Cost Auditor Professional Ethics and Responsibilities

Cost Auditor - Professional Ethics and Responsibilities Cost and Management Audit 3.
Code of Ethics - As professionals in the field of Cost and Management Accounting, the members of
our Institute are bound by a code of professional ethics. This code prescribes and binds the members
to the highest level of care, due diligence and responsibility to their clients and employers, the public
and their fellow professionals.
The objective of this code is to instill the following virtues amongst the members –
a) Integrity - be straightforward and honest;

b) Competence – not to perform any service which he is not competent (he either lacks skill /
diligence / knowledge) to carry out;
c) Confidentiality - not disclose information acquired during the course of his engagement;
d) Objectivity - be fair and should not allow prejudice or bias; and
e) Professional behavior - act in a manner consistent with the good reputation of the profession
I C COP
The Institute of Cost Accountants of India has been given powers under the First and Second Schedule
of The Cost And Works Accountants Act, 1959 (‘CWA Act’) to regulate the profession and to initiate
any enquiry into cases where it is of the opinion that a member is guilty of professional or other
misconduct.
As per the Act, the expression “professional or other misconduct” shall include any act of – a)
commission or b) omission provided in any of the Schedules.
The contents of the Schedules of the CWA Act are briefly discussed as under:-
Schedule Particulars
First Professional misconduct in relation to cost accountants in practice. E.g. A
Schedule - practicing cost accountant should not:
Part I ✓ allow any person to practice in his name, other than his CMA partners
✓ pay any share, commission or brokerage (directly or indirectly) in the fees or
profits of his professional work, to any person other than his partners
✓ accepts or agrees to accept any part profits of professional work of a person
who is not a member of the institute
✓ enters into partnership with any person, other than a cost accountant in
practice
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Cost Auditor - Professional Ethics and Responsibilities Cost and Management Audit 3.2
✓ secures professional business from a) any person other than his partner or
employees or b) from any source which is not open to cost accountants
✓ solicit clients or professional work, by circular, advertisement, personal
communication or interview or by any other means. However, soliciting
professional work from - a) another cost accountant in practice and b)
through bidding in a tender for professional services etc. will not tantamount
to professional misconduct
✓ advertise his professional attainments or services, or uses any designation or
expressions other than cost accountant on professional documents, visiting
cards, letter heads or sign boards, unless the other designations are
recognized by the Central Government
First Professional misconduct in relation to members of the institute in service. E.g. A
Schedule - member in service should not:
Part II ✓ pay to any person any share in the emoluments of the employment
undertaken by him
✓ accept any part of fees, profit or gains from a lawyer, a cost accountant or
broker engaged by such company, firm or person or agent or customer of
such company, firm or person by way of commission or gratification
First Professional misconduct in relation to members of the institute generally. E.g. A
Schedule - member, whether in practice or not, should not:
Part III ✓ act as a fellow of the Institute, if he is not a fellow of the Institute
✓ refrain from supplying information called for by the Institute, Council or any
of its Committees
✓ Supplies / gives information knowing it to be false, while soliciting work
from other cost accountants / responding to tenders / bids.
First Other misconduct in relation to members of the institute generally. E.g. A member,
Schedule - whether in practice or not, should not:-
Part IV ✓ be held guilty by any civil or criminal court for an offence which is
punishable with imprisonment for a term i.e. exceeding six months
✓ bring disrepute to the profession or the institute as a result of his action
whether or not related to his professional work
Second Professional misconduct in relation to cost accountants in practice. E.g. a
Schedule - practicing cost accountant should not:-
Part I ✓ disclose confidential information acquired in the course of his professional
engagement to any other person
✓ certify a report of an examination of cost accounting, unless the examination
of such statements has been made by him or by his partner
✓ permits use of his name in connection with an estimate of cost or earnings
which is contingent upon future events, showcasing that he vouches for the
accuracy of the forecast
✓ express his opinion on cost or pricing statements of any business or
enterprise in which he, his firm or a partner in his firm has a substantial
interest

✓ fail to report a material mis-statement known to him to appear in a cost or
pricing statement
✓ does not exercise due diligence, or demonstrate gross negligence in conduct
of his professional duties, like - a) failure to obtain sufficient information
before expressing his opinion, b) failure to invite attention to material
departure from the generally accepted costing principles etc.
Second Professional misconduct in relation to members of the institute generally. E.g. a
Schedule - member of the institute, whether in practice or not, should not:-
Part II ✓ contravene any of the provisions of this Act or the regulations made there-
under
✓ disclose confidential information acquired in the course of his professional
engagement to any other person
✓ furnishing incorrect information(s) to the Institute, Council or any of its
Committees, knowing them to be false
✓ defalcate or embezzle moneys received in his professional capacity
Second Other misconduct in relation to members of the institute generally. E.g. A
Schedule - member of the Institute, whether in practice or not, shall be deemed to be guilty of
Part III 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.
Escalation matrix
Professional and other

misconduct(s)
Related to Schedule II
Related to Schedule I
or both the schedules
Complaint referred to the Complaint referred to the

board of discipline disciplinary committee
Following actions may be taken by the Board: Following actions may be taken by the Committee:
a) reprimand the member a) reprimand the member
b) remove the name of member (for 3 months) b) remove the name of member (permanently)
c) fine upto a maximum of INR 100,000 c) fine upto a maximum of INR 500,000

FYK
Members of Board of Discipline Members of Disciplinary Committee
1. a person with experience in law and • The Council shall constitute a
having knowledge of disciplinary Disciplinary Committee consisting of
matters and the profession, to be its the President or the Vice-President of
Presiding Officer; the Council as the Presiding Officer;
2. two Council members; • two members to be elected from
3. the Director (Discipline) shall function amongst the members of the Council;
as the Secretary of the Board. 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
Some other penalties enunciated in CWA Act.
Section Particulars
Section 21 Constitution of Disciplinary Directorate, Board of Discipline and Disciplinary
committee of the Institute
Section 24 Any person who,
a) not being a member of the Institute, represents that he is a member of the
Institute; or
b) not being a member of the Institute, uses the designation cost accountant; or
c) being a member of the Institute, but not having a certificate of practice,
represents that he is in practice or practices as a cost accountant,
shall be punishable as under:-

• on first conviction - fine of upto INR 1000 rupees,
• on any subsequent conviction - imprisonment of upto to six months, or with
fine upto INR 5,000, or with both.
Section 25 (1) No person shall:-
i. use a name or a common seal which is identical with the name or the common
seal of the Institute; or
ii. award any degree, diploma or certificate of any qualification or competence in
cost accountancy similar to that of a member of the Institute; or
iii. seek to regulate in any manner whatsoever the profession of cost accountants.
(2) Any person contravening the provisions of sub-section (1) shall, be punishable as
under:-
• on first conviction - fine of upto INR 1,000

Section Particulars
• on any subsequent conviction - imprisonment of upto 6 months, or with fine
upto INR 5,000, or with both.
Section 26 (1) No company (including an LLP which has a company as its partner), whether
incorporated in India or elsewhere, shall practice as cost accountants.
(2) Any contravention of the provisions of sub-section (1) shall be punishable as
under:-
• on first conviction - fine of upto INR 1,000
• on any subsequent conviction – fine of upto INR 5,000.
Section 27 No person other than a member of the Institute shall sign any document on behalf of
a cost accountant in practice or a firm of such cost accountants in his or its
professional capacity.
(2) Any person who contravenes the provisions of sub-section (1) shall, be punishable
as under:-
• on first conviction - fine of INR 5,000 to INR 100,000,
• on subsequent conviction - imprisonment for upto one year or with a fine of
INR 10,000 – INR 200,000 or with both.
Section 28 If the person committing an offence under this Act is a company, the company as
well as every person in charge of, and responsible to, the company for the conduct of
its business at the time of the commission of the offence shall be deemed to be guilty
of the offence and shall be liable to be proceeded against and punished accordingly.
Section 29 No person shall be prosecuted under this Act except on a complaint made by or under
the order of the Council or of the Central Government.
Relevant sections under the Companies Act, 2013 dealing with fraud and false statements
Section Particulars
Section 447 any person who is found to be guilty of fraud (fraud means concealment of any fact
or abuse of position committed by any person or any other person with the connivance
in any manner, with intent to deceive), shall be punishable as under:-
• imprisonment for 6 months to 10 years; and
• fine which shall not be less than the amount involved in the fraud, but which
may extend to three times the amount involved in the fraud
Section 448 if in any return, report, certificate, financial statement, prospectus, statement, any
person makes a statement,—
(a) which is false in any material particulars, knowing it to be false; or
(b) which omits any material fact, knowing it to be material, he shall be liable
under section 447

Illustration 1: Explain whether the following activities amount to professional misconduct or not:
(a) A Cost Accountant takes voluntary retirement from his employer and starts practice. He continues
his association with his previous employers as an advisor, on a monthly retainer.
(December 2005 and 2017 & June 2012)
(b) A practicing lawyer specializing in anti-dumping cases comes to an informal understanding with
an independent practicing Cost Accountant to assist him in preparing accounting statements to support
his cases, and agrees to share his fees on a percentage basis. (December 2005 & June 2002)
(c) A Cost Accountant gives a certificate of cost for a product manufactured by an SSI unit owned
entirely by his son. (December 2005 & 2008 and June 2012)
(d) A cost accountant gives a certificate of cost of production for attaching with a tender for a cost–
plus contract. He comes to know after signing the certificate that his client has won a case with a
supplier on account of which the client is entitled to get a refund of substantial portion of the purchase
price of the raw material. The certificate is not corrected. (December 2008)
(e) X is a shareholder, in PQ Ltd. holding 100 shares. The company’s paid up capital is Rs. 5 crores
(50 lakh shares of Rs. 10 each). X accepts a certificate work from the company.
(December 2008 & 2010)
(f) A Practising Cost Accountant brings disrepute to the profession, as a result of his action in his
professional work.
(g) A practising Cost Accountant, for his personal advantage, shares certain confidential information
acquired during the of his cost auditing. (December 2005)
(h) A firm of Cost Accountants undertake the Cost Audit of a company. The audit work is conducted
by one of the partners and two assistants. The report is however, signed by another partner.
(December 2010)
(i) A practicing cost accountant accepts an assignment previously held by another cost accountant in
practice, after due communication with him in writing. (December 2005)
(j) A practicing member/firm maintains branch office in India – each under the separate charge of a
member of ICAI. (June 2008)
(k) Personal discussion / correspondences with prospective clients relating to achievement and
capabilities of the practicing cost accountant. (June 2008 & June 2012)
(l) Press publicity (not an advertisement) regarding appointment as an Auditor (June 2008)
(m) An advertising notifying changes in address / partnership (June 2008)
(n) Mr. S. Jain, a practicing Cost Accountant takes up job as a full time lecturer in XBL Management
Institute at Jamshedpur affiliated to Ranchi University. (December 2011)

(o) Mr. P Dhar, a practicing Cost accountant uses a visiting card in which he designated himself besides
as Cost Accountant, as “Tax Consultant”. (December 2011)
(p) Mr. P. Nadkarni, a Cost Accountant practicing in India enter into partnership with Mr. R. D. Hones,
CMA, USA. (December 2011)
(q) CMA ANUSUA, a Cost Accountant in practice published a book and gave her personal
introduction as an author. The details also mentioned her professional experiences and her association
as partner with PKR and Associates, a firm of Cost Accountants. (December 2012)
(r) M/s. R.K. Bhatia & Associates, a firm of Cost Accountants in practice, develops a website
“bhatia.com”. The color chosen for website was very bright yellow where the names of the partners of
the firm along with their various professional attainments and the major clients were to be displayed
on the website. (December 2012)
(s) CMA D.R.RADHAKRISHNAN a Cost Accountant in practice takes up the appointment as

Managing Director of ANKRIT LTD., a public limited company. (December 2012)
(t) F. B. HORE & CO., a firm of Cost Accountants was appointed by a Company to evaluate the costs
of the various products manufactured by it for its information system. One of the partners of the firm
was a Non-Executive Director of the Company. (June 2013)
(u) Mr. Arun, a CMA, is working as Manager-Cost Accounts of PQR Ltd. He accepts 10% of profits
from his friend, Mr. Raju, a lawyer and a legal consultant for PQR Ltd. He is doing the job on
retainership basis. (June 2018)
(v) Mr. S, a CMA in Practice, certifies a cost and pricing statement of manufacturing of pipes for the
supply relating to a contract. The statement is prepared by Mr. T, who is not a CMA or an employee
of Mr. S. (June 2018)
(w) Mr. Arunmaya, a practicing Cost Accountant engaged two trainees, undergoing training under his
guidance for audit job. Since the job was voluminous, he agreed to pay them, in addition to stipend,
an amount of 10% of the audit fees. Does the action of Mr. Arunmaya amount to professional
misconduct? (December 2018)
Answer:
(a) A cost accountant in practice can rightly in his/her professional capacity advise their client,
whether against fees or not. The accountant under reference has disconnected himself with his/her
previous employer as an employee and acts only in an advisory capacity, which is a legitimate activity
of a practising Cost Accountant. It does not amount to professional misconduct.
(b) Although the practicing cost accountant can accept the assignment for preparing the necessary
statements for the antidumping cases for a specified fee, the sharing of total fees on a percentage basis
between the lawyer and cost accountant amounts to an informal partnership between them, which is
prohibited. Therefore, this practice falls under the definition of professional misconduct.

(c) The Second Schedule to the Cost and Works Accountants Act, 1959 stipulates that a Cost
Accountant in practice shall be deemed to be guilty of professional misconduct if he expresses his
opinion on cost or pricing statements of any business or enterprise in which he, his firm or a partner in
his firm has a substantial interest, unless he discloses the interest also in his report.
Strictly speaking, a cost accountant issuing a certificate for a unit in which he has no direct interest is
in order and there is no professional misconduct. However, as in this case the factory is owned by the
cost accountant’s son it would be prudent on the part of the accountant to desist from issuing such a
certificate on moral grounds.
(d) Although at the time of signing the certificate, the cost of materials was based on the accounts and
documents made available to the cost accountant, if he was aware of the pending litigation, he should
have qualified his report as such. Otherwise, it would amount to misconduct. On the other hand, if the
cost accountant was kept in dark about the litigation by the client, he should have issued a corrigendum
to the certificate immediately after he comes to know of the judgment.
(e) Since X does not have substantial interest in PQ ltd., his undertaking the certification work does
not amount to professional misconduct.
(f) Part IV of First schedule provides that a member of the Institute in practice shall be deemed to be
guilty of misconduct, if in the opinion of the Council, he brings disrepute to the profession as a result
of his action – relating to his professional work.
(g) Confidential information acquired as a result of professional relationship should not be used for
the personal advantage of the professional accountant. This will be treated as a professional
misconduct.
(h) The first schedule provides that a cost accountant will be guilty of professional misconduct of 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. Therefore, in the current case the cost accountant is not in default.
(i) There is no professional misconduct in accepting new engagements after communicating with the
erstwhile cost auditor. In the instant case auditor has accepted the engagement after communicating
with the previous auditor. Hence there is no misconduct.
(j) No misconduct
(k) No misconduct
(l) it will tantamount to professional misconduct as this may be taken to mean as advertisement of
professional attainment
(m) No misconduct
(n) Part 1 of the First Schedule to the Cost & Works Accountants Act, 1959, prohibits a member in
practice to engage in any business or occupation other than the profession of Cost Accountant, unless
permitted by the Council so to engage.

Such prohibition has been introduced as it would not be keeping with the dignity of the profession and
may also enable the member to secure as unfair advantage in his professional practice. In the instant
case, Mr. S. Jain has accepted the appointment of lecturership without obtaining specific and prior
approval of the Council. Accordingly, Mr. S Jain would be guilty of Professional Misconduct.
(o) Part 1 of First Schedule of prohibits use of any designation other than cost accountant on
professional documents, visiting cards, letterheads or sign boards. Thus, it is improper to use
designation “Tax Consultant” and Mr. P. Dhar is guilty of professional misconduct under.
(p) As per MOU with IMA, USA, a member of ICAI can get enrolled as a member of IMA, USA and
vice-versa. However, an IMA member enrolling as member of ICAI will not be allowed to hold a
certificate of practice to undertake any statutory work in India. Mr. P Nadkarni, a Cost Accountant
practicing in India and entering into partnership with R. D. Hones, CMA, USA, amounts to
professional misconduct.
(q) A Cost Accountant in practice shall be 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.
CMA, AUSUA being a Cost Accountant in practice has committed a professional misconduct by
mentioning that at present she is a partner of M/s PKR & Associates, a firm of Cost Accountants (Part
I of First Schedule to the Cost and Works Accountants Act, 1959)
(r) The Council of the Institute of Cost Accountants of India had approved posting of particular on
website by Cost Accountants in practice subject to the prescribed guidelines. The relevant guidelines
are:
• No restriction on the colours used in the website.
• Names of clients and fees charged not to be given.
Part-I of First Schedule to the Cost and Works Accountants Act, 1959 prohibits a member not to
advertise his professional attainments or services other than Cost Accountant on professional
documents, visiting cards, letter heads or sign boards.
In view of the above, M/s R.K. Bhatia & Associates would have no restriction on the colours used in
the website but failed to satisfy other guidelines by displaying the professional attainments and names
of the clients on the website.
Thus, M/s R.K.Bhatia & Associates would be held guilty of professional misconduct under Part-I of
First Schedule to the Cost and Works Accountants Act, 1959.
(s) Part-I of the First Schedule to the Cost and Works Accountants Act, 1959 aims to restrain a member
in practice from engaging himself in any business or occupation other than that of a Cost Accountant
except when permitted by the Council to be so engaged. Accordingly, in the absence of specific and
prior approval, Cost Accountant would be held guilty of professional misconduct. Thus, in the instant
case CMA Dr. Radhakrishnan would be held to be guilty of professional misconduct.

(t) Part-I of the Second Schedule to the Cost and Works Accountants Act, 1959 states that expressing
an opinion on cost and pricing of any business or any enterprise in which the auditor or his firm or a
partner in his firm has a substantial interest would constitute misconduct, unless he discloses the
interest also in his report.
As per the facts of the case, the firm has been retained to evaluate the cost of products manufactured
by it for its information system and the partner of the firm is a non-executive director in the Company.
So, this amounts to Professional misconduct.
(u) As per provisions of Clause 2 of Part II of The First Schedule of The Cost and Works Accountants
Act, 1959, stipulates the Professional Misconduct in relation to Cost Accountants in Service. As per
the provisions of Part II of the First Schedule of the Act, a Cost Accountant in Service shall be deemed
to be guilty of Professional Misconduct, if he/she "accepts or agrees to accept any part of fees, profits
or gains from a lawyer, a cost accountant or a broker engaged by such a company, firm or person or
agent or customer of such company, firm or person by way of commission or gratification". In the
given case, Mr. Arun, who is working as a Manager—Cost Accounts of PQR Ltd., accepts 10% of
profits from Mr. Raju, who is a legal consultant of the same company. This amounts to Professional
Misconduct.
(v) As per provisions of Clause 2 of Part I of The Second Schedule of The Cost and Works Accountants
Act, 1959, stipulates, the Professional Misconduct in relation to Cost Accountants in Practice. As per
the provisions of the Part I of the Second Schedule of the Act, a Cost Accountant in practice shall be
deemed to be guilty of professional misconduct, if he/she "certifies or submits in his/her name, or in
the name of his/her firm, a report of an examination of cost accounting and related statements unless
the examination of such statements has been made by him/her or by a partner or an employee in his/her
firm or by another Cost Accountant in Practice". In the given case, Mr. S. certifies the cost and pricing
statement of a company, which is manufacturing pipes. The statement is to be submitted for a Contract
and is not prepared by him. It is prepared by Mr. T. who is neither a CMA nor an employee of Mr. S.
Hence, this amounts to Professional Misconduct.
(w) As per Part I of the First Schedule of the Cost and Works Accountants Act, 1959, a Cost
Accountant in practice shall be deemed to be guilty of professional misconduct, if he/she pays or allows
or agrees to pay or allow, directly or indirectly, any share, commission or brokerage in the fees or
profits of his/her professional work, 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. Under such circumstances, any
payment to trainees as a percentage of audit fees is a professional misconduct. He may, if necessary,
pay a lump sum stipend to the trainees.
Illustration 2: Mr. P. Swamy, the Cost Auditor of PQR Ltd. for the FY 2016-17, was offered an
assignment of Investment Consultant of RST Ltd., a subsidiary of PQR Ltd., for the same year.
(i) Whether the acceptance of the assignment amounts to violation of law and professional
misconduct? (ii) What are the penal provisions, if any? (Mention the relevant provisions.)
(June 2017)

Solution: (i) Any person who is engaged in consulting and providing specialized services to a company
and its subsidiary companies is not eligible to act as Cost Auditor [Section 141 of the Companies Act,
2013, read with Companies (Audit and Auditors) Rules, 2014]. The Cost Auditor cannot accept the
assignment as long as he/she remains appointed as the Cost Auditor of the company.
A member of the institute, whether in practice or not, shall be deemed to be guilty of other misconduct,
if— (1) he is held guilty by any civil or criminal court for an offence which is punishable with
imprisonment for a term not exceeding six months; (2) in the opinion of the Council he brings disrepute
to the profession or the institute as a result of his action whether or not related to his professional
work.[Part IV, The First Schedule]
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. [Part III, The Second Schedule]
(ii) If an auditor has contravened the provisions of the Companies Act, 2013, he/she shall be
punishable with fine which shall not be less than twenty five thousand rupees but which may extend
up to five lakh rupees. When the auditor has contravened knowingly or willfully with the intention to
deceive the company or its shareholders or creditors or tax authorities, he/she shall be punishable with
imprisonment for a term which may extend to one year and with fine, which shall not be less than one
lakh rupees but which may extend up to twenty-five lakh rupees. When the auditor has been convicted
as above, he/she shall be liable to refund the remuneration received and pay for the damages to the
company, statutory body or to any other person for the loss arising out of incorrect statement made in
his/her report [Section 147 of the Act].
A member of the Institute, whether in practice or not, shall be deemed to be guilty of other misconduct,
if he/she is held guilty by any civil or criminal court for an offence which is punishable with
imprisonment for a term exceeding six months [The Second Schedule, Part III of the Cost and Works
Accountants Act, 1959].
Illustration 3: What action amounts to professional misconduct in relation to the members of the ICAI
in service?
Solution: A member of The ICAI in service, i.e., other than a member in practice, shall be deemed to
be guilty of professional misconduct, if he/she being an employee of any company, firm or person—
(1) pays or allows to pay, directly or indirectly, to any person any share in the emoluments of the
employment undertaken by him/her;
(2) accepts or agrees to accept any part of fees, profit or gains from a lawyer, a cost accountant or a
broker engaged by such company, a firm or a person or an agent or a customer of such company,
a firm or a person by way of commission or gratification.
Illustration 4: Mr. X, the Cost Auditor of a company, contributes articles in various papers or journals,
discussing matters of professional interest. In the course of such discussion, he mentions various data

which include some vital, but unpublished, data relating to his client company without its tacit
approval. State whether there is punishment, if any, of the Cost Auditor for such contravention.
(December 2017)
Solution: Part I of the Second Schedule to the Cost and Works Accountant’s Act 1959 deals with the
professional misconduct relating to the disclosure of information by a CMA in practice relating to the
business of his /her clients to any person other than his/her without the consent of the client or
otherwise than as required by any law for the time being in force would amount to breach of
confidence. The code of ethic further clarifies that such duty continues even after completion of the
assignment. The CMA may, however, disclose the information in case it is required as a part of
performance of his/her professional duties.
In the given case Mr. X has disclosed vital information of his client’s business without the consent of
the client under the impression that it will help the profession and the industry at large it is a
professional misconduct covered by Part I of the Second Schedule of the Cost and Work Accountant’s
Act 1959.
Illustration 5: A member of the Institute, whether in practice or not, is liable for disciplinary action if
he/she is found guilty of professional and other misconduct. Explain the term ‘other misconduct.”
(December 2017)
Solution: As per Part IV of the first schedule to the Institute of Cost and Work Accountant’s Act 1959,
a member of the Institute, whether in practice or not, shall be deemed to be guilty of other misconduct
if-
1. He /She is held guilty by any civil or criminal court for an offence which is punishable with
imprisonment for a term exceeding 6 months and
2. In the opinion of the Council he/she brings disrepute to the profession or the Institute as a result
of the action whether or not related to his /her professional work.
Illustration 6: ABC Ltd. changed its Stock Valuation Policy from FIFO method to Average Cost
method in the FY 2018-19, as a result of which the profit of the Company was inflated by Rs. 25 lakhs.
The change in policy and the fact of additional gain were not disclosed by the Company nor the Cost
Auditor in the Audit Report. State whether the Cost Auditor is deemed to be guilty of professional
misconduct. (June 2019)
Solution: The Second Schedule to the Cost and Works Accountants Act, 1959 stipulates that a Cost
Accountant in practice shall be deemed to be guilty of professional misconduct if he (Item 5) fails to
disclose a material fact known to him in a cost or pricing statement but disclosure of which is necessary
in making such statement; (Item7) does not exercise due diligence or is grossly negligent in the conduct
of his professional duties; (Item 9) fails to invite attention to any material departure from the generally
accepted procedure of costing and pricing applicable to the circumstances; In the given circumstances,
the Auditor has failed in his duties and is deemed to be guilty of professional misconduct.

Illustration 7: A firm of Cost Accountants was appointed by a company to evaluate the costs of the
various products manufactured by it for its information system. One of the partners of the firm was a
Non-Executive Director of the company. Is it permissible? (December 2019)
Solution: Clause 4 of Part-I of the Second Schedule to the Cost and Works Accountants Act, 1959
states that expressing an opinion on cost and pricing of any business or any enterprise in which the
auditor or his firm or a partner in his firm has a substantial interest would constitute misconduct, unless
he discloses the interest also in his report. As per the facts of the case, the firm has been retained to
evaluate the cost of products manufactured by it for its information system. Therefore, this amounts to
Professional misconduct.
Illustration 8: What is the duty of a cost auditor to report fraud under section 143 of the companies
act 2013?
Solution: According to 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 such time and in such manner
as may be prescribed.
Sub-Section 13 specifies that no duty to which an auditor of a company may be subject to shall be
regarded as having been contravened by reason of his reporting the matter referred to in sub-section
(12) if it is done in good faith.
Sub-Section 14 makes it clear that he provisions of this section shall mutatis mutandis apply to the cost
accountant in practice conducting cost audit under section 148. According to Sub-Section 15 if any
auditor, cost accountant or company secretary in practice do not comply with the provisions of sub-
section (12), he shall be punishable with fine which shall not be less than one lakh rupees but which
may extend to twenty-five lakh rupees.
Matter to be reported immediately but not later than 2 days of his knowledge specifying:
a. Nature of Fraud with description;

b. Approximate amount involved; and
c. Parties involved.
Following disclosures to be made in Board’s Report:
a. Nature of Fraud with description;

b. Approximate Amount involved;
c. Parties involved, if remedial action not taken; and
d. Remedial actions taken.



Cost Auditor Professional Ethics and Responsibilities

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Cost Auditor Professional Ethics and Responsibilities

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Cost Auditor - Professional Ethics and Responsibilities Cost and Management Audit 3.

a) Integrity - be straightforward and honest;

Email ID – [email protected]; Mob.: +91 96439 29913

Email ID – [email protected]; Mob.: +91 96439 29913

Professional and other

Complaint referred to the Complaint referred to the

Email ID – [email protected]; Mob.: +91 96439 29913

Some other penalties enunciated in CWA Act.

shall be punishable as under:-

Email ID – [email protected]; Mob.: +91 96439 29913

Email ID – [email protected]; Mob.: +91 96439 29913

(December 2005 and 2017 & June 2012)

(December 2008 & 2010)

(m) An advertising notifying changes in address / partnership (June 2008)

Email ID – [email protected]; Mob.: +91 96439 29913

(s) CMA D.R.RADHAKRISHNAN a Cost Accountant in practice takes up the appointment as

Email ID – [email protected]; Mob.: +91 96439 29913

Email ID – [email protected]; Mob.: +91 96439 29913

• No restriction on the colours used in the website.

• Names of clients and fees charged not to be given.

Email ID – [email protected]; Mob.: +91 96439 29913

Email ID – [email protected]; Mob.: +91 96439 29913

Email ID – [email protected]; Mob.: +91 96439 29913

Email ID – [email protected]; Mob.: +91 96439 29913

a. Nature of Fraud with description;

Following disclosures to be made in Board’s Report:

a. Nature of Fraud with description;

Email ID – [email protected]; Mob.: +91 96439 29913

Email ID – [email protected]; Mob.: +91 96439 29913

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