Companies : Pursuant to SEBI Notification, Statutory Audit of Listed
Companies under the Companies Act, 2013 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.
Unique Document Identification Number (UDIN) : The members may note that UDIN is
mandatory from 1st July, 2019 on all Corporate/ Non- Corporate Audit, Attest and Assurance
Functions. Thus, 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 undertaken/signed by him.
An auditor of a company is appointed by the shareholders to perform certain statutory functions and duties and it is
expected of him that he will in fact, perform these functions and duties. The failure to perform a statutory duty in
the manner required is not excused merely by giving a qualification or reservation in auditor’s report.

8. For example, if an auditor fails to verify the cash balance in circumstances where such
verification was necessary, feasible and material, it is not sufficient for him merely to state
in his report that he did not verify the cash balance in circumstances
when giving any reservations or qualifications in the auditor’s report as required under this clause, a
member would be well advised to indicate clearly the reasons why he was unable to perform the audit in
accordance with generally accepted procedures and standards.

It is not possible to exhaustively deal with instances or accepted procedure of audit applicable to special
cases. Two instances of an audit requiring a special procedure are given below:
Certifying figures of circulation of Newspapers etc. : Very often members are required to certify the
figures of circulation of newspapers, magazines etc. by their clients on behalf of the Audit Bureau of
Circulations Ltd. Members are normally supplied by the ABC with the Rules and Regulations under which the
certification of circulation is to be carried out. Members are also asked to give their
acceptance in writing that they will observe the rules of procedure envisaged to report upon any lapse of such
special requirements, even of an insignificant nature.
Verification on behalf of Banks: Similarly, in the case of verification on behalf of banks, the rules or
procedure for conducting such audit are different from the normal rules applicable to audits under the
Companies Act. Members are required to be very familiar with the special procedure required in these
matters and act accordingly.
Some of the decisions of the DC/Courts on this subject are briefly summarised below:
Where a Chartered Accountant did not conduct sample checking of the bank accounts in relation to the
accounts of the company and did not carry out vouching with respect to the transactions reflected in the
accounts of the company and depended upon his assistant who was a Chartered Accountant and experienced
clerk who were entrusted with the auditing work. Held he was guilty under Clauses (7), (8) and (9). [M.R.
Ramanathan vs A. Utnatlath Rao (1968)]
Where a Chartered Accountant failed to verify the actual disbursement of the amount by examining the
various items of purchases and insisting for the bills to be produced in respect of the various items before
issuing his certificate as mere payment would not constitute uti lization of the amount for the purpose for
which it was meant. Held he was guilty under Clauses (7), (8) and (9). [Punjab State Govt. vs K.N.
Chandla (1972)]
A Chartered Accountant had checked the cash book totals but not the bank column totals, had verified all the
transactions in the bank columns but not the contra-entries, had taken the casting only of personal ledger and
that too not of all accounts, had resorted to test check when there was no system of internal check, had not seen
the pay-in-slips, had not checked the bank reconciliation statements for all the months. Held he was guilty of
professional misconduct under Clauses (7), (8) and (9). [Air Commodore Dilbagh Singh vs E.S.
Venkataraman (1976)]
Where the form of the certificate prescribed by the Audit Bureau of circulation Ltd., did not permit any
alteration or explanation being given in the certificate itself, the Chartered Accountant had recorded, in a
separate report the true state of affairs which he had found. Except making a report which explained the
correct position he had no authority to indicate in the certificate itself the true position. But the separate report
which he had sent along with the “Income Certificate” to the Newspaper concerned had not been forwarded by
the newspaper to the Bureau. It was only later on that the ABC introduced a change in the procedure of audit
by permitting a report being sent along with the “Income Certificate” in the various columns were subject to his
separate report. Held he was guilty under Clauses (7) and (9). [Audit Bureau of Circulations Ltd. v.s. M.L.
Nanda (1968)]
Where a Chartered Accountant as a concurrent auditor of the Bank carried out his duties recklessly, did not
exercise due diligence, failed to obtain sufficient information and failed to invite attention to the material
departure from the accounting policies. Accordingly, the Committee is of the considered view that the
Respondent is guilty of professional misconduct falling within the 10 meaning of Clauses (7), (8) and (9) of
[Part I of Second Schedule to the Chartered Accountants Act [Tamilnadu Mercantile Bank Ltd.vs.CA. V.U.
Gangolli (2012)].
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.
In the course of his engagement as a professional accountant, a member may be entrusted with moneys
belonging to his client. If he should receive such funds, it would be his duty to deposit them in a separate
banking account, and to utilize such funds only in accordance wi th the instructions of the client or for the
purposes intended by the client. In this connection the Council has considered some practical difficulties of the
members and the following suggestions have been made to remove these difficulties:
(i) An advance received by a Chartered Accountant against services to be rendered does not fall under
Clause (10) of Part I of the Second Schedule.
(ii) Moneys received for expenses to be incurred, for example, payment of prescribed statutory fees,
purchase of stamp paper etc., which are intended to be spent within a reasonably short time need not be
put in a separate bank account. For this purpose, the expression; “reasonably short time”, would
depend upon the circumstances of each case.
(iii) Moneys received for expenses to be incurred which are not intended to be spent within a reasonably
short time as aforesaid, should be put in a separate bank account immediately.
(iv) Moneys received by a Chartered Accountant, in his capacity as trustee, executor liquidator, etc. must
be put in a separate bank account immediately.
The decision of the Court in this matter is briefly mentioned below:
A Chartered Accountant was found guilty of professional misconduct under Clauses (7) & (10) of Part I of the
Second Schedule to the Act for having failed to account satisfactorily for the various amounts entrusted to him
by the client and for failure to keep them in a separate bank account. A refund voucher issued in the name of
the client by the Income Tax Department was credited by hi m to his account in the bank. (N.S. Chenoy v.s.
K.V. Subba Rao - page 958 of Vol. IV of the Disciplinary Cases and pages 207-214 of October, 1973,
issue of the Institute’s Journal - Judgement delivered on 6th April, 1973)
A Member while working as a financial advisor misappropriated the funds of his client by way of converting
a Savings Bank account in his individual name to that of joint account with the client without his consent and
fraudulently discharged 3 FDRs in the client’s name. The Council held him guilty under Clause (10) of Part I
of the Second Schedule and “Other Misconduct” under Section 22 read with Section 21, which was accepted by
the High court. (Tara Pada Banerjee, Dy. General Manager, Bank of Baroda vs. B.K. Sarker,
2006)

Illustration 33
A charitable institution entrusted ` 10 lakhs with its auditors M/s Ram and Co., a Chartered
Accountant firm, to invest in a specified securities. The auditors pending investment of the money,
deposited it in their Savings bank account and no investment was made in the next three months.
 Failure to Keep Money in Separate Bank Account: If a Chartered Accountant in practice fails to
keep moneys of his clients in a separate bank account or fails to use such moneys for purposes for which they
are intended then his action would amount to professional misconduct under Clause
(10) of Part I of Second Schedule to the Chartered Accountants Act, 1949. In the course of his engagement
as a professional accountant, a member may be entrusted with moneys belonging to his client. If he
should receive such funds, it would be his duty to deposit them in a separate banking account, and to utilise
such funds only in accordance with the instructions of the client or for the purposes intended by the
client.
Conclusion: In the given case by depositing the client’s money by M/s Ram and Co., a firm of Chartered
Accountants, in their own savings bank account, the auditors have committed a professional misconduct.
Hence in the given case, M/s Ram & Co. will be held guilty of professional misconduct.

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.
This clause is very important. It requires every member of the Institute to act within the framework of the
Chartered Accountants Act and the Regulations and Guidelines made by Council thereunder. Any violation either
of these Guidelines or the Act or the Regulations by a member would amount to misconduct under this part.
The Regulations under which cases of contravention have generally come to the notice of the Council are the
following:
Regulation 43 Engagement of Articled Assistant
Regulation 46 Registration of Articled Assistant
Regulation 47 Premium from Articled Assistant
Regulation 48 Stipend to Articled Assistant Regulation
56 Termination or assignment of Articles
Regulation 65 Articled Assistant not to engage in any other occupation
Regulation 67 Complaint against the employer (from Articled Assistant)
Regulation 68 to 80 Audit Assistant
Regulation 190 Register of offices and firms
Regulation 190-A Chartered Accountants not to engage in any other business or occupation Regulation 191
Part time employment's a Chartered Accountant may accept
Regulation 192 Restriction on fees
Some of the decisions of the Courts under this clause are mentioned below:

A Chartered Accountant certified in Form K-2 that an audit clerk was in service with him while he was
also, employed elsewhere with another employer between 11 A.M. and 5 P.M. and attended the office of
the Chartered Accountant thereafter until 8 P.M. The Chartered Accountant suspended the audit clerk
when the Institute brought this fact to the notice of the Chartered Accountant. Held he was guilty of
misconduct for making a misstatement to the institute in regard to the discharge of his professional
duties. [J.K. Ghosh in (1953)]
Where a Chartered Accountant agreed to take a person as an articled clerk in a vacancy shortly to arise
and received the premium for the purpose and made him believe, when he executed the deed of articles
that he was taking him in that vacancy, while, in fact, that vacancy had been filled up by the Chartered
Accountant earlier by taking another audit clerk. The audit clerk came to know from the Institute that the
deed of articles was not registered as that was forwarded with a request for entertaining an extra articled
clerk. Held that the Chartered Accountant was guilty of serious misconduct for having contravened
Regulation 58. [A.K. Basu v.s. P.K. Mukherjee (1956)]

Where a Chartered Accountant after signing the Articles of Agreement, failed to forward the articles for
registration as required by Regulation 64 and the statement of particulars in the prescribed form as
required by Regulation 64 in spite of repeated enquiries from the articled clerk and even failed to take
notice of communications addressed to him in that behalf and having two other articled clerks along with
the present one who articles were not sent for registration took up a fourth articled clerk without being
entitled to do so. Held he was guilty for breach of Regulation 46. [Mohan Sehwani vs. Sunderlal
Fatehpuria (1968)]
A Chartered Accountant was found guilty of professional misconduct in terms of Clause (1) of Part II of
the Second Schedule to the Act for contravention of Section 6 of the Act for having issued a certificate in
respect of a consumption statement of a concern as a Chartered Accountant in practice on a date when
he had not even applied for a certificate of practice to the Institute. [N.K. Ray Chowdhery in
(1973)]
A Chartered Accountant issued a confidential and private circular to clients where, in addition to,
describing himself as “Chartered Accountant” he also described himself as “Investment Consultant
Public Accountant”. By this circular he introduced himself to the public and private limited companies,
which were accepting, fixed deposits and loans through him. Held he was guilty of professional
misconduct under Clause (1) of Part II of the Second Schedule. [B. M. Lala (1976)]

A Chartered Accountant took loan from a firm in which the articled clerk and his fath er were both
Interested, against the provisions of the Chartered Accountants Regulations, 1988 which prohibit ‘taking
of loan or deposit etc. from the articled clerk. ’ Held the Chartered Accountant was guilty of
professional misconduct under the clause. [M.K. Tripathi (1979)]
 A Chartered Accountant did not pay stipend to his articled clerk, in accordance with Regulation 48 of the
Chartered Accountants Regulations 1988, while to another articled clerk, he was paying every month.
The stipend was paid only after the articled clerk left him after working for a months and complaint
was lodged with the Institute. The plea of the Chartered Accountant that he had an agreement with the
articled clerk to pay stipend on annual basis was found to be misconceived as the same should be against the
provisions of Regulation 48. [Radhey Mohan (1979)]

Where the Respondent had accepted audit while the amount of undisputed audit fee of Rs.38,606/- was
not paid to the Complainant till date of signing of report. As per Council Guidelines No.1-CA(7)/02/2008,
dated 8th August, 2008, “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, 1956 or various other statutes had not been paid.” Thus, the
Respondent was expected not to accept the Audit of the Company till the outstanding audit fees was
cleared by the Company. Hence, the Respondent was held guilty of professional misconduct falling within the
meaning of Clause (1) of Part-II of Second Schedule to the Chartered Accountants Act, 1949. [Shyam
Lal Gupta vs. Manoj Bansal, (2014)]

A Chartered Accountant had conducted 468 Tax Audits U/s 44AB of the Income Tax Act i.e. more than
the limit prescribed by the Council of the ICAI (Guidelines No. 1 – CA (7)/02/2008, dated 8th August,
2008, “Tax Audit Assignments under Section 44AB of the I ncome Tax Act, 1961). The said Council
Guidelines state that a Member of the Institute in practice shall not accept, in a Financial Year, more than
the “specified number” of Tax Audit Assignments under Section 44AB of the Income Tax Act 1961. The
Respondent was held guilty of professional misconduct falling within the meaning of Clause (1) of Part
II of the Second Schedule to the Chartered Accountants Act, 1949. [Harsh Jain & others vs.
Radhakanta Das, (2016)]
The Respondent had signed the Balance Sheet, Profit & Loss Account and Audit Report for the Financial Year
2009-10 of the Firm without holding the Certificate of Practice (COP). The provision of Section 6 (1) of
Chartered Accountants Act, 1949 states that “no member of the Institute shall be entitled to practice
(whether in India or elsewhere) unless he had obtained from the Council a Certificate of Practice”. Thus,
the Respondent had clearly violated the provisions of the Act and was prima facie guilty as admitted by
him.Held guilty of professional misconduct falling within the meaning of Clause (1) Part II of the
Second Schedule to the
Chartered Accountants Act, 1949. [Sunil Grover, (2018)]
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.
This is an adaptation of the well-accepted principle of the law of agency. A member in the forthcoming
circumstance would be guilty of misconduct regardless of the fact that he was in whole time or part-time
employment or that he was carrying on practice of accountancy along with his
employment. Since as employee, a member may have access to a confidential information, hence for
maintaining the status and dignity of the profession in general, he should treat such information as having
been provided to him only to facilitate the performance of his duties as an employee. In order to keep the
confidence of the people, Chartered Accountants, should take special care not to divulge such information.
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.
If a Chartered Accountant includes in any information, statement, return or form to be submitted to the
Institute Council etc. any particular knowing it to be false, he will be held guilty of misconduct. Where a
Chartered Accountant who was employed as a manager of a firm of Registered Accountants, applied for
admission as Fellow of the Institute stating that he was a partner, while he was not. Held that the Chartered
Accountant was guilty of misconduct as he had made the statement that he was a partner knowing it to be
false. [J.R. Chatrath, (1952)]
A Member had during the course of the hearing before Disciplinary Committee given a wrong statement duly
verified and also a statement on oath knowing it to be false. He was found guilty in terms of this clause.
[K.S. Dugar, (1987)]
In spite of repeated reminders a Chartered Accountant failed to reply to the letters of the Institute asking him
to confirm the date of leaving the services by the Paid Assistant. Held, the Chartered Accountant was guilty
of professional misconduct under the Clause. [A. Umanath Rao, [1965)]
A Chartered Accountant had been in full-time employment in a Company besides holding Certificate of
Practice without obtaining Institute’s permission and in the bank empanelment form, he had given declaration to the
effect that he was not devoting any time to any occupation/vocation/business etc. other than the profession of
Chartered Accountants. He was held guilty for violation of Clause (11) of Part I and Clause (1) of Part III of
the First Schedule. The Council ordered that his name be removed from the Register of Members for a period
of six months. (N.K. Gupta, (1998)]
A Chartered Accountant, in spite of his being in employment as Manager (F&A) with a Company from 9 A.M.
to 2 P.M. and devoting 30 hours per week in the said employment, had shown his main occupation to be in full-
time practice, in the Employment Form for bank branch audits. He was held guilty for violation of Clause (1)
of Part III of the First Schedule for not giving the full particulars truthfully in his application. (H.K. Gupta,
(1999)]
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.
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.

9 COUNCIL GUIDELINES
The relevant extracts of the Council General Guidelines, 2008 (issued under Clause (1) of Part-II
of Second Schedule to The Chartered Accountants Act, 1949) are given below:
Chapter I
Preliminary
1.1 Short title, commencement, etc.
(a) These Guidelines have been issued by the Council of the Institute of Chartered Accountants of
India under the provisions of The Chartered Accountants Act, 1949, as amended by The Chartered
Accountants (Amendment) Act 2006, These Guidelines be called the ‘Council General
Guidelines, 2008’.
(b) These guidelines shall be applicable to all the Members of the Institute whether in practice or
not wherever the context so requires.
Chapter II
Conduct 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
This Chapter is being omitted.
Chapter IV
Opinion on financial statements when there is substantial interest
This Chapter is being 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.

Illustration 34
L, a chartered accountant did not maintain books of account for his professional earnings on the ground
that his income is less than the limits prescribed u/s 44AA of the Income Tax Act, 1961.
Maintenance of Books of Account: As per the Council General Guidelines 2008, under Chapter 5 on
maintenance of books of accounts, it is specified that if a chartered accountant in practice or the firm of
Chartered Accountants of which he is a partner fails to maintain and keep in respect of his/its professional
practice, proper books of account including the Cash Book and Ledger, he is deemed to be guilty of
professional misconduct. Accordingly, it does not matter whether section 44AA of the Income Tax Act, 1961
applies or not.
Conclusion: Hence, Mr. L is guilty of professional misconduct.

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 the “specified
number of tax audit assignments” under Section 44AB of the Income-tax Act, 1961.
Provided that in the case of a firm of Chartered Accountants in practice, the “specified number of tax audit
assignments” shall be construed as the specified number of tax audit assignments for every partner of the firm.
Provided further that where any partner of the firm is also a partner of any other firm or firms of Chartered
Accountants in practice, the number of tax audit assignments which may be taken for all the firms together
in relation to such partner shall not exceed the “specified number of tax audit assignments” in the aggregate.
Provided further that where any partner of a firm of Chartered Accountants in practice accepts one or more
tax audit assignments in his individual capacity, the total number of such assignments which may be accepted
by him shall not exceed the “specified number of tax audit assignments” in the aggregate.
Provided also that the audits conducted under Section 44AD, 44ADA1 and 44AE of the Income
Tax Act, 1961 shall not be taken into account for the purpose of reckoning the “specified
number of tax audit assignments”.
Explanation:
For the above purpose, “the specified number of tax audit assignments” means -

1As inserted by the Council pursuant to decision at its 368th Meeting held on 10th to 12th Aug., 2017 (Section 44AF, earlier
appearing, was repealed).
(a) in the case of a Chartered Accountant in practice or a proprietary firm of Chartered Accountant,
**60 tax audit assignments, in a financial year, whether in respect of corporate or non-corporate
assesses.
(b) in the case of firm of Chartered Accountants in practice, **60 tax audit assignments per partner in the
firm, in a financial year, whether in respect of corporate or non-corporate assesses.
In computing the “specified number of tax audit assignments” each year’s audit would be taken as
According to a clarification on Tax Audit Assignments by Committee on Ethical Standards Board) of
the Institute, if there are 10 partners in a firm of Chartered Accountants in practice, then all the
partners of the firm can collectively sign 600 tax audit reports. This maximum limit of 600 tax
audit assignments may be distributed between the partners in any manner whatsoever. For instance,
1 partner can individually sign 600 tax audit reports in case remaining 9 partners are not signing
any tax audit report.
a separate assignment.
In computing the “specified number of tax audit assignments”, the number of such assignments, which he or
any partner of his firm has accepted whether singly or in combination with any other Chartered Accountant in
practice or firm of such Chartered Accountants, shall be taken into account.
The audit of the head office and branch offices of a concern shall be regarded as one tax audit assignment.
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.
A Chartered Accountant being a part time practicing partner of a firm shall not be taken into account for the
purpose of reckoning the tax audit assignments of the firm.
A Chartered Accountant in practice shall maintain a record of the tax audit assignments accepted by him in
each assessment year in the format as may be prescribed by the Council.
The limit on number of tax audit assignments per partner in a CA Firm may be distributed
between the partners in any manner whatsoever. However, it should be in accordance with
the Standard on Quality Control (SQC) 1: Quality Control for Firms that Perform Audits and
Reviews of Historical Financial Information, and Other Assurance and Related Services
Engagements.

Illustration 35
A member of the institute shall not accept in a year more than the specified number of tax audits under
section 44AB of the Income Tax Act.
 Mr. Gaurav is a partner in M/s. XYZ & Co., a firm of Chartered Accountants with 6 partners.
During the assessment year 2020-21, Mr. Gaurav alone had signed 290 tax audit reports consisting of
both corporate and non-corporate assesses.
Ceiling limit for signing the Tax Audit Reports: As per Council General Guidelines 2008, a
member of the Institute in practice shall not accept, in a financial year, more than the “specified number of tax
audit assignments” under Section 44AB of the Income-tax Act, 1961. It is also provided further that
where any partner of a firm of Chartered Accountants in practice accepts one or more tax audit
assignments in his individual capacity, the total number of such assignments which may be accepted by
him shall not exceed the “specified number of tax audit assignments” in the aggregate.
In the case of firm of Chartered Accountants in practice “the specified number of tax audit assignments”
means, 60 tax audit assignments per partner in the firm, in a financial year, whether in respect of
corporate or non-corporate assesses.
Further, as per clarification issued by the Institute on Tax Audit Assignments, tax audit reports may be
signed by the partners in any manner whosoever in accordance with specified audit limits. Thus, one
partner can individually sign all the tax audit reports subject to specified tax audit assignment limits on
behalf of all the partners in the firm of Chartered Accountants in practice or all the partners of the firm
can collectively sign the tax audit reports.
In the instant case, there are 6 partners in M/s XYZ & Co., a Chartered Accountants firm, accordingly
specified ceiling limit for the firm will be (60 tax audit assignments per partner X 6 partners) = 360.
Therefore, all the 6 partners of the firm can collectively sign 360 tax audit reports. This maximum limit
of 360 tax audit assignments may be distributed between the partners in any manner whatsoever. For
instance, 1 partner can individually sign 360 tax audit reports in case remaining 5 partners are not
signing any tax audit report.
Assuming Mr. Gaurav has signed 290 tax audit reports consisting of both corporate and non- corporate
assesse on behalf of firm and remaining partners are signing audit reports within the specified number of tax
audit assignments u/s 44AB i.e. upto 70.
Conclusion: Hence, Mr. Gaurav shall not be deemed to guilty of professional misconduct provided
total number of tax audit reports on behalf of firm do not exceeds 360.

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.
Explanation 1: For this purpose, the provision for audit fee in accounts signed by both - the auditee and the
auditor along with other expenses, if any, incurred by the auditor in connection with the
audit, shall be considered as “undisputed audit fees”.
Explanation 2: 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.

Illustration 36
Mr. C accepted the statutory audit of M/s PSU Ltd., whose net worth is negative for the year 2019-20. The
audit was to be conducted for the year 2020-21. The audited accounts for the year 2020-21 showed liability for
payment of tax audit fees of ` 15,000 in favour of Mr. E, the previous auditor.

Accepting Appointment as an Auditor: As per Chapter 7 of Council General Guidelines 2008, a

member of the Institute of Chartered Accountants of India in practice shall be deemed to be guilty of
professional misconduct if he accepts appointment as auditor of an entity in case the undisputed audit fee
of another chartered accountant for carrying out the statutory audit under Companies Act or various
other statutes has not been paid.
As per the proviso, such prohibition shall not apply in case of a sick unit where a sick unit is
defined to mean “where the net worth is negative”.
Conclusion: In the instant case, though the undisputed fees are unpaid, Mr. C would still not be
guilty of professional misconduct since the M/s PSU Ltd. is a sick unit having negative net worth for the
year 2019-20.

Chapter VIII
Specified number of audit assignments
A member of the Institute in practice shall not hold at any time appointment of more than
the “specified number of audit assignments” of Companies under Section 141 of the
Companies Act 2013.
Provided that in the case of a firm of Chartered Accountants in practice, the “specified number of audit
assignments” shall be construed as the specific number of audit assignments for every partner of the firm.
Provided further that where any partner of the firm of Chartered Accountants in practice is also a partner of
any other firm or firms of Chartered Accountants in practice, the number of audit assignments which may be
taken for all the firms together in relation to such partner shall not exceed the “specified number of audit
assignments” in the aggregate.
Provided further where any partner of a firm or firms of Chartered Accountants in practice accepts one or
more audit of Companies in his individual capacity, or in the name of his proprietary firm, the total number of
such assignments which may be accepted by all firms in relation to such Chartered
Accountant and by him shall not exceed the “specified number of audit assignments” in the aggregate.
Explanation:
1. For the above purpose, the “specified number of audit assignments” means –
(a) in the case of a Chartered Accountant in practice or a proprietary firm of
Chartered Accountant, 30 audit assignments whether in respect of private
Companies or other Companies, with the exception of one person Companies
and dormant companies.
(b) in the case of Chartered Accountants in practice, 30 audit assignments per
partner in the firm, whether in respect of private Companies or other Companies,
with the exception of One person Companies and dormant companies2.
2. In computing the “specified number of audit assignments”-
(a) the number of audit of such Companies, which he or any partner of his firm has accepted
whether singly or in combination with any other Chartered Accountant in practice or firm of
such Chartered Accountants, shall be taken into account.
(b) the audit of the head office and branch offices of a Company by one Chartered Accountant or
firm of such Chartered Accountants in practice shall be regarded as one audit assignment.
(c) the audit of one or more branches of the same Company by one Chartered Accountant in
practice or by firm of Chartered Accountants in practice in which he is a partner shall be
construed as one audit assignment only.
(d) the number of partners of a firm on the date of acceptance of audit assignment shall be taken
into account.
A Chartered Accountant in practice, whether in full-time or part time employment elsewhere, shall not be
counted for the purpose of determination of “specified number of audit of Companies” by firms of Chartered
Accountants.
A Chartered Accountant being a part time practicing partner of a firm shall not be taken into account for the
purpose of reckoning the audit assignments of the firm.
A Chartered Accountant in practice as well as firm of Chartered Accountants in practice shall maintain a
record of the audit assignments accepted by him or by the firm of Chartered Accountants, or by any of the
partners of the firm in his individual name or as a partner of any other firm, as far as possible in the
prescribed format.

2 As incorporated pursuant to decision of Council at its 388th Meeting held on 6th and 7th Feb., 2020.
 Chapter IX
Appointment as Statutory auditor
A member of the Institute in practice shall not accept the appointment as statutory auditor of Public Sector
Undertaking(s)/ Government Company(ies)/Listed Company(ies) and other Public Company(ies) having
turnover of ` 50 crores or more in a year where he accepts any other work(s) or assignment(s) or service(s)
in regard to the same Undertaking(s)/ Company(ies) on a remuneration which in total exceeds the fee payable for
carrying out the statutory audit of the same Undertaking/company.
Provided that in case appointing authority(ies)/regulatory body(ies) specify(ies) more stringent
condition(s)/restriction(s), the same shall apply instead of the conditions/restrictions specified under these
Guidelines.
The above restrictions shall apply in respect of fees for other work(s) or service(s) or assignment(s) payable to the
statutory auditors and their associate concern(s) put together.

For the above purpose,

(i) the term “other work(s)” or “service(s)” or “assignment(s)” shall include Management Consultancy
and all other professional services permitted by the Council pursuant to Section 2(2)(iv) of the
Chartered Accountants Act, 1949 but shall not include:-
(a) audit under any other statute;
(b) certification work required to be done by the statutory auditors; and
(c) any representation before an authority;
(ii) the term “associate concern” means any corporate body or partnership firm which renders the
Management Consultancy and all other professional services permitted by the Council wherein the
proprietor and/or partner(s) of the statutory auditor firm and/or their “relative(s)” is/are Director/s or
partner/s and/or jointly or severally hold “substantial interest” in the said
corporate body or partnership;
(iii) the terms “relative” and “substantial interest” shall have the same meaning as are assigned
thereto under Appendix (9) to the Chartered Accountants Regulations, 1988.

In regard to taking up other work(s) or service(s) or assignment(s) of the undertaking/company referred to

above, it shall be open to such associate concern or corporate body to render such work(s) or service(s) or
assignment(s) so long as aggregate remuneration for such other work(s) or service(s) or assignment(s) payable to
the statutory auditor/s together with fees payable to its associate concern(s) or corporate body(ies) do/does not
exceed the aggregate of fee payable for carrying out the statutory audit.
 Illustration 37
A is the auditor of Z Ltd., which has a turnover of ` 200 crore. The audit fee for the year is fixed at ` 50
lakhs. During the year, the company offers A an assignment of management consultancy within the meaning of
Section 2(2)(iv) of the CA Act, 1949 for a remuneration of ` 1 crore. A seeks your advice on accepting
the assignment.
Appointment as a Statutory Auditor of a PSUs’/Govt Company(ies)/Listed Company(ies)
and Other Public Company(ies): As per the Council General Guidelines 2008, under Chapter IX on
appointment as statutory auditor 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 undertaking( s) on a remuneration which in total exceeds the fee payable for
carrying out the statutory audit of the same undertaking. For this purpose, the other work/services include
Management Consultancy and all other professional services 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.
Conclusion: In view of the above position it would be a misconduct on A’s part if he accepts the
management consultancy assignment for a fee of ` 1 crore.

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 ` 100,000/-.

Illustration 38
D, who conducts the tax audit u/s 44AB of the Income Tax Act, 1961 of M/s ABC, a partnership firm, has
received the audit fees of ` 2,50,000 on progressive basis in respect of the tax audit for the year
ended 31.3.2020. The audit report was, however, signed on 25.5.2020.
Entire Audit Fees Received in Advance: As per Chapter X of Council General Guidelines, 2008 a
member of the Institute in practice or a partner of a firm in practice or a firm 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/-.
However, the Research Committee of the ICAI has expressed the opinion that where in accordance with
the terms of engagement of auditor by a client, the auditor recovers his fees on
 a progressive basis as and when a part of the work is done without waiting for the completion of the whole
job, he cannot be said to be indebted to the company at any stage.
Conclusion: In the instant case, Mr. D is appointed to conduct a tax audit u/s 44AB of the Income Tax
Act, 1961. He has received the audit fees of ` 2,50,000 in respect of the tax audit for the year ended
31.3.2020 which is on progressive basis. Therefore, Mr. D will not be held guilty for misconduct.

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
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.
Chapter XIV
Unique Document Identification Number (UDIN) Guidelines
Whereas, to curb the malpractice of false certification/attestation by the unauthorized
persons & to eradicate the practice of bogus certificates and to save various regulators,
banks, stakeholders etc. from being misled, the Council of the Institute decided to implement
an innovative concept to generate Unique Document Identification Number (UDIN)
mandatorily for all kinds of the certificates/GST and Tax Audit Reports and other attest
function in phased manner, for which members of the ICAI were notified through the various
announcements published on the website of ICAI www.icai.org at the relevant times.
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 undertaken/signed by him which made mandatory from the
following dates through announcements published on the website of the ICAI www.icai.org
at the relevant time: -
• 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
Concept : To enhance their ability to provide professional services, firms frequently form
larger structures with other firms and entities. Whether these larger structures create a
network depends on the particular facts and circumstances and does not depend on whether
the firms and entities are legally separate and distinct.
For example, a larger structure may be aimed only at facilitating the referral of work, which
in itself does not meet the criteria necessary to constitute a network. Alternatively, a larger
structure might be such that it is aimed at co-operation and the firms share a common brand
name, a common system of quality control, or significant professional resources and
consequently is deemed to be a network.
The judgment as to whether the larger structure is a network shall be made in light of whether
a reasonable and informed third party would be likely to conclude, weighing all the specific
facts and circumstances, that the entities are associated in such a way that a network exists.
This judgment shall be applied consistently throughout the network.
Where the larger structure is aimed at co-operation and it is clearly aimed at profit or cost
sharing among the entities within the structure, it is deemed to be a network. However, 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. Further, an association
between a firm and an otherwise unrelated entity to jointly provide a service or develop a
product does not in itself create a network.
Where the larger structure is aimed at cooperation and the entities within the structure share
common ownership, control or management, it is deemed to be a network. This could be
achieved by contract or other means.
Where the larger structure is aimed at co-operation and the entities within the structure share
common quality control policies and procedures, it is deemed to be a network. For this
purpose, common quality control policies and procedures are those designed, implemented
and monitored across the larger structure.
Where the larger structure is aimed at co-operation and the entities within the structure share
a common business strategy, it is deemed to be a network. Sharing a common business
strategy involves an agreement by the entities to achieve common strategic objectives. 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.
Where the larger structure is aimed at co-operation and the entities within the structure share
the use of a common brand name, it is deemed to be a network. A common brand name
includes common initials or a common name. A firm is deemed to be using a common brand
name if it includes, for example, the common brand name as part of, or along with, its firm
name, when a partner of the firm signs an audit report.
Even though a firm does not belong to a network and does not use a common brand name as
part of its firm name, it may give the appearance that it belongs to a network if it makes
reference in its stationery or promotional materials to being a member of an association of
firms. Accordingly, if care is not taken in how a firm describes such memberships, a
perception may be created that the firm belongs to a network.
Where the larger structure is aimed at co-operation and the entities within the structure share
a significant part of professional resources, it is deemed to be a network. Professional
resources include:
 Common systems that enable firms to exchange information such as client data, billing
and time records;
 Partners and staff;
 Technical departments that consult on technical or industry specific issues,
transactions or events for assurance engagements;
 Audit methodology or audit manuals; and
 Training courses and facilities.
The determination of whether the professional resources shared are significant, and therefore
the firms are network firms, shall be made based on the relevant facts and circumstances.
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. The same applies to a common training endeavor. Where,
however, the shared resources involve the exchange of people or information, such as where
staff are drawn from a shared pool, or a common technical department is created within the
larger structure to provide participating firms with technical advice that the firms are required
to follow, a reasonable and informed third party is more likely to conclude that the shared
resources are significant.
Forms of the Network :

The different forms of Network can be as under:-

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.
A network can be constituted as a partnership firm subject to the condition that the total
number of partners does not exceed twenty.
 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.
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.
Network Firms shall consist of sole Practitioner/proprietor, partnership or any such entity
of professional accountants as may be permitted by the Act.
A firm is allowed to join only one network.
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). The names of the network may be as
mentioned in Appendix II.
2. Provisions of Regulation 190 of the Chartered Accountants Regulations, 1988 shall be
applicable to the name of Network. However, even if a name is approved and
subsequently it is found that the same is undesirable then, the said name may be
withdrawn at any time by the Institute. The Institute shall reject any undesirable name
and the provisions in respect of names of companies as prescribed in the Companies
Act, 1956 shall be applicable in spirit.
3. 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.
4. 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.
 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 retiring.
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.
5. The constituent member firms of a Network and the Network shall comply with all
the Ethical Standards prescribed by the Council from time to time.

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, from among the managing partners of the
member firms of the network and the terms and conditions under which it should
function. The minimum and maximum number of members of the Managing Committee
shall also be agreed upon.
(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
These clauses are illustrative.

9. Illustrative examples of names of Network: -

(a) If the Network is a Mutual Entity or Partnership Firm:
AB & Affiliates
(b) If the Network is a LLP:
AB Affiliates LLP
(c) If the Network is a Limited Company:
AB Affiliates P. Ltd/Limited

Chapter XVI
Logo Guidelines
The logo consists of letter ‘CA’ with a tick mark inside a rounded rectangle with white
background. The letters CA have been put in blue, the corporate colour which not only stands
out on the background but also denotes creativity, innovativeness, knowledge, integrity,
trust, truth, stability and depth. The upside down tick mark typically used by Chartered
Accountants, has been used to symbolize the wisdom and value of the professional. The
green colour in the tick mark signifies growth, prosperity, harmony and freshness.
Members are encouraged to use the new logo, as published here as it is. Do not change the
design and colours, including the white background. Refrain from rotating or tilting the logo.
The correct and incorrect usage of the logo is explained as under:
 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 and complies with the conditions(s) as specified by the
Council from time to time in this regard.
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.
The name of the Management Consultancy Company is required to be approved by the
Institute and such Company has to be registered with the Institute. The guidelines alongwith
the prescribed application forms for approval of name and registration, provisions of ethical
compliance and other details have been issued and the same will come into force w.e.f
1.10.2006.
On abundant caution, it may be clarified that no audit practice can be done in Corporate Form.
The consultancy practice hitherto done in Individual or Firm Status alone is now intended to
be permitted in Corporate Form also.
Ethical Compliance: (i) Once the Management Consultancy Company is Registered with the
Institute as per the Guidelines, it will be necessary for such a Company to comply with the
following requirements: -
(a) If the individual practitioner/sole-proprietorship firm/partnership firm is the statutory
auditor of an entity then the Management Consultancy Company should not accept the
internal audit or book-keeping or such other professional assignments, which are
prohibited for the statutory auditor firm.
(b) The Notification No. 1-CA(7)/60/2002 dated 8th March, 2002 (enclosed) in respect of
ceiling on Non-audit fees is applicable in relation to a Management Consultancy
Company.
(c) The Management Consultancy Company shall comply with clauses (6) & (7) of Part-I of
the First Schedule to the Chartered Accountants Act, 1949 and such other directives
as may be issued by the Institute from time to time.
(ii) The Management Consultancy Company shall give an undertaking that it shall comply
with clauses (6) & (7) of Part-I of the First Schedule to the Chartered Accountants Act, 1949
and such other directives as may be issued by the Institute from time to t ime.
Object of Management Consultancy Company: The Management Consultancy Company shall
engage itself only in Management Consultancy & Other Services. The Management
Consultancy Company shall give an undertaking that it shall render only Management
Consultancy & Other Services prescribed by the Council pursuant to powers under section 2 (2)
(iv) of the Chartered Accountants Act, 1949.
Note: Students are advised to refer Appendix ‘D’ of the Code for more details.

9.1 COUNCIL GUIDELINES FOR ADVERTISEMENT, 2008

1. Write up -
The Members may advertise through a write up setting out their particulars or of their
firms and services provided by them subject to the following Guidelines and must be
presented in such a manner as to maintain the profession’s good reputation, dignity
and its ability to serve the public interest.
The Member(s)/Firm(s) should ensure that the contents of the Write up are true to the
best of their knowledge and belief and are in conformity with these Guidelines and be
aware that the Institute of Chartered Accountants of India will neither approve a
propose write-up, nor owns any responsibility whatsoever for such contents or claims
by the writer Member(s)/ Firm(s).
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.
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
The Institute of Chartered Accountants of India may issue a reasoned directive for removal or withdrawal
of the whole write-up or of any part(s) thereof.
Advertisement through write-up
While advertising the services or details of Firms, the write-up may include only the following
information:
(A) For Members
(i) CA................Name
(ii) Membership No. with Institute
(iii) Age
(iv) Date of becoming ACA
(v) Date of becoming FCA
(vi) Date from which COP held
(vii) Recognized qualifications
(viii) Languages known
(ix) Telephone/Mobile/Fax No.
(x) Professional Address
(xi) Website
(xii) E-mail
(xiii) CA Logo
(xiv) Passport style3 photograph
(xv) Details of Employees (Nos. - )
(a) Chartered Accountants -
(b) Other Professionals –

3 As ameanded by Council at its 388th Meeting held on 6th and 7th Feb., 2020.
 (c) Articles/Audit Assistants
(d) Other Employees
(xvi) Names of the employees and their particulars on the lines allowed for a member as stated
above.
(xvii) Services provided
(a) ………………………………
(b) ………………………………
(c) ………………………………
(xviii) Position held as Director or Managing Director in a Management Consultancy Company
registered with the Institute4.
(B) For Firms
(i) Name of the Firm...................................Chartered Accountants
(ii) Firm Registration No. with Institute
(iii) Year of establishment.
(iv) Professional Address(s) registered with the Institute (both Head Office and Branches)
(v) Working Hours
(vi) Tel. No(s)/Mobile No./Fax No(s)
(vii) E-mail
(viii) No. of partners
(ix) Name of the proprietor/partners and their particulars on the lines allowed for a member as
stated above including passport style5 photograph.
(x) CA Logo
(xi) Details of Employees (Nos. - )
(a) Chartered Accountants -
(b) Other professionals –
(c) Articles/Audit Assistants
(d) Other employees
(xii) Names of the employees of the firm and their particulars on the lines allowed for a
member as stated above.
(xiii) Services provided:

4 As incorporated pursuant to decision of Council at its 388th Meeting held on 6th and 7th Feb., 2020.
5 As amended by Council at its 388th Meeting held on 6th and 7th Feb., 2020.
 (a) ……………………………….
(b) ………………………………
(c) ………………………………
(xiv) Affiliation with a Network registered with the Institute6
The write-up may have the Signature, Name of the Member/ Name of the Partner signing on behalf of the
firm, Place and Date.
2. Website of the CA Firms7
The Council has approved the detailed guidelines for posting the particulars on Website by Chartered
Accountant(s) in practice and firm(s) of Chartered Accountants in practice : -
1 The Chartered Accountants and/or Chartered Accountants’ Firms would be free to create
their own Website. The following stipulations will be applicable on such websites:-
2 The actual format of the Website is not being prescribed nor any standard format of the Website is
being given to provide independence to the Members.
3 The Chartered Accountants and/or Chartered Accountants’ Firms would ensure that their Websites are
run on a “pull” model and not a “push” model of the technology to ensure that any person who wishes
to locate the Chartered Accountants or Chartered Accountants’ firms would only have access to the
information and the information should be provided only on the basis of specific “pull” request.
4 The Chartered Accountants and/or Chartered Accountants’ Firms should ensure that none of the
information contained in the Website be circulated on their own or through E-mail or by any other
mode or technique except on a specific “pull” request.
5 The Chartered Accountants would also not issue any circular or any other advertisement or any other
material of any kind whatsoever by virtue of which they solicit people to visit their Website. The
Chartered Accountants would, however, be permitted to mention their Website address on their
professional stationery and email.
6 The following information may be allowed to be displayed on the Firms/Members’ Websites:
(i) Member/Trade/Firm name.
(ii) Year of establishment.
(iii) Member/Firm’s Address (both Head Office and Branches)
Tel. No(s)

6As incorporated pursuant to decision of Council at its 388th Meeting held on 6th and 7th Feb. 2020.
7As amended and included under Guidelines for Advertisement pursuant to decision of Council at its 388 th
Meeting held on 6th and 7th Feb., 2020.
 Fax No(s) E-
mail ID(s)
(iv) Nature of services rendered (to be displayable only on specific “pull” request)
(v) Partners

Partners Year of Other Tel.. Area of

Name Qualification Qualification(s) Off.- Direct Experience (to
Res. Mobile be
E-mail address displayable
only on
specific “pull”
request)

(vi) Details of Employees -

Professional Others Name Designation Area of experience (to be

displayable only on specific
“pull” request)

(vii) Job vacancies for the Chartered Accountant/firm of Chartered Accountants (including articleship).
(viii) No. of articled assistants. (to be displayable only on specific “pull” request).
(ix) Nature of assignments handled (to be displayable only on specific “pull” request). Names of
clients and fee charged cannot be given. While the mention of names of clients is not
permissible, members may take note of the following with regard to website of the Firm:-
Note: Disclosure of names of clients and/or fees charged, on the website is permissible only where
it is required by a regulator, whether or not constituted under a statute, in India or outside India,
provided that such disclosure is only to the extent of requirement of the regulator and is made only till
such period that the member works under the purview of such Regulator/ such requirements of the
Regulator are in force. Where such disclosure of names of clients and/or fees charged is made on the
website, the member/ firm shall ensure that it is mentioned on the website [in italics], below such
disclosure itself, that “This disclosure is in terms of the requirement of [name of the regulator]
having jurisdiction in [name of the country/ area where such regulator has jurisdiction] vide [Rule/
Directive etc. under which the disclosure is required by the Regulator].
7 Display of Passport style photograph is permitted.
8 The members may include articles, professional information, bulletin boards, professional
 updation and other matters of larger importance or of professional interest on the website. Educational
videos on topics of professional relevance are permissible.
9 The chat rooms can be provided which permit chatting amongst members of the ICAI and between
Firms and its clients. The confidentiality protocol would have to be observed. The Firms can provide
document management facility with distinct log in and password facility to the clients to access
copies of their documents on the Firm website.
10 The Firm can provide link of its page on Social Networking site. However, the members should not solicit
people to visit or like their respective page(s) on such social Networking site.
11 The members/firms can provide on line advice to their clients who specifically request for the advice
whether free of charge or on payment.
12 The details in the Website should be so designed that it does not amount to soliciting cl ient or
professional work. In case any content or technical feature of Website is against the professional Code
of Conduct and Ethics as well as the restrictions contained in the schedules to the Chartered
Accountants Act, 1949 or against the guidelines or directions issued by ICAI from time to time,
appropriate action will be initiated by the ICAI in terms of its disciplinary mechanism either suo moto or
on complaint as provided under the Chartered Accountants Act, 1949.
13 The Website should ensure adequate secrecy of the matters of the clients handled through Website.
14 No Advertisement in the nature of banner or any other nature will be permitted on the Website.
15 The Website should be befitting the profession of Chartered Accountants and should not contain any
information or material which is unbecoming of a Chartered Accountant.
16 The Website may provide a link to the Website of ICAI, its Regional Councils and Branches and also
the Website of Govt./Govt. Departments/Regulatory authorities/other Professional Bodies.
17 The Website address should be as near as possible to the individual name/trade name, firm name of the
Chartered Accountant in practice or firm of Chartered Accountants in practice. But it should not
amount to soliciting clients or professional work or advertisement of professional attainments or
services. The Ethical Standards Board (ESB) of ICAI will decide in case there is any difficulty.
18 The Website should mention the information which is not at material variance from the information
as per the ICAI’s records.
3 Online Third Party Platforms
A number of non-Chartered Accountants’ firms, corporates including banks, finance
Companies and newspapers have set up their own Websites providing advisory services on
taxation and other areas where Chartered Accountants are rendering professional service.
Some of such Websites may request Chartered Accountants or Chartered Accountants’ firms
to provide consultation and advice through their Websites. No other service, besides
consultancy and advice can be rendered through such websites, This would be permitted
subject to the condition that on the Website, contact address of the Chartered Accountant
concerned is not provided nor such Website will contain any material which advertises
professional achievements or status of such Chartered Accountant except making a
statement that they are Chartered Accountants. The name of Chartered Accountants’ firm
with suffix “Chartered Accountants” would not be permitted.
4. Publication of Name or Firm Name by Chartered Accountants in the
Telephone or other Directories published by Telephone Authorities
or Private Bodies
The Chartered Accountants and Chartered Accountants Firms may have entries made in a
Telephone Directory (in printed and electronic form) either by making a special request or by
means of an additional payment. The Council has also considered the question of permitting
entries in respect of Chartered Accountants and their firms under specified groups in
telephone/trade directories subject to the following additional restrictions :-
(i) The entry should not appear in any other section/category except that of ‘Chartered
Accountants’.
(ii) The member/firm should belong to the town/city in respect of which the directory is
being published.
(iii) The order of the entries should not be in any manner other than alphabetical.
(iv) The entry should not be made in a differential or prominent manner giving the
impression of publicity/advertisement.
(v) The entries should not be restricted and should be open to all the Chartered
Accountants/firms of Chartered Accountants in the particular city/town in respect
whereof the directory is published.
(vi) The members can also include their names in trade/ social directories.
6. Application based Service provider Aggregators
It is not permissible for members to list themselves with online Application based service
provider Aggregators, wherein other categories like businessmen, technicians, maintenance
workers, event organizers etc. are also listed.
7. Specialised Directories for limited circulation
The name, description and address of member (or firm) may appear in any directory or list of
members of a particular body in which the names are listed alphabetically. For a specialised
directory or a publication such as a “Who’s Who” (including those compiled on purely local
basis), a member should use his discretion in supplying information, bearing in mind the
nature and purpose of the publications. In addition to his name, description and address and
those of his firm, a member may give where appropriate, directorships held and reasonable
personal details and may state his outside interests. He should not, however, give the names
of any of his clients.

8 Exemptions
1 A special exemption has been made as regards publication of the name and
address of a member or that of his firm, with the description Chartered Accountant(s), in
an advertisement appearing in the press in the following circumstances, provided that the
advertisement is not displayed more prominently than is usual for such advertisements
or the name of the member or that of his firm with the designation Chartered
Accountant(s) appears in type not bolder than the substance of the advertisement:-
(a) Advertisement for recruiting staff in the member’s own office.
(b) Advertisement inserted on behalf of clients requiring staff or wishing to acquire or
dispose of business or property.
(c) Advertisement for the sale of a business or property by a member acting in a
professional capacity as trustee, liquidator or receiver.

2 When advertising for staff, it is desirable that members should avoid the expression
such as “a well-known firm”, since this would savour of advertisement. Similar
considerations apply to advertisements for articled assistants. The advertisements
should not contain any promotional element nor should there be any suggestion that the
services offered by the Chartered Accountant or his firm are superior to those offered by
other accountants.

10 RECOMMENDED SELF-REGULATORY MEASURES

As the members are aware, the Council has decided upon certain self-regulatory measures in order to ensure a
healthy growth of the profession and an equitable flow of professional work among the members. These
measures are reviewed from time to time and are published in the Journal of the Institute for observance by
the members. The self-regulatory measures are recommendatory. However, considering the spirit underlying
these measures, the Council expects that each and every member will effectively implement them. The Council
earnestly believes that implementation of these measures would go a long way in ensuring equitable flow of
work among the members and would also further enhance the prestige of the profession in the society.
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 should
not be understood to mean any restriction on the right of the statutory auditors to have access over branch
accounts conferred under the Companies Act, 2013. 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.
10.4 Disclosure of Interest by Auditors in other Firms
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
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.
ANNEXURE – 1
The Chartered Accountants Act, 1949
The Chartered Accountants Act, 1949 (No. 38 of 1949) came into force on the 1 st day of July, 1949. Later in the
year 1959, certain amendments were made therein through the Chartered Accountants (Amendment) Act, 1959
(No.15 of 1959). After about 47 years extensive changes have been made in the Act through the Chartered
Accountants (Amendment) Act, 2006 (No.9 of 2006) which have been notified by the Central Government in
the Gazette of India (Extra Ordinary) dated 23rd March, 2006. Further, few insertions were made to the
principle Act through the Chartered Accountants (Amendment) Act, 2011 (No. 3 of 2012).
The entire Act is divided in nine chapters [Including chapter VIIA inserted by Chartered Accountants
(Amendment) Act, 2006].
The Complete enumeration of Contents is given below:
Chapter I - Preliminary
1. Short title, Extent and Commencement
2. Interpretation
This Chapter contains preliminary aspects of the Act like applicability of the Act, definition of various terms like,
Chartered Accountant, Council, holder of a restricted certificate, Registered Accountant, etc.
Chapter II - The Institute of Chartered Accountants of India
3. Incorporation of the Institute
4. Entry of names in the Register
5. Fellows and Associates
6. Certificate of Practice
7. Members to be known as Chartered Accountants
8. Disabilities
This chapter deals with various things like who shall be entitled to have his name entered in the register of
members of the Institute, who shall be deemed to have become an associate member of the Institute, who shall
be entered in the Register as a fellow of the Institute. This Chapter also deals with issues relating to certificate
of practice and disabilities of a person for having his name entered in the Register.
Chapter III - Council of the Institute
9. Constitution of the Council of the Institute
10. Re-election or re-nomination to Council [Substituted by Chartered Accountants (Amendment) Act, 2006]
10A. Settlement of dispute regarding election [Inserted by Chartered Accountants (Amendment) Act,
2006]
10B. Establishment of Tribunal [Inserted by Chartered Accountants (Amendment) Act, 2006]
11. Nomination in default of election or nomination
12. President and Vice-President
13. Resignation of Membership and casual vacancies
14. Duration and dissolution of the Council
15. Function of the Council
15A. Imparting education by Universities and Other bodies [Inserted by Chartered Accountants (Amendment)
Act, 2006]
16. Officers and employees, salary, allowances etc. [substituted by Chartered Accountants (Amendment)
Act, 2006]
17. Committees of the Council
18. Finances of the Council
This Chapter deals with various issues like composition of Council of the Institute, manner of conducting
election to the Council, mode of tendering resignation from the membership of the Council mode of filling a
casual vacancy, various duties of the Council. This Chapter also deals with the permission accorded to any
University established by law or any Body affiliated to the Institute to impact education on the subjects
covered by the academic courses of the Institute.
Chapter IV - Register of Members
19. Register of Members
20. Removal from the Register
This chapter deals with the matters relating to register of members and removal from the register the name of
any member. The Council has to maintain a Register of Members of the Institute. This Register shall include
name, date of birth, domicile, residential and professional address, qualification etc. Also, the Council may
remove from the Register the name of any member in certain circumstances like in case of death of the member
or if the member does not pay the prescribed fees, or when a member has become subject to any of the
disabilities mentioned in section 8.
Chapter V - Misconduct
21. Disciplinary Directorate [Substituted by Chartered Accountants (Amendment) Act, 2006] 21A.
Board of Discipline [Inserted by Chartered Accountants (Amendment) Act, 2006]
21B. Disciplinary Committee [Inserted by Chartered Accountants (Amendment) Act, 2006]
21C. Authority, Disciplinary Committee, Board of Discipline and Director (Discipline) to have powers of
civil court [Inserted by Chartered Accountants (Amendment) Act, 2006]
21D. Transitional provisions [Inserted by Chartered Accountants (Amendment) Act, 2006]
22. Professional or other misconduct defined [Substituted by Chartered Accountants (Amendment)
Act, 2006]
22A. Constitution of Appellate Authority [Substituted by Chartered Accountants (Amendment) Act, 2006]
22B. Term of office of Chairperson and members of Authority [Inserted by Chartered Accountants (Amendment) Act,
2006].
22C. Allowances and conditions of service of Chairperson and Members of Authority (Inserted by Chartered
Accountants (Amendment) Act, 2006)
22D. Procedure to be regulated by Authority [Inserted by Chartered Accountants (Amendment) Act,
2006]
22E. Officers and other staff of Authority [Inserted by Chartered Accountants (Amendment) Act, 2006]
22F. Resignation and removal of Chairperson and Members [Inserted by Chartered Accountants
(Amendment) Act, 2006)]
22G. Appeal to Authority [Inserted by Chartered Accountants (Amendment) Act, 2006]
In this chapter professional and other misconduct has been defined. As per section 22 of the Act, the
expression “professional or other misconduct " shall be deemed to include any act or omission provided in any
of the Schedules. In this chapter, Section 21, 22 and 22A have been substituted by new sections 21, 22 and
22A. Other sections (Section 21A, 21B, 21C, 21D, 22B, 22C, 22D, 22E, 22F and 22G) have been inserted by
Chartered Accountants (Amendment) Act, 2006. These Sections along with the Schedules deal with the new
Disciplinary Mechanism.
Chapter VI - Regional Councils
23. Constitution and Functions of Regional Councils
The Councils may constitute such Regional Councils for the purpose of advising and assisting it on matters
concerning its functions. The Regional councils shall exercise prescribed functions.
Chapter VII - Penalties
24. Penalty for falsely claiming to be a member etc.
24A. Penalty for using name of the Council, awarding degree of Chartered Accountancy etc.
25. Companies not to engage in accountancy
26. Unqualified persons not to sign documents
27. Maintenance of branch offices
28. Sanction to prosecute
This chapter lists penalties in various cases like, if a person who is not a member of the Institute and
represents himself as a member of the Institute or uses the designation Chartered Accountant, he shall be
punishable with fine which may extend to one thousand rupees (on first conviction) and with imprisonment
which may extend to six months or with fine which may extend to five thousand rupees or with both (on
subsequent conviction). Other provisions regarding penalties that are included in this chapter provide that a
Company (Incorporated in or outside India) shall not practice as Chartered Accountant, a person other than a
member of the Institute shall not sign any document an behalf of a Chartered Accountant in practice or a firm of
such Chartered Accountants in his or its professional capacity, etc.
Chapter VII A Quality Review Board
[Inserted by Chartered Accountants (Amendment) Act, 2006] 28A.
Establishment of Quality Review Board
28B. Functions of Board
28C. Procedure of Board
28D. Terms and conditions of services of Chairperson and Members of Board and its expenditure
After Chapter VII, the Chapter VIIA has been inserted by the Chartered Accountants (Amendment) Act,
2006. It empowers the Central Government to constitute a Quality Review Board outside the framework of the
Institute. It will perform the functions like, to make recommendations to the Council with regard to the quality
of services provided by the members of the Institute, to review the quality of services provided by the
members of the Institute including audit services and to guide the members of the Institute to improve the
quality of services and adherence to the various statutory and other regulatory requirements.
Chapter VIII – Miscellaneous
29. Reciprocity
29A. Power of Central Government to make rules.
30. Power to make regulations
30A. Powers of the Central Government to direct regulation to be made or to make or amend regulations
30B. Rules, Regulations and notification to be laid before Parliament [Substituted by Chartered Accountants
(Amendment) Act, 2006]
30C. Power of Central Government to issue directions [Inserted by Chartered Accountants (Amendment) Act,
2006)]
30D. Protection of action taken in good faith [Inserted by Chartered Accountants (Amendment) Act, 2006)]
30E. Members etc. to be public servants [Inserted by Chartered Accountants (Amendment) Act, 2006)]
31. Construction of References
32. Act not to affect right of accountants to practice as such in Acceding States.
33. [Repealed]
This Chapter contains miscellaneous provisions. It empowers the Council to prescribe the conditions subject to
which foreign qualifications relating to accountancy shall be recognized for the purpose of entry in the
Register. It also empowers the Council to make regulations for the purpose of carrying out the objects of this
Act. It also empowers the Central Government to direct the Council to make any regulations or to amend or
revoke any regulations already made. Section 30C, 30D, and 30E have been inserted by Chartered Accountants
(Amendment) Act, 2006. Section 30C empowers the Central Government to issue directions in the event of non-
compliance by the Council of any provisions of the Act. Section 30D protects Central Government, Council,
Authority Disciplinary Committee, Tribunal, Board, Board of Discipline, Disciplinary Directorate or any
officer thereof, for anything which is in good faith done or intended to be done under this Act or any rule,
regulation, notification, direction or order made there under. Section 30E says that the Chairperson, Presiding
officer, Members and other officers and employees of the Authority, Disciplinary Committee, Tribunal,
Board, Board of Discipline or the Disciplinary Directorate shall be deemed to be public servants within the
meaning of Section 21 of the Indian Penal Code.

ANNEXURE – 2

Relevant sections of the Chartered Accountants Act, 1949 with respect to disciplinary
procedure are provided below:
Section 21. Disciplinary Directorate –
(1) The Council shall, by notification, establish a Disciplinary Directorate headed by an officer of the
Institute designated as Director (Discipline) and such other employees for making investigations in
respect of any information or complaint received by it.
(2) On receipt of any information or complaint along with the prescribed fee, the Director (Discipline)
shall arrive at a prima facie opinion on the occurrence of the alleged misconduct.
(3) Where the Director (Discipline) is of the opinion that a member is guilty of any professional or
other misconduct mentioned in the First Schedule, he shall place the matter before the Board of
Discipline and where the Director (Discipline) is of the opinion that a member is guilty of any
professional or other misconduct mentioned in the Second Schedule or in both the Schedules, he shall
place the matter before the Disciplinary Committee.
(4) In order to make investigations under the provisions of this Act, the Disciplinary Directorate shall
follow such procedure as may be specified.
(5) Where a complainant withdraws the complaint, the Director (Discipline) shall place such withdrawal
before the Board of Discipline or, as the case may be, the Disciplinary Committee, and the said Board or
Committee may, if it is of the view that the circumstances so warrant, permit the withdrawal at any
stage.
Section 21A. Board of Discipline –
(1) The Council shall constitute a Board of Discipline consisting of -
(a) a person with experience in law and having knowledge of disciplinary matters and the profession,
to be its presiding officer;
(b) two members one of whom shall be a member of the Council elected by the Council and the
other member shall be nominated by the Central Government from amongst the persons of
eminence having experience in the field of law, economics, business, finance or
accountancy;
(c) the Director (Discipline) shall function as the Secretary of the Board.
(2) The Board of Discipline shall follow summary disposal procedure in dealing with all cases before it.
(3) Where the Board of Discipline is of the opinion that a member is guilty of a professional or other
misconduct mentioned in the First Schedule, it shall afford to the member an opportunity of being heard
before making any order against him and may thereafter take any one or more of the following
actions, namely:
(a) reprimand the member;
(b) remove the name of the member from the Register up to a period of three months;
(c) impose such fine as it may think fit, which may extend to rupees one lakh.
(4) The Director (Discipline) shall submit before the Board of Discipline all information and complaints
where he is of the opinion that there is no prima facie case and the Board of Discipline may, if it
agrees with the opinion of the Director (Discipline), close the matter or in case of disagreement, may
advise the Director (Discipline) to further investigate the matter.
Section 21B. Disciplinary Committee –
(1) The Council shall constitute a Disciplinary Committee consisting of the President or the Vice- President of
the Council as the Presiding Officer and two members to be elected from amongst the members of the
Council and two members to be nominated by the Central Government from amongst the persons of
eminence having experience in the field of law, economics, business, finance or accountancy.
Provided that the Council may constitute more Disciplinary Committees as and when it considers
necessary.
(2) The Disciplinary Committee, while considering the cases placed before it shall follow such procedure
as may be specified.
(3) Where the Disciplinary Committee is of the opinion that a member is guilty of a professional or other
misconduct mentioned in the Second Schedule or both the First Schedule and the Second Schedule, it
shall afford to the member an opportunity of being heard before making any order against him and may
thereafter take any one or more of the following actions, namely:
(a) reprimand the member;
(b) remove the name of the member from the Register permanently or for such period, as it thinks
fit;
(c) impose such fine as it may think fit, which may extend to rupees five lakh.
(4) The allowances payable to the members nominated by the Central Government shall be such as may
be specified.
Section 21C. Authority, Disciplinary Committee, Board of Discipline and Director (Discipline)
to have powers of civil court – For the purposes of an inquiry under the provisions of this Act, the Authority,
the Disciplinary Committee, Board of Discipline and the Director (Discipline) shall have the same powers as
are vested in a civil court under the Code of Civil Procedure, 1908 (5 of 1908), in respect of the following
matters, namely:
(a) summoning and enforcing the attendance of any person and examining him on oath;
(b) the discovery and production of any document; and
(c) receiving evidence on affidavit.
Explanation: for the purposes of sections 21, 21A, 21B, 21C and 22, “member of the Institute” includes a
person who was a member of the Institute on the date of the alleged misconduct although he has ceased to be a
member of the Institute at the time of the inquiry.
Section 21D. Transitional provisions – All complaints pending before the Council or any inquiry
initiated by the Disciplinary Committee or any reference or appeal made to a High Court prior to the
commencement of the Chartered Accountants (Amendment) Act, 2006, shall continue to be governed by the
provisions of this Act, as if this Act had not been amended by the Chartered Accountants (Amendment) Act,
2006.
Section 22. Professional or other misconduct defined – For the purposes of this Act, the expression
“professional or other misconduct” shall be deemed to include any act or omission provided in any of the
Schedules, but nothing in this section shall be construed to limit or abridge in any way the power conferred or
duty cast on the Director (Discipline) under sub-section (1) of section 21 to inquire into the conduct of any
member of the Institute under any other circumstances.
Section 22A. Constitution of Appellate Authority –
(1) The Central Government shall, by notification, constitute an Appellate Authority consisting of
(a) a person who is or has been a judge of a High Court, to be its Chairperson;
(b) two members to be appointed from amongst the persons who have been members of the Council
for at least one full term and who are not sitting members of the Council;
(c) two members to be nominated by the Central Government from amongst persons having
knowledge and practical experience in the field of law, economics, business, finance or
accountancy.
(2) The Chairperson and other members shall be part-time members.
Section 22B. Term of office of Chairperson and members of Authority –
(1) A person appointed the Chairperson shall hold office for a term of three years from the date on which
he enters upon his office or until he attains the age of sixty-five years, whichever is earlier.
(2) A person appointed as a member shall hold office for a term of three years from the date on which he
enters upon his office or until he attains the age of sixty-two years, whichever is earlier.
Section 22C. Allowances and conditions of service of Chairperson and members of Authority
– The allowances payable to, and other terms and conditions of service of, the Chairperson and members and
the manner of meeting expenditure of the Authority by the Council and such other authorities shall be such
as may be specified.
Section 22D. Procedure to be regulated by Authority –
(1) The office of the Authority shall be at Delhi.
(2) The Authority shall regulate its own procedure.
(3) All orders and decisions of the Authority shall be authenticated by an officer duly authorised by the
Chairperson in this behalf.
Section 22E. Officers and other staff of Authority –
(1) The Council shall make available to the Authority such officers and other staff members as may be
necessary for the efficient performance of the functions of the Authority.
(2) The salaries and allowances and conditions of service of the officers and other staff members of the
Authority shall be such as may be prescribed.
Section 22F. Resignation and removal of Chairperson and members –
(1) The Chairperson or a member may, by notice in writing under his hand addressed to the Central
Government, resign his office.
Provided that the Chairperson or a member shall, unless he is permitted by the Central Government to
relinquish his office sooner, continue to hold office until the expiry of three months from the date of
receipt of such notice or until a person duly appointed as his successor enters upon his office or until
the expiry of term of office, whichever is earlier.
(2) The Chairperson or a member shall not be removed from his office except by an order of the Central
Government on the ground of proved misbehaviour or incapacity after an inquiry made by such person
as the Central Government may appoint for this purpose in which the Chairperson or a member
concerned has been informed of the charges against him and given a reasonable opportunity of being
heard in respect of such charges.
Section 22G. Appeal to Authority –
(1) Any member of the Institute aggrieved by any order of the Board of Discipline or the Disciplinary
Committee imposing on him any of the penalties referred to in sub-section (3) of section 21A and sub-
section (3) of section 21B, may within ninety days of the date on which the order is communicated
to him, prefer an appeal to the Authority.
Provided that the Director (Discipline) may also appeal against the decision of the Board of Discipline
or the Disciplinary Committee to the Authority, if so authorised by the Council, within ninety days.
Provided further that the Authority may entertain any such appeal after the expiry of the said period of
ninety days, if it is satisfied that there was sufficient cause for not filing th e appeal in time.
(2) The Authority may, after calling for the records of any case, revise any order made by the Board of
Discipline or the Disciplinary Committee under sub-section (3) of section 21A and sub-section (3) of
section 21B and may -
(a) confirm, modify or set aside the order;
(b) impose any penalty or set aside, reduce, or enhance the penalty imposed by the order;
(c) remit the case to the Board of Discipline or Disciplinary Committee for such further enquiry
as the Authority considers proper in the circumstances of the case; or
(d) pass such other order as the Authority thinks fit:
Provided that the Authority shall give an opportunity of being heard to the parties concerned before passing any
order.
ANNEXURE – 3
SCHEDULES TO THE ACT
Acts or omissions which comprise professional misconduct within the meaning of Section 22 of the Chartered
Accountants Act are defined in two Schedules viz. the First Schedule and the Second Schedule.
The First Schedule is divided into four parts, Part I of the First Schedule deals with the misconduct of a
member in practice which would have the effect generally of compromising his position as an independent
person. Part II deals with misconduct of members in services. Part-III deals with the misconduct of members
generally and part IV deals with other misconduct in relation to members of the institute generally. The Second
Schedule is divided into three parts. Part I deals with misconduct in relation to a member in practice, Part II
deals with misconduct of members generally and part III deals with other misconduct in relation to members of
the Institute generally. The implication of the different clauses in the schedules are discussed below:
The 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, for the purpose of rendering such
professional services from time to time in or outside India.
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.
Clause (4) enters into partnership, in or outside India, with any person other then 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 close (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.
However, as per the guideline issued by the Council of the Institute of Chartered Accountants of India,
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.
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 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.
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, in respect of such appointment have been duly
complied with.
(Now Section 139 and 140 read with Section 141 of the Companies Act, 2013. Students may note that till the
time Code of Ethics etc. bare documents get updated from Ethical Standard Board of
ICAI in pursuance of the Companies Act, 2013, students are required to understand the basic nature of the
provision and quote the same along with the new corresponding provisions.)
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.
The Council of the Institute has however framed Regulation 192 which exempts members from the operation of
this clause in certain professional services.
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.
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.

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

in service
A member of the Institute (other than a member in practice) shall be deemed to be guilty of
professional misconduct, if he being an employee of any company, firm or person:
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.
[Note: A member in the foregoing circumstances would be guilty of misconduct regardless of the fact that he was
in whole-time or part-time employment or that he was holding Certificate of Practice along with his
employment.]

PART III - 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:
A member of the Institute, whether in practice or not, shall be deemed to be guilty of professional misconduct,
if he:
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
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 by any civil or criminal court for an offence which is punishable with
imprisonment for a term not exceeding six months.
(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.
These clause (1) & (2) are self explanatory and any of the member of the Institute is found guilty by any civil or
criminal court and prosecuted for an imprisonment in an offence involving moral turpitude or his acts bring
disrepute to the profession or the Institute, i rrespective of the fact whether such acts are related to profession
or not, such member will be deemed to be guilty of other misconduct in Part IV of Schedule I.
The important point to note is that if imprisonment tenure exceeds six months, this case will be covered in
the clause of Part III of Schedule II.
The Second Schedule

PART I- Professional misconduct in relation to chartered Accountant 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.
Clause (2) 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 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 not misleading where he is concerned
with that financial statement in a professional capacity.
Clause (6) Fails to report a material misstatement known to him to appear in a financial statement with which
he is concerned in a professional capacity.
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 th ey 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.
 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 mis - conduct, 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.
Where the Director (Discipline) is of the opinion that a member is guilty of any professional or other misconduct
mentioned in the second schedule or in both the Schedule, he shall place the matter before the Disciplinary
Committee.
Recent Decisions of Ethical Standards Board
1. A Chartered Accountant in practice may be an equity research adviser, but he cannot publish retail
report, as it would amount to other business or occupation.
2. A Chartered Accountant, who is a member of a Trust, cannot be the auditor of the said trust.
3. A Chartered Accountant in practice may engage himself as Registration Authority (RA) for obtaining
digital signatures for clients.
4. A Chartered accountant can hold the credit card of a bank when he is also the auditor of the bank,
provided the outstanding balance on the said card does not exceed rupees 10000 beyond the
prescribed credit period limit on credit card given to him.
5. A Chartered Accountant in practice can act as mediator in Court, since acting as a “mediator” would be
deemed to be covered within the meaning of “arbitrator’; which is inter-alia permitted to members in
practice as per Regulation 191 of the Chartered Accountants Regulations, 1988.
6. A Chartered Accountant in practice is not permitted to accept audit assignment of a bank in case he
has taken loan against a Fixed Deposit held by him in that bank.
7. The Ethical Standards Board in 2013 generally apply the stipulations contained in the then amended
Rule 11U of Income Tax generally, wherein statutory auditor /tax auditor cannot be the valuer of
unquoted equity shares of the same entity.
The Board has at its recent Meeting (January, 2017) has reviewed the above, and decided that where
law prohibits for instance in the Income Tax Act and the rules framed thereunder, such prohibition on
statutory auditor/tax auditor to be the valuer will continue, but where there is no specific restriction
under any law, the said eventuality will be permissible, subject to compliance with the provisions, as
contained in the Code of Ethics relating to independence.
8. The Ethical Standards Board had in 2011 decided that it is not permissible for a member who has been
Director of a Company, upon resignation from the Company to be appointed as an auditor of the said
Company, and the cooling period for the same may be 2 years.
The Board has at its recent Meeting (January, 2017) has reviewed the above, and noted that the Section
141 of Companies Act, 2013 on disqualification of auditors does not mention such prohibition; though
threats pertaining to the said eventuality have been mentioned in Code of Ethics.
Further, the Board was of the view that a member may take decision in such situation based on the
provisions of Companies Act, 2013 and provisions of Code of Ethics.
9. A chartered accountant in practice cannot become Financial Advisors and receive fees/commission
from Financial Institutions such as Mutual Funds, Insurance Companies, NBFCs etc.
10. A chartered accountant cannot exercise lien over the client documents/records for non- payment of
his fees.
11. 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.
12. It is not permissible for chartered accountants in practice to take agencies of UTI, GIC or NSDL.
13. It is permissible for a member in practice to be a settlor of a trust.
14. A member in practice cannot hold Customs Brokers Licence under section 146 of the Customs Act,
1962 read with Customs Brokers Licensing Regulations, 2013 in terms of the provisions of Code of
Ethics.
15. A Chartered accountant in service may appear as tax representative before tax authorities on behalf
of his employer, but not on behalf of other employees of the employer.
16. A chartered accountant who is the statutory auditor of a bank cannot for the same financial year
accept stock audit of the same branch of the bank or any of the branches of the same bank or sister
concern of the bank, for the same financial year.
17. A CA Firm which has been appointed as the internal auditor of a PF Trust by a Government
Company cannot be appointed as its Statutory Auditor.
18. A concurrent auditor of a bank ‘X’ cannot be appointed as statutory auditor of bank ‘Y’, which is
sponsored by ‘X’.
19. A CA/CA Firm can act as the internal auditor of a company & statutory auditor of its employees PF
Fund under the new Companies Act (2013).
20. The Ethical Standards Board while noting that there is requirement for a Director u/s 149(3) of the
Companies Act, 2013 to reside in India for a minimum period of 182 days in the previous calendar year,
decided that such a Director would be within the scope of Director Simplicitor (which is generally
permitted as per ICAI norms), if he is non – executive director, required in the Board Meetings only,
and not paid any remuneration except for attending such Board Meetings.
21. Internal Auditor not to undertake GST Audit simultaneously.

TEST YOUR KNOWLEDGE

Theoretical Questions
1. P, a Chartered Accountant in practice provides management consultancy and other services to his
clients. During 2020, looking to the growing needs of his clients to invest in the stock markets, he also
advised them on Portfolio Management Services whereby he managed portfolios of some of his
clients. Is P guilty of professional misconduct?
2. Mr. G, a Chartered Accountant in practice as a sole proprietor has an office in Mumbai near Church
Gate. Due to increase in professional work, he opens another office in a suburb of Mumbai which is
approximately 80 kilometers away from the municipal limits of the city. For running the new office,
he employs three retired Income-tax Officers. Is Mr. G guilty of professional misconduct?
3. Write a short note on Other Misconduct.
4. Mr. K, a practicing Chartered Accountant gave 50% of the audit fees received by him to a non-
Chartered Accountant, Mr. L, under the nomenclature of office allowance and such an arrangement
continued for a number of years. Discuss this in the light of Professional Ethics issued by ICAI.
5. Mr. X who passed his CA examination of ICAI on 18th July, 2020 and started his practice from
August 15, 2020. On 16th August 2020, one female candidate approached him for articleship. In
addition to monthly stipend, Mr. X also offered her 1 % profits of his CA firm. She agreed to take
both 1 % profits of the CA firm and stipend as per the rate prescribed by the ICAI. The Institute of
Chartered Accountants of India sent a letter to Mr. X objecting the payment of 1 % profits. Mr. X
replies to the ICAI stating that he is paying 1 % profits of his firm over and above the stipend to help
the articled clerk as the financial position of the articled clerk is very weak. Is Mr. X liable to
professional misconduct?
6. M/s XYZ, a firm in practice, develops a website “xyz.com”. The colour chosen for the website was a
very bright green and the web-site was to run on a “push” technology where the names of the partners
of the firm and the major clients were to be displayed on the web-site without any disclosure
obligation from any regulator. Is this website in compliance with guidelines issued by ICAI in this
regard?
7. A partner of a firm of chartered accountants during a T.V. interview handed over a bio-data of his
firm to the chairperson. Such bio-data detailed the standing of the international firm with which the
firm was associated. It also detailed the achievements of the concerned partner and his recognition as an
expert in the field of taxation in the country. The chairperson read out the said bio-data during the
interview. Discuss whether this action by the Chartered Accountant would amount to misconduct or
not.
8. (a) An advertisement was published in a Newspaper containing the photograph of Mr. X, a
member of the institute wherein he was congratulated on the occasion of the opening ceremony of
his office.
(b) Mr. X, a Chartered Accountant and the proprietor of X & Co., wrote several letters to the
Assistant Registrar of Co-operative Societies stating that though his firm was on the panel of
auditors, no audit work was allotted to the firm and further requested him to look into the
matter.
9. A practising Chartered Accountant uses a visiting card in which he designates himself, besides as
Chartered Accountant, Cost Accountant. Is this a misconduct?
10. Mr. Nigal, a Chartered Accountant in practice, delivered a speech in the national conference organized by
the Ministry of Textiles. While delivering the speech, he told to the audience that he is a management
expert and his firm provides services of taxation and audit at reasonable rates. He also requested the
audience to approach his firm of chartered accountants for these services and at the request of audience he
also distributed his business cards and telephone number of his firm to those in the audience.
Comment.
11. Mr. A is a practicing Chartered Accountant working as proprietor of M/s A & Co. He went abroad for
3 months. He delegated the authority to Mr. Y a Chartered Accountant his employee for taking care of
routine matters of his office. During his absence Mr. Y has conducted the under mentioned jobs in
the name of M/s A & Co.
(i) He issued the audit queries to client which were raised during the course of audit.
(ii) He issued production certificate to a client under the GST Act.
(iii) He attended the Income Tax proceedings for a client as authorized representative before
Income Tax Authorities.
Please comment on eligibility of Mr. Y for conducting such jobs in name of M/s A & Co. and liability
of Mr. A under the Chartered Accountants Act, 1949.
12. XYZ Co. Ltd. has applied to a bank for loan facilities. The bank on studying the financial statements
of the company notices that you are the auditor and requests you to call at the bank for a discussion. In
the course of discussions, the bank asks for your opinion regarding the company and also asks for
detailed information regarding a few items in the financial
 statements. The information is available in your working paper file. What should be your response
and why?
13. Mr. A, a newly qualified Chartered Accountant, started his practice and sought clients through telephone
calls from his family and friends, almost all of them employed in one or the other retail trade business.
One of his friends Mr. X gave him an idea to start online services and give stock certifications to
traders with Cash Credit Limits in Banks. Mr. A started a website with colorful catchy designs and
shared the website address on his all social media posts and stories and tagged 30 traders of his local
community with the caption “Easy Online Stock Certification Services”. Besides, Mr. A entered in an
agreement with a Digital Marketer to give him 5% commission on each service procured through
him. Discuss if the actions of Mr. A are valid in the light of the Professional Ethics and various
pronouncements and guidelines issued by ICAI.
14. Mr. D, a practicing CA, is appointed as a Director Simplicitor in XYZ Pvt. Ltd. After one year of
appointment, Mr. D resigned as the Director and accepted the Statutory Auditor position of the
company. Is Mr. D right in accepting the auditor position?
15. Mr. F, a Chartered Accountant, gave advisory services to PQR Pvt. Ltd. Further, he gave them GST
consultancy and helped in ERP set up. Later, the company turned out to be a part of a group of
companies involved in money laundering. Mr. F was asked to provide details of the companies. Mr. F
refused on the grounds that he gave only consultancy services to the company and wasn’t supposed to
keep any information about the company. Is Mr. F right as per the guidelines issued by the ICAI?
16. Mr. S, the auditor of ABC Pvt. Ltd. has delegated following works to his articles and staff:
i. Issue of audit queries during the course of audit.
ii. Issue of memorandum of cash verification and other physical verification.
iii. Letter forwarding draft observations/financial statements.
iv. Issuing acknowledgements for records produced.
v. Signing financial statements of the company.
Is this correct as per the Professional Ethics and ICAI’s guidelines and pronouncements?

Answers to Theoretical Questions

1. Advising on Portfolio Management Services: The Council of the Institute of Chartered
Accountants of India (ICAI) pursuant to Section 2(2)(iv) of the Chartered Accountants Act, 1949 has
passed a resolution permitting “Management Consultancy and other Services” by a Chartered
Accountant in practice. A clause of the aforesaid resolution allows Chartered Accountants in practice to
act as advisor or consultant to an issue of securities including such matters as drafting of prospectus,
filing of documents with SEBI, preparation of publicity
 budgets, advice regarding selection of brokers, etc. It is, however, specifically stated that Chartered
Accountants in practice are not permitted to undertake the activities of broking, underwriting and
portfolio management services. Thus, a chartered accountant in practice is not permitted to manage
portfolios of his clients.
In view of this, P would be guilty of misconduct under the Chartered Accountants Act, 1949.
2. In terms of section 27 of the Chartered Accountants Act, 1949, if a chartered accountant in practice has
more than one office in India, each one of these offices should be in the separate charge of a member of the
Institute. There is however an exemption for the above if the second office is located in the same
premises, in which the first office is located; or the second office is located in the same city, in which the
first office is located; or the second office is located within a distance of 50 kms from the municipal
limits of a city, in which the first office is located. Since the second office is situated beyond 50 kms
of municipal limits of Mumbai city, he would be liable for committing a professional misconduct.
3. Refer Para 7.2
4. Sharing of Audit Fees with Non-Member: As per Clause (2) of Part I of First Schedule to the
Chartered Accountants Act, 1949 a member shall be held guilty if a Chartered Accountant in practice
pays or allows or agrees to pay or allow, directly or indirectly, any share, commission or
brokerage in the fees or profits of his professional business, to any person other than a member of the
Institute or a partner or a retired partner or the legal representative of a deceased partner, or a member of
any other professional body or with such other persons having such qualification as may be prescribed,
for the purpose of rendering such professional services from time to time in or outside India.
In the instant case, Mr. K, a practising Chartered Accountant gave 50% of the audit fees received by
him to a non-Chartered Accountant, Mr. L, under the nomenclature of office allowance and such an
arrangement continued for a number of years. In this case, it is not the nomenclature to a transaction
that is material but it is the substance of the transaction, which has to be looked into.
The Chartered Accountant had shared his profits and, therefore, Mr. K will be held guilty of
professional misconduct under the Clause (2) of Part I of First Schedule to the Chartered Accountants
Act, 1949.
5. Sharing Fees with an Articled Clerk: As per Clause (2) of Part I of First Schedule to the
Chartered Accountants Act 1949, a Chartered Accountant in practice shall be deemed to be guilty of
professional misconduct if he pays or allows or agrees to pay or allow, directly or indirectly, any
share, commission or brokerage in the fees or profits of his professional business, to any person other
than a member of the Institute or a partner or a retired partner or the legal representative of a deceased
partner, or a member of any other professional body or with such other persons having such
qualification as may be prescribed, for the purpose of rendering such professional services from time
to time in or outside India.
 In view of the above, the objections of the Institute of Chartered Accountants of India, as given in the
case, are correct and reply of Mr. X, stating that he is paying 1 % profits of his firm over and above
the stipend to help the articled clerk as the position of the articled clerk is weak is not tenable.
Hence, Mr. X is guilty of professional misconduct in terms of Clause (2) of Part I of First Schedule to
the Chartered Accountants Act 1949.
6. Posting of Particulars on Website: The Council of the Institute had approved posting of
particulars on website by Chartered Accountants in practice under Clause (6) of Part I of First Schedule to
the Chartered Accountants Act, 1949 subject to the prescribed guidelines. The relevant guidelines in
the context of the website hosted by M/s XYZ are:
 No restriction on the colours used in the website;
 The websites are run on a “pull” technology and not a “push” technology;
 Names of clients and fees charged not to be given.
However, disclosure of names of clients and/or fees charged, on the website is permissible only where
it is required by a regulator, whether or not constituted under a statute, in India or outside India, provided
that such disclosure is only to the extent of requirement of the regulator. Where such disclosure of
names of clients and/or fees charged is made on the website, the member/ firm shall ensure that it is
mentioned on the website [in italics], below such disclosure itself, that “This disclosure is in terms of
the requirement of [name of the regulator] having jurisdiction in [name of the country/area where such
regulator has jurisdiction] vide [Rule/ Directive etc. under which the disclosure is required by the
Regulator].
In view of the above, M/s XYZ would have no restriction on the colours used in the website but failed
to satisfy the other two guidelines. Thus, the firm would be liabl e for professional misconduct since it
would amount to soliciting work by advertisement.
7. Clause (6) of Part I of the First Schedule to the Chartered Accountants Act, 1949 prohibits solicitation
of client or professional work either directly or indirectly by circular, advertisement, personal
communication or interview or by any other means since it shall constitute professional misconduct.
The bio-data was handed over to the chairperson during the T.V. interview by the Chartered
Accountant which included details about the firm and the achievements of the partner as an expert in
the field of taxation. The chairperson simply read out the same in detail about association with the
international firm as also the achievements of the partner and his recognition as an expert in the field
of taxation. Such an act would definitely lead to the promotion of the firms’ name and publicity
thereof as well as of the partner and as such the handing over of bio-data cannot be approved. The
partner would be held guilty of professional miscount under Clause (6) of Part I of the First Schedule
to the Chartered Accountants Act, 1949.
8. (a) Publishing an Advertisement Containing Photograph: As per Clause (6) of Part I of
the First Schedule to the Chartered Accountants Act, 1949, a Chartered Accountant in practice
shall be deemed to be guilty of misconduct if he solicits clients or professional work either
directly or indirectly by a circular, advertisement, personal communication or interview or
by any other means.
In the given case, Mr. X published an advertisement in a Newspaper containing his
photograph on the occasion of the opening ceremony of his office. On this context, it may be
noted that the advertisement which had been put in by the member is quite prominent. If
soliciting of work is allowed, the independence and forthrightness of a Chartered Accountant
in the discharge of duties cannot be maintained.
The above therefore amounts to soliciting professional work by advertisement directly or
indirectly. Mr. X would be therefore held guilty under Clause (6) of Part I of the First Schedule to
the Chartered Accountants Act, 1949.
(b) Soliciting Professional Work: As per Clause (6) of Part I of the First Schedule to the Chartered
Accountants Act, 1949, a Chartered Accountant in practice shall be deemed to be guilty of
misconduct if he solicits clients or professional work either directly or indirectly by a circular,
advertisement, personal communication or interview or by any other means.
In the given case, Mr. X, a Chartered Accountant and proprietor of M/s X and Co., wrote
several letters to the Assistant Registrar of Co-operative Societies, requesting for allotment of
audit work. In similar cases, it was held that the Chartered Accountant would be guilty of
professional misconduct under Clause (6) of Part I of the First Schedule to the Chartered
Accountants Act, 1949. The writing of continuous letter to ascertain the reasons for not getting
the work is quite alright but in case such either amount to request for allowing the work then
Mr. X will be liable for professional misconduct.
Consequently, Mr. X would therefore be held guilty under Clause (6) of Part I of the First
Schedule to the Chartered Accountants Act, 1949.
9. Cost Accountant: As stated in the Illustration given in clause 7 with reference to tax consultant, this
would also constitute misconduct under section 7 of the Act read with Clause
(7) of Part I of the First Schedule to the Chartered Accountants Act, 1949. A chartered accountant in
practice cannot use any other designation than that of a chartered accountant. Nevertheless, a member in
practice may use any other letters or descriptions indicating membership of accountancy bodies which
have been approved by the Council. Thus, it is improper for a chartered accountant to state in his
documents that he is a “Cost Accountant”. However as per the Chartered Accountants Act, 1949, the
Council has resolved that the members are permitted to use letters indicating membership of the Institute
of Cost and Works Accountants but not the designation "Cost Accountant".
10. Using Designation Other Than a CA and Providing Details of Services Offered:
Clause (6) of Part I of the First Schedule to the Chartered Accountants Act, 1949 states that a
Chartered Accountant in practice shall be deemed to be guilty of misconduct if he solicits clients or
professional work either directly or indirectly by a circular, advertisement, personal communication or
interview or by any other means. Such a restraint has been put so that the members maintain their
independence of judgment and may be able to command respect from their prospective clients.
Section 7 of the Chartered Accountants Act, 1949 read with Clause (7) of Part I of the First Schedule
to the said Act prohibits advertising of professional attainments or services of a member. It also
restrains a member from using any designation or expression other than that of a chartered accountant
in documents through which the professional attainments of the member would come to the notice of
the public. Under the clause, use of any designation or expression other than chartered accountant for
a chartered accountant in practice, on professional documents, visiting cards, etc. amounts to a
misconduct unless it be a degree of a university or a title indicating membership of any other
professional body recognised by the Central Government or the Council.
Member may appear on television and films and agree to broadcast in the Radio or give lectures at
forums and may give their names and describe themselves as Chartered Accountants. Special
qualifications or specialized knowledge directly relevant to the subject matter of the programme may also
be given but no reference should be made, in the case of practicing member to the name and address or
services of his firm. What he may say or write must not be promotional of his or his firm but must
be an objective professional view o f the topic under consideration.
Thus, it is improper to use designation "Management Expert" since neither it is a degree of a University
established by law in India or recognised by the Central Government nor it is a recognised
professional membership by the Central Government or the Council. Therefore, he is deemed to be
guilty of professional misconduct under both Clause (6) and Clause (7) as he has used the
designation “Management Expert” in his speech and also he has made reference to the services provided
by his firm of Chartered Accountants at reasonable rates. Distribution of cards to audience is also a
misconduct in terms of Clause (6).
11. Delegation of Authority to the Employee: As per Clause (12) of Part I of the First Schedule of
the Chartered Accountants Act, 1949, a Chartered Accountant in practice is deemed to be guilty of
professional misconduct “if he allows a person not being a member of the Institute in practice or a member
not being his partner to sign on his behalf or on behalf of hi s firm, any balance sheet, profit and loss
account, report or financial statements”.
In this case CA A proprietor of M/s A & Co., went to abroad and delegated the authority to another
Chartered Accountant Mr. Y, his employee, for taking care of routine matters of his office who is not
a partner but a member of the Institute of Chartered Accountants
 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 and such delegation will not attract
provisions of this clause like issue of audit queries during the course of audit, asking for information or
issue of questionnaire, attending to routing matters in tax practice, subject to provisions of Section
288 of Income Tax Act etc.
(i) In the given case, Mr. Y, a chartered accountant being employee of M/s A & Co. has issued
audit queries which were raised during the course of audit. Here Y is right in issuing the query,
since the same falls under routine work which can be delegated by the auditor. Therefore,
there is no misconduct in this case as per Clause (12) of Part I of First schedule to the Act.
(ii) Further, issuance of production certificate to a client under GST Act by Mr. Y being an employee of
M/s A & Co. (an audit firm), is not a routine work and it is outside his authorities. Thus, CA
A is guilty of professional misconduct under Clause (12) of Part I of First Schedule of the
Chartered Accountants Act, 1949.
(iii) In this instance, Mr. Y, CA employee of the audit firm M/s A & Co. has attended the Income
tax proceedings for a client as authorized representative before Income Tax Authorities. Since
the council has allowed the delegation of such work, the chartered accountant employee can
attend to routine matter in tax practice as decided by the council, subject to provisions of
Section 288 of the Income Tax Act. Therefore, there is no misconduct in this case as per
Clause (12) of Part I of First schedule to the Act.
12. As per Clause (1) of Part I of the Second Schedule of the Chartered Accountants Act, 1949, a
Chartered Accountant in practice is deemed to be guilty of professional misconduct if he discloses
information acquired in the course of his professional engagement to any person other than his client,
without the consent of the client or otherwise than as required by law for the time being in force. SA
200 on " Overall Objectives of the Independent Auditor and the Conduct of an Audit in Accordance
with Standards on Auditing" also reiterates that, "the auditor should respect the confidentiality of
information acquired in the course of his work and should not disclose any such information to a
third party without specific authority or unless there is a legal or professional duty to disclose".
In the instant case, the bank has asked the auditor for detailed information regarding few items in the
financial statements available in his working papers. Having regard to the position stated earlier, the
auditor cannot disclose the information in his possession without specific permission of the client. As
far as working papers are concerned, working papers are the property of the auditor. The auditor may
at his discretion, make portions of or extracts from his working papers available to his client".
Thus, there is no requirement compelling the auditor to divulge information obtained in the course of
audit and included in the working papers to any outside agency except as and when required by any law.
13. As per Clause (6) of Part I of the First Schedule of the Chartered Accountants Act, 1949, a Chartered
Accountant in practice is deemed to be guilty of professional misconduct if he solicits clients or
professional work either directly or indirectly by circular, advertisement, personal communication or
interview or by any other means.
Mr. A is wrong in seeking clients through family and friends. Creating a website is not a non- compliance
provided it is in line with the guidelines issued by the Institute in this regard. One of the guidelines is
that the website should not be in push mode. Further, mentioning of clients’ names is also prohibited
as per the guidelines.
In the given situation, Mr. A shared the website address on his all social media posts and stories and
tagged 30 traders of his local community with the caption “Easy Online Stock Certification
Services” mentioning his current clients as well. This is in complete contravention of the
guidelines on website issued by the ICAI.
Thus, CA, A would be held guilty of professional misconduct under clause 6 of Part 1 of First Schedule of
the Chartered Accountants Act, 1949.
14. As per Clause (4) of Part I of the Second Schedule of the Chartered Accountants Act, 1949, a
Chartered Accountant in practice is deemed to be guilty of 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.
Section 141 of the Companies Act, 2013 specifically prohibits a member from auditing the accounts
of a company in which he is an officer or employee. Although the provisions of the aforesaid section
are not specifically applicable in the context of audits performed under other statutes, e.g. tax audit, yet the
underlying principle of independence of mind is equally applicable in those situations also. Therefore,
the Council’s views are clarified in the following situations.
As per the clarifications issued by the Council, 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.
In the instant case, Mr. D, a practicing CA, is appointed as a Director Simplicitor in XYZ Pvt. Ltd. After
one year of appointment, Mr. D resigned as the Director and accepted the Statutory Auditor position of the
company. In view of above provisions Mr. D cannot accept the Directorship of the company until the
completion of two years after his resignation.
Thus, CA, D would be held guilty of professional misconduct under clause 4 of Part 1 of Second
Schedule of the Chartered Accountants Act, 1949.
15. The financial services industry globally is required to obtain information of their clients and comply
with Know Your Client Norms (KYC norms). Keeping in mind the highest standards of Chartered
Accountancy profession in India, the Council of ICAI issued such norms to be observed by the
members of the profession who are in practice.
 In the given situation, CA. F, gave GST consultancy and helped in ERP set up along with advisory
services to PQR Pvt. Ltd. Mr. F was asked to provide details of the companies as the company, turned
out to be a part of a group of companies, involved in money laundering. Contention of Mr. F that he gave
only consultancy services to the company and wasn’t supposed to keep any information about the
company is not valid as Mr. F should have kept following information in compliance with KYC Norms
which are mandatory in nature and shall apply in all assignments pertaining to attestation functions.
In the given case of PQR Pvt. Ltd., a Corporate Entity, Mr. F should have kept following
information:
A. General Information
Name and Address of the Entity Business
Description
Name of the Parent Company in case of Subsidiary Copy of
last Audited Financial Statement
B. Engagement Information
Type of Engagement
C. Regulatory Information
Company PAN No.
Company Identification No.
Directors’ Names & Addresses Directors’
Identification No.
16. As per Clause (12) of Part I of the First Schedule of the Chartered Accountants Act, 1949, a Chartered
Accountant in practice is deemed to be guilty of professional misconduct if he allows a person not
being a member of the institute in practice or a member not being his partner to sign on his behalf or
on behalf of his firm, any balance sheet, profit and loss account, report or financial statements.
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. Raising of bills and issuing
acknowledgements for money receipts.
(ix) Attending to routine matters in tax practice, subject to provisions of Section 288 of
Income Tax Act.
(x) Any other matter incidental to the office administration and routine work involved in
practice of accountancy.
In the instant case, Mr. S, the auditor of ABC Pvt. Ltd. has delegated certain task to his articles and
staff such as issue of audit queries during the course of audit, issue of memorandum of cash
verification and other physical verification, letter forwarding draft observations/financial statements,
issuing acknowledgements for records produced and signing financial statements of the company.
Therefore, Mr. S is correct in allowing first four tasks i.e. issue of audit queries during the course of
audit, issue of memorandum of cash verification and other physical verification, letter forwarding
draft observations/financial statements, issuing acknowledgements for records produced to his staff
and articles.
However, if the person signing the financial statements on his behalf is not 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, Mr. S is wrong
in delegating signing of financial statements to his staff.
Conclusion: In view of this, S would be guilty of professional misconduct for allowing the person
signing the financial statements on his behalf to his articles and staff under Clause 12 of Part 1 of First
Schedule of the Chartered Accountants Act, 1949.