15 - Professional Ethics

ADVANCED AUDITING & PROFESSIONAL ETHICS MASTER MINDS
CA C.V.SARMA, M.Com., FCA
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PRFOFESSIONAL ETHICS
The term “ethics” means moral principles which govern a person‟s behaviour. In other
words ethics is noting but the law or rules of acceptable behaviour. The whole
foundation of CA profession is its credibility. The purpose of introduction of
professional ethics is to ensure the credibility of the profession.
Section 22 of the Chartered Accountants Act which contains the Acts or Omissions of
Professional Misconduct has been divided into two Schedules. They are
 The First Schedule
 The Second Schedule
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.
The First Schedule

The First Schedule has 4 Parts. They are No. of Clauses
Part I - Professional misconduct in relation to Chartered Accountants
in Practice 12
Part II - Professional misconduct in relation to Chartered Accountants in
Service 2
Part III -Professional misconduct in relation to members generally 3
Part IV - Other misconduct in relation to members generally 2
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19
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The Second Schedule No. of Clauses
The Second Schedule has 3 Parts. They are
Part I - Professional misconduct in relation to Chartered Accountants
in Practice 10
Part II - Professional misconduct in relation to members generally 4
Part III –Other misconduct in relation to members generally 1
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15
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TOTAL NUMBER OF CLAUSES 34
EXAMPLES OF OTHER MISCONDUT
1. Where a CA retains the books of account and documents of the client and fails to
return those to the client on a request without a reasonable cause.
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2. Where a CA uses the services of his articled or audit assistants for purpose other
than professional practice.
3. Non replying within a reasonable time and without good cause to the letter of the
public authorities.
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 ot the
applicant. The following are the particulars to be included in the Register about every
member of the Institute:
a. Full Name, Date of Birth, Residential and Professional Address
b. Date of entry of name in the Register
c. Qualifications
d. Whether he holds COP
e. Any other prescribed particulars.
DISABILITIES FOR THE PURPOSE OF MEMBERSHIP:
Section 8 of the Chartered Accountants Act enumerates the circumstances under which a
person is debarred from having his name entered in the Register of Members:
(1) 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
(2) If he is of unsound mind and stands so adjudged by a competent Court; or
(3) If he is an un-discharged insolvent; or
(4) 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
(5) If he has been convicted by a Competent Court whether within or without India of
an offence involving moral turpitude and punishable with imprisonment
or
(6) If he has been removed from membership of the Institute on being found on inquiry
to have been guilty of professional or other misconduct
Types of Members of the Institute
According to Section 5 of the Chartered Accountants Act, 1949, the members of the Institute
shall be divided into two classes designated as Associates and Fellows.
Associate Member: Any person, whose name has 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 the following types of members shall be entered into the
Register as a Fellow of the Institute, on payment of such fee 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.
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ii) A member who has been 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 above mentioned 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.
DISCIPLINARY PROCEDURE
Flow Chart of Discipline Procedure Mechanism
Complaint against member of ICAI of alleged misconduct along with prescribed

fee
Disciplinary Directorate
The Director (Discipline) shall arrive at a prima facie opinion on the occurrence of alleged
misconduct and decide whether the member is guilty of professional or other misconduct
falling in
First Schedule Second Schedule or Both Schedule

Place the matter before Place the matter before
Board of Discipline Disciplinary Committee
1. Reprimand the member 1. Reprimand the member

2. Remove the name of the member from 2. Remove the name of the member
the register up to a period of from the register permanently or for
3 months such period as it thinks fit
3. Impose fine up to Rs.100000 3. Impose fine up to Rs.500000
Any member aggrieved by order of Board of Discipline/Disciplinary Committee, can prefer
an appeal within 90 days before Appellate Authority.
It can
1. Confirm, modify or set aside the order,
2. Impose, Set aside, Reduce or enhance penalty
3. Remit the case to the Board of Discipline or Disciplinary Committee for reconsideration
4. Pass such order as the Authority thinks fit.
FIRST SCHEDULE
PROFESSIONAL MISCONDUCT IN RELATION TO CHARTERED
ACCOUNTANTS IN PRACTICE
CLAUSE - 1
2.3
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.
 The objective behind introduction of this clause is to safeguard the public
against unqualified accountant practicing under the cover of qualified
accountant.
 This clause insists that the work of the Chartered Accountant shall be carried out
by
 him or
 his partner or
 his employee who 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 qualifications
as may be prescribed for the purpose of rendering such professional services
from time to time in or outside India.
 The objective behind introduction of this clause is to ensure that professional work
is not to be introduced to a member by a third party.
 A Chartered Accountant should not share his fees or profits of his professional
business or should not pay any commission or brokerage in the fees or profit of
his professional business to any person.
 According to this clause, a Chartered Accountant in practice can share his fees only
with the following persons
a. a member of the Institute
b. a partner
c. retired partner
d. legal representative of a deceased partner
e. a member of any other professional body or
f. persons having prescribed qualifications
 A Chartered Accountant is deemed to be guilty even where he agrees to pay or
allow any share, commission or brokerage to any person except with those persons
mentioned above. Actual payment is not necessary.
 The registrars of various co-operative societies issued circulars where by the
auditor of a co-operative society has to deposit a % of his audit fee in the state
treasury for recovering the administrative and other expenses and the council decides
that there is no bar to accept such assignment.
CASE LAWS
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1. A Chartered Accountant gave 50% of the audit fee received by him to his
employee in the nomenclature of office allowance – Held that Chartered
Accountant shared his profit and guilty of professional misconduct.
2. Mr. Ramana, A Chartered Accountant in practice enters into an agreement with a
senior accountant to pay 12% of the gross fee received by him from clients referred
by the accountant as commission. However, at the end of the first year, the
Chartered Accountant refuses to pay the agreed upon commission and tells the
senior accountant that the agreement stands terminated – Held guilty of
professional misconduct even though there is no actual payment. As per
the above clause, the Chartered Accountant will be deemed to be guilty of
professional misconduct even though he merely agrees to pay the amount. The
mere fact that Mr. Ramana terminated the agreement at the end of the 1st year is
not relevant since merely by entering into agreement, he has violated the
provisions of the Chartered Accountants Act, 1949.
Explanation
For the purpose of this clause, “partner” includes a person residing outside India with whom
a Chartered Accountant in practice has entered into Partnership which is not in
contravention of clause 4 Part I of First Schedule.
Sharing of Fees/Profit with legal representative of a deceased partner on Death
of a Partner
When there are two or more partners and one of them dies, the widow or the legal
representative of the deceased partner can continue to receive a share of the Firm
for a specified period, only when the partnership agreement contains a specific
stipulation to that effect.
PAYMENT OF GOODWILL
The following are the views of the council of the ICAI with regard to payment of goodwill.
1. Goodwill of a proprietary firm can be sold to another member after death of
the proprietor concerned.
2. Payment of the goodwill to the widow is permissible in case of such sale.
3. Such payment may be made in lump-sum or in installments. However, for
payment in installments, the agreement of sale should contain a
provision to that effect.
4. Fee sharing between the widow or legal representative of the proprietor of
a single member firm and the purchaser of goodwill of the firm is not
allowed.
5. The above decision of the council regarding sale of goodwill is
applicable even for a partnership firm when all the partners of the firm
die at the same time.
Contents of the notification issued by the institute of chartered accountants of
India in relation to clause 2, 3 and 5 of part i of the first schedule to the
chartered accountants act – Regulation 53A(1) of Chartered Accountants
Regulations, 1988
Professional bodies
For the purposes of Items (2), (3) and (5) of Part I of the First Schedule to the Act, a person
has to be a member of any of the following professional bodies, namely:
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(a) The Institute of Company Secretaries of India

(b) The Institute of Cost and Works Accountants of India
(c) Bar Council of India
(d) The Indian Institute of Architects
(e) The Institute of Actuaries of India
Professional bodies outside india
The membership of the professional bodies or institutions outside India whose qualifications
relating to accountancy are recognized by the Council
Persons Qualified In India
For the purposes of Items (2), (3) and (5) of Part I of the First Schedule to the Act, the
following shall be the persons qualified in India, namely:
(i) Company Secretary
(ii) Cost Accountant
(iii) Actuary
(iv) Bachelor in Engineering from a University established by law or an Institution
recognized by law;
(v) Bachelor in Technology from a University established by law or an institution
recognized by law;
(vi) Bachelor in Architecture from a University established by law or an institution
recognized by law;
(vii) Bachelor in Law from a University established by law or an institution recognized by
law;
(viii) Master in Business Administration from Universities established by law or technical
institutions recognized by All India Council for Technical Education.
PAST EXAMINATION QUESTIONS
1. 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, Rs.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?
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 stated that the goodwill of
a proprietary concern of chartered accountant can be sold to another member after the death
of the proprietor subject to certain conditions. 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. Thus in the given case and on the facts, the widow of Mr. Qureshi
who has sold the practice for Rs.5 lakhs is nothing but sale of goodwill. Thus the act of Mrs.
Qureshi is permissible.
2. Ajay is practicing Chartered Accountant. Vijay is a practicing Advocate
representing matters in courts of law. Ajay and Vijay agree to help each other in
matters involving their professional expertise. Accordingly Ajay recommends
Vijay in all tax litigations in courts of law. Vijay consults Ajay on all maters
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relating to finance and related matters, which come to him for arguing in
various courts of law.
Ajay seeks your advise on how he and Vijay should (i) remunerate each other
(ii) “share” the remuneration.
According to 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 either directly or indirectly pays or allows or agrees to pay or allow any share, commission
or brokerage in the fees or profits of his professional business to any person other than the
member of the institute or a partner or a retired partner or a legal representative of a
deceased partner or member of any other professional body or person having prescribed
qualifications.
Thus as per this clause, a Chartered Accountant can share his fee with a member of any other
professional body. A lawyer is the member of a professional body and therefore Ajay and
Vijay can share the fees or profits.
3. A Chartered Accountant obtained a loan from a finance company for
purchase of office building agreeing to pay interest at 6% p.a. and 10% of his
gross professional receipts till the loan is repaid.
A Chartered Accountant in practice is deemed to be guilty of professional misconduct if he
pays or allows or agree 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 as per clause 2 of Part I of the First Schedule to the Chartered Accountants
Act, 1949.
As per the facts, it is a case of pure loan arrangement with interest expressed as a percentage
of gross receipts. It is of no avail because there is total prohibition on the sharing of fees even
indirectly with nonmembers except in specified circumstances. Therefore, such a chartered
accountant is guilty of professional misconduct.
4. Mr. Ankit, who passed his CA examination of lCAl on 18th July, 2015 had
started his practice from 15th August, 2015. On 16th August, 2015 one candidate
approached him for articleship. Mr. Ankit decided to give her 1% profits of his
CA firm in addition to monthly stipend. She agreed to take both 1% of profits
and prescribed stipend. The ICAI had sent a letter to Mr. Ankit objecting the
payment of 1% profits. Mr. Ankit replied stating that sharing 1% profits is over
and above the stipend to help the articled clerk to overcome her financial crisis.
Is Mr. Ankit liable for Professional mis-conduct? (May 15 Old)
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. Ankit, stating that he is paying 1 % profits of his
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firm over and above the stipend to help the articled clerk to overcome her financial crisis is
not tenable.
Hence, Mr. Ankit is guilty of professional misconduct in terms of Clause (2) of Part I of First
Schedule to the Chartered Accountants Act, 1949.
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 clause 2 of this part.
As clause 2 prohibits a member to pay or agrees to pay commission/share in the profits,
according to clause 3, a member is prohibited from accepting any part of the profits of the
professional work of a person who is not a member of the Institute. However, he can accept
share, commission or brokerage from a member of any other professional body or a person
having qualifications prescribed by ICAI.
Past Examination Questions
1. Mr. X is a practicing Chartered Accountant. Mr. Y is a practicing Advocate
representing matters in the court of law. X and Y decided to help each other in
the matters involving their professional expertise. Accordingly, Mr. X
recommends Mr. Y in all litigation matters in the court of law and Y consults X
in all matters relating to finance and other related matters, which comes to him
in arguing various cases. Consequently they started sharing profits of their
professional work. Is Mr. X liable for professional misconduct? (May 15 Old)
Sharing and Accepting of Part of Profits with an Advocate: According to Clause (2) 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 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.
Furthermore, Clause (3) of Part I of the First Schedule to the said Act states that a Chartered
Accountant in practice is deemed to be guilty of professional misconduct if he accepts any
part of the profits of the professional work of a person who is not a member of the Institute.
However, 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 prescribed by the Council under the Chartered
Accountants Regulations, 1988. Under the said regulations, the member of “Bar Council of
India” is included.
Therefore, Mr. Y, an advocate, a member of Bar Council, is allowed to share part of profits of
his professional work with Mr. X. Hence, Mr. X, a practicing Chartered Accountant, will not
2.8
be held guilty under any of the abovementioned clauses for paying and accepting part of
profits from Mr. Y.
CLAUSE - 4
Enters into partnership, in or outside India, with any person other than a
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;
According to this clause, a Chartered Accountant in Practice is permitted to enter into
partnership with only the following:
a. A Chartered Accountant in Practice or
b. A member of any other professional body having prescribed qualifications.
This prohibition applies only to the profession of accountancy.
Membership of Professional Bodies For Partnership – Regulation 53A(3) and
53B
Professional Bodies In India
(1) For the purposes of entering into partnership under Item (4) of Part I of the First
Schedule to the Act, a person shall be a member of any of the following professional bodies,
namely:
(a) Company Secretary
(b) Cost Accountant
(c) Advocate
(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.
Professional bodies outside India
Professional bodies or institutions outside India whose qualifications relating to accountancy
are recognized by the Council under sub-section (2) of section 29 of the Act.
Case Law
Ram, a chartered accountant in practice, entered into partnership with Shyam,
who is not a chartered accountant, for the purpose of carrying on business.
Explain whether Ram is guilty of professional misconduct under clauses (4) and
(11) of the first Schedule to the Chartered Accountants Act, 1949.
Clause (4) of Part I of First Schedule to the Chartered Accountant Act prohibits a chartered
accountant in practice to enter into a partnership with any person other than a chartered
accountant in practice. Clause (11) of the same schedule prohibits a chartered accountant in
practice to engage in any business or occupation other than the profession of chartered
accountants unless permitted by the Council so to engage. Ram, a chartered accountant in
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practice has entered into partnership with Shyam who is not even a chartered accountant and
for the purpose of carrying on business for which permission has not been obtained.
Therefore, Ram has violated the provisions of clauses (4) and (11) and is guilty of professional
misconduct.
1. A Chartered Accountant in practice entered into Partnership with his uncle in
Textile business which, however, did not take off. Will he be held guilty of
professional misconduct?
As per clause 4 part I of the First Schedule to the Chartered Accountants Act, 1949, a
chartered accountant is not permitted to enter into partnership with any partner other than a
chartered accountant in practice and this prohibition applies not only to the profession of
accountancy but to any kind of business.
Since, Mr. A has entered into partnership with a non-member for doing textile business, he
will be held guilty of professional misconduct. Even if the agreement is not acted upon, the
mere fact that he entered into partnership by such an agreement would constitute
misconduct.
In a decision of the Council where a Chartered Accountant entered into a partnership
agreement with persons who were not the members of the Institute it was held that he was
guilty of professional misconduct under the clause. Even though the said agreement was not
acted upon, the mere fact that he did enter into a partnership by such an agreement
constituted misconduct.
2. Mr. P, a Chartered Accountant in practice entered into partnership with Mr.
L, an advocate for sharing of fees for work sent by one to the other. However,
due to some disputes, the partnership was dissolved after 1 month without any
fees having been received.
Clause (4) of Part I of the First Schedule to ………….. permits a Chartered Accountant in
practice to enter into partnership with other prescribed Professionals which includes an
Advocate, a member of Bar Council of India.
In the instant case, Mr. P, a chartered accountant, has entered into partnership with Mr. L,
an advocate.
Thus, he would not be guilty of professional misconduct as per Clause (4) of Part I of First
Schedule read with Regulation 53B.
3. A Chartered Accountant practicing in India enters into partnership with A
Certified Public Accountant in New York.
Clause (4) of Part I to the First Schedule ……….. Thus, chartered accountant would be guilty
of professional misconduct since certified public accountants (CPA) are not eligible to
become members of the Institute
4. A Chartered Accountant from the Institute of Chartered Accountants in
England and Wales in London, and in each case, the members concerned take
the profits earned in their own country.
Will it make any difference, if an Indian Chartered Accountant is practicing
outside India and becomes a partner with the aforesaid accountants?
As stated above, it is important that partnership with a member of the foreign professional
body is permissible provided inter-alia such bodies are eligible for the membership of the
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Institute. The council of the Institute has not permitted partnership between members of the
Institute and members of above foreign professional bodies. Even a chartered
accountant from ICAEW who was eligible to become member of the Institute,
the profit sharing arrangement stated in the question goes against the
provisions of Clause (4). Hence, it would constitute professional misconduct.
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
 A Chartered Accountant must get work not through any agency, but through
respect that he is able to command for his professional talent and skill.
 According to Chartered Accountant (Amendment) Act, 2006, securing any
professional business through certain categories of non-members is permitted.
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 (Professional work occurs within the fraternity)
(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.
 The objective behind introduction of this clause is to ensure that the members
should not secure the professional work with the help of others.
 The satisfaction of clients would be the best advertisement which would lead to other
clients. An advertisement is not a key to success in profession. It is the quality service
which attracts and retains clients.
 This clause prohibits a member from soliciting professional work by means of
advertisement, circular, personal communication or interview or by any other means
to ensure that the members have not adopted any indirect methods to get the
professional work by gaining publicity and thereby solicit clients or professional work.
 However, a Chartered Accountant can
a. Apply/request/invite/secure professional work from another Chartered
Accountant in practice (Also called Assignment Basis)
b. Respond to tenders/enquiries to secure professional work as a
consequence.
The matter pertaining to responding to tenders issued by various users of professional
services or organization in areas exclusively reserved for the members of the Institute
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was recently considered by the Council of the Institute. The Council on a consideration of the
matter has decided that –
In the exclusive areas of practice of Chartered Accountants, like audit and
attestation services i.e. those areas where the assignments can be performed only by
Chartered Accountants such as audit under Companies Act, Income Tax Act etc. or where
only Chartered Accountants have been invited for audit assignments, members should not
respond to such tenders. In such cases, entities may avail the multipurpose
empanelment data available with ICAI. However, wherever minimum fee of the
assignment is prescribed in the tender document itself, members may participate in
such tendering process.
A member of the Institute can respond to assignments based on individual letters
issued.
In those areas, where along with Chartered Accountants, other professionals can also
apply for the tender, there is no restriction for the Chartered Accountants to respond to
the tenders floated by authorities from time to time.
Frequently asked Questions on Tenders
1. Whether a member of Institute in practice can respond to such assignments
where quotations have been called for from practicing members/firms through
individual letters?
A member of the Institute in practice can respond to such assignments based on individual
letters issued.
2. Whether a member of Institute in practice can respond to such tenders
where only technical bid has been asked for from the members which is
followed by financial quotations request from the short-listed members through
individual letters?
A member of the Institute in practice can respond to such tenders.
SOME FORMS OF SOLICITING WORK PROHIBITED BY COUNCIL:
A. ADVERTISEMENT AND NOTE IN THE PRESS
a. Members should not advertise for soliciting work.
b. A member is prohibited from inserting advertisements for soliciting clients
under box numbers in the newspapers.
In other words, Members should not advertise in a manner which could be
interpreted as soliciting or offering professional work.
c. They should not circulate letters to a small field of possible clients.
d. Personal canvassing is not allowed.
e. Canvassing for the clients of previous employer through the help of the
employees not permitted
Exceptions
I. A member is allowed to advertise in news papers, magazines etc. in the following
cases.
 Dissolution of the firm
 Changes in partnership
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 Change in address of practice

 Change in Telephone Numbers
The advertisement should be limited to bare statement of facts. While advertising,
the member should give due consideration for the following:
 Area of distribution
 Number of insertions
II. A member is also allowed to issue a classified advertisement in the
journal/newsletter of the Institute for
 Sharing professional work on assignment basis
 Seeking partnership
 Seeking salaried employment of an accountancy nature
Provided that, such an advertisement should only contain the following:
 Name of the Chartered Accountant
 Address
 E-mail address
 Telephone Number
 Fax Number
III. An advertisement of coaching/teaching activities by a member in practice may
amount to indirect solicitation and therefore may be voilative of provisions of clause 6.
Such members may put outside their coaching/teaching premises, sign board
mentioning the name of the coaching/teaching institute, contract details, subjects
taught etc.
B. APPLICATION FOR EMPANELMENT
Several government departments, government companies, co-operative societies,
banks and other similar institutions maintain panel of Chartered Accountants for
allotment of audits and other professional work. The members of the Institute are free
to write to the concerned organization with a request to place his name on the panel.
This entry of the name of the member in the panel maintained by different
organizations is called empanelment.
The member can make an application for empanelment provided the
existence of such a panel is within the knowledge of the member. It is also
permissible to quote fees on enquiry from such organizations. However, the
member should not send printed or cyclostyled copies of the scales of fees in
reply to such enquiries.
It is not proper to make roving enquiries by applying to any such organization for
having his name included in the panel.
C. PUBLICATION OF NAME IN THE TELEPHONE OR OTHER DIRECTORIES
It is not proper for a Chartered Accountant to have entries made in a Telephone
Directory either by making a special request or by means of an additional payment.
However, such entries can be made in the directories subject to the following
restrictions:
1. The entry should appear in the category of “Chartered Accountant”.
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2. The member should belong to the town/city in respect of which the

directory is being published.
3. Entries should be open to all the Chartered Accountant in the particular
city/town.
4. The order of entries should be alphabetical.
5. Entries in Bold Type/Box are not permissible. Entry should be in
normal letters.
6. The payment for entry should not be unreasonable.
Subject to above conditions, the members name can be entered in Trade directories,
Internet, telephone services like “Ask me Services” etc.
D. ISSUING HAND BILLS
A member is prohibited from issuing hand bills with regard to changes in tax laws for
the guidance of public. However, the member is free to issue such hand bills to his
regular clients.
E. PUBLICATION OF BOOKS OR ARTICLES
A member is not permitted to indicate his association with any firm of
Chartered Accountants in a book or article published by him.
F. ISSUE OF GRETING CARDS OR INVITATIONS
A member is prohibited from issuing greeting cards or personal invitations
indicating their professional designation, status and qualification etc.
However, a member can use the designation “Chartered Accountant” as well as the
name of the firm may be used on
 greeting cards
 invitation for opening or inauguration of office of the members
 invitations for marriages and religious ceremonies
 change in office premises
 change in telephone numbers
provided that such greeting cards or invitations etc. are sent only to
 clients
 relatives and
 close friends of the members concerned
G. SOLICITING PROFESSIONAL WORK BY MAKING ROVING ENQUIRIES
A member is prohibited from issuing letters or circulars to persons who are likely to
require services of him because it amounts to solicitation of work.
H. PUBLIC INTERVIEWS
A member is not prohibited from giving public interviews. However, while
giving interviews, the member should ensure that it should not result in publicity.
In such an interview, the member can furnish his details along with their firms.
However, they should not highlight their professional attainments.
2.14
I. ACCEPTANCE OF ORIGINAL PROFESSIONAL WORK BY A MEMBER

EMANATING FROM THE CLIENT INTRODUCED TO HIM BY ANOTHER
MEMBER
Where any client was introduced to the member by another member and where original
professional work is emanating from such client, the member is prohibited from
accepting such work. In such cases, it is his duty to ask the client that he should come
through the other member dealing generally with his original work.
J. REPRESENTATION UNDER SECTION 225(3) OF THE COMPANIES ACT
(Now Section 140(4) of the Companies Act, 2013)
While making representation by a member under section 225(3) (now Section
140(4) of the Companies Act, 2013), the member should ensure that the
words used by him in such a representation should not secure him needless
publicity/it should not tantamount directly or indirectly for soliciting for his
continuance as an auditor.
However, that representation may include his willingness to continue as auditor
if reappointed by the shareholders.
K. A chartered accountant would not issue any circular or advertisement by virtue of which
they solicit people to visit their website.
WEBSITE
A Chartered Accountant or a Firm of Chartered Accountants in practice is allowed to post
their particulars on Website. The guidelines given by the Institute in this behalf are as
follows:
DO‟S
1. There is no standard format in which the website is required to be created.
2. There is no restriction on the colours that can be used in the website.
3. The address of the Website can be different from the name of the firm.
However, it should not amount to soliciting clients.
4. The address of the Website should be intimated to the ICAI within 30 days.
5. The website should run on a “pull” model and not on a “push” model of
technology.
6. Circulation of the information contained in the website through E-mail or by
any other mode or technique on its own is not permitted except on a specific “pull”
request.
7. The information that can be displayed in the Website may include the following:
(i) Member/Trade/Firm Name
(ii) Year of Establishment (on a specific pull request)
(iii) Address (HO & Branches)
(iv) Telephone Number(s)
(v) Fax Number(s)
(vi) E-mail ID(s)
(vii) Name of Partner(s), Year of Qualification, Tel. Number (R/M) Address, E-
mail
2.15
(viii) Names of Professional and Other Employees along with their designation.
(ix) Job Vacancies (including article ship)
8. Articles, professional information, professional updates and other matters of
professional interest may be included in the Website.
9. Chat rooms for chatting amongst members of ICAI as well as between firms and
client may also be provided.
10. May provide a link to the Website of ICAI or its Councils or its Branches and
Websites of Government Departments/Regulatory Authorities.
11. The Website should mention the date up to which it is updated.
12. Permitted to mention the Web Site address on their professional stationery.
13. Members can provide online advice to their clients who specifically request for
the advice whether free of charges or on payment.
14. A number of non-chartered Accountant firms have set up their own websites
providing advisory services on taxation and other areas. Some of such websites
may request Chartered Accountants/Firms to provide consultation and advice
through their websites. This is permitted provided that the contact address of
the Chartered Accountant concerned is not provided nor such website
contain any material which advertises professional achievements or status of such
Chartered Accountants except making a statement that they are Chartered
Accountants.
DON‟TS
The following shall be provided only on a specific “pull” request
1. Area of Experience of the Partners/Employees
2. Nature of Services Rendered/Assignments Handled
3. Number of Articled Clerks
Others
4. Names of clients and fee charged cannot be given
5. No photographs of any sort are permitted except passport size photographs.
6. No advertisement including in the nature of banner is permitted on the Website.
CASE LAWS:
1. A Chartered Accountant sent a printed card and circular letters soliciting work – Held
guilty.
2. 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.
3. A letter of request was sent for being appointed as auditor – Held guilty
4. A chartered accountant 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 requested them to look into the matter – Held guilty
2.16
5. An assistant of the chartered accountant under his authorization wrote letter to stranger
association requesting for appointment as auditor – Held guilty
6. 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 –
Held guilty
7. A member had published an advertisement, in a newspaper inviting professional work
for accounts writing, income tax matters etc. It was held that the insertion of an
advertisement or such a nature amounted to soliciting professional work by
advertisement and the member was found guilty in terms of this clause.
1. Mr. Z, practicing Chartered Accountant has written to Director of Technical
Education requesting him for allotment of audit of certain schools.
As per Clause 6 of Part 1 of the First Schedule to the Chartered Accountant Act, a member in
practice is not allowed to solicit clients for professional work either directly or indirectly by
any other means.
In view of this, Mr. Z who has requested for the audits of certain schools of Director of
Technical Education would be held guilty of Professional misconduct under the Chartered
Accountants Act, 1949 because he has made roving enquiries.
However, if Director of Technical Education is maintaining a panel of auditors and, if Mr.
Z writes to him for inclusion of his name on the said panel then he would not be
held guilty of professional misconduct.
2. Mr. X, a practicing Chartered Accountant gave an advertisement under the
column "Business and Professionals" of a local newspaper offering part-time
secretarial work.
Clause (6) of Part I of the First Schedule to the Chartered Accountants Act, 1949 provides
that member in practice shall be guilty of misconduct if he "solicits client or professional
work either directly or indirectly by circular, advertisement personal communication or
interview or by any other means." This clause restricts a member not to solicit professional
work by means of advertisement, circular, personal communication or interview or by any
other means.
An advertisement for a part time secretarial work by practicing Chartered Accountant would
not be permissible because it would essentially be an offer for professional services.
Therefore, Mr. X would be guilty of professional misconduct.
3. Abhaya, a young Chartered Accountant in practice who did her articles
under a senior Chartered Accountant, writes to him with a request to divert
some of his surplus work to her on profit sharing basis.
Clause 6 of the First Schedule to the Chartered Accountants Act, 1949, lays down that 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, interview or by any other means.
However the clause specifies that, a chartered accountant can secure professional work from
another chartered accountant in practice. Therefore requesting work from a senior chartered
accountant to divert his surplus work on profit sharing basis is not a violation of the above
clause.
2.17
4. X & Co. Chartered Accountants, informed selected multi national

organisations, who are not their clients that Mr. Y the former partner-in-charge
of Taxation of one of the largest accounting firms of the world, had joined them
as a partner.
Clause (6) of Part I to the First Schedule to the CA Act, 949, prohibits solicitation of clients
performing work either directly or indirectly by circular, advertisement, personal
communication or interview or by any "other means". The issuance of circular to persons
who are not clients but may likely requires services of a chartered accountant would
tantamount to advertisement since it is solicitation of professional work by making roving
enquiries.
As per Clause (7) of Part I of the First Schedule to the CA Act, 1949, the usage of the words
"one of the largest accounting firms of the World" and the specification of specialization in
"taxation" would also amount to advertisement and thus, constitute professional misconduct.
Therefore, X & Co's letter stating that Mr. Y is joining the firm and that he was the former
partner in charge of taxation of the largest accounting firm of the world amounted to
advertisement and violation of clauses (6) and (7) of Part I of the First Schedule to the
Chartered Accountant Act 1949.
5. A partner of a firm of chartered accountants during a TV 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.
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
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.
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
2.18
 Names of clients and fees charged not to be given.

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 liable for professional
misconduct since it would amount to soliciting work by advertisement.
7. In a representation to be submitted to a company under section 225(3) of the
Companies Act, 1956 (Now Section 140(4) of Companies Act, 2013) the partner
of the firm of auditors wants to include the contributions made by the firm in
strengthening the control procedures of the company during their association
with the company.
Section 225(3) of the Companies Act 1956 (Now Section 140(4) of Companies Act,
2013) permits a retiring auditor to make a representation in writing (not exceeding a
reasonable length) to the company. The proposition of the partner to highlight contributions
made by the firm in strengthening the control procedures in the representation is not
acceptable because the representation letter should not prepared in manner so as to seek
publicity. The Code of Ethics issued by the Institute makes it amply clear that right to make
representation does not mean that an auditor has any prescriptive right or a lien on 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
auditor if re-appointed by the shareholders. Thus such proposed by a partner could not be
approved since it would lead his being held guilty of professional misconduct under Clause(6)
of Part 1 of the First Schedule to the Chartered Accountants Act, 1949.
8. Mr. Sethi, a Chartered Accountant in practice, who is proposed to be
removed as the auditor of a company, makes unsubstantiated and derogatory
remarks against the management of the company in his representation under
Section 225 of the Companies Act, 1956 (Now Section 140(4)).
Unsubstantiated and derogatory remarks against the management the company by Mr. Sethi,
a chartered accountant in practice, on proposed removal as an auditor of a company does not
show behaviour of a professional chartered accountant. In terms of clause (6) of Part of the
First schedule to Chartered Accountants Act, 1949, it tantamount to securing professional
work by in dignified means. The Council of the Institute has clarified that the right to make
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 re-appointed by
the shareholders. Therefore, Mr. Sethi is guilty of professional misconduct.
9. 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 photographs of all the partners of the
firms.
As per detailed guidelines of the ICAI laid down in Clause (6) of Part 1 of the First Schedule to
the Chartered Accountants Act, 1949 a chartered accountant or 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
2.19
firm bio-data of partners and display of a passport size photograph. 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.
10. 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.
Clause (6) of Part I of the First Schedule ………… 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. The Council has also specified that a member is not permitted to indicate
in a book or an article, published by him, the 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.
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.
11. XYZ & Associates, a firm with 5 partners developed a website
www.xyzassociates.com. The website also contained a link to “All India
Chartered Accountants Association”, a voluntary association where X, a partner
of the firm is currently the Vice-president.
As per the guidelines laid down under Clause (6) of Part I of the First Schedule to the
Chartered Accountants Act, 1949 in respect of websites by chartered accountants in practice,
it is permitted that website may provide a link to the website of ICAI, its Regional Councils,
Branches and Government Departments and other professional Bodies like AICPA,
ICAEW, CICA. In this case, M/s XYZ Associates provided a link to “All India Chartered
Accountants Association” which is not permitted. Hence the firm would be liable for
misconduct under Clause (6) of Part I of the First Schedule to the Chartered Accountants Act,
1949.
12. 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.
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.
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.
13. M, a practicing Chartered Accountant sent a letter to another firm of
Chartered Accountants, claiming himself to be a 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.
2.20
As per Clause (6) of Part I of First Schedule to the Chartered Accountants Act, 1949, a
member shall be held guilty if a Chartered Accountant in practice solicits clients or
professional work either directly or indirectly by circular, advertisement, personal
communication or interview or by any other means.
Further, as per Central Council Guidelines for Advertisement for the members in practice,
write up of the members should not claim superiority over any other
Member(s)/Firm(s) and should also not include the names of the clients.
In the present case, Mr. M, a practicing Chartered Accountant sent the letter to another firm
of Chartered Accountants, claiming himself to be a 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 also given a list of his existing clients and
details of his staff etc. which seems to be indirect methods to adventure their professional
practice with a view to gain publicity and thereby solicit clients or professional work.
Hence, Mr. M was guilty of professional misconduct as per Clause (6) of Part I of First
Schedule of the Chartered Accountants Act, 1949.
14. A letter is sent by a Chartered Accountant in practice to the Ministry of
Finance inquiring whether a panel of auditors is being maintained by the
Ministry and if so to include his name in the panel (CV enclosed).
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 judgement and may be able to command
respect from their prospective clients.
In case of making an application for the empanelment for the allotment of audit and other
professional work, the Council has opined that, “where the existence of such a panel is within
the knowledge of the 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 member to make
roving inquiries by applying to any such organization for having his name included in any
such panel.”
Accordingly, the member is guilty of misconduct in terms of the above provision as he has
solicited professional work from the Finance Ministry, by inquiring about the maintenance of
the panel.
15. 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.
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
2.21
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
16. 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.
As per Clause (6) of Part I of the First Schedule …………. 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
17. PQR and Associates, Chartered Accountants have their website and on the
letterhead of the firm it is mentioned that "Visit our website: PQR com". In the
website the nature of assignments handled, names of prominent clients and fees
charged is also displayed.
The Council of the Institute of Chartered Accountants has issued guidelines for posting the
particulars on Website by Chartered Accountants in practice and firms of Chartered
Accountants in practice under Clause (6) of Part I of First Schedule to the Chartered
Accountants Act, 1949. According to the guidelines the details in the website should be so
designed that it does not amount to soliciting client or professional work. It is permitted to
mention the website address on letterhead but soliciting people to visit website is not
permitted. PQR and Associates letterhead invites to people to visit their website. Similarly
the website mentions the nature of assignments, names of the prominent clients and fees
charged. The nature of assignments is permitted for display only on specific 'Pull" request.
And the name of clients, the fees charged is not permitted at all.
PQR & Associates will be held guilty of Professional Misconduct under Clause (6) of Part I of
First Schedule to the Chartered Accountants Act, 1949.
18. During the opening ceremony of a new branch office of CA. Young, his friend
CA. Old introduced to CA. Young, his friend and client Mr. Rich, the owner of an
Export House whose accounts had been audited by CA. Old for more than 15
Years. After few days, Mr. Rich approached CA. Young and offered a
certification work which hitherto had been done by CA. Old. CA. Young
undertook the work for a fee which was not less than fee charged by CA. Old in
earlier period. Comment whether CA. Young had done any professional
misconduct. (Nov. 18)
Acceptance of original professional work by a member emanating from the client Introduced
to him by another member: 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
2.22
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.
Further, some forms of the soliciting work which the Council has prohibited include 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.
In the given case, CA Old introduced his friend CA. Young to his friend and client Mr. Rich,
the owner of an Export House whose accounts has been audited by CA. Old for more than 15
years. After a few day Mr. Rich approached CA. Young and offered a certification work which
hitherto had been done by CA. Old. Fees charged by CA. Young is also not less than fee
charged by CA. Old.
In view of above decision CA Young should ask the client to come through CA Old. However,
CA Young undertook the work without informing CA. Old. Thus, CA. Young is held guilty
under Clause (6) of Part I of the First Schedule to the Chartered Accountants Act, 1949.
19. A CA firm M/s GST & Associates, has sent a letter to the Goods and Service
Tax Council stating that the firm has 2 partner who specialise in the law of
Goods and Service Tax and asked the said Council to include their name in the
panel, whenever formed, for providing advisory and audit services for Goods
and Service Tax. Comment with reference to the Chartered Accountants Act,
1949. (Nov. 17 Old)
Making Roving Inquiries: 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 judgement and
may be able to command respect from their prospective clients.
In case of making an application for the empanelment for the allotment of audit and other
professional work, the Council has opined that, “where the existence of such a panel is within
the knowledge of the 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 member to make
roving inquiries by applying to any such organization for having his name included in any
such panel.”
Accordingly, CA. Firm M/s GST & Associates and its partners are guilty of misconduct
under Clause (6) of Part I of the First Schedule to the Chartered Accountants Act, 1949 as it
has solicited professional work from the Goods and Service Tax Council, by inquiring about
the maintenance of the panel and advertising about 2 partners in the firm having specialized
knowledge of GST Law.
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;
2.23
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.
A. This clause prohibits a member from advertising his professional attainments or
services.
B. The name and address of a member or of his firm with description of Chartered
Accountant may appear in an advertisement in the following circumstances
a. advertisement for recruiting staff in the member‟s own office
- While advertising, the member should avoid the expression such as “a well-
known firm”, “a leading firm” etc.
b. advertisements on behalf of clients requiring staff
c. advertisement on behalf of clients wishing to acquire or dispose of
business or property.
d. Advertisements for the sale of a business or property by a member acting
in a professional capacity as trustee, liquidator or receiver.
provided that
i. the advertisement is not displayed more prominently than is usual
ii. the word „Chartered Accountant‟ should not be bolder than the substance of the
advertisement
However, the ICAI has amended the Chartered Accountants Act vide Amendment Act, 2006
and according to that amendment, now a Chartered Accountant can advertise through a write
up. The Institute has issued extant guidelines which are required to be followed by the
members while they are giving advertisement through a write-up. The guidelines issued by
the ICAI in this behalf are as follows:
GUIDELINES FOR ADVERTISEMENT FOR THE MEMBERS IN PRACTICE
Pursuant to Clause (7) of Part I of the First Schedule to the Chartered Accountants Act, 1949
As per the above clause, the members may advertise through a write up including
therein the particulars of services provided by them subject to the following
Guidelines. However, the members must maintain the dignity and reputation of the
profession while doing so.
“Write up” means the writing of particulars according to the information given
in the Guidelines setting out services rendered by the Members or firms and any
writing or display of the particulars of the Member(s) in Practice or of firm(s)
issued, circulated or published by way of print or electronic mode or otherwise
including in newspapers, journals, magazines and websites ( in Push as well in
Pull mode) in accordance with the Guidelines.
The Member(s)/Firm(s) should also 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.
In this connection, it is hereby clarified that the ICAI does not own any responsibility
for the content of the write up by the Writer Member(s) / Firm(s).
The write-up may include only the following information:
(A) FOR MEMBERS
2.24
(i) Name
(ii) Membership Number
(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) Web Address
(xii) E-mail
(xiv) Passport size photograph
(xv) Details of Number of Employees
(a) Chartered Accountants -
(b) Other Professionals –
(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) ………………………………
(B) FOR FIRMS
(i) Name of the Firm
(ii) Firm Registration Number
(iii) Year of establishment
(iv) Professional Address(s)
(v) Working Hours
(vi) Tel. No(s)/Mobile No./Fax No(s)
(vii) Web address
(viii) E-mail
(ix) No. of partners
(x) Name of the proprietor/partners and their particulars on the lines allowed for a
member as stated above including passport size photograph.
(xi) C A Logo
(xii) Details of Number of Employees
(a) Chartered Accountants -
(b) Other professionals –
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(c) Articles/Audit Assistants

(d) Other employees
(xiii) Names of the employees of the firm and their particulars on the lines allowed
for a member as stated above.
(xiv) Services provided:
(a) ………………………………
(b) ………………………………
(c) ………………………………
The write-up may be signed either by the member or any partner of the partnership firm
and it may also contain the Name of the Member/ Name of the Partner signing it as well as
Place and Date.
OTHER CONDITIONS
1. It should not be false or misleading
2. It should not claim superiority over any other Member(s)/Firm(s).
3. It should not be indecent, sensational
4. It should not contain testimonials or endorsements concerning Member(s).
5. It should not contain any other representation(s) that may like to cause a person to
misunderstand and/or to be deceived.
6. It should not violate the provisions of the „Act‟, Rules made there under and
„The Chartered Accountants Regulations,1988‟.
7. It should not include the names of the clients (both past and present)
8. It should not be of font size exceeding 14.
9. It should not contain any information about achievements/award or any
other position held.
D. Under this clause, a member is prohibited from using any designation or
expression other than that of a Chartered Accountant in professional
documents, visiting cards, letter heads or sign boards. In other words, the
following are prohibited.
a. The size of the sign board to be used by the member for his office is a matter
of own discretion and good taste.
b. Use of glow signs or lights on large-sized boards as is used by traders or
shop-keepers would not be proper.
c. 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.
d. Improper to state as an Income-tax Consultant or a Cost Consultant or a
Management Consultant.
e. Should not use designation such as “Member of Parliament”, Municipal
Councilor or any other functionary in addition to that of a
Chartered Accountant.
f. Date of setting up the practice or date of establishment of the firm
except providing the date on web site on specific “pull” request.
2.26
g. Use of logos by members on letter heads, visiting cards etc. is prohibited

except CA Logo.
E. A local paper can publish the details of the examination success of local candidates. In
such cases, the following particulars may be published.
a. Candidates Name and Address
b. School
c. Examination passed with details of any prize or place gained
d. Name of the Principal, firm and town in which the principal practices may
be published.
F. There is no objection to the publication of photographs and brief particulars of
members in magazines provided
a. no payment is made for such publication and
b. there is no advertisement of professional attainments.
G. Members writing articles or letters to the press on subjects connected with the
profession may give their names and use the description „Chartered
Accountant‟.
H. Members may practice 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.
I. GUIDELINES RELATING TO ACCEPTANCE OF DIRECTORSHIP IN
COMPANIES
 More companies are now appointing Chartered Accountants as directors on their
Boards.
 The prospectus issued by these companies, publish descriptions about the Chartered
Accountants expertise, specialization and knowledge in a particular field. In
this connection the attention of the members is invited to the following.
a. Particulars about directorship held by the member in other companies can,
however, be given, but the name of the Firm of Chartered Accountant in
which the member is a partner should not be given.
b. The member should take necessary steps to ensure that such prospectus or
public announcement do not advertise his professional attainments and
also that such prospectus do not directly or indirectly amount to
solicitation of clients for professional work.
c. As soon as he is appointed as a director on the Board of a Company, the
member should specifically invite the attention of the management to the
above said provisions and should request the management to get his approval
before any such prospectus is issued.
The committee on ethical standards has opined that it is not permissible for a
chartered accountant in practice to print their photograph on their visiting
cards
2.27
However a member in practice is allowed to print Quick Response Code (QR Code) on
the visiting card, provided the code does not contain information that is not otherwise
permissible to be printed on the visiting card.
Members may appear in films or agree to broadcast in the radio or give lectures at forums
and may give their names and describe themselves as Chartered Accountants.
Case Laws:
1. A Chartered Accountant used the designation “Industrial and Management
Consultant” in addition to the designation Chartered Accountant on printed circular
sent to a stranger. Held he was guilty of professional misconduct under the clause.
2. A Chartered Accountant wrote several letters to Government Department,
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. Held, he was guilty of professional
misconduct under the clause.
1. Mr. Enterprising, who recently started his practice has put up sign board
outside his office describing himself as a 'Chartered Accountant and
Management Consultant.
Clause 7 of Part I of the First Schedule to the Chartered Accountants Act, 1949 prohibits a
practicing chartered accountant to, "advertise his professional attainments or services, or
uses any designation or expression other than 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 recognised by the Central Government or a title indicating
membership of the Institute of Chartered Accountants or of any other institution that has
been recognised by the Central Government or may be recognised by the Council “.
Therefore, this clause 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. It is, therefore improper for a Chartered
Accountant to state on his professional documents that he is an Income Tax Consultant or a
Cost Consultant or Management Consultant.
In view of the above, Mr. Enterprising who has put up a sign board outside his office
describing him self as a "Chartered Accountant and Management Consultant" is guilty of
professional misconduct under this clause.
2. A chartered accountant in practice appearing on television on budget
proposals was introduced to the viewers, on the basis of the bio-data furnished
by him, as the senior most partner of M/s. Tick and Tag, a leading firm of
chartered accountants established in Delhi in 1948.
Clause 7 of part I of First Schedule to the Chartered Accountants Act, 1949, prohibits a
Chartered Accountant from advertising his professional attainments or services. Accordingly
the code of conduct states that, "members may appear in 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 specialised knowledge directly
relevant to the subject matter of the Programme also be given. But no reference should be
made, in the case of practicing member, to the name and address or service of the firm."
Therefore, reference to the name of the firm, i.e. M/s. Tick and Tag and use of
2.28
adjective expressions such as a leading firm of a chartered accountants and "senior most
partner are violative of the Code of Conduct. Further, it also states that the practice of stating
even the date of setting up the practice by a member must be avoided. Thus, reference to the
date of establishment of firm in Delhi in 1948 is also against the provisions of Chartered
Accountants Act, 1949.
Keeping this in view, as per the provisions of the Chartered Accountants Act, 1949, the
Chartered Accountant is guilty of professional misconduct as the impugned announcement
was made on the basis of bio-data given by him.
3. A practicing Chartered Accountant uses a visiting card in which he designates
himself, besides as Chartered Accountant, as Tax Consultant Cost Accountant.
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 …………. 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.
Cost Accountant: As stated in the preceding paragraph, 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".
4. The offer document of a listed company in which Mr. D, a practicing
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 violation of
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. Thus in the instant case, Mr. D would be
held to be guilty of professional misconduct and liable for disciplinary action.
5. 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.
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 …………………... Even a member is not permitted to specify the date of setting up of
2.29
practice or establishment of firm. 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. Thus B is not guilty of any misconduct under the Chartered Accountants Act,
1949.
6. Mr. M, a Chartered Accountant in practice, has printed visiting cards which
besides other details also carries a Quick Response (QR) code. The visiting card
as well the QR code contains his name, office and residential address, contact
details, e-mail id and name of the firm's website. Comment with reference to the
Chartered Accountants Act, 1949 and schedules thereto. (May 17 old)
Printing of QR Code on Visiting Cards: As per Clause (7) 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 advertises his professional attainments or services.
Ethical Standards Board has also clarified that a member in practice is allowed to print Quick
Response Code (QR Code) on the visiting Card, provided that the Code does not contain
information that is not otherwise permissible to be printed on a visiting Card.
In the given case, Mr. M has printed visiting cards which carries Quick Response Code (QR
Code) besides other details. The visiting card as well as the QR Code contains his name, office
and residential address, contact details, e-mail id and name of the firm‟s website which are
otherwise allowed to be printed on the visiting cards of a Chartered Accountant in practice.
Thus, Mr. M is not guilty under Clause (7) of Part I of First Schedule to the Chartered
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.
 This clause specifies that, before accepting a position as auditor, a chartered
accountant is under obligation to communicate with the previous auditor in
writing.
 The reason behind introduction of this clause is that, the member may have an
opportunity to know the existence of any professional or other reasons why
he should not accept the appointment.
 Acceptance of Audit/Commencement of Audit work must be done only
after receipt of response from the previous auditor or after lapse of time
allowed to the previous auditor to respond.
 This requirement of communication would apply to all types of audits i.e.
statutory audit, tax audit, internal audit, concurrent audit or any kind of audit.
However, this is not applicable for issuance of a Certificate by the auditor.
 The term previous auditor means the immediately preceding auditor who held
same or similar assignment comprising same/similar scope of work. For example, a
chartered accountant in practice appointed for an assignment of physical verification
of inventory, before acceptance of appointment, must communicate with the previous
auditor being a chartered accountant in practice who was holding the appointment of
physical verification of inventory.
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 This communication should be made through registered post with

acknowledgement due and should not be done by ordinary post or under
certificate of posting. In other words, the members should retain positive
evidence of the delivery of the communication to the addressee. In the
opinion of the Council, communication by a letter sent "Registered Acknowledgment
due" or by hand against a written acknowledgment would in the normal course
provide such evidence.
 In case the time schedule given for the assignment is such that there is not time to wait
for the reply from the outgoing auditor, the incoming auditor may give a conditional
acceptance.
 The following are some of the professional reasons for non acceptance of an
audit:
a. Non-compliance of the provisions of Section 224 and 225 of the
Companies Act ( Now Sections 139 to 142) as mentioned in Clause (9)
b. Non payment of undisputed audit fees. The provision for audit fee made in
accounts and signed by both the auditee and auditor shall be considered as
undisputed audit fees. This is not applicable in respect of sick units for
carrying out the statutory audit under the Companies act, 2013 or various other
statutes.
c. Issuance of a qualified report.
In the first two cases, an auditor who accepts the audit would be guilty of
professional misconduct.
In case where the retiring auditor had issued a qualified report, whether to accept
such audit or not depends upon the professional judgment of the auditor. If the
auditor is of the opinion that, the attitude of the retiring auditor was not proper and
justified, he can accept the offer. If, on the other hand, he feels that the retiring auditor
has qualified the report for good and valid reasons, it would be helping practice not to
accept the audit. There is however no rule, written or unwritten, which prevent an
auditor from accepting the appointment offered to him in these circumstances.
Case Laws:
1. A Chartered Accountant commenced the work of audit on the very day he sent
letter to the previous auditor - Held, he was guilty of professional misconduct under the
clause. The appointment could be accepted only when the outgoing auditor does not respond
within a reasonable time.
2. 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.
3. A Chartered Accountant commenced the audit within five days of the date of his
appointment without sending any communication to the previous auditor. The
previous auditor also denied the receipt of any communication-Held he was guilty of
professional misconduct under the clause.
4. A chartered accountant had sent a communication to the previous auditor under
certificate of posting without obtaining any acknowledgment thereof. The Council held
the member guilty in terms of this Clause.
2.31
5. A Chartered Accountant sent a letter by ordinary post to the previous auditor after
the acceptance of the audit assignment. Held he was guilty of professional misconduct
under the clause as the same amounts to non-communication, with the previous auditor.
6. Where a Chartered Accountant had conducted tax audit of a firm without first
communicating in writing with the previous tax auditor. Held he was guilty under
the clause.
1. Mr. Rajesh has accepted his appointment as an auditor immediately after
intimating his appointment over the phone to the previous auditor.
Clause 8 of the Part I of the First Schedule to the Chartered Accountants Act, 1949
contemplates that a member in practice is deemed to be guilty of professional misconduct if
he accepts a position as an auditor previously held by another Chartered Accountant or a
restricted state auditor, without first communicating with him in writing.
In the instant case, Mr. Rajesh had accepted an appointment immediately after he had
intimated his appointment over the telephone to the previous auditor who subsequently, in
due course, objected to his accepting the appointment. In the circumstances, the
member could be held guilty of professional misconduct for the following reasons;
(a) That he had failed to communicate with the retiring auditor in writing; and
(b) That he did not wait for a reasonable length of time for a reply to be received from
him.
In fact, it is intended that member should communicate with the previous auditor so as to
retain positive evidence which in the opinion of the Council necessitates that communication
by a letter sent by "Registered Acknowledgment" or by hand against a written
acknowledgment. Further the appointment should be accepted only when the outgoing
auditor does not respond within a reasonable time. It is implied therefore that some
reasonable time and opportunity must be given to the other party to send his reply if he so
chooses.
The objective of the rule is that incoming auditor may take into account the objections, if any,
raised by the retiring auditor before he accepts the appointment. It is a safeguard against a
client successfully concealing some of his malpractice on account of which the previous
auditor may have refused to conduct or complete the audit, and changing over to a new
auditor in the expectation that he would not know of the facts on this account, it is incumbent
on the incoming auditor to wait for a communication from the retiring auditor and he should
not rush to accept the appointment. If he does not wait, he would be guilty of professional
misconduct.
2. 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 CA Act?
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
2.32
him not to accept the appointment, for example, whether the previous auditor has been
changed on account of having qualified the report etc. 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. The Code of Ethics further points out that it would also be a healthy practice if a tax
auditor appointed for conducting special audit under the Income-tax Act, 1961
communicates even with the member who has conducted the statutory audit.
Considering the above, though Mr. X tried to rectify his mistake, by communicating with the
previous tax auditor after accepting the audit but before signing the audit report, the auditor
will be held guilty of professional misconduct.
3. 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.
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 " under
certificate of posting" to the previous auditor 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. Hence "W" was guilty of professional misconduct under
Clause (8) of Part I of First Schedule to the Chartered Accountants Act, 1949.
4. BC & Co., a firm of Chartered Accountants, accepted an assignment for audit
under State level VAT Act, without any prior communication with the previous
auditor.
As per Clause (8) of Part I of First Schedule to the CA Act 1949, a chartered accountant in
practice is deemed to be guilty of professional misconduct if he accepts a position as auditor
previously held by another chartered accountant or a certified auditor who has been issued
certi ficate under the Restricted Certificates Rules 1932, without first communicating with
him in writing.
In the instant case, BC & Co. accepted VAT – audit under State Level Act, carried out by
another firm of chartered accountants in the previous year, without prior communication
with the previous auditor.
A communication is mandatory requirement for all types of audit, if the previous auditor is a
chartered accountant. Hence, the firm is guilty of professional misconduct.
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 sections 139,
140 and 142 read with section 141 of the Companies Act, 2013)
 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
2.33
from it whether the requirements of Sections 224, 224A and 225 of the Companies
Act, 1956, have been duly complied with. (Now sections139, 140 and 142 read with
Section 141 of the Companies Act, 2013)
 To ascertain means to find out whether the company has complied with the aforesaid
provisions. He has to verify relevant records to ascertain whether the company has
complied with these provisions. Therefore, the auditor is not expected to accept a
compliance certificate provided by the management. In this regard, the
auditor may verify the following:
a. Board Resolution
b. General Meeting Resolution
c. Special Resolution if provisions of section 140(1) is applied
d. Central Government approval, if auditor is to be removed before the expiry of his
term of office.
 The objective of this clause is to ensure that no shareholder or retiring auditor may, at
a later date, challenge the validity of such appointment.
 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 have been
complied with, the incoming auditor should not accept the assignment.
Case Laws:
1. P, a Chartered Accountant had accepted appointment as an auditor of QRS
Company Limited without ascertaining from the Company whether the
requirement of Sections 139 to 142 of the Companies Act had been complied
with. However, he realized this defect only after acceptance.
Clause 9 of the Part I of the First Schedule to the Chartered Accountants Act, 1949 requires
the auditor to ascertain from the company whether the relevant requirements have been
complied with or not. However, in the instant case, "P" a chartered accountant, before
acceptance of his appointment as an auditor has failed to ascertain whether the provisions of
Sect ions 139 to 142 have been complied with by the company. The fact that "P" has realised
this defect only after acceptance would not save him from charge of misconduct. It is
necessary for the incoming auditor to verity the relevant records of the company to enable
him to ascertain whether the provisions of sections 139 to 142 have been complied with.
Therefore, P was guilty of professional misconduct under Clause (9) of Part I of First
2. Mrs. Fair is a Director of XYZ Private Limited, having 15% share-holdings in

the company. During 2014, the company appointed C.A. Mr. Lovely, Mrs. Fair's
spouse, as its statutory auditor. On Mr. Lovely's advice, the company issued
fresh equity shares in 2014-15, in the ratio of one share for every two shares
held by the shareholders of the company. Mr. Lovely used to deliver audit
report for subsequent years without any comments or disclosures, thereupon.
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 Sections 224 and 225 of the Companies Act, 1956 (now Section 139 and
140 read with Section 141 of the Companies Act, 2013), in respect of such appointment have
been duly complied with.
2.34
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.
In this case Mrs. Fair is a Director of XYZ Private Limited and the company has appointed
Mr. Lovely, Chartered Accountant, Mrs. Fair's spouse, as its statutory auditor. Mr. Lovely
should not accept the appointment as statutory auditor of the company, where his wife Mrs.
Fair is director. This is contravention of section 141(3)(f) of the Companies Act, 2013.
Therefore, Mr. Lovely is liable for misconduct as per Clause (9) of Part I of the First Schedule
to the Chartered Accountants Act, 1949.
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 objective of introduction of this clause is to ensure that members are prevented
from charging higher and irrational fees.
 This clause prohibits a member 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.
 The following are the exceptions to the above said rule. (Regulation 192)
(a) A receiver or a liquidator can charge fee based on a % of realization or
disbursement of assets.
(b) An auditor of a co-operative society can charge fee based on % of
i) paid up capital or
ii) working capital or
iii) gross or net income or
iv) profits
(c) A valuer for the purposes of direct taxes may charge fee based on a
percentage of the value of property valued.
Other Exceptions
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;
 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;
 In the case of certain fund raising services, the fee may be based on percentage of
the fund raised;
 In the case of debt recovery services, the fees may be based on percentage of the
debt recovered;
2.35
 In the case of services related to cost optimization, the fees may be based on a
percentage of the benefit derived;
PAST EXAMINATION QUESTIONS:
1. John, a chartered accountant in practice undertakes to conduct an appeal
before the Income Tax Appellate Tribunal on the understanding with his client
that he would be paid Rs.4000 in the event of his succeeding in the appeal. In
the event of his not being successful in the appeal he would be satisfied with a
fee of Rs.1000 only.
Clause (10) of part I of the First Schedule of the Chartered Accountants Act, 1949 states that a
chartered accountant in practice shall be deemed to be guilty of professional misconduct if he
charges or offers to charge, accepts or offers to accept in respect of any professional
employment which are based on a percentage of profits or which are contingent upon the
findings or results of such employment except in cases which are permitted under any
regulations made under this Act. John, a chartered accountant in practice has offered to
charge different amount of fees depending on whether or not he succeeds in the appeal.
Therefore, he is charging fees which are contingent upon the results of his appeal which is
prohibited under the aforesaid clause. Therefore, John is guilty of professional misconduct
under this clause.
2. Mr. Bountiful a practicing Chartered Accountant, who is appointed to value
the good will of a running concern for its take-over charged his fees on the basis
of a predetermined percentage of the value of the goodwill.
Clause 10 of Part 1 of the First Schedule to the Chartered Accountants Act, 1949 states that a
practicing chartered accountant is deemed to be guilty of professional misconduct if he
charges or offers to charge, accepts or offers to accept in respect of any professional
employment fees which are based on a percentage of profits or which are contingent upon the
findings, or results of such employment, except in cases which are permitted under any
Regulations made under this Act. Professional services should not be offered 01: 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, fee should not be regarded as being contingent, provides certain
relaxation in case of a receiver or liquidator auditor of a cooperative society or a valuer. In the
instant case, Mr. Bonutiful has charged his fees on the basis of a pre-determined percentage
on the value of goodwill which is not permitted under the Act and Regulations. Hence, Mr.
Bountiful is guilty of professional misconduct.
3. Asha, a Chartered Accountant in practice, undertakes to conduct an appeal
before the Income-tax Appellate Tribunal.
Terms: Rs.5000 if she wins the appeal.
Rs. 500 if she does not succeed
Clause 10 of Part 1 of First 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 "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 in cases which
are permitted under any regulation made under this Act". Since Asha has quoted her fees
which are contingent upon the results of the appeal she is guilty of professional misconduct.
4. Miss Moongi, a practicing Chartered Accountant, accepts her appointment as
a valuer of goodwill of a business for the purpose of determining the value of
2.36
gift under the Gift Tax Act on the condition that she would be paid 5% of the
value of the goodwill so determined as her fees.
A Chartered Accountant in practice is deemed to be guilty of professional misconduct as per
clause (10) of Part I of the First Schedule to the Chartered Accountants Act, 1949, if he,
charges or offers to charge, accepts or offers to accept, in respect of any professional
employment fees which are based on a percentage of profits, or which are contingent upon
the findings or results of such employment except in cases which are permitted under
any Regulations made under this Act. The Council of the Institute has framed Regulation 192
which exempts members from the operation of this clause in certain professional services. As
per the said Regulation, 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. Since Ms. Moongi's case is
clearly covered under this specific exemption, she would not be held guilty of professional
misconduct.
5. Mr. Jaydev has charged a fee for representing his client in an Income Tax
appeal based on the expected relief to his client as a result of the appeal.
Under Clause (10) of the Part I of the First Schedule to the Chartered Accountants Act, 1949,
a Chartered Accountant in practice who 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 in cases which
are permitted under any regulation made under the Chartered Accountants Act, is guilty of
The aforementioned restraint has been placed on the members of the profession to prevent
them from losing their independence of mind in the conduct of their work. In the absence
thereof, a member may be tempted to override his conscience and may decide to cut across -
legal requirements for his own personal profit. Such danger can not arise so long as the fees
are based merely on the value of time and effort.
In view of this, Mr. Jaydev is guilty of professional misconduct by charging a fee for
representing in income tax appeal proportionate to the relief that may be obtained as a result
of the appeal.
6. A chartered accountant, acting as liquidator of a company:
(i) charged fees as a percentage of realisation of assets and
(ii) refused to hand over accounting records and valuables of the
company in liquidation to the successor appointed by the Court.
(i) Clause (10) of Part I of First Schedule to the Chartered Accountants Act, 1949
prohibits charging of fees which are based as a percentage of profits or which are contingent
upon findings since a professional's opinion should not depend upon the ultimate results.
However, proviso to Regulation 192 permits that a liquidator may charge fees as acting as
a liquidator a percentage of realization of disbursement of the assets. Hence, a chartered
accountant charging fees as a percentage of realisation of assets is not guilty of professional
misconduct.
(ii) Normally speaking, the provision of the Chartered Accountants Act, 1949 are applicable
to a Chartered Accountant and nothing could be brought against a chartered accountant who
is acting as a liquidator of a company. But, section 22 of the Chartered Accountants Act, 1949
covers instances of professional misconduct which are not specified in schedule to the
Chartered Accountants Act, 1949. Therefore, a chartered accountant who is acting in the
capacity of a liquidator would be covered by the provision of the Act.
2.37
Therefore, refusal on the part of the chartered accountant to part with records and valuables
is wrong and without reasonable cause thus he will be held guilty of Other Misconduct'.
In Controller of Insurance Vs. B. Mukherjee, the Supreme Court in similar circumstances
held that the council had the power to hold an enquiry against a Chartered Accountant even
though the alleged misconduct was not one of those mentioned in the Schedules but in the
opinion of the council renders him unfit to be a member of the Institute and even though the
misconduct was with reference to him as liquidator and not as a Chartered Accountant.
7. CA. D, a Chartered Accountant prepared a project report for one of his clients
to obtain bank finance (long-term) of 50 lakhs from a Commercial Bank.
Consequent to the sanction of the loan by the bank CA. D raised a bill for his
services @ 2% of the loan sanctioned.
Clause (10) of Part I to First Schedule to the Chartered Accountants Act prohibits a Chartered
Accountant in practice to charge, to offer, to accept or accept fees which are based on a
percentage of profits or which are contingent upon the findings or results of such work done
by him.
However, this restriction is not applicable where such payment is permitted by the Chartered
Accountants Act, 1949. The Council of the Institute has framed regulation 192 which exempts
certain professional services from the operation of Clause (10).
The services rendered by CA. D are not covered under the said exemption and hence CA. D is
liable for professional misconduct.
8. Efficient Ltd. is running into losses and in order to optimize resource
utilization and cost reduction, approaches you to carryout the assignment and
offers a fee of 5% of benefits derived from the suggestions made by you. (May 18
Old)
Charging of Fees based on Percentage: Clause (10) of Part I to First Schedule to the Chartered
Accountants Act prohibits a Chartered Accountant in practice to 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 which includes the services
related to cost optimisation, the fees may be based on a percentage of the benefit derived.
In the instant case, Efficient Ltd. is running into losses. Efficient Ltd. offered fee of 5%
benefits derived from the suggestions made with respect to optimization of resource
utilization and cost reduction. This service is covered under the said exemption.
Thus, the fees offered on a percentage basis of the benefit derived by services rendered
related to cost optimization are not liable for professional misconduct.
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.”
2.38
Explanation:
This clause prohibits a member in practice from engaging himself in any business or
occupation other than the profession of chartered accountancy except when permitted by the
Council to be so engaged.
Permission granted generally – Regulation 190A and Regulation 191
Members in practice are generally permitted to engage in the following categories of
occupations, for which no specific permission from the Council is necessary.
1. Attending classes and appearing for any examination.
2. Private tutorship
3. Part-time tutorship under the coaching organisation of the Institute,
The council has passed a resolution under regulation 190A granting general
permission for private tutorship and part-time tutorship under coaching
organizations 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
exceed25 hours a week in order to be able to undertake attest functions.
4. Authorship of books and articles.
5. Valuation of papers, acting us paper-setter, head-examiner or a moderator, for any
examination.
6. Editorship of professional journals.
7. Employment under Chartered Accountants in practice or firms of such chartered
accountants.
8. Honorary office leadership of charitable-educational or other non-commercial
organizations.
9. Holding of public elective offices such as M.P., M.L.A., and M.L.C.
10. Acting as Notary Public, Justice of the Peace, Special Executive Magistrate and the
like.
11. Acting as Surveyor and Loss Assessor under the Insurance Act, 1938 provided they
are otherwise eligible.
12. Acting as recovery consultant in banking sector.
13. Holding of Life Insurance Agency License for the limited purpose of getting
renewal commission.
14. Owning agricultural land and carrying out agricultural activity.
Specific and prior approval:
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.
2.39
3. Office of managing director or a whole-time director of a body corporate within

the meaning of the Companies Act, 2013.
4. Interest in family business concerns (including such interest devolving on the
members as a result of in inheritance/succession / partition of the family business) or
concerns in which interests 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 Institute's
examinations.
7. Part-time or full-time tutorship under any educational institution other than
the coaching organization of the Institute
8. Editorship of journals other than professional journals
9. Any other business or occupation for which the Executive Committee considers that
permission may be granted.
However, it is open to the Council to refuse permission in individual cases
though covered under any of the above categories.
A member in practice is permitted generally to be a “Director Simplicitor” in any
company which means an ordinary or simple director and he is not required to obtain any
specific permission of the council in this behalf irrespective of whether he and/or his relatives
hold substantial interest in that company. There is no bar for a member to be a
promoter/signatory to the Memorandum and Articles of Association of any 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,
Case Laws:
1. The Bombay high Court in WP No. 4906 of 1985 decided on 09.02.1989 has held that the
prohibition to enter into any partnership with any person other than a Chartered accountant
under Clause(4) of Part I of the First Schedule is absolute but not so under Clause (11).
According to the Court, Clause (11) enables the Chartered Accountant to engage in any
business or any occupation other than the profession of Chartered Accountancy provided the
Council grants permission to engage in such business or occupation. According to the Court,
it is obvious that the Council desired to retain the power to permit a Chartered Accountant to
engage in any business or occupation, which may be incidental or would be useful for
carrying on the profession of chartered accountancy. Regulation 166 reiterates what Clause
(11) provides. In pursuance of Regulation 166, the Council of the Institute has resolved that
permission would be granted to the Chartered Accountancy engaged in any business or
occupation other then the profession of chartered accountant in the cases set out in the
resolution (Appendix 10). Clauses (4) and (11) contemplate two district and separate
contingencies and Clause (4) cannot be so read as to f98ke Clause (11) and the power retained
by the Council to grant permission redundant.
2. Where a chartered accountant was Karta of the HUF was engaged in the business of a firm
without permission of the Council. Held that he was guilty) of professional misconduct under
Clause (11).
Part-time employment a Chartered Accountant in practice may accept.
2.40
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.
PAST EXAMINAITON QUESTIONS:
1. Mr. Ample, a practicing Chartered Accountant, has accepted a joint
authorship of a book on Management Accounting along with his colleague who
is a Cost Accountant in the College where he is a part-time lecturer.
Clause 11 of Part 1 of the First Schedule to the Chartered Accountants Act, 1949 prohibits a
chartered accountant in practice to engage in any other business or occupation other than the
profession of chartered accountant unless permitted by the Council. Mr. Ample has accepted
a joint authorship of a book on management accounting along with a cost accountant who is a
part-time lecturer in a college. The council as per the power vested in it under Regulation
190A of C.A. Regulations, 1988 has passed a general resolution which permits a practicing
member to author books and articles. Therefore, Mr. Ample has not committed any
misconduct.
2. Mr. Clever, a practicing Chartered Accountant, accepts appointment as a full
time lecturer in a Commerce College affiliated to the Bombay University.
Clause 11 of Part I of the First Schedule to the Chartered Accountants Act, 1949 prohibits a
member in practice engaging in any business or occupation other than profession of
chartered accountants unless permitted by the Council. Such prohibition has been introduced
as it would not be in keeping with the dignity of the profession and may also enable the
member to secure an unfair advantage in his professional practice. According to the specific
resolution passed by the Council of the Institute under Regulation 190A, members of the
Institute in practice may engage in part-time or full-time lecturership for courses other than
those relating to the Institute's examinations conducted under the auspices of the Institute or
the Regional Councilor their branches after obtaining the specific and prior approval of the
Council in each case.
In the instant case, Mr. Clever, a practicing Chartered Accountant has accepted appointment
as a full-time lecturer in a Commerce college affiliated to Bombay University without
obtaining specific and prior approval of the Council. Accordingly, Mr. Clever would be held
guilty of professional misconduct.
3. Mr. J started his practice as Chartered Accountant in 2014. During 2015, he
got an offer for the post of Chief Accountant of a Software Development
Company, as a fulltime employee, for a salary of 60,000 per month. On
accepting this offer, Mr. J converted his practice into a partnership firm by
taking a fresh Chartered Accountant as his partner. Mr. J neither intimated the
Institute nor obtained permission from the Institute about his employment.
Will Mr. J be held guilty under the Chartered Accountants Act?
As per Clause (11) of Part I of First Schedule to the Chartered Accountants Act, 1949, Mr. J
will be held guilty since he has accepted the full time salaried employment in addition to the
practice of Chartered Accountancy without obtaining permission of the Institute. The
Chartered Accountants Regulation, 1988 provide 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 the provisions contained in
Regulation 190A. Part (B) of Appendix 10 to the Chartered Accountants Regulations, 1988
2.41
requires member of the Institute in practice to engage in full-time or part-time employment

after obtaining the specific and prior approval of the Council. Further, Mr. J will be held
guilty of professional misconduct under Clause (1) of Part II of Second Schedule to the
Chartered Accountants Act, 1949 if contravenes any of the provisions of the Act since he has
failed to inform the Institute.
4. 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
there under.
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. The council permits a member to accept full - time lecturer-ship in a college only
after obtaining the specific and prior approval of it. As also becoming a partner in a business
with his brother would require specific permission. Hence, the chartered accountant is liable
for professional misconduct since he failed to obtain specific and prior approval of the
Council in each case.
5. CA. Z who is a leading Income Tax Practitioner and consultant in Jaipur is
also trading in derivatives.
As per Clause (11) of Part I of First Schedule to the Chartered Accountants Act, 1949
(hereinafter referred as „Act‟), a Chartered Accountant 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 12
specific occupation. In respect of all other occupations specific permission of the Institute is
necessary.
In this case, CA. Z is engaged in the occupation of trading in derivatives which is not covered
under the general permission.
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 the Act.
6. M, a Chartered Accountant in practice, is the Statutory Auditor of S Ltd. for
the year ended 31st March 2015. In January 2015, he was appointed as a
Director in H Ltd., which is the holding Company of S Ltd.
In terms of Clause (11) of Part I of the First Schedule to the CA Act, 1949, a CA in practice
cannot engage (unless permitted by the council) in any business or occupation other than the
profession of Chartered accountant, but he can be a director of a company wherein he or any
of his partners is not interested in such company as auditor.
However, public conscience is expected to be ahead of law and the requirement of
independence should be interpreted much more strictly. Members should thus not place
themselves in position which would either compromise or jeopardise their independence.
In view of the above, an auditor of a subsidiary cannot be a director of a holding company as
it will affect his independence.
2.42
7. Mr. J.J. a practicing Chartered Accountant engages himself as part time

finance manager of Quick Return Securities Ltd. He is of the view that as both
functions are independent, he need not take permission from the Institute.
Clause (11) of Part I of First Schedule of Chartered Accountants Act, 1949 states that a
Chartered Accountant is deemed to be guilty of professional misconduct if he engages in any
business other than the profession of Chartered Accountant unless permitted by the Council
for the same.
In the given case, Mr. J. J. a practicing Chartered Accountant is engaging himself as part time
Finance Manager without the permission of the Institute which is misconduct attracted by
Clause (11) of Part I of First Schedule.
8. Mr. B is a practicing Chartered Accountant holding a valid certificate of
practice. He accepted the appointment as Director of the Green World Co. Ltd.
Mr. C, a partner of Mr. B is statutory auditor of the said company.
Clause (11) of Part I of First Schedule to the Chartered Accountants Act, 1949 prohibits a
member to engage in any business or occupation other than the profession of chartered
accountants unless permitted by the Council so to engage. It does not prohibit a Chartered
Accountant from being a director of a company, except managing director or a whole time
director. But if any of the partners is interested in such company as an auditor then he cannot
be director of the said company.
In the present case Mr. B has accepted the directorship in a Company, where his partner Mr.
C is an auditor, without obtaining specific permission of the council. Hence, Mr. B will be
held guilty for professional misconduct under Clause (11) of Part I of First Schedule to the
Chartered Accountants Act, 1949.
Further, the Council of the Institute of Chartered Accountants of India has categorically
stated that in cases where a member is a director of a company, the firm, in which the said
member is a partner, should not express any opinion on its financial statements. Clause (4) of
Part I of the Second Schedule to the Chartered Accountants Act, 1949 states that expressing
an opinion on financial statements of any business or enterprise in which he, his firm or a
partner of his firm has a substantial interest would constitute misconduct.
Additionally, Section 141(3)(c) of the Companies Act, 2013 also disqualifies a
person to be appointed as an auditor if he is a partner of an officer of the
company. Furthermore, section 141(4) of the Companies Act, 2013 requires the
appointed auditor to vacate his office if he incurs any of the disqualifications
mentioned under sub-section (3).
Therefore, in cases, where a member of the Institute is a director of a company or a firm in
which said member is a partner should not express any opinion on its financial statements.
Hence Mr. C, a partner of Mr. B, should vacate the office.
9. Mr. A, a practicing Chartered Accountant, took over as the executive
chairman of a Software Company on 1.4.2015. On 10.4.2015 he applied to the
Council for permission.
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.
2.43
In the instant case, Mr. A took over as the executive chairman on 01.04.2015 and applied for
permission on 10.04.2015. On the basis of these facts, he was engaged in other occupation
between the period 01.04.2015 and 10.04.2015, without the permission of the Council and
therefore, Mr. A is guilty of professional misconduct in terms of Clause (11) of Part I of First
10. P, a Chartered Accountant holding Certificate of Practice, is a leading
Income Tax Practitioner in Gurugram. He is also trading in derivatives.
Comment with reference to the Chartered Accountant Act, 1949 and schedules
thereto. (May 17 old)
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. P is engaged in the occupation of trading in commodity derivatives which is
not covered under the general permission.
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.
11. CA Raghu is practicing in the field of Income-tax over a period of 12 years.

He has gained experience in this domain over others.
Sam, a student of Chartered Accountancy Course is very much impressed with
the knowledge of CA Raghu. He approached CA Raghu to take guidance on some
topics of Income-tax related to his course. CA Raghu, on request decided to
spare time and started providing private tutorship to Sam and some of his
friends alongwith. However, he forgot to take specific permission from the ICAI,
for such private tutorship.
Is CA Raghu, professionally liable for misconduct? (May 15 Old)
Permission for Providing Private Tutorship: As per Clause (11) 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 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.
Further, the Chartered Accountants Regulations, 1988 provides that a Chartered Accountant
in practice shall not engage in any other business or occupation other than the profession of
accountancy except with the permission granted in accordance with a resolution of the
Council. According to the same there is no specific permission from the council would be
necessary in the case of private tutorship.
In the given case, CA. Raghu has started providing private tutorship to Mr. Sam along with
some of his friends, without obtaining specific or prior approval of the Council.
On this context, it may be noted that the Council has provided general permission for
providing such private tutorship. Therefore, CA. Raghu would not be held guilty of
2.44
professional misconduct under Clause (11) of Part I of the First Schedule to the Chartered
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".
 As per the above clause, a member should not allow 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.
 However, the Council has decided that where a Chartered Accountant while signing a
report or, a financial statement or any other document is statutory to disclose his
name.
1. Ram & Co. is a firm of chartered accountants in practice, of which Ram and
Shyam are partners. The firm was appointed as auditors of a limited company.
After the Completion of the audit but before the submission of the audit report
on the company's accounts for the year ended 31st March, 2005 both Ram and
Shyam went on a pilgrimage to Badrinath. In their absence & under instructions
the audit report was prepared and signed by Hari, a chartered accountant
employed by the firm, but this report did not contain all the statements required
to be included therein. Discuss the legal liability of Ram, Shyam and Hari in the
circumstances.
Section 145 of the Companies Act, 2013 states that, only the person appointed as auditor of
the company, or where a firm is so appointed, only a partner in the firm practicing in India,
may sign the audit report.
In the instant case, neither Ram nor Shyam, partners of Ram & Co. did sign the audit report
as required under the Companies Act.
Clause 12 of Part I of First Schedule also specifies that a chartered accountant in practice
shall be deemed to be guilty of professional misconduct if he allows any person not being his
partner to sign on his behalf or on behalf of his firm any balance sheet, profit and loss
account and report on financial statement. Therefore, Ram and Shyam may be held guilty of
professional misconduct. Hari can also be held guilty of professional misconduct under this
clause on account of his unawareness. Both Ram and Shyam can also be held to be grossly
negligent in the conduct of their professional duties as they did not sign the audit report
themselves which is a requirement of law as per clause (7) of Part 1 of Second Schedule.
Further, it has been stated that the report which Hari signed did not contain all the
statements required to be included there under. In this context a notification has been issued
by the Council of the Institute which specifies that a member of the Institute whether in
practice or not, who is employed by a chartered accountant in practice or by a firm of such
chartered accountants shall be deemed to be guilty of professional misconduct if he is grossly
negligent in the conduct of his duties. Therefore, Hari shall also be deemed to be guilty of
professional misconduct as per this notification.
2. Mr. Y, a practicing Chartered Accountant met with an accident and hence
authorized his employee Mr. B, who is a qualified Chartered Accountant to sign
the audit report of the company as it was getting delayed
2.45
As per Clause 12 of Part 1 of the First Schedule of the Chartered Accountants Act, 1949, a
member in practice is not allowed to authorize any other member except his partner to sign
on his behalf or on behalf of his firm any balance sheet, profit and loss Account, report or any
financial statement. In view of this Mr. Y who has allowed his employee Chartered
Accountant to sign their audit report would be held guilty of professional misconduct under
the Chartered Accountants Act, 1949.
3. Whether a Chartered Accountant employed in your firm can sign the Balance
Sheet of a concern in the name of your firm.
Clause 12 of Part 1 of the First Schedule to the Chartered Accountants Act prohibits a member
from allowing a person who is not his partner to sign on his behalf or on behalf of his firm
any balance sheet, profit and loss account, or a report on financial statement. In the
circumstances, a member who allows an employee chartered accountant to sign the balance
sheet of a concern would be guilty of professional misconduct under Section 22 of the
Chartered Accountants Act.
4. A firm of Auditors of a Limited Company gives Power of Attorney to an
employee Chartered Accountant to sign reports and financial statements of the
company.
Clause 12 of Part I of the First Schedule to the Chartered Accountants Act, 1949 states that a
"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 or a member not being his partner, to
sign on behalf or on behalf of his firm any balance sheet, profit and loss Account, report of
financial statement." 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 his or its professional
capacity. 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 to the client(s) or where so required to an outsider
on behalf of himself or on behalf of a firm. The subject matter of report should be the
expression of professional opinion whether financial or non-financial. The financial
statements and the reports referred to in this Clause obviously mean the statements and
reports as ultimately finalized and submitted to outside authorities. As it is obvious that
reports and financial statement pertains to the Company, professional misconduct has been
committed by the firm in terms of Clause 12 referred to above.
5. CA. Smart, a practicing Chartered Accountant was on Europe tour between 15
-9-15 and 25-9-15. On 18-9-15 a message was received from one of his clients
requesting for a stock certificate to be produced to the bank on or before 20-
9-15. 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.
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.
2.46
Thus, CA. Smart is guilty of professional misconduct under Clause (12) of Part I of First
6. 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.
 He issued the audit queries to client which were raised during the course of audit.
 He issued production certificate to a client under Central Excise Act, 1944.
 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. (May
14 Old)
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 his 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 in the following
instances 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.
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 1 of First schedule to
the Act.
Further, issuance of production certificate to a client under Central Excise Act, 1944 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.
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 1 of First schedule to the Act.
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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
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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 in service is deemed to be guilty of professional misconduct, if he pays or
allows or agrees to pay any part of share of the emoluments of the employment with
any person either directly or indirectly.
 However sharing among relatives, dependents, friends etc. is allowed provided
a. there is no relationship in procuring or retaining the job and
b. the payment is not a consideration for job procurement or retention.
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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.
 Acceptance of any part of fees, profits or gains from a lawyer, a chartered accountant
or broker etc. either directly or by way of commission or gratification is prohibited
under this clause.
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'. (4 Marks) (May 14 Old)
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.
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
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Not being a fellow of the Institute, acts as a fellow of the Institute;
Explanation
2.48
 According to this clause, if an associate member of the Institute (ACA) acts as a fellow
member, he will be deemed to be guilty of professional misconduct.
 Here, the term “acts” implies exhibiting the term fellow on letters, visiting cards etc.
 A similar provision exists in Section 24 of the Chartered Accountants Act, 1949 which
reads as follows:
Any person who,
(i) not being a member of the Institute
a. represents himself as a member
b. using the designation Chartered Accountant
(OR)
(ii) Any member, who do not hold a Certificate of Practice represents himself as a
Chartered Accountant in practice.
 punishable with fine up to Rs.1000 for first conviction and
 punishable with fine up to Rs.5000 and/or imprisonment up to 6 months on
subsequent conviction.
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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;
According to this clause, a Chartered Accountant is deemed to be guilty of professional
misconduct
a. when he fails to supply the information called for by the Institute or its constituent
bodies or
b. when he does not comply with the requirements asked for
Case Laws:
1. Inspite 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.
2. 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, he was guilty under this
clause.
1. XYZ Associates, a Chartered Accountants Firm is having a relationship with a
multi - national accounting firm in India. The ICAI required that all firms
having networking relationship with any other entity need to furnish
information online within the stipulated time. XYZ Associates failed to respond.
Comment on this with reference to Professional misconduct, if any. (Nov. 18)
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
2.49
Committees, Director (Discipline), Board of Discipline, Disciplinary Committee, Quality

Review Board or the Appellate authority.
Thus, in the given case, Mr. XYZ Associates, a chartered accountant firm is failed to furnish
the information of its relationship with multi-national accounting firm in India. The ICAI
required this information to be submitted online within the stipulated time. XYZ Associates
failed to respond and submit the required information. Therefore, XYZ Associates is held
guilty of professional misconduct as per Clause (2) of Part III of the First Schedule to
2. X, a chartered accountant in practice, in spite of several reminders from the
Secretary of the Institute of Chartered Accountants of India fails to submit Form
18. Is he liable for misconduct? (May 17 old)
Failure to Submit the Information: Clause (2) of Part III of the First Schedule requires a
member to supply the information called for by the Council or any of its Committees and
Clause (1) of Part II of the Second Schedule requires every member of the Institute to act
within the framework of the Chartered Accountants Act and the Regulation made thereunder.
Under the former clause, it is misconduct for chartered accountants generally, if they do not
supply the information called for by the Council. The Secretary acts for the Council; hence,
request from the Secretary amounts to a request from the Council. Besides, it is also a
contravention of Regulation of the Chartered Accountants Regulations, 1988.
Thus, failure to submit Form 18 constitutes professional misconduct.
3. Mr. 'G', while applying for a certificate of practice, did not fill in the columns
which solicite information about his engagement in other occupation or
business, while he was indeed engaged in a business. (May 14 Old)
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.
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.
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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 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
2.50
advertisement, CV type write ups etc.), he would be/deemed to guilty of professional

misconduct under clause (3), Part-III of Schedule-I.
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
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is held guilty by any civil or criminal court for an offence which is punishable
with imprisonment for a term not exceeding six months;
The important point to note is that if imprisonment te9Ure exceeds six months, this case will
be covered in the clause of Part III of Schedule II.
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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.
The member is deemed to be guilty of professional misconduct irrespective of the fact
whether such acts are related to profession or not.
1. X, a Chartered Accountant availed a loan against his shares held as
investments from a nationalized bank. He issued 2 cheques towards repayment
of the said loan. Both the cheques were returned back by the bank with the
remarks "Refer to Drawer".
A Chartered Accountant is expected to maintain the highest standard 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.
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”.
As per Clause (2) of Part IV of the 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.
The question whether a particular act or omission constitutes “other misconduct” should be
based on facts and circumstances of each case.
Under Negotiable Instruments Act 1881, where any cheque drawn by a person for the
discharge of any liability is returned by the bank unpaid, either for insufficiency of funds or
the cheque amount exceeds the arrangements made by the drawer of the cheque, the drawer
of such cheque shall be deemed to have committed an offence.
In the given case the cheque was dishonoured with the remark “refer to drawer”. However,
such dishonour need not necessarily be only due to insufficiency of funds.
If it is proved that the cheques were dishonoured due to insufficiency of funds, the CA would
be held guilty of “other misconduct”.
2. Mr. R, a Chartered Accountant in practice approached Manager of a
Nationalised Bank for a loan of ` 25 lakhs. He has also informed the Manager
that if the loan is sanctioned, the Income Tax return of the Manager and staff
will be filed without charging any fees, as quid Pro quo for the loan sanctioned.
2.51
Clause (2) of Part IV of First Schedule to the Chartered Accountants Act, 1949 states that
member of the Institute, whether in practice or not, shall be deemed guilty of other
misconduct, if he in the opinion of the Council, brings disrepute to the profession or to the
Institute as a result of his action whether or not related to his professional work".
Accordingly, a Chartered Accountant is also expected to maintain the highest standards and
integrity even in his personal affairs and any deviation from these standards calls for
disciplinary action.
In the present case, the action of Mr. R, a Chartered Accountant in practice offering free
service in return to sanction of loan brings disrepute to the profession of a Chartered
Accountant.
Hence, Mr. R will be held guilty of other misconduct under Clause (2) of Part IV of the First
3. YKS & Co., a proprietary firm of Chartered Accountants was appointed as
concurrent auditor of a bank. YKS used his influence for getting some cheques
purchased and thereafter failed to repay the loan/overdraft.
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 and
integrity even in his 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.
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..
CA. D, a chartered accountant in practice availed of a loan against his personal
investments from a bank. He issued 2 cheques towards repayment of the said
loan as per the instalments due. However, both the cheques were returned back
by the bank with the remarks "Insufficient funds". Comment with reference to
the Chartered Accountants Act, 1949. (Nov. 17 Old)
Bringing Disrepute to the Profession: A Chartered Accountant is expected to maintain the
highest standard 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.
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”.
As per Clause (2) of Part IV of the 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.
The question whether a particular act or omission constitutes “other misconduct” should
be based on facts and circumstances of each case.
2.52
Under Negotiable Instruments Act 1881, where any cheque drawn by a person for the
discharge of any liability is returned by the bank unpaid, either for insufficiency of funds or
the cheque amount exceeds the arrangements made by the drawer of the cheque, the drawer
of such cheque shall be deemed to have committed an offence.
In the given case the cheque was dishonoured with the remark “Insufficient Funds”.
Therefore, CA D is liable for misconduct under Clause 2 of Part IV of the First Schedule of
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 Accountant in practice
A Chartered Accountant in practice shall be deemed to be guilty of professional misconduct,
if he
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"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' .
 This clause prohibits a member from disclosing information acquired by him in the
course of his professional engagement to any person without the consent of the client.
 In case where the member is required to take the permission of the client, it should be
ensured that such consent is obtained from a person who is competent to accord such
consent. Thus, in case of a proprietary concern, the consent of the proprietor is to be
obtained. In case of a partnership firm, consent is to be obtained from any partner of
the firm. In case of Company, consent should be obtained from either Managing
Director or from Board of Directors in the form of a resolution.
 However, the Chartered Accountant is free to disclose the information in cases
required by any law for the time being in force.
 For example, where disclosure is required to be made to say, exchange control
authorities, while performing his professional duties, the member is not deemed to be
guilty even when the information is disclosed with out obtaining permission from the
client. In such cases, it has to be assumed that mere requirement of law itself shall be
treated as consent given by member and actual consent is not required.
ROLE OF CHARTERED ACOUNTANT IN RELATION TO UNLAWFUL ACTS BY
THEIR CLIENTS
No duty is cast on a member to inform the Income Tax Authorities about taxation frauds by
his client of which, he comes to know during the course of his professional work.
Case I: Intentional suppressions or misstatement by client in tax returns –
Fraud relates to past years
Where the client had intentionally suppressed or misstated the tax returns and such fraud is
relatable to the accounts or tax matters of the client for past years for which the client was not
represented by the member
 The client should be advised to make a disclosure
2.53
 The member may continue to act for the client in respect of current matters by
making an assumption that past fraud does not affect the current tax matters.
 However, the member is advised to be extra careful to ensure that past behaviour is
not reflected in current matters.
Case II: Intentional suppressions or misstatement by client in tax returns –
Fraud relates to accounts examined and reported upon by the member
If the fraud relates to the accounts or tax matters examined by the member and reported
upon by him
 The client should be advised to make a disclosure
 If the client refuses, the member should inform the client that
a. he would disassociate with the client and
b. he would inform the authorities that the accounts prepared by him/reported
upon by him are unreliable on account of certain information since obtained.
And finally, the auditor should make a report to the authorities concerned.
Case III: Suppressions relates to current year accounts

If the suppression relates to accounts or returns currently being prepared, the member
should advise the client to make full disclosure in the accounts and when the client
refuse, he should make full reservation in his report, and should not associate
himself with the return.
Case Laws
 Where a Chartered Accountant disclosed to the Income Tax Officer information
acquired in the course of his professional engagement without the consent of his client
– Held guilty.
 Where a Chartered Accountant had disclosed information acquired by him in the
course of his professional engagement to persons other than his clients without the
consent of his clients and without requirement in any law. It was held that he was
guilty of professional misconduct under clause 1 of Part I of Second Schedule to the
Chartered Accountant Act.
1. As auditor of a Chemical Industry, Abhaya becomes aware of the secret
production process of the company developed at an enormous cost. She
describes the same in detail to her brother little aware that he will take
advantage of this information to start a similar industry on his own.
In terms of clause 1 of Part 1 of the Second Schedule to 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 his client or otherwise than as required by any
Law for the time being in force". Since Abhaya has revealed to her brother the company's
secret production process, which has come to her knowledge in her capacity as the auditor of
the company, she should be deemed to be guilty of professional misconduct.
2. 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
2.54
vital information of his client‟s business under the impression that it will help
the Nation to compete with other countries at international level. (Nov. 14 old)
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 confidence. 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. Thus it is a professional
misconduct covered by Clause (1) of Part I of Second Schedule to the Chartered Accountants
Act, 1949.
3. 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?
Clause (1) of Part I of the Second Schedule to the Chartered Accountants Act, 1949 states that
a chartered accountant in practice shall be 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 div ulge 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.
4. Mr. B, a Chartered Accountant in practice was invited to deliver a seminar on
GST which was attended by professionals as well as by representatives of
various Industries. One section of audience raised a particular issue unique to
the industry to which it pertains. Mr. B enthusiastically explained the issue and
elaborated how he actually solved this, for his client facing the same issue with
worked out examples from the computer storage device using the actual data of
one of his clients with full identification of client details being displayed to the
group for the sake giving clarity on a topic in a real life situation. Comment his
acts in the light of Code of Conduct. (May 18 New)
Disclosure of Information to third Party: Clause (1) of Part I of the Second Schedule to the
Chartered Accountants Act, 1949 states that a chartered accountant in practice shall be
2.55
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 during 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, Mr. B is a Chartered Accountant in practice and he was invited to deliver
a seminar on GST which was attended by professional as well as by representatives of various
industries. During his session, a query was raised on particular issue and Mr. B used the
actual data of one of his clients with full identification of client details displayed to explain
and elaborate such query. Applying the above provision, the auditor cannot disclose the
information in his possession without specific permission of the client. Thus, CA. B will be
liable for professional misconduct under clause 1 of Part I of the Second Schedule to the
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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".
 A Chartered Accountant in practice shall be deemed to be guilty of professional
misconduct if he certifies or submits a report of an examination of financial
statements unless such statements and related records were examined by
a. him
b. his partner
c. his employee
d. another chartered accountant in practice
 Point (d) above is particularly applicable in case of appointment of joint auditors.
In such a case, the work will be carried out by both the joint auditors and therefore
there arises a concept of examination of financial statements and related records by
another chartered accountant in practice.
1. Mr. Mohan is a practicing Chartered Accountant. He issued a certificate of
consumption which did not reflect the correct factual position of the
consumption of raw material by the concerned entity. It is found that the
certificate is given on the basis of data appearing in the minutes of meeting of
the Board of Directors.
According to Clause (2) of Part I of Second Schedule to the Chartered Accountants Act, 1949
a chartered accountant is held guilty of professional misconduct if he certifies or submits 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 employee in his firm or
any other chartered accountant in practice.
Mr. Mohan has issued a certificate of consumption which does not reflect the correct factual
position of the consumption of raw material by the concerned entity. He has failed in his duty
of examining the record. He has relied on the minutes of Board of director‟s meeting which is
not proper evidence to show the consumption of raw material. The relevant record of
production and stock register should have been scrutinized thoroughly and properly.
2.56
Clause (7) of Part I of Second Schedule to the Chartered Accountants Act, 1949 also applies to
this case which states that a Chartered Accountant in practice shall be deemed to be guilty of
professional misconduct, if he does not exercise due diligence or is grossly negligent in the
conduct of his professional duties.
Mr. Mohan will be held guilty of Professional Misconduct under Clause (2) of Part I of
Second Schedule to the Chartered Accountants Act, 1949.
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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".
 This clause prohibits a member from signing on an estimate of earnings contingent
upon future transactions in a manner which may lead to the belief that he vouches for
the accuracy of the forecast. (Forecasts/Projected Financial Statements)
 However, a member is not prohibited from associating his name with such forecast.
In other words, he can participate in the preparation of profit or financial forecasts
and can review them, provided that he clearly indicates the following in his
report.
a. Sources of Information
b. Basis of forecasts
c. Major assumptions made in arriving at the forecasts
d. States that he does not vouch for the accuracy of the forecast
1. Z, a Chartered Accountant, certifies a financial forecast of his client which
was forwarded to the client‟s bank based on which the bank sanctioned a loan to
the client.
Certification of Financial Forecast: Under Clause (3) of Part I of Second Schedule to the
Chartered Accountants Act, 1949, a chartered accountant in practice is deemed to be guilty of
professional misconduct if he permits his name or the name of his firm to be used in
connection with an estimate of earnings contingent upon future transactions in a manner
which may lead to the belief that he vouches for the accuracy of the forecast.
Further, SAE 3400 “The Examination of Prospective Financial Information”, provides that
the management is responsible for the preparation and presentation of the prospective
financial information, including the identification and disclosure of the sources of
information, the basis of forecasts and the underlying assumptions. The auditor may be
asked to examine and report on the prospective financial information to enhance its
credibility, whether it is intended for use by third parties or for internal purposes. Thus,
while making report on projection, the auditor need to mention that his responsibility is to
examine the evidence supporting the assumptions and other information in the prospective
financial information, his responsibility does not include verification of the accuracy of the
projections, therefore, he does not vouch for the accuracy of the same.
In the instant case, Mr. Z has certified a financial forecast of his client which was forwarded
to the client‟s bank based on which the bank sanctioned a loan to the client. Thus, Mr. Z will
not be held guilty of misconduct if all the requirements have been complied with or vice
versa.
2. L, a chartered accountant prepares and certifies projected financial
statements of his client Abacus Ltd. Abacus Ltd. forwarded the same to their
banks to secure some loans and bank, on that basis sanctioned a loan. Comment
2.57
with reference to the Chartered Accountants Act, 1949 and schedules thereto.
(May 17 old)
Certification of Projected Financial Forecast: Under Clause (3) of Part I of Second Schedule
to the Chartered Accountants Act, 1949, a chartered accountant in practice is deemed to be
guilty of professional misconduct, if he permits his name or the name of his firm to be used in
Further, SAE 3400 “The Examination of Prospective Financial Information”, provides that
the management is responsible for the preparation and presentation of the prospective
financial information, including the identification and disclosure of the sources of
information, the basis of forecasts and the underlying assumptions. The auditor may be
asked to examine and report on the prospective financial information to enhance its
credibility, whether it is intended for use by third parties or for internal purposes. Thus,
while making report on projection, the auditor need to mention that his responsibility is to
examine the evidence supporting the assumptions and other information in the prospective
financial information, his responsibility does not include verification of the accuracy of the
projections, therefore, he does not vouch for the accuracy of the same.
In the instant case, Mr. L, a chartered accountant, has prepared and certified a projected
financial forecast of his client Abacus Ltd. which was forwarded to the client‟s bank to secure
some loans and based on which the bank sanctioned a loan to the client is not in order.
Thus, Mr. L will be held guilty of misconduct in view of above.
3. Mr. 'E', a practicing Chartered Accountant, was requested by one of his client
to prepare a projection for next five years and also a report on the same. Mr. 'E'
after having prepared the same stated in his report „The sources of information,
the basis of forecasts and also the major assumptions made in arriving at the
forecasts. He also stated that he does not vouch for the accuracy of the forecasts.
(May 14 Old)
Certification of Financial Forecast: As per Clause (3) of Part I of Second Schedule to the
Chartered Accountants Act, 1949, a chartered accountant in practice is deemed to be guilty of
professional misconduct if he permits his name or the name of his firm to be used in
Accuracy does not refer to arithmetical accuracy. All forecasts are estimates based on certain
assumptions duly evaluated on a consideration of various relevant factors and cannot be
ascertained with accuracy. The Guidance Note on Accountants Report on Profit Forecasts
and/or Financial forecast considered the implications of this clause and made it clear that the
chartered accountant can participate in the preparation of profit or financial forecasts and
review them. But, first of all, he should clearly indicate in his report the sources of
information, the basis of forecasts and also the major assumptions made in arriving at the
forecasts and, secondly, he should not vouch for the accuracy of the forecasts.
In the instant case, Mr. E after having prepared the projections for next five years stated in
his report, “the sources of information, the basis of forecasts and also the major assumptions
made in arriving at the forecasts.” He also stated that he does not vouch for the accuracy of
the forecasts. Therefore there is no violation of the Chartered Accountants Act, 1949 and its
Regulations.
2.58
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;
 A Chartered Accountant is deemed to be guilty of professional misconduct if he
expresses his opinion on the financial statements of any business or enterprise in
which he, his firm, or a partner in his firm has a substantial interest.
 A Chartered Accountant is prohibited from expressing an opinion in an enterprise of
which the member is either an owner or a partner.
 A Chartered Accountant is prohibited from expressing an opinion in an enterprise of
which a partner or relative of a member has substantial interest.
 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 CA in employment of another CA holding certificate of practice cannot certify
financial statements of the employer concern.
 A CA should not accept auditorship of a college, if he is working as a part-time lecturer
in that college.
 Members are not permitted to write books of account of their client.
 Statutory auditor of a company cannot be its internal auditor
1. Mr. X, a practicing Chartered Accountant accepts appointment as an auditor
of a Company in which his relative has a substantial interest.
Even though it is possible to appoint a person who is having substantial interest in a
company to be its auditor previously, according to the amended Clause 4 of Part I of Second
Schedule to the Chartered Accountants Act, 1949, a Chartered Accountant is prohibited from
accepting appointment as an auditor of a company in which his relative has a substantial
interest.
Hence, Mr. X is hit by the above clause and accordingly he should not be appointed as the
auditor in which his relative has a substantial interest. Therefore X violated the above clause
and he is guilty of professional misconduct under this clause.
2. A firm of Chartered 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.
Clause (4) of Part I of the Second Schedule to Chartered Accountants Act, 1949, states that
expressing an opinion on financial statements of any business or enterprise in which he, his
firm or a partner in his firm has a substantial interest would constitute misconduct. Also, the
Council of the Institute of Chartered Accountants of India has stated that in cases where a
member of the Institute is a director of a company, or the firm in which the said member is a
partner, should not express any opinion on its financial statements. As per facts of the case,
the firm has been retained to evaluate the cost of products manufactured by it for its
information system. It is a part of management consultancy service of the firm and moreover
its partner was on the Board. Hence, the firm can perform this assignment and it will not
constitute misconduct. However, the firm while accepting the position as auditor in future
would have to consider whether it would be possible to act in independent manner and
express opinion on financial statements.
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3. Mr. Shah, a Chartered Accountant certified the financial statements of a

company in which his wife is a Director holding substantial interest.
Clause (4) of Part I of Second Schedule to the Chartered Accountants Act, 1949 states that if
an auditor expresses his opinion on the financial statements of any business or enterprise in
which he, his firm or partner in his firm has a substantial interest, he is committing
professional misconduct. Further as per Council General Guidelines, 2008, a member of the
Institute shall not express his opinion on financial statements of any business or enterprise in
which one or more persons, who are his “relatives” within the meaning of AS 18 have, either
by themselves or in conjunction with such member, a substantial interest in the said business
or enterprise.
The Council also emphasizes that the aforesaid requirement of Clause (4) is equally
applicable while performing all types of attest functions by the members.
This is further a contravention of section 141(3)(f) of the Companies Act, 2013, which
requires that 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.
In the given case, Mr. Shah, Chartered Accountant, has certified the financial statements of a
company in which his wife is a director with substantial interest. Hence, this amount to
professional misconduct which attracts Clause (4) of Part I of Second Schedule to the
Chartered Accountants Act, 1949 and Mr. Shah shall have to vacate the office accordingly.
4. P, a Chartered Accountant in practice, accepts appointment as statutory
auditor for LMN Pvt. Ltd. Q, brother of P has substantial interest in LMN Pvt.
Ltd.
Accepting Appointment as an Auditor where Relative Holding Substantial Interest: As per
Clause (4) of Part I of Second Schedule, a CA 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. As per Council
General Guidelines, 2008, the above restriction is also made applicable for relatives of the
members.
Further, 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.
In the instant case, since Q, a relative has a substantial interest in LMN Pvt. Ltd., P
cannot conduct the audit and needs to vacate the office. Thus, P will be guilty of misconduct
in terms of above clause.
5. AP & Co., a firm of Chartered Accountants, was appointed by D Ltd., to
evaluate the cost of a new product manufactured by it for their information
system and fixation of fair market price. Partner 'P' of the CA firm is a non-
executive director of the Company. Comment with reference to Chartered
Accountants Act, 1949 and Regulations there to. (May 18 Old)
Evaluation of Cost of Products: Clause (4) of Part I of the Second Schedule to Chartered
Accountants Act, 1949, states that expressing an opinion on financial statements of any
business or enterprise in which he, his firm or a partner in his firm has a substantial interest
would constitute misconduct.
2.60
Also, the Council of the Institute of Chartered Accountants of India has stated that in cases
where a member of the Institute is a director of a company, or the firm in which the said
member is a partner, should not express any opinion on its financial statements.
As per facts of the case, the firm has been retained to evaluate the cost of products
manufactured by it for its information system. It is a part of management consultancy service
of the firm and moreover its partner was on the Board.
Hence, the firm can perform this assignment and it will not constitute misconduct.
However, the firm while accepting the position as auditor in future would have to consider
whether it would be possible to act in independent manner and express opinion on financial
statements.
6. A firm of Chartered Accountants was appointed by a company to evaluate the
costs of the various products manufactured by it for their operation system.
One of the partners of the firm of chartered accountants was a non-executive
director of the company. (Nov. 14 – Old)
Expression of Opinion on Financial Statements: Clause 4 of Part I of the Second Schedule to
Chartered Accountants Act, 1949, states that expressing an opinion on financial statements of
any business or any enterprise in which the auditor, his firm or a partner in his firm has a
substantial interest would constitute misconduct. Also, the Council of the Institute of
Chartered Accountants of India has stated that in cases where a member of the Institute is a
director of a company, or the firm in which the said member is a partner, should not express
any opinion on its financial statements.
As per facts of the case, the firm has been retained to evaluate the cost of products
manufactured by it for its information system. It is a part of management consultancy service
of the firm and moreover its partner was on the Board.
Hence, the firm can perform this assignment and it will not constitute misconduct.
However, the firm while accepting the position as auditor in future would have to consider
whether it would be possible to act in independent manner and express opinion on financial
statements.
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;
 Where a Chartered Accountant fails to disclose a material fact known to him, in a
financial statement reported on by him, he will be deemed to be guilty of professional
misconduct.
 In other words, the Chartered Accountant is guilty if all the following conditions are
satisfied.
a. the fact must be a material fact
b. the fact must be known to the auditor
Case Laws:
1. Where a CA failed to report to the shareholders of a company about the non-
creation of a sinking fund in accordance with the Debenture Trust Deed – Held
guilty.
2.61
2. Where a CA 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 the same
– Held guilty.
1. A company was operating Superannuation-cum-Pension Fund for its
employees under a separate Trust. The same persons were in-charge of the
management of the company as well as the Trust. The auditor was also
common. The Trust had granted huge loans to the company in violation of the
provisions of the trust deed. Even the cheques in part payment of the loan
received from the company were not deposited for collection by the Trust.
Though the auditor had commented upon these irregularities in the confidential
report given to the trustees he gave a clean report on the annual accounts of the
Trust.
A Chartered Accountant in practice is deemed to be guilty of professional misconduct under
clause 5 of Part I of the Second Schedule if he "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". In this case, the Chartered Accountant was aware of
the contraventions and irregularities committed by the Trust as these were referred
confidential report given by the Chartered Accountant to the trustees of the company.
However, he had given a clean report on the annual accounts without any qualification.
On similar facts it was held by the Supreme Court in Kishorilal Dutta vs. P. K. Mukherjee that
it was the duty of the Chartered Accountant to have disclosed the irregularities and
contraventions to the beneficiaries of the fund in the statement of accounts signed by him.
Accordingly, in the-present case also it has to be held that the Chartered Accountant is guilty
of professional misconduct.
2. Mr. Extraordinary, a practicing Chartered Accountant, had failed to report
regarding a material claim against the company of which he was aware and
which the management intentionally did not include in their financial
statements, as it would affect the price of their shares on the Stock Exchange.
As per Second Schedule to the Chartered Accountant Act, 1949 a chartered accountant in
practice shall be deemed to be guilty of professional misconduct, if he fails to disclose a
material fact known to him which is not disclosed in financial statements but disclosure of
which is necessary to make the financial statements not misleading. Mr. Extraordinary had
failed to report a material claim against the company, which the management did not
disclose intentionally in the financial statements as it would affect their share prices on the
stock exchange. Since non-disclosure of material claims against the company about which
Mr. Extraordinary is aware would make the financial statements misleading, he would be
held guilty of professional misconduct under Part I of the Second Schedule to Chartered
3. 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 this information in his report.
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
2.62
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 failed to disclose this fact in his report, he
is attracted by the provisions of professional misconduct under Clause (5) of Part I of Second
4. 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.
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.
Hence the Chartered Accountant would not be held liable for professional misconduct.
4. D, a Chartered Accountant in practice was appointed by Realty Limited to
represent its cases before GST Authorities under a duly executed power of
representation. In the course of proceedings he submitted certain statements-
written as well as oral-which later found to be false and materially misleading.
Comment this in the light of Professional Code. (Nov. 18)
Submitting Information as Authorized 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 GST
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.
Hence Mr. D would not be held liable for professional misconduct.
5. In the course of his audit assignment in M/s Bailey Ltd., CA Soft came to
know that the company, due to financial crunch and unable to meet employees
2.63
salary, has taken a loan of Rs.50 lacs from Employees Gratuity Fund. The said
loan was not reflected in the books of account of the company and the auditor
ignored this transaction in his report.
Comment with reference to the Chartered Accountants Act, 1949 and
Regulations there to. (May 18 Old)
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, CA. Soft has come across information that a loan of `50 lakhs has been taken by
the company from Gratuity Fund. This is contravention of Rules and the said loan has not
been reflected in the books of account.
Further, this material fact has also to be disclosed in the financial statements. The very fact
that CA. Soft has failed to disclose this fact in his report, he would be guilty for 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”.
 Where a member fails to report a material misstatement known to him in the financial
statements, he will be deemed to be guilty of professional misconduct.
 In order to deem a member to be guilty of professional misconduct, the following two
conditions must be satisfied.
a. The misstatement should be material in nature and
b. It should be known to the member concerned
Case Laws:
A Chartered Accountant failed to disclose a misstatement or under statement by the company
in the balance sheet of its liabilities, which amount to a suppression of the correct state of
affairs. He also failed to report a material misstatement by the company in not giving the
previous year‟s figures in the corresponding column of the balance sheet.
1. Mr. X, partner of X & Co., Chartered Accountants, has compiled and signed
the Balance Sheet of False Ltd., for submission for the bankers of the said
company. Mr. X has also compiled and signed at the request of the company
another Balance Sheet inflating the value of assets by 20% for submission to a
term lending institution. Both the Balance Sheets were not in conformity with
the books of accounts maintained by the company as they were not up-to-date.
Comment on Mr. X‟s liability.
Mr. X would be held guilty under clauses (5) and (6) under Part I of the Second Schedule to
the Chartered Accountants, 1949 as Mr. X had compiled two different Balance Sheets for the
same period without reference to the actual books of accounts but on instructions of the
2.64
client. As per Clause (5) he has failed to disclose material fact known to him and further as
per Clause (6) he has also failed to report a material misstatement known to him. Both the
balance sheets were incorrect and false as the books and records were not up to date. Thus
Mr. X is guilty of professional misconduct.
2. Alok Nanda is the auditor of a partnership firm consisting of X and Y as
partners. In his audit report to the firm, he did not refer to certain materially
irregular transactions found in the books of the firm for the reason that X
the senior partner had approved all such transactions.
In this case the auditor has carried out his work with due care and has been able to detect
some materially irregular transactions passed through the books of account on the approval
of the senior partner. However, he has not disclosed the same in his report to the firm as
these transactions have been approved by the senior partner. It has to be noted that the
auditor owes his duty to the partnership firm as a separate entity and not to the individual
partners.
As the transactions passed through the books of accounts are materially irregular, their non-
disclosure makes the financial statements misleading. Clauses 5 and 6 of Part II of the
Second Schedule to the Chartered Accountants Act, 1949, state that a chartered accountant
would be deemed to be guilty of professional misconduct in case 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 statement not misleading or fails to report on a material
misstatement known to him to appear in a financial statement with which he is concerned in
a professional capacity. Therefore, as per both these clauses, the auditor would be deemed to
be guilty of professional misconduct.
Further, the auditor can also be held liable for negligence under the common law and civil
proceedings can be instituted against him as he has acted in a negligent manner. It is
because the auditor owes his duty to the firm in his professional capacity and not to an
individual partner i.e. Mr. X. The purpose of the audit of the firm's accounts is to safeguard
the interests of all partners concerned. If the auditor overlooks some irregularities on the
ground that one of the partners has approved of them, he does not discharge his duties to
other partners. In this case it appears that nothing is known to Mr. Y and if any loss or
damage occurs, Mr. Y can proceed against the auditor and claim damages from him.
Therefore, Alok Nanda is liable both under the common law and under the provisions of the
Chartered Accountants Act, 1949, and Regulations, 1988.
CLAUSE - 7
Does not exercise due diligence, or is grossly negligent in the conduct of his
professional duties;
 Where the Chartered Accountant does not exercise due diligence or is grossly
negligent in performing his professional duties, he will be deemed to be guilty of
professional misconduct under this clause.
 The word negligence covers a wide field and includes in its range from fraud to
minor negligence.
 While deciding whether the member is grossly negligent in performing his duties, it is
necessary to judge whether the member has honestly and reasonably discharged
his duties.
 It is the duty of the auditor to carry out the work with reasonable skill and care. What
is reasonable skill, care and caution depends on the circumstances of each case.
2.65
However, an auditor is not bound to be a detective, but he should be like a watchdog.

If there is anything calculated to excite suspicion he should probe it to the bottom;
Case Laws:
1. Where a Chartered Accountant, in a bank audit reported to the shareholders that he had
not verified the cash on hand and signed the balance sheet in anticipation of the receipt
of confirmation letters from the banks in respect of the cash said to be lying with them and
failed to report on the weakness of the bank‟s financial position. Held, that he was guilty of
under clause 7. Verification of cash was an essential duty of an auditor, which he failed to
discharge and in signing the report in anticipation of receiving the confirmation letters from
bank, he had failed to perform his duties with the requisite skill and care.
2. Where a Chartered Accountant certified the circulation of a newspaper based on the
statistic record but stated in his certificate that he had given it after examination of the books
of account without verifying the books of account and the statistical records agreed and also
without taking into account the return of copies unsold.
3. 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 has 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.
4. Where a Chartered Accountant had placed implicit reliance on his paid assistant who took
absolutely no step whatsoever to check the cash balances facilitating and resulting, in serious
defalcations. Held he was guilty under clauses 5, 7, 8 and 9.
5. 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 failure to examine the pass book and to verify the cash balance. Held he was
guilty under clause 7.
6. 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,. Held, he was guilty of
professional misconduct under clause 7.
7. A Chartered Accountant, with out examination of stock register of the firm and without
examining other relevant matters connected with the certificate, issued wrong consumption
certificate in respect of raw material and components on the basis of which, license of higher
value, for which the unit was not entitled, was issued by the Deputy controller of imports and
exports. Held the Chartered Accountant was guilty of gross negligence under the clause 7.
8. 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 adhoc 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.
9. Where a Chartered Accountant issues two different certificates o 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.
10. A Chartered Accountant had failed to detect a fraud committed by the accountant of a
canteen which could have been detected if he had checked the castings of the cash books and
2.66
also checked the contra entries of the bank and cash columns of the cash books. Held, he was
guilty of professional misconduct under clauses 7, 8 and 9.
1. A Chartered Accountant sends his report by Value Paid Postage (V.P.P.) to
cover the audit fee payable without signing the report.
Clause 7 of Part I of the Second Schedule to the Chartered Accountants Act, 1949, states that
a Chartered Accountant in practice shall be deemed to be guilty of professional misconduct,
"if he is grossly negligent in the conduct of his professional duties." This implies, whether or
not the accountant has honestly and reasonably discharged his duties. Professional
misconduct on the part of a person practicing one of the technical professions, cannot fairly
or reasonably be found merely on a finding of a bare non-performance of a duty or some
default in performing it. The charge is not one of inefficiency out of misconduct and in an
allegation of misconduct imputation of a certain mental condition is always involved. The test
must always be whether in addition to a failure to do the duty there has been a failure to act
honestly and Reasonably." (S. GANESAN vs. A..K.JOSCEL YNE) Keeping this in view it can
be said in the instant case that the Chartered Accountant while sending the report by
V.P.P. had only failed to perform his duty of signing the report. Mere non-signing cannot be
imputed for non-performance of a duty or some default in performing it. However, as the
auditor has sent the report by V.P.P. so as to cover his audit fees payable the intention of the
auditor as imputed from his action and mental condition is to recover the fees. Under the
circumstances, it seems that the auditor has failed to act honestly and reasonable and
therefore, he has committed professional misconduct.
2. CA. ZZ who conducted ABC audit of a marathi 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 to the 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. ZZ did not exercise due diligence and is grossly negligent in 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.
Hence, CA. ZZ is guilty of professional misconduct as per Clause (7) of Part I of Second
Schedule of 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”.
2.67
 A CA should express his opinion about the truth and or fairness of financial statements
only after obtaining requisite information and explanation.
 Where the evidence obtained by him during the course of audit is inadequate to form
an opinion, he should clearly express disclaimer of opinion.
 For example, if the auditor is unable to obtain evidence of the existence/valuation of
the investments 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. In other words, in such a case, he has to specifically
state that “As we have been unable to verify the existence and value of the investments
of the company, we are unable to state whether the balance sheet shows a true and fair
view”
 In other words, where a CA issues a qualified opinion in a situation where he is
expected to issue a disclaimer, he will be deemed to be guilty of professional
misconduct.
1. Mr. Jain, a Chartered Accountant certified the circulation of “Good Luck” a
weekly magazine without examination of financial records and other required
documents.
Failure to Obtain Information: Clause (8) of Part I of Second Schedule to 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. Mr. Jain, a Chartered Accountant, certified the
circulation figures of Good Luck, a weekly magazine without examination of financial records
and other required documents. The chartered accountant should not express his opinion
before obtaining the required data and information. As an auditor, Mr. Jain ought to have
verified the basic records such as print order, printer‟s bill, number of copies sold and paid
for, number of copies returned unsold to ensure the correctness of circulation figures. Thus
in the present case, Mr. Jain is held guilty of professional misconduct.
2. Mr. K, a Chartered Accountant certified the circulation of a weekly magazine
without examining the records and relevant documents.
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.
Mr. K, a Chartered Accountant, certified the circulation of a weekly magazine without
examination of records and other relevant documents. The chartered accountant should not
express his opinion before obtaining the required data and information. As an auditor, Mr. K
ought to have verified the basic records such as print order, printer‟s bill, number of copies
sold and paid for, number of copies returned unsold to ensure the correctness of circulation
figures. Thus, in the present case, Mr. K will be held guilty of professional misconduct under
Clause (8) of Part I of Second Schedule to the Chartered Accountants Act, 1949.
3. Mr. A, a Chartered Accountant was the auditor of 'A Limited'. During the
financial year 2014-15, the investment appeared in the Balance Sheet of the
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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.
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.
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 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).
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.
4. Mr. X, a practicing Chartered Accountant, issued a circulation certificate for a
periodical on the basis of outward memos, which was later found to be false.
As per Clause (8) of Part I of Second Schedule to the Chartered Accountants Act, 1949, a
Chartered Accountant in practice, will be deemed to be guilty of professional misconduct if he
fails to obtain sufficient information which is necessary for expression of an opinion or its
exceptions are sufficiently material to negate the expression of an opinion.
This indicates a Chartered Accountant must determine the extent of information, which,
should be obtained by him before he expresses an opinion on the financial statements.
In the present case, Mr. X certifies the circulation based on outward memos, without going
into the most elementary details of how the circulation of a periodical was maintained, i.e.
not verifying the financial records, bank statements, collections for the periodicals, payment
of the printer‟s bills etc. Hence, he is guilty of professional misconduct as per Clause (8) of
Part I of Second Schedule to the Chartered Accountants Act, 1949.
CLAUSE - 9
"Falls to invite attention to any material departure from the generally accepted
procedure of audit applicable to the circumstances":
While carrying out an independent audit, it is obligatory on the part of the auditors to follow
generally accepted procedures of audit applicable in the circumstances. If, a CA fails to
follow such procedures, it is his duty to report the same and he should draw attention to the
material departure from such procedures. He should also indicate the reasons for failure to
perform audit as per generally accepted procedures and standards.
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The auditor can have knowledge of the generally accepted procedures of audit from the
pronouncements of the Institute of Chartered Accountants of India.
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.
While performing his duties, the member may be entrusted with moneys belonging to his
client. If he receives the moneys from his client, it would be his duty to deposit them in a
separate bank account and to utilize such funds only in accordance with the instructions of
the client or for the purposes intended by the client.
The following amounts received were excluded from the above clause:
a. An advance received against services to be rendered
b. Moneys received and intended to be spent within a reasonably short time need not be
put in a separate bank account.
The following amounts are required to be put in a separate bank account
a. Moneys received and are not intended to be spent within a reasonably short time
b. Moneys received by a Chartered Accountant, in his capacity as trustee, executor,
liquidator etc.
Case Laws:
A Chartered Accountant was found guilty of not keeping the client‟s money in a separate
account and not using it for the purpose for which it was given.
1. M/s XYZ a firm of Chartered Accountants received 2 lakhs in January, 2015
on behalf of one of their clients, who has gone abroad and deposited the amount
in their Bank account, so that they can return the money to the client in July,
2015, when he is due to return to India.
Clause (10) of Part I of Second Schedule states that a Chartered Accountant shall be deemed
to be guilty of professional misconduct if “he fails to keep money of his clients in separate
banking account or to use such money for the purpose for which they are intended”.
XYZ received the money in January, 2015 which is to be paid only in July 2015; hence it
should be deposited in a separate bank account. Since in this case XYZ have failed to keep the
sum of 2 lakhs received on behalf of their client in a separate Bank Account it amounts to
professional misconduct under Clause (10) of Part I of Second Schedule.
2. 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.
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. In the given case by depositing the client‟s money by M/s Ram and
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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.
3. Mr. Z, a practicing Chartered Accountant, received a sum of ` 1 lac on 1.9.2014
from a Client who intends to leave abroad for a period of a year, with a request
that his advance tax liabilities to be paid over the three instalments. On 15 th
September, 2014, 15th December, 2014 and 15th March, 2015. After remitting
the 1st instalment of advance tax on 15.9.2014, Z did not keep the Balance
Money in a separate Bank account and he is of the opinion he will remit the
money within reasonable time as per payment schedule of Advance tax.
As per Clause (10) of Part I of Second Schedule to the Chartered Accountant Act, 1949, a
Chartered Accountant in practice will be deemed to be guilty of professional misconduct if he
fails to keep moneys of his client other than the 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.
The term reasonable time would depend upon the circumstances of the case. Moneys which
are intended to be spent within a reasonably short time need not be put in a separate bank
account.
Thus, in the instant case, Mr. Z should have kept the balance money af ter remitting the first
instalment of advance tax into a separate bank account. Hence, he is guilty of professional
misconduct as per Clause (10) of Part I of Second Schedule to the Chartered Accountants Act,
1949.
4. A film artist who was going abroad for long shooting, deposited a sum of
Rs.20 lakhs with his tax consultant Mr. G, a practicing Chartered Accountant for
payment of Goods and Service Tax monthly when they were due, Mr. G duly
remitted all but one installments. He utilized the amount of installment which
he did not pay, to remit his own advance income tax. However, while filing
return of GST of the film artist, he duly remitted on her behalf the tax payable
with interest due for late payment of GST out of money lying with him. He also
bore for himself the interest due to short fall in remittance of tax of his client.
Comment on the above in the light of Code of Conduct. (May 18 New)
Money of Clients to be Deposited in Separate Bank Account: Clause (10) of Part I of Second
Schedule states that a Chartered Accountant shall be deemed to be guilty of professional
misconduct if “he fails to keep money of his clients in separate banking account or to use such
money for the purpose for which they are intended”.
In the instant case, CA. G received sum of rupees Rs. 20 lakh from his client who is a film
artist for monthly installment payment of Goods and Service Tax. This money should have
been deposited in a separate bank account. CA. G utilized the amount of last installment for
his own advance tax payment, though he paid the same along with interest and bore the
interest due to short fall in remittance of tax of his client.
As per fact of the case CA. G has failed to keep the sum of rupees 20 lakh received on behalf
of his client in a separate Bank Account and utilized the same for his own advance tax
payment amounts to professional misconduct under Clause (10) of Part I of Second
Schedule.
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5. M/s. ABC, a firm of Chartered Accountants received Rs.2 lakhs in March,

2014 from a client to pay the Advance Tax. However, the firm has used that
money for its own purpose and later on adjusted the same with the outstanding
fee payable. (Nov. 14 – Old)
Money of clients to be deposited in separate bank account: Clause 10 of Part I of Second
Schedule states that a Chartered Accountant shall be deemed to be guilty of professional
misconduct if “he fails to keep money of his clients in separate banking account or to use such
money for the purpose for which they are intended”.
M/s. ABC received the money in March, 2014 for payment of the advance tax; hence it should
be deposited in a separate bank account. Since in this case M/s. ABC have failed to keep the
sum of 2 lakhs received on behalf of their client in a separate Bank Account, it amounts to
professional misconduct under clause 10 of part I of Second Schedule.
PART II
CLAUSE - 1
Contravenes any of the provisions of this Act or the regulations made there
under or any guidelines issued by the Council
1. Rehman Potnis, a Chartered Accountant in practice, took a loan of Rs.20,000
from a firm in which his articled clerk and his father were both interested.
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 provisions of this Act or the Regulations made
there under. Regulation 47 of the Chartered Accountants Regulations 1988 prohibits a
member from accepting any premiums or loan or any deposit in any form for engaging an
articled clerk directly or indirectly. Therefore, Rehman Potnis shall be guilty of professional
misconduct under this clause.
2. M/s. ABC, a firm of Chartered Accountants has taken a loan for acquiring
computers, from a company whose Managing Directors‟ son is an Articled
Trainee with A, a partner of M/s ABC.
As per Clause (1) of Part II of Second Schedule to the Chartered Accountants Act, 1949, a
chartered accountant is deemed to be guilty of professional misconduct if he contravenes any
of the provisions of Chartered Accountants Act, 1949 or Regulations made thereunder.
Regulation 47 of the Chartered Accountant‟s Regulations, 1988, prohibits a member from
accepting any premiums or loans or any deposit in any form from an articled clerk directly or
indirectly. However, M/s ABC has taken loan from a company whose Managing Director
happens to be father of articled clerk with Mr. A, a partner of M/s ABC. In this case, the
articled trainee has no direct interest in that company. There has been a case wherein a
chartered accountant was held guilty of professional misconduct because he took a loan from
a firm in which the articled clerk and his father were both interested. But, in this case as per
the facts, the articled trainee has no direct interest in the company. However, if relationship,
direct or indirect, can be established in view of relationship of articled trainee with MD of the
company, Mr. A of M/s ABC would be held liable for professional misconduct. Thus, M/s
ABC would be guilty of professional misconduct under this clause if it is proved that the loan
was related to the engagement of the articled clerk.
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3. A Chartered Accountant in practice had confirmed in the application made by

his articled clerk to the Council for permission to study that the normal working
hours of his office were 11 a.m. to 6 p.m. and the hours during which the articled
clerk was required to attend college classes were 7 a.m. to 9.30 a.m. On inquiry
from Principal of College, it was ascertained that the articled clerk used to
attend classes from 10 a.m. to 1.55 p.m. The Chartered Accountant pleaded
ignorance about the articled clerk attending the college classes during office
hours. Will the Chartered Accountant be held guilty of professional
misconduct?
As per Clause (1) of Part II of Second Schedule to the Chartered Accountants Act, 1949, a
member shall be held guilty of professional misconduct if he contravenes any provision of
the Act or the regulations made thereunder. The chartered accountant, as per Regulations
also, is expected to impart proper practical training. In the instant case, the articled clerk
must have not been attending office on a regular basis and the explanation of the
Chartered Accountant cannot be accepted particularly in view of the fact that the chartered
accountant did not obtain certificate from the Principal to confirm the timings. It is also quite
likely that the articled clerk would be availing leave quite often and coming late to the office.
Under the circumstances, the Chartered Accountant is guilty of professional misconduct in
regard to the discharge of his professional duties.
4. CA. X is a chartered accountant in practice. He has an articled trainee H. X
has informed H that since his practice and receipt of fees is seasonal, the
stipend would not be paid in the months of April to December, but would be
paid from January to March and the shortfall for the earlier 9 months will be
made good in these 3 months alongwith interest @ 5% p.a. Comment with
reference to the Chartered Accountant Act, 1949. (Nov. 17 Old)
Contravening Provisions of the Act: A member of the Institute, whether in practice or not,
shall be deemed to be guilty of professional misconduct under Clause (1) of Part II of the
Second Schedule to the Chartered Accountants Act, 1949, if he contravenes any of the
provisions of this Act or the regulations made there under or any guidelines issued by the
Council.
In the given case, CA. X has failed to make the payments of stipend to articled assistant every
month in accordance with Regulation 48. The fact that the articled assistant will be
compensated with extra sum in the form of interest on late payment is not relevant and the
plea that cycle of professional receipts from clients is seasonal is not acceptable.
Therefore, CA. X is guilty of professional misconduct under Clause (1) of Part II of the
Second Schedule to the Chartered Accountants Act, 1949 as he has contravened Regulation
48 by not making the payment every month.
5. M/s. XYZ, a firm of Chartered Accountants has taken a loan for acquiring a
home from a company whose Managing Director‟s son is an Articled Assistant
with A, a partner of M/s. XYZ. The Articled Assistant had no direct interest in
the Company and the loan was not related to his engagement. (Nov. 14 – Old)
Loan from a Company: As per Clause (1) of Part II of Second Schedule to the Chartered
Accountants Act, 1949, a chartered accountant is deemed to be guilty of professional
misconduct if he contravenes any of the provisions of Chartered Accountants Act,
1949 or Regulations made there under. Regulation 47 of the Chartered Accountant‟s
Regulations, 1988, prohibits a member from accepting any premiums or loans or any deposit
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in any form from an articled clerk directly or indirectly. However, M/s XYZ has taken loan
from a company whose Managing Director happens to be father of articled clerk with Mr. A, a
partner of M/s XYZ.
In this case, the articled trainee has no direct interest in that company. There has been a case
wherein a chartered accountant was held guilty of professional misconduct because he took a
loan from a firm in which the articled clerk and his father were both interested. But, in this
case as per the facts, the articled trainee has no direct interest in the company. However, if
relationship, direct or indirect, can be established in view of relationship of articled trainee
with MD of the company, Mr. A of M/s XYZ would be held liable for professional misconduct.
Thus, M/s XYZ would be guilty of professional misconduct under this clause if it is proved
that the loan was related to the engagement of the articled clerk.
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;
Case Law
1. Where a Chartered Accountant in his application for empanelment as auditor of
branches of public sector banks submitted to the Institute included the name of another
member as one of partners of his firm though in fact the said member was not a partner
of the said firm on the date of the said application. Held that, the Chartered Accountant
had contravened clause (3) of Part III of the Second Schedule.
2. Where a Chartered Accountant had submitted an application of his firm for
empanelment as auditor of branches of Public Sector banks and Statutory Central
Audit and Branch Audit of Regional Rural Banks mentioning under the head "Details
of disciplinary proceedings pending against any partner / proprietor" as "NIL",
whereas a prima facie case against the member existed. Held that the Chartered
Accountant has violated the provisions of clause (3) of Part III of the Second Schedule.
1. CA P and CA Q are running a firm of Chartered Accountants in the name of
M/s. PQ & Co. On 21.06.2015 they included the name of CA R a practicing CA,
without his knowledge, as a partner while submitting an application for
empanelment as auditors for public sector banks branches to the institute.
Whether CA P and CA Q are professionally liable for misconduct? (May 15 Old)
Submitting Wrong Information to the Institute: As per Clause (3) of Part II of the Second
Schedule to the Chartered Accountants Act, 1949, a member of the Institute, whether in
practice or not, shall be deemed to be guilty of professional misconduct if he 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.
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In the instant case, CA. P and CA. Q, partners of M/s PQ & Co., included the name of CA. R,
another Chartered Accountant in practice, as partner in their firm, without his knowledge, in
their application for empanelment as auditor of branches of Public Sector Banks submitted to
the Institute. However, such a member was not a partner of the said firm as on the date of
application submitted. Here, CA. P and CA. Q have submitted wrong information to the
Institute.
Therefore, CA. P and CA. Q, both, would be held guilty of professional misconduct under
Clause (3) of Part II of the Second Schedule to the Chartered Accountants Act, 1949.
CLAUSE - 4
Defalcates or embezzles money received in his professional capacity.
Defalcation and embezzlement of moneys received in professional capacity amounts to fraud
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.
Ceiling on the Fees - To ensure that the professional independence of a member in fulltime or
part-time practice does not appear to be as far as possible, take care to see that the
professional fees for audit and other services received by the firm in which he is a partner, by
him and his partners individually and by firm or firms in which he or his partner are partners
from one or more clients or companies under the same management does not exceed 40% of
the gross annual fees of the firm, firms and partners referred to above. 'Companies under the
same management' here would refer to the definition of this expression as provided in
Section 370(1-B) of the Companies Act, 1956.
Provided that no such ceiling on the gross annual professional fees of a member would be
applicable in the case of audit of government companies, public undertakings nationalised
banks.
Important Notification
1. He, on behalf of firm of Chartered Accountants in which he is partner, accepts or
carries out any audit work involving receipt of audit fees of an amount less than as
mentioned below:
(With at least one partner holding C.P. for 5 years or more)
Practicing firm having 5 Practicing firm having
or more partners but less 10 or more partners
than 10 partners
(i) In cities with Rs. 6000/- p.a. Rs. 12000/- p.a.

population
of 3 million and above (as
per the last census)
2.75
(ii) In cities/towns having Rs. 3500/- Rs. 8000/- p.a.

population of less than 3
million (as per the last
census)
Provided that such restrictions shall not apply in respect of the following:
(i) Audit of Accounts of Charitable Institution, Clubs, Provident Funds, etc., where the
appointment is honorary, i.e. without any fees.
(ii) Statutory audit of branches of banks including regional rural banks;
(iii) Audit of newly formed concerns relating to two accounting years from the date of
commencement of their operation;
(iv) Certification or audit under Income-tax Act or other attestation work carried out by
the Statutory Auditor; and
(v) Sales Tax Audit and VAT Audit.
1. M/s ASKS, a firm of Chartered Accountants, having three partners accepts

an audit assignment of a private limited company for a fee of Rs.4,000 only.
Comment. (Nov. 15 Old)
Minimum Audit Fee: Prescribed minimum audit fee is recommendatory, not mandatory in
nature. Therefore, acceptance of audit assignment by M/s ASKS, a firm of Chartered
Accountants having 3 partners, of a private limited company for audit fees of rupees 4,000 is
not violation of any provisions.
Therefore M/s ASKS will not be held liable for guilty of misconduct.
MAINTENANCE OF BRANCH OFFICE

According to Section 27 of the CA Act, where a Chartered Accountant or a Firm of Chartered
Accountants opens one or more of branch offices, each such branch shall be under the
charge of a member of the Institute. Violation of this provision shall constitute
Such a Chartered Accountant in-charge of the branch should be associated either as a
paid assistant or as a partner with the member/Firm. If he is a paid assistant, he
must be in whole time employment with the member/firm.
For the purpose of compliance of this section, the member in-charge must reside in the
place where the branch office is situated or must attend the said office for a period of
not less than 182 days in a year.
However, a member can be in-charge of two offices if they are located in one and
the same accommodation.
The above rule applies when the branch office is situated at a place beyond 50Kms
from the municipal limits in which the head office is situated.
Exemption to members practicing in Hill Areas:
The provision of Section 27 are not made applicable in respect of members practicing in hill
areas subject, however to the following conditions:
1. Such member/firm can open temporary office in a city in the plains for a limited
period not exceeding 3 months in a year.
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2. The regular office need not be closed during this period

3. All correspondence can continue to be made at the regular office
4. 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.
5. 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.
6. 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.
1. 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 his existing office. For running the new office he employs three
retired Income-tax Officers.
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 km‟s from the municipal limits of a city, in which the first
office is located. Since the second office is situated beyond 50 km‟s of municipal limits of
Mumbai city. Thus, he would be liable for committing a professional misconduct.
2. M & Co., a sole proprietary Chartered Accountant firm in practice with an
office in a busy belt of a city, had great difficulty in regularly attending to the
consultancy needs of his clients who are mostly located in an industrial cluster
in a nearby outskirt which is situated at a distance of 26 kms from the office of
the firm. To mitigate the difficulty and to have ease of business, a facilitation
centre was opened in the industrial cluster. The proprietor managed, both the
office and the facilitation centre, by himself. No intimation was made to the
Institute of Chartered Accountants of India. Examine whether there, is any
professional misconduct in this respect. (May. 18)
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 Kilometres from the municipal limits of a city, in which the first office
is located. Further 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.
In the given case, M & Co., a sole proprietary Chartered Accountant firm in practice with an
office in a busy belt of a city and had great difficulty in regularly attending to the consultancy
needs of his clients. Therefore, a facilitation centre was opened in the industrial cluster and
the proprietor is managing both the office and facilitation centre. Though distance between
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his office and facilitation centre i.e. sort of second office is within prescribed range i.e. 50
kilometres but M& Co., will be liable for misconduct as prescribed intimation about
facilitation centre and main office should be sent to the Institute of Chartered
Accountants of India.
3. Mr. K, Chartered Accountant in practice as a sole proprietor at Chennai 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 kms. 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. Comment. (Nov. 15 Old)
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 kilometers 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.
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.
OTHER IMPORTANT ASPECTS
According to Section 25 of the Chartered Accountants Act, 1949, no company incorporated in
India or elsewhere, shall practice as Chartered Accountants. Here, the term company shall
include a LLP which has company as its partner. Therefore, if a LLP has company as its
partner cannot be engaged in practice.
MANAGEMENT CONSULTANCY SERVICES
 Financial Management Planning
 Capital Structure Planning
 Working Capital Management
 Conducting Feasibility Studies
 preparing project reports
 Preparing Cash Budgets, Cash Flow Statement, Fund Flow Statement etc.
 Budgeting
 Market research and demand studies
 Inventory Management
 Managerial Decision Making including price fixation
 Management Accounting System, Cost Control & Value Analysis
 Personnel Recruitment and Selection
 Setting up Incentive Plans
 Management and Operational Audits
 Advice regarding amalgamation and merger
 Business Policy, organization development, corporate planning
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 System Analysis and other services relating to EDP

 Acting as an advisor to issue like drafting prospectus, filing of listing agreement
, complying the formalities with stock exchange etc.(but not activities of
broking, underwriting & portfolio management)
 Investment Counseling
 Acting as registrar to an issue
 Acting as recovery consultant in banking sector
PRACTICAL QUESITONS
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.
In the instant case, a chartered accountant not holding certificate of practice cannot take up
any other work because it would amount to 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 practises as a member of the Institute. This is because once a member
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 thereunder, 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. 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.
2. Mr. R, a Chartered Accountant in practice has been elected as the treasurer
of a Regional Council of the Institute. The Regional Council had organized an
international tour through a tour operator during the year for its members.
During the audit of the Regional Council, it was found that Mr. R had received a
personal benefit of 50,000 from the tour operator.
Embezzlement of Funds: Section 21 of the Chartered Accountants Act, 1949 provides that a
member is liable for disciplinary action if he is guilty of any professional or “Other
Misconduct.” Though the term “Other Misconduct” has not been defined in the said Act, this
provision enables the Council to enquire into any misconduct of a member even if 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. The Council has also laid down that among other things
“misappropriation by an office-bearer of a Regional Council of the Institute of a large amount
and utilization thereof for his personal use” would amount to “other misconduct”. Thus, in
the instant case, Mr. R would be liable for disciplinary action.
3. The Cashier of a company committed a fraud and absconded with the
proceeds thereof. This happened during the course of the accounting year. The
Chief Accountant of the company also did not know about fraud. In the course
of the audit, at the end of the year, the auditor failed to discover the fraud. After
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the audit was completed, however, the fraud was discovered by the Chief
Accountant. Investigation made at that time indicates that the auditor did not
exercise proper skill and care and performed his work in a desultory and
haphazard manner. With this background, the Directors of the company intend
to file disciplinary proceedings against the auditor.
Discuss the position of the auditor with regard to the disciplinary proceedings.
Reasonable Care and Skill: Apparently, as it appears from the facts of the case that the
auditor did not exercise proper skill and care and that he performed his work in a desultory
and haphazard manner. In this matter, the test for auditor‟s liability lies in whether he has
applied reasonable care, skill and caution called for in the circumstances of the case and
whether he reasonably used all the information that he came across in the course of audit.
Cash is a very significant item in any situation and the fact that the cashier had left during the
year without notice should have placed the auditor on alert as regards the cash book. In fact,
the very fact that the cashier was absconding, i.e., left without any notice constituted
sufficient circumstances to excite suspicion of the auditor to probe to the bottom. As per SA
240, “The auditor‟s responsibilities relating to fraud in an audit of financial statements”, it
can be concluded that the auditor did not plan and perform the audit with an attitude of
professional skepticism. Thus, having regard to this and a fraud has actually taken place
during the year, committed by the absconding cashier, it is reasonable to think that prima
facie there is a case against the auditor for gross negligence. Clause (7) of Part I of Second
Schedule to the Chartered Accountants Act, 1949 requires that it is the duty of an auditor to
bring to bear in the work he has to perform that skill, care and caution as per the
circumstances in an honest and reasonable manner. As it appears from the facts of the case,
the auditor has been grossly negligent in performing his duties which constitutes professional
misconduct. Thus, such instances require reference to Disciplinary Committee of the Council
of the Institute. If a member is found guilty by the Council of any of the acts or omissions
stated in the Schedule, its finding with recommendations are to be referred to the High Court
for decision.
4. Mr. A, a practicing Chartered Accountant agreed to select and recruit
personnel, conduct training programmes for and on behalf of a client.
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 work loads.
So, Mr. A is not guilty of professional misconduct.
5. XY & Co., a firm of Chartered Accountant having 2 partners X & Y, one in
charge of Head Office and another in charge of Branch at a distance of 80 kms,
puts up a name-board of the firm in both premises and also in their respective
residences.
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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 and
also in their respective residences.
Thus, the chartered accountants are guilty of misconduct. Distance given in the question is
not relevant for deciding.
6. Mr. Rahul, a locally based Chartered Accountant, accepted an audit
assignment at a fee lower than that charged by the previous auditor, who was
stationed in another town and had to spend a lot of money on travel for which
he did not charge separately.
Undercutting of Fees: In this case, Mr. Rahul is a locally based Chartered Accountant,
accepted an audit assignment at a fee lower than that charged by the previous auditor, who
was outstation based Chartered Accountant and had to spend a lot of money on travel which
was included in his audit fee and was not charged by him separately. The motive of Mr. Rahul
was not to get the work from previous auditor by accepting the audit assignment on lower fee
i.e. undercutting of fee. Because, in considering whether variation in fees charged would
constitute undercutting, the quantum of work; incidental and out of pocket expenses and
other terms of appointment should be considered.
Since the previous auditor was stationed in another town and therefore, had to incur higher
cost on account of conveyance, and the previously the fee was decided on a composite basis
inclusive of travelling expenses of the auditor, it cannot be said that Mr. Rahul has accepted
an audit assignment based on under cutting of fees.
Hence, Mr. Rahul will not be held guilty for misconduct.
7. P, a Chartered Accountant in practice provides management consultancy and
other services to his clients. During 2015, 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.
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.
8. 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 ` 25,000 on progressive
basis in respect of the tax audit for the year ended 31.3.2015. The audit report
was, however, signed on 25.5.2015.
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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 `
10,000/-.
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.
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 Rs.25,000 in respect of the tax audit for the year
ended 31.3.2015 which is on progressive basis. Therefore, Mr. D will not be held guilty for
misconduct.
9. A Chartered Accountant in practice has been suspended from practice for a
period of 6 months. During the said period, though he did not undertake the
audit assignment since he had surrendered certificate of practice, he had
appeared before Income Tax authorities in his capacity as a Chartered
Accountant.
Undertaking Tax Representation Work: A chartered accountant not holding certificate of
practice cannot take up any other work because it would amount to 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 practices 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.
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.
10. Mr. C accepted the statutory audit of M/s PSU Ltd., whose net worth is
negative for the year 2013-14. The audit was to be conducted for the year 2014-
15. The audited accounts for the year 2014-15 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”.
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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 2013-14.
11. M/s PQR, a firm of Chartered Accountants with 5 partners has accepted the
audit of ABC Pvt. Ltd. for 2014-15 at an audit fee of 2,500. ABC Pvt. Ltd. was
incorporated in April, 2012, but had commenced operations in January, 2015.
Minimum Audit Fee: Prescribed minimum audit fee is recommendatory, not mandatory in
nature. Therefore, acceptance of audit assignment by M/s PQR, a firm of Chartered
Accountants having 5 partners, of ABC Pvt. Ltd. for audit fees of ` 2,500 is not violation of
any provisions.
Therefore M/s PQR will not be held liable for guilty of misconduct.
12. Write a short note on Record of Audit Assignments (as required by ICAI
regulations).
Record of Audit Assignments: In exercise of the powers conferred by Chapter 8 of Council
General Guidelines 2008, the Council of the Institute of Chartered Accountants of India
specified that a member of the Institute in practice shall be deemed to be guilty of
professional misconduct, if he holds at any time appointment of more than the “specified
number of audit assignments of the companies under Section 224 and /or Section 228 of the
Companies Act, 1956 (now under Section 141(3)(g) and 143 of the Companies Act, 2013). As a
part of this clause, to meet its requirements, a Chartered Accountants in practice as well as a
firm in practice shall maintain a record of the audit assignments accepted as laid out in
guidelines issued by the Council of the ICAI under Part II of Second Schedule to the
Chartered Accountants Act, 1949 in respect of ceiling on audits containing following
particulars:
Name of Company Audit/ Assignment.
Regn. No.
Date of appointment with Registrar of Companies.
Date of acceptance.
Date on which form 23B filed (now Form ADT-1 as per the provisions and rules made
under Companies Act, 2013).
13. 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 will be deemed to be guilty of professional misconduct.
Some Other Aspects
 It is not permissible for CA Firm to print its vision and values behind the
visiting cards, 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.
 It is not permissible for chartered accountants in practice to take agencies of
UTI, GIC or NSDL.
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 It is permissible for a member in practice to be a settler of a trust.

 A member in practice cannot hold Customs Brokers License under section 146
of the Customs Act, 1962 read with Customs Brokers Licensing Regulations, 2013 in
terms of the provisions of Code of Ethics.
 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.
 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.
 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.
 A concurrent auditor of a bank „X‟ cannot be appointed as statutory auditor of bank „Y‟,
which is sponsored by „X‟.
 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).
 Mentioning the firm as a "Knowledge Partner" or in the "Thank You" advertisement, is
not permissible, however mention of name of an individual member with prefix/suffix
“CA” as a “knowledge partner “ is permissible.
 Concurrent auditor of an entity cannot accept an assignment under ant statute.
 A chartered accountant in practice may establish a TIN – FC, and may as well
establish a TIN - FC under franchise from the other entity which is already a TIN – FC.
 A statutory auditor and tax auditor can not be valuer of the unquoted equity shares as
it would create threats to independence of the auditor, which may not possibly be
reduced by application of safeguards.
 The use of banner with name of CA firm is not permissible in terms of provisions of
Items 6 and 7 of Part –I of First Schedule to The Chartered Accountants Act, 1949.
 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”.
 The members are not permitted to use the initials „CPA‟ (standing for Certified Public
Accountant) on their visiting cards.
 Doing internship for company secretary by a CA in practice is akin to attending
classes, which is in turn, is covered under Clause (5) of the „Permission granted
generally‟ of Appendix 9 of the Chartered Accountants, 1988, and as such, the same is
permissible.
 No communication under clause 8 of Part-I of Schedule-I to the Chartered
Accountants Act, 1949 is required in case of death of the previous Auditor. However,
the new auditor may be required to get a letter from the entity to confirm the factum of
death of previous auditor.
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 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.
 Images of non – personal items such as books etc. on the website of a CA Firm are not
violative of website guidelines. As regard the use of images of people, the images of the
people who are not the members of the firm are not permissible.
 The use of „Dr.‟ with the designation „CA‟ may be left to the discretion of member (i.e.
whether to use „CA‟ first, or „Dr. First, or use „Dr.‟ only before the name of the
member).
 CA. in practice can be a „Director Simplicitor‟, which includes an independent director.
The independent directors are part of the Board where the Accounts are approved,
they being party to approval of financial statement. As such, there is no bar in their
signing the financial statement. However, they can not be involved in the day to day
affairs of the company.
Clarification on prohibition of simultaneously undertaking Concurrent Audit
and Quarterly Review of the same Bank. –
Since queries are being received from members at large on the issue, it is accordingly hereby
clarified that concurrent audit and the assignment of quarterly review of the same Bank
cannot be undertaken simultaneously as the concurrent audit being a kind of internal audit
and the quarterly review being a kind of statutory audit undertaken simultaneously are
prohibited under the provisions of „Guidance Note on Independence of Auditors‟.
If there are 10 partners in a firm of Chartered Accountants, then how many tax
audits reports can each partner sign in a financial year?
As per Chapter VI of Council General Guidelines, 2008 (Tax Audit Assignments under
Section 44AB 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 as
prescribed under Section 44AB of the Income Tax Act, 1961. The specified number of tax
audit assignments under Section 44AB of the Income Tax Act, 1961 is 60.
It is further provided in Chapter VI of Council General Guidelines, 2008 that in case of firm
of Chartered Accountants in practice, specified number of tax audit assignments means 60
tax audit assignments per partner of the firm, in a financial year.
Therefore, 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.
The members of the profession have sought the Institute‟s view as to whether
the Chartered Accountants in Practice acting as Recovery Consultant for
recovery of Non-Performing Assets (NPA) of Banks under the Securitization and
Reconstruction of Financial Assets and Enforcement of Security Interest Act,
2002 (SRFA&ESI) can charge fee on percentage basis as is permitted under
Regulation 192 of the Chartered Accountants Regulations, 1988 for „receiver‟ or
„liquidator‟.
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The Institute has examined the matter in detail and is of the view that Recovery Consultant
cannot be equated with „receiver‟ or „liquidator‟ provided under Regulation 192 of the
Chartered Accountants Regulations, 1988 and as such, the charging of fee by Recovery
Consultant in Banking Sector on percentage basis is not permissible.
Clarification regarding Inclusion of "Insurance Financial Advisory Services
under the Insurance Regulatory & Development Authority Act, 1999, including
Insurance Brokerage" in the definition of "Management Consultancy & Other
Services"
The attention of the members is drawn to the Announcement published in the January 2005
issue of the Journal at page 935 as well as hosted in the website regarding inclusion of
"Insurance Financial Advisory Services under the Insurance Regulatory & Development
Authority Act, 1999, including Insurance Brokerage" in the definition of "Management
Consultancy and Other Services" as appearing at pages 8-10 of Code of Ethics, January 2001
edition.
In this regard, it may be clarified that as per the decision of the Council, a member is
permitted to render Insurance Financial Advisory Services as prescribed under
"The Insurance Regulatory and Development Authority (Insurance Brokers) Regulations,
2002" only in Corporate form. Further, the members are required to comply with the
conditions prescribed by the Insurance Regulatory & Development Authority and the
conditions to be prescribed by The Institute of Chartered Accountants of India.
It may also be clarified that the members are not permitted to do any work relating to
insurance agency as prescribed under "Insurance Regulatory and Development Authority
(Licencing of Insurance Agents) Regulations, 2000" and "Insurance Regulatory and
Development Authority (Licencing of Corporate Agents) Regulations, 2002", either
individually or in partnership/proprietorship form or in corporate form
The existing position regarding allowing members generally to hold life insurance agency
licence for limited purpose of getting renewal commission, still hold good as provided in the
Appendix (9) to the Chartered Accountants Regulations, 1988 (2002 edition).
Clarification regarding (1) Listing with bodies creating data-base for
independent directors of Chartered Accountants and (2) acting as Financial
Intermediary
Some members have brought to our notice that some website is creating data-base for
independent directors and is inviting Chartered Accountants to enroll with it. The data-base
collected by it will be provided to the listed Companies in order to reach the Chartered
Accountants for taking them on their Board as Independent Directors. It is also brought to
our notice that certain Chartered Accountants have been approached to act as e-
Intermediary. The members have sought clarification whether they can enroll with the
website creating such data-base and whether they can act as e- Intermediary.
The aforesaid issues have been examined. The Code of Ethics, 2005 edition, at page 81*
provides as under: “(16) A number of Chartered Accountants Societies or other bodies are
creating data-bases of Chartered Accountants or Chartered Accountants‟ Firms and are
offering listing to Chartered Accountants. Such listing would be permitted with or without
payment. In case a Chartered Accountant or Chartered Accountants‟ Firm is a member of a
professional body or association or Chamber of Commerce and they offer listing to the
members or firm, the same would be permitted.” Accordingly, it is clarified that listing with
the website collecting the data-base for independent directors is permissible with or
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without payment. It is also clarified that since acting as E-Return Intermediary

comes within the purview of the definition “ Management Consultancy and Other Services”
appearing at pages 8-10 ** of Code of Ethics, 2005 edition, it is permissible.
Clarification on Chartered Accountants acting as Direct Selling Agent (DSA) –
Ethical issues involved As you are aware that various Companies are appointing Chartered
Accountants as their Direct Selling Agents (DSA) and thus is an emerging area of professional
opportunities for the members. We may inform you that the Committee on Ethical Standards
(CES), a non-standing Committee of the Institute, considered the matter in great details and
was of the view that one has to see the ethical issues involved while acting as Direct Selling
Agent (DSA) and decided that: 1) A member in practice is not permitted to market any
specific product. 2) He may verify credit card credential 3) He may provide services that are
in the nature of verification etc. which are in the nature of assurance services. 4) He may
provide services, which are in the nature of Management Consultancy & other Services and
can perform all those services, which a Chartered Accountant can provide. Members are
required to keep in mind the aforesaid decision of the Committee while acting as Direct
Selling Agent (DSA).
KYC NORMS FOR A CA IN PRACTICE
The KYC norms approved by the council of ICAI are given below:
Where client is an individual/proprietor
A. GENERAL INFORMAITON
1. Name of the Individual
2. PAN or Aadhar Card Number
3. Business Description
4. Copy of the last audited Financial Statements
B. ENGAGEMENT INFORMATION
 Type of Engagement
Where client is a corporate entity
1. Name and address of the entity
3. Name of the parent company in case of subsidiary
4. Copy of the last audited Financial Statements
C. REGULATORY INFORMATION
1. Company PAN
2. Company Identification Number (CIN)
3. Director‟s Names and Addresses
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4. Director‟s Identification Number (DIN)

Where client is a non corporate entity
1. Name and address of the entity
2. Copy of PAN
4. Partner‟s names and addresses (With their PAN/Aadhar)
5. Copy of Last Audited Financial Statements
GENERAL
1. Mr. X, a Chartered Accountant in Practice filed his income tax return for the
Assessment Year 2018-19 under section 44ADA of the Income Tax Act, 1961,
declaring his income on presumptive basis. In a disciplinary proceeding against
him for an alleged misuse of funds of his clients, it was asked that he should
submit his books of accounts for the financial year ended on 31/03/2018. Mr. X
refused to submit books of accounts on the ground that he had not maintained
any books and even for income tax purposes, he submitted his Return of Income
on a presumptive basis. Is he right in putting such a defence? Analyse the issues
in the light of Professional Code, if any. (May. 18)
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 that as per section 44ADA of the Income Tax Act Mr. X
declared his income on presumptive basis. Here, it may be noted that though 44ADA of the
Income Tax Act exempt the requirement of books and accounts but as per Council General
Guidelines a chartered accountant in practice is required to maintain and keep proper books
of accounts including cash book and ledger. Hence, Mr. X is guilty of professional
misconduct.
2. Mr. Dice, a practising Chartered Accountant was ordered to surrender his
Certificate of Practice and he was suspended for one year on certain
professional misconduct against him. During the period of suspension, Mr.
Dice, designating himself as GST Consultant, did the work of filing GST returns
and made appearance as a consultant before various related authorities. He
contended that there is nothing wrong in it as he, like any other GST consultant,
could take such work and his engagement as such in no way violates the order of
suspension inflicted on him. Is he right in his contention? (May 18 New)
Filing of GST Returns and Appearance as GST Consultant: A chartered accountant not
holding certificate of practice cannot take up any other work in the capacity of Chartered
Accountant in practice because it would amount to violation of the relevant provisions of the
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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 practices as a member of
the Institute. This is because once a member becomes a member of the Institute, he i s bound
by the provisions of the Chartered Accountants Act, 1949 and its Regulations.
In case he files GST returns and appears as a consultant before various related authorities in
his capacity as a chartered accountant and a member of the Institute , having bound himself
by the said Act and its Regulations made thereunder, 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. But if he is doing so in
any other capacity such as GST Consultant wherein his capacity is not chartered accountant
in practice, he will not be held guilty for misconduct.
In the instant case, Mr. Dice was a practicing chartered accountant and he was ordered to
surrender his certificate of practice and was suspended for one year. Mr. Dice is doing the
work of filing GST returns and has appeared as a consultant before various related
authorities as GST Consultant which is not in capacity of a practicing chartered accountant
rather in capacity of authorized representative. Any person who has been authorized to act as
a GST Practitioner on behalf of the concerned registered person can become authorized
representative. Thus, Mr. Dice would not be allowed to represent as a Chartered Accountant
before various related authorities for the period he remains suspended. Accordingly, in the
present case he is guilty of professional misconduct.
3. 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 2015-16, Mr. Gaurav alone had signed 290 tax audit
reports consisting of both corporate and non-corporate assesses. (Nov. 16
Old)
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
2.89
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.
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.
4. Mr. Z accepted the statutory audit of a sick unit-NCT Limited for the year
ending 31-3- 2015. During course of audit it was noticed by the statutory auditor
that company‟s net worth was negative for year ended 31-3-2014 and there was
also a liability of tax audit fees of Rs.35000 in favour of the previous auditor.
Comment. (Nov. 16 Old)
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”.
In the instant case, though the undisputed fees are unpaid, Mr. Z would still not be guilty
of professional misconduct since the M/s NCT Limited. is a sick unit having negative net
worth for the year 2013-14.
5. Mr. S, a practicing Chartered Accountant agreed to provide “Portfolio
Management Services” to his client M/s. D Limited. Comment with reference to
the Chartered Accountants Act, 1949. (Nov. 15 Old)
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, Mr. S would be guilty of misconduct under the Chartered Accountants Act,
1949.
2.90

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15 - Professional Ethics

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ADVANCED AUDITING & PROFESSIONAL ETHICS MASTER MINDS

CA C.V.SARMA, M.Com., FCA

The First Schedule

Complaint against member of ICAI of alleged misconduct along with prescribed

First Schedule Second Schedule or Both Schedule

Board of Discipline Disciplinary Committee

1. Reprimand the member 1. Reprimand the member

Allows any person to practice in his name as a Chartered Accountant unless

(a) The Institute of Company Secretaries of India

 Change in address of practice

2. The member should belong to the town/city in respect of which the

I. ACCEPTANCE OF ORIGINAL PROFESSIONAL WORK BY A MEMBER

4. X & Co. Chartered Accountants, informed selected multi national

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

of misconduct if he solicits clients or professional work either directly or indirectly by a

(c) Articles/Audit Assistants

g. Use of logos by members on letter heads, visiting cards etc. is prohibited

 This communication should be made through registered post with

2. Mrs. Fair is a Director of XYZ Private Limited, having 15% share-holdings in

3. Office of managing director or a whole-time director of a body corporate within

A chartered accountant in practice may act as a liquidator, trustee, executor, administrator,

requires member of the Institute in practice to engage in full-time or part-time employment

7. Mr. J.J. a practicing Chartered Accountant engages himself as part time

11. CA Raghu is practicing in the field of Income-tax over a period of 12 years.

6. Mr. 'A' is a practicing Chartered Accountant working as proprietor of M/s A &

Part II – PROFESSIONAL MISCONDUCT IN RELATION TO MEMBERS OF THE

Mr. 'C', a Chartered Accountant holds a certificate of practice while in

Committees, Director (Discipline), Board of Discipline, Disciplinary Committee, Quality

advertisement, CV type write ups etc.), he would be/deemed to guilty of professional

THE SECOND SCHEDULE

Case III: Suppressions relates to current year accounts

2. Mr. Parekh, a Chartered Accountant was invited by the Chamber of

deemed to be guilty of professional misconduct if he discloses information acquired in the

3. Mr. Shah, a Chartered Accountant certified the financial statements of a

However, an auditor is not bound to be a detective, but he should be like a watchdog.

5. M/s. ABC, a firm of Chartered Accountants received Rs.2 lakhs in March,

3. A Chartered Accountant in practice had confirmed in the application made by

(i) In cities with Rs. 6000/- p.a. Rs. 12000/- p.a.

(ii) In cities/towns having Rs. 3500/- Rs. 8000/- p.a.

1. M/s ASKS, a firm of Chartered Accountants, having three partners accepts

MAINTENANCE OF BRANCH OFFICE

2. The regular office need not be closed during this period

 System Analysis and other services relating to EDP

 It is permissible for a member in practice to be a settler of a trust.

without payment. It is also clarified that since acting as E-Return Intermediary

4. Director‟s Identification Number (DIN)

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