Professional

ethics
and misconduct
Group Members

Zulaikha Panhwar (Roll no# 2K20/DBBA/61)

Komal Soomro (Roll no# 2K20/DBBA/29)
Aasma Panwhar (Roll no# 2K20/DBBA/2)
Mehtab Ali (Roll no# 2K20/DBBA/33)
Mir Murtaza (Roll no# 2K20/DBBA/34)
Imran khushik (Roll no#2K20/DBBA/24)
Khuda bux (Rollno#2K20/DBBA/28)
Mansoor Solangi (Roll no#2K20/DBBA/30)
Slide 5-6 Zulaikha
Slide 8 Mansoor
Slide 10 Aasma
Slide 12-19 Zulaikha
Slide 20 Mir Murtaza
Slide 21 komal
Slide 22-23 Imran
Slide 30-32 Mehtab
Chapter Outline

 Introduction
 Meaning of Professional Ethics
 Meaning of professional Misconduct
 Schedules to the Chartered Accountants Act, 1949
relating to professional misconduct
 Enquiry into Charges of Misconduct of Chartered
Accountants.

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1 Introduction
Introduction

The “Code of Conduct” is essentially a set of professional ethical standards

regulating the relationship of chartered accountants with their clients,
employers, employees, fellow members of the group and the public in
general.

According to the International Federation of Accountants, the ethical

requirements of any accountancy body should be based on integrity,
objectivity, independence, confidentiality, high technical standards,
professional competence and above all on ethical behavior.

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The conduct of the chartered accountants is judged under provisions
contained in the Chartered Accountants Act, 1949 and the Schedules
thereto, setting out different forms of behavior, which would constitute
professional and other misconducts under the Act.

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 Meaning of
2 Professional ethics
Meaning of Professional Ethics

The term “ethics” refers to the moral principles. It gives rise to certain
standard of conduct of behavior, based on moral foundation. “Professional
ethics” are those moral standards of conduct for the members of a
profession.

The code of conduct of a Institute of Chartered Accountants of India defines

professional ethics of a chartered accountant as “ his behavior with their
clients, employers, employees, fellow members of the group and the public
as a whole”

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3 Meaning of Professional
Misconduct
Meaning of Professional Misconduct

The term “professional conduct” has been defined in section 22 of the

Chartered Accountants Act, 1949 as follows:

“Professional misconduct shall be deemed to include any act or omission

specified in any of the schedules, but nothing in this section shall be
construed to limit or abridge in any way the power conferred or duty cast
on the council under section 21(1) to enquire into the conduct of any
member of the institute under any other circumstances”.

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 Schedules to the
4 Chartered Accountants
Act, 1949 relating to
Professional Misconduct
Schedules to the Chartered Accountants Act,1949 relating
to Professional Misconduct

There are two schedules to the Chartered Accountants Act, listing

instances of professional misconduct. The first schedule, which has three
parts, contains instances of professional misconduct, which are
adjudicated by the council of the ICAI. The second schedule has two parts
that requires action of the high court.

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The First Schedule

Part I
Professional misconduct in relation to Chartered Accountants in
practice
A Chartered Accountant in practice shall be deemed to be guilty of
professional misconduct, if he does the following:

Clause 1: Allows others to practice in his name this clause prevents

unqualified persons from practicing in the name of qualified chartered
accountants. Only a qualified partner or a qualified employee of a practicing
chartered accountant can practice in his name.

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Clause 2: Pays or allows to pay profit on his profession to persons
other than CA According to this clause, no commission, no brokerage or
fees can be paid to third parties nor the profits of his profession can be
shared with the persons other than CA.

Clause 3: Accepts or agrees to accept to accept profit of profession

from persons other than CA This clause states that a chartered accountant
in practice cannot share the profits of persons belonging to other
professions, (e.g.) lawyer, auctioneer, broker or other agents, who is not a
member of the institute.

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Clause 4: Enters into partnership with a person other than a CA in
practice according to this clause, a practicing chartered accountant can take
another person as a partner only if he fulfills of the following criteria:
a) he is chartered accountant in practice
b) he resides outside India, but in spite of his residence abroad is entitled
to be registered as a member
c) His qualifications are recognized by the central government or the
council of the institute for the purpose of permitting such partnership
d) He shares the fees and the profits of the profession both in and outside
India.

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Clause 5: Secures any professional business through the services of a
person not qualified to be his partner This clause prohibits a member to
procure professional business through third parties or through such means
and practices as are not opened to him. The purpose of this clause is to
impose check on ugly competition amongst the chartered accountants in
practice, thereby lowering the dignity of profession.

Clause 6: Solicits clients by circular, advertisements, personal

communications or interview or by any other means This clause bans all
forms of canvassing for professional work by a chartered accountant in
practice, including issues of circulars, advertisements or personal
communication or through interviews. He should secure and return clients by
his own skills and intelligence.

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Clause 7: Advertises his professional attainment or services or uses
any designation other than CA on professional documents, visiting
cards, letter heads or sign board unless it is a degree recognized any
the central government or by the council of institute This clause
prohibits a chartered accountant in a practice to publicize his professional
attainment in any manner.

Clause 8: Accepts audit work without intimating the ex-auditor In act,

this clause serves as a safeguard for the new auditors. It enables them to
know well in advance circumstances, which have led to his appointment and
retirement of the existing auditor.

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Clause 9: Accepts jobs without maintaining legal provisions regarding
appointment of auditors of the companies Act This clause states that an
auditor should ascertain first whether his appointment is in order or not. Only
then, he should accept the appointment. Sections 224 and 225 of the
Companies Act provide the required provisions for the appointment of
company auditor.

Clause 10: Charges or accepts fees on a percentage basis of profit or

which are contingent upon the findings or results According to this
clause, the basis of calculations of professional fees should not be related to
the profits or results of an assignment except in cases permitted under any
regulations made under this act. This basis should be related to the time
scales and responsibilities involved in the assignment.

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Clause 11: Accepts work as to constitute undercutting of fees This
clause prohibits a chartered accountant to undertake an audit assignment at
terms which are lower than those offered by another chartered accountant in
practice, provided there is no change in the work load and the degree of the
skill and responsibility involved. The purpose of this clause is to avoid
competition among the members of institute.

Clause 12: Allows others not being a member of the institute or

member not being his partner to sign on his behalf or on behalf of his
firm According to this clause, a chartered accountant in practice can't allow
any one accept his partner to sign financial statements on his behalf or on
behalf of his firm.

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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
a) Pays or allows to pay any person any share in the emoluments of
his employment
b) Accepts or agrees to accept any part of fees or gain from a
lawyer, a chartered accountant or broker engaged by such
employer by way of commission or gratification
c) Discloses confidential information except as and when required by
law or except as permitted by the employer.

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Part III
Professional misconduct in relation to the members of the Institute in
general

As member of the Institute, whether in practice or not, shall be

deemed to be guilty of professional misconduct, if he
a) Includes in any statement, return or form to be submitted to
the council any particulars knowing them to be false
b) Not being fellow styles himself as a fellow
c) Does not provide information as required by the council.

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The second Schedule
Part I
Professional misconduct in relation to Chartered Accountants in practice
requiring action by a High Court
A chartered accountant in practice shall be deemed to be guilty of
professional misconduct, if he does the following:

Clause 1: Discloses information about the client without his consent or

otherwise than as required by any law This clause prohibits an auditor to
disclose any information regarding the affairs of his client to a third party,
except with the consent of his client or as required by law.

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Clause 2: Certifies or submits report on financial statement without
audit According to this clause, a chartered accountant in practice cannot
sign reports on financial statements or accounts examined by outsiders. He
can, however, certify the statements examined by another chartered
accountant in practice. This exception is necessary to enable two or more
firms of chartered accountants to conduct joint audit.

Clause 3: Certifies an estimate of earnings contingent upon future

transactions this clause prohibits a chartered accountant in practice to
certify the accuracy of a statement showing forecasted earnings. However,
he can render assistance in the preparation of forecasted cash flows,
budgets or similar statements..

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Clause 4: Expresses opinion on financial statement of any business in
which he has substantial interest, without disclosing it This clause
imposes restrictions on the chartered accountant to express his opinion on
financial statements of any business in which he is directly or indirectly
interested. If he does so, he must also disclose about his interest in his
report.

Clause 5: Fails to disclose any material fact known to him, which is not
disclosed in financial statement According to this clause, a chartered
accountant is expected to disclose in his report any material fact, which is
known to him, but has not been disclosed in the financial statement in order
to safeguard the interest of the public.

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Clause 6: Fails to report on any material misstatement known to him to
appear in a financial statement According to this clause, a chartered
accountant is expected to disclose in his report any material fact, which is
known to him, but has not been disclosed in the financial statement in order
to safeguard the interest of the public.

Clause 7: Is grossly negligent in the conduct of his professional duties

According to this clause, a chartered accountant is expected to show his skill
and expertise so much as is expected from a man of his caliber and status.
The gross negligence on his part means utter carelessness. What
constitutes gross negligence is a matter of the actual circumstances of the
individual case.

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Clause 8: Fails to obtain sufficient information to warrant the
expression of an opinion This clause prohibits a chartered accountant to
express an opinion on the financial statement unless he is able to obtain
sufficient evidence in this regard. The clause also requires the auditor to
express a negative opinion if the qualifications in his report are so material
as to render a positive opinion on the true and fair nature of the financial
statements meaningless.

Clause 9: Fails to invite attention to any material deviation from the

generally accepted procedures of audit This clause requires that an
auditor should follow the normal procedure of audit. If he has departed from
it, he must state the fact in his report.

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Clause 10: Fails to keep money of the client in a separate banking
account or to use such money for the intended purposes According to
this clause, an auditor should not misuse the money deposited to him by his
clients for some specific purposes. If he misuses it, it will amount to breach
of trust.

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Part II
Professional misconduct in relation to members of the Institute in general
requiring action by a High Court

A member of the institute, whether in practice or not, shall be deemed to

be guilty of professional misconduct, if:
a) He contravenes any of the provisions of the Act or the regulations
made there under
b) He is guilty of such other act or omission as may be specified by the
council by notification in the gazette of India.

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 Enquiry into charges of
5 Misconduct of Chartered
Accountants
Enquiry into charges of Misconduct of Chartered
Accountants

Section 21 of the Chartered Accountants Act, 1949 lays down the procedure
of enquiry relating to the professional misconduct of chartered accountants.
It has been summarized as follows:

1. Initial processing of complaint or information: On receipt of

information by, or a complaint made, the council of the Institute considers
whether there is a case against the member concerned for any
professional or other misconduct. The member against whom the
complaint has been lodged may, within 14 days of the service of the copy
of complaint to him or within such time as extended by the authority, make
a written statement in his defense. If the case is identified then it is
forwarded to disciplinary committee if not then respondent is being held
responsible.

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2. Inquiry by disciplinary committee: The disciplinary committee holds
an inquiry against in all matters referred to it by the council, in such
manner as may be prescribed. The respondent can defend himself before
the committee either in person or through a legal practitioner or through
any other member. Thereafter, the committee shall submit the report of the
result of its enquiry to the council of the institute.

3. Consideration of the report by the council: the report of the disciplinary

committee is considered by the council along with the written presentation, if
any, made by the member. The council, if necessary, refers the matter again
to the disciplinary committee for its further enquiry and report. If the council
finds from the report of the committee that the member is not guilty of
misconduct, its findings are recorded accordingly and the case is terminated.
But, if the council finds that the member is guilty, it issues a notice to the
concerned member asking him to state why a disciplinary action should not
be taken against him.
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4. Action taken: if the council finds that the member is guilty of professional
misconduct specified in the first schedule, the member is given an opportunity
of being heard and may thereafter be either reprimanded or his name be
removed from the register of members for not exceeding five years by the
council. If the council decides that the misconduct is such that the member’s
name should be excluded from the register of members for a period exceeding
five years or permanently, it has to forward the case to the High Court with its
recommendation thereof.

5. Appeals against the order of the council: A member who has been
reprimanded or whose name ahs been removed from the register of members
may prefer an appeal to the High Court against such an order of the council.
The appeal must be filed within 30 days of the date on which the order is
communicated to the concerned member. However, the High Court may
accept an appeal even after the expiry of the said period, if it is satisfied that
the delay was caused by a sufficient cause.
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Thanks!
Any questions?

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