Professional Ethics

CA ACT & PROFESSIONAL ETHICS
―Member in Practice‖
Sec.2 (2): A Member of the Institute shall be deemed ―to be in practice‖ when individually or in
Partnership with CA‘s in practice, he, in consideration of remuneration received or to be received:
(1) Engages himself in practice of accountancy, or
(2) Offers to perform or perform services involving the auditing or verification of financial transactions,
books, accounts or records, or the preparation, verification or certification of financial accounting and
related statements or holds himself out to the public as accountant, or
(3) Renders professional services or assistance in or about matters of principle or detail, relating to
accounting procedure, or the recording, presentation or certification of financial facts or data: or
(4) Renders such other services as, in the opinion of the Council, are or may be rendered by a CA in
practice.
Other Points:
(1) The words ―to be in practice‖ with their grammatical variations and cognate expressions shall be
construed accordingly.
(2) If a Member in Practice has been granted permission to also hold COP of sister Institute(s) I Bar
Council, such a Member shall be treated as a Member in full time practice.
(3) A Member shall be deemed to be in practice if he, in his professional capacity and neither in his
personal capacity nor in his capacity as an Employee-
(a) Acts as a Liquidator, Trustee, Executor, Administrator, Arbitrator, Receiver, Adviser or
Representative for costing, financial or taxation matters, or
(b) Takes up an appointment made by the Central Government or State Government or a Court of Law
or any other legal authority, or
(c) Acts as a Secretary, unless his employment is on a salary-cum-full-time basis.
(4) The Act of setting up of an establishment offering to perform accounting services would tantamount to
being in practice even though no Client has been served.
(5) A Member of the Institute is deemed to be in practice during the period he renders ―service with armed
forces‖.
Other Services rendered by CA in practice [u/s 2(2)(iv)]

As per Council‘s resolution u/s 2(2)(iv), the services that may be rendered by a CA in practice includes the
entire range of Management Consultancy Services.
‗Management Consultancy Services‘ shall not include the functions of-

1. Statutory or Periodical audit.
2. Tax (both direct and indirect taxes) Representation or advice concerning tax matters.
3. Acting as Liquidator, Trustee, Executor, Administrator, Arbitrator or Receiver.
‗Management Consultancy Services‘ shall include the following-

1. Financial Management Planning and Financial Policy determination.
2. Capital Structure Planning & advice regarding raising finance by issue of Capital or by way of
borrowings.
3. Working Capital Management.
4. Preparing Project Reports and Feasibility Studies.
1 CREDENT PROFESSIONAL STUDIES

5. Preparing Cash Budgets, Cash Flow Statements, Profitability Statements, Statement of Sources and
Application of Funds, etc.
6. Budgeting including Capital Budgets and Revenue Budgets.
7. Inventory Management, Material Handling and Storage.
8. Market Research and Demand Studies.
9. Price—Fixation and other management decision—making.
10. Management Accounting Systems, Cost Control and Value Analysis.
11. Control Methods and Management Information and Reporting.
12. Personnel Recruitment and Selection.
13. Setting up executive incentive plans, wage incentive plans, etc.
14. Management and Operational Audits.
15. Valuation of Shares and Business and Advice regarding Amalgamations and Mergers.
16. Business Policy, Corporate Planning, Organisation Development, Growth and Diversification.
17. Organizational structure and behaviour, development of human resources including designing and
conduct of training programmes, work study, job description, job evaluation and evaluation of work
loads.
18. Systems Analysis and computer related services including selection of hardware and development of
software in all areas of services, which can otherwise be rendered by a CA in practice and also to carry
out any other professional services relating to EDP.
19. Acting as Advisor or Consultant to an issue, including such matters as-
(a) Drafting of Prospectus and Memorandum containing salient features of Prospectus, drafting and
filing of Listing Agreement and completing formalities with Stock Exchanges, ROC and SEBI.
(b) Preparation of publicity budget, advice regarding arrangements for selection of - (i) Ad-media, (ii)
Centres for holding conferences for Brokers, Investors, etc. (iii) Bankers to Issue, (iv) Collection
Centres, (v) Brokers to issue, (vi) Underwriters and Underwriting Arrangement, (vii) Distribution
of Publicity and issue material including application form, prospectus and brochure and deciding on
the quantum of issue. (In doing so, the relevant provisions of the Code of Ethics must be kept in
mind).
(c) Advice regarding selection of various agencies connected with issue, namely Registrars to issue,
printers and advertising agencies.
(d) Advice on the post—issue activities, e.g. follow up steps which include listing of instruments and
despatch of certificates and refunds, with the various agencies connected with the work.
Explanation: The activities of Broking, Underwriting and Portfolio Management are not
permitted.
20. Investment Counselling in respect of securities [as defined in the Securities Contracts (Regulation) Act,
1956] and other Financial Instruments. (In doing so, the relevant provisions of the Code of Ethics must
be kept in mind).
21. Acting as Registrar to an Issue and for transfer of Shareholders‘ Securities (In doing so, the relevant
provisions of the Code of Ethics must be kept in mind).
22. Quality Audit.
23. Environmental Audit.
24. Energy Audit.
25. Acting as Recovery Consultants in the Banking Sector.
26. Insurance Financial Advisory Services under IRDA Act, 1999, including Insurance Brokerage.
Illustration: Other Services by CA

P, a CA in practice, provides Management Consultancy and other services to his Clients. During the year,
looking into the growing needs of his Clients to invest in Stock Markets, he also advised them on Portfolio
Management Services whereby he managed Portfolios of some of his Clients. Comment with reference to
CA Act and Schedules thereto. CA Final May 2006
Refer to Point 19 Explanation in Para 20.1.2. The CA is guilty of professional misconduct.

C.A Prabhu, is a leading Income Tax Practitioner and Consultant for Derivative Products. He resides in
Mumbai near to the ABC Commodity Stock Exchange and does trading in Commodity Derivatives. Every
day, he invests nearly 50% of his time to settle the commodity transactions.
Is C.A. Prabhu liable for professional misconduct? CA Final Nov. 2013
Refer to Point 19 Explanation in Para 20.1.2
1. A CA in practice is not permitted to do (a) Broking, (b) Underwriting, and Cc) Portfolio Management.
2. Consultant for Derivative Products: If the consultation in respect of Derivative Products includes
management of Clients‘ Assets Portfolio also, CA Prabhu, being in practice, cannot be engaged in
such activity.
3. Trading in Derivatives:
(a) Trading in Derivatives shall be considered as a separate business of the Chartered Accountant.
(b) If a CA holds Certificate of Practice, then for conducting Derivative Trading, special permission
from the ICAI is required under Clause 11 of Part I of First Schedule, since this is not covered in
General Permission category.
(c) If a Member does not hold Certificate of Practice, then he is free to do trading in Derivative
Transactions.

A practicing CA agreed to select and recruit personnel, conduct training programmes and work studies on
behalf of a Client. Will he be guilty of for and professional misconduct?
CA Final Nov. 98, Nov. 2007
Refer to Points 12 and 17 in Para 20.1.2. The CA is not guilty of professional misconduct.
Fellow Member & Associate Member [Sec.5]

Classes: Members of ICAI shall be divided into 2 classes designated respectively as — (a) Associates, and
(b) Fellows.
Associate: Any person shall, on his name, being entered in the Register, be deemed to have become an
Associate Member of the Institute and be entitled to use the letters A.C.A. after his name to indicate that he
is an Associate Member of the ICAI.
Fellow: On an application made and granted in the prescribed manner, the name of the following
categories of Members shall be entered in the Register as a Fellow of the Institute and shall be entitled to
use the letters F.C.A. after his name to indicate that he is a Fellow Member of the ICAI —
Member, being an Associate who has been in continuous practice in India for atleast 5 years,
Member who has been an Associate for a continuous period of not less than 5 years and who possesses
such qualifications as may be prescribed to ensure that he has experience equivalent to the experience
normally acquired as a result of continuous practice for a period of 5 years as a CA.
Fees: Fees, not exceeding ` 5,000, for grant of FCA Status shall be notified by the Council. The Fees can
be increased upto ` 10,000, with the prior approval of Central Government. An Associate Member, on
being admitted as a Fellow during the year, shall pay only the differential amount to the Institute for that
year.
Certificate of Practice (COP) [Sec.6]

COP: A Member of ICAI shall not be entitled to practice whether in India or elsewhere unless he has
obtained a Certificate of Practice (COP) from the Council.
Rendering Services: A Member, who is not in practice, is precluded from accepting engagement to render
services of any of the types normally prescribed for a CA, even though for doing so, he does not require
any special qualifications.
CA Capacity only: Once a person becomes a Member of ICAI, he is bound by the provisions of the CA
Act and its Regulations. If he appears before the Income Tax Tribunal as an Income Tax Representative
after becoming a Member, he could appear so only in his capacity as a CA and a Member of ICAI. A
Member of ICAI can have no other capacity in which he can take up such practice, separable from his
capacity to practice as a Member of the Institute.
Fees: Every Member shall pay annual fees, not exceeding ` 3,000, for his COP, on or before 1 April of
every year. The Fees can be increased upto ` 6,000, with the prior approval of Central Government.
Grounds for Cancellation of Certificate of Practice: The Certificate of Practice shall be liable for
cancellation if—
(a) The name of the holder of the Certificate is removed from the Register, or
(b) The Council is satisfied, after giving an opportunity of being heard to the person concerned, that such
certificate was issued on the basis of incorrect, misleading or false information or by mistake or
inadvertence, or
(c) Member has ceased to practice, or
(d) Member has not paid the annual fees for COP till 30th September of the relevant year.
Effective date and period of cancellation:

Situation Effective date and period
For Case (a) — Removal from Date on which and the period for which the name of the holder of
Membership Register the certificate was removed from the Register.
For Case (d) — Non—Payment of Period commencing from 15th day following the date on which
annual fees notice is issued by the Secretary (on or after lst October).
Others — Incorrect Certificate / practice From such date & for such period as decided by the
Cessation of Council
Restoration of cancelled COP: If the COP is cancelled for non-payment of annual fees for COP, then it
may restored by the Council, with effect from the date of cancellation on payment of the additional fees
notified by the Council.
Illustration: Suspension of COP

A CA in practice has been suspended from practice for a period of 6 months and he had surrendered his
COP 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 CA. Is this action valid?
CA Final Nov.2002, 2011
A CA in practice has been suspended from practice by the High Court‘s order for a period of 6 months.
During his period of suspension he wants to practice as an Income Tax Practitioner as defined u/s 288(2) of
the Income-Tax Act and as provided under Income-Tax Rules, as he holds the degree in commerce as well
as of law of a recognised university. Can he do so? State reasons.
Naresh is a Ph.D. in Taxation and a CA. He was suspended from the Membership of ICAI for 1 year under
the orders of High Court. During the period of suspension, he engaged himself in tax representation work.
Comment.
1. Once a person becomes a Member of ICAI he is bound by the provisions of the CA Act and its
Regulations. If he is suspended and is not holding Certificate of Practice, he cannot in any other
capacity take up any practice separable from his capacity to practice as a Member of ICAI.
2. A CA whose name has been removed from the Membership for professional and/or other misconduct
during such period of removal, cannot appear before the tax authorities or other bodies, before whom
he could have otherwise appeared in his capacity as an Advocate, Tax Consultant, Cost Accountant,
Company Secretary, etc.
3. In the given case, the CA would not be allowed to represent before the Income-Tax Authorities for the
period he remains suspended.
Branch Office of CA
Definition of Office: Office is a ―place where a name-board is fixed or where such place is mentioned in
the letterhead or any other documents as a place of business.‖ However, the name-board can be put in the
place of residence of a Member with the designation of Chartered Accountant, provided it is a name-plate
or a name-board of an individual Member and not of the Firm.
Member In charge:
(a) Where a CA in practice or a Firm of such CA‘s has more than one office in India, each one of such
offices shall be in the separate charge of a Member of the Institute.
(b) A Member can be in-charge of two offices if they are located in one and the same accommodation.
(c) A CA incharge of the Branch of another Firm should be associated with him or with the Firm either as
a Partner or as a Paid Assistant. If he is a Paid Assistant, he must be in whole-time employment with
the CA / Firm.
Active Association: The Member should be actively associated with such office. Such association shall be
deemed to exist —
(a) If the Member resides in the place where the office is situated for a period of not less than 182 days in a
year, or
(b) If he attends the said office for a period of not less than 182 days in a year, or
(c) In such other circumstances as establishes such active association.
Intimation to Council: Every CA in practice or a Firm of such CA‘s maintaining more than one office
shall send to the Council, a list of offices and the persons in charge thereof and shall keep the Council
informed of any changes in relation thereto.

Exemption Powers: The Council may in suitable cases exempt any CA in practice or a Firm of such CA‘s
from the operation of Sec.27(1). Exemption is available for Temporary Offices and Second Offices.
Hill Area Exemption: The conditions for exemption in respect of Members practicing in hill areas are —
(a) Such Members / Firm will be allowed to open Temporary Offices in a city in the plains for a limited
period not exceeding 3 months in a year.
(b) The Regular Office need not be closed during this period and all correspondence can continue to be
made at the Regular Office.
(c) The Name-Board of the Firm in the Temporary Office should not be displayed at times other than the
period such office is permitted to function as above.
(d) 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.
(e) Before commencement of every winter, the Member / Firm shall inform the Institute that he / it is
opening the Temporary Office from a particular date. After the office is closed at the expiry of the
period of permission, an intimation to that effect should be sent to the Institute by Registered Post.
Second Office Exemption: A Second Office can be opened without such second office being under the
separate charge of a Member, provided the Second Office is located —
(a) in the same premises, in which the first office is located, or
(b) in the same city, in which the first office is located, or
(c) within a distance of 50 km from the municipal limits of a city, in which the first office is located.
A Member having two offices of the type referred to above, shall have to declare, which of the two offices
is his main office, which would constitute his professional address.
Illustration: Branch Office

Guna, a CA in practice as a Sole Proprietor, has an office in Mumbai near Churchgate. Due to increase in
professional work, he opens another office in a suburb of Mumbai, which is approximately 80 kilometres
away from his existing office. For running the new office, he employs 3 retired Income—Tax Officers. Is
he guilty of professional misconduct?
CA Final May 02, Nov. 12
Note: Write the provisions for exemption available in respect of Second Office (indicated above).
1. In the given case, the Second Office is located beyond 50 kms from the Municipal Limits of Mumbai
City. The exemption in respect of Second Office is not available.
2. The CA in practice has contravened the provision of Sec.27, since the suburb ―Branch‖ is not under the
separate charge of a Member. Hence, Mr. Guna is guilty of professional misconduct under Clause (1)
of Part II of Second Schedule.
Illustration: Branch Office

Hari, Chartered Accountant in practice as a Sole Proprietor has an office near Egmore. Due to\ increase in
professional work. he opens another office in Tambaram which is approximately 30 kms away from his
existing office. For running the new office. He has employed a retired Income Tax Officer. Comment on
the above. CA Final Nov. 2010
Note: Write the provisions for exemption available in respect of Second Office (indicated above).
Hari is not guilty of professional misconduct, as the Second Office is within 50 kms.

Designations usable by Members [Sec.7]
1. A Member in practice cannot use any designation other than that of a ―Chartered Accountant‖. He
cannot other description, whether in addition thereto or in substitution thereof.
2. A Member in practice may use any other letter or description indicating Membership of accountancy
bodies which been approved by the Council, or any other qualification that he may possess as long as
such use does no adoption of a designation! or does not amount to advertisement or publicity.
3. Example: A Member cannot designate himself as a Cost Accountant, but he can use the letters
AICWA after his when he is a Member of that Institute.
4. A Member who is not in practice, and does not use the designation of a CA, may use any other
description.
5. A Firm, all the Partners of which are Members of the Institute and in practice, can be known by its
Firm N Chartered Accountants.
6. As per Sec.25(1), no Company, whether incorporated in India or elsewhere, shall practice as Chartered
Accountant case of contravention, then, without prejudice to any other proceedings which may be take
against the Company Director, Manager, Secretary and any Officer thereof who is knowingly a party
to such contravention shall be pun with fine which may extend on first conviction to ` 1,000, and on
any subsequent conviction to ` 5,000.
Note: Also Refer Clause (7) of Part I of First Schedule.
Entry of Names in Register [Sec.4]

1. Sec.4 provides the list of persons who are entitled to have their name entered in the Register of
Members.
2. The Register of Members maintained u/s 19(1), shall include the following particulars about every
Men (a) his full name, date of birth, domicile, residential and professional addresses, (b) the date on
which his name entered in the Register, (c) his qualifications,(d) whether he holds a Certificate of
Practice, and (e) Other prescribed particulars.
Disqualifications for Membership purpose [Sec.8]

A person is debarred from having his name entered in or borne on 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 undischarged insolvent, or
4. If he being a discharged insolvent has not obtained from the Court a certificate stating that his
insolvency was c 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 turpitude and punishable with transportation or imprisonment, or of an offence not of a
technical n committed by him in his professional capacity unless in respect of the offence committed
he has either granted a pardon or, on an application made by him in this behalf the Central
Government has, by an on writing, removed the disability, or
6. If he has been removed from Membership of the Institute on being found on inquiry to have been
guilty of profession or other misconduct. A person who has been removed from Membership for a
specified period shall not be entailed to have his name entered in the Register until the expiry of such
period.
Note: Failure to disclose the fact that he suffers from any one of the above disabilities would constitute
professional misconduct.

Removal of Names from Register [Sec.20]
1. The Council may remove from the Register the name of any Member of the Institute —
(a) who is dead, or
(b) from whom a request has been received to that effect, or
(c) who has not paid any prescribed fee required to be paid by him, or
(d) who is found to have been subject at the time when his name was entered in the Register, or who
at any time thereafter has become subject, to any of the disqualifications u/s 8, or who for any
other reason has ceased to be entitled to have his name borne on the Register.
2. The Council shall remove from the Register the name of any Member in respect of whom an order has
been passed under this Act removing him from Membership of the Institute.
3. If the name of any Member has been removed from the Register u/s 20(1)(c) for non—payment of
fees, on receipt of an application, his name may be entered again in the Register on payment of the
arrears of annual fee and entrance fee along with such additional fee, not exceeding 2,000. These
additional fees may be increased upto 4,000, with the prior approval of the Central Government.
4. Restoration of cancelled Membershii, (Regulation 19):
Situation Effective date of restoration
Application for restoration is made in the same year of Date of removal of the name from
cancellation the Register
When removal is due to the orders of the Board of Discipline or Date as prescribed by such orders
Disciplinary Committee or Appellate Authority or High Court
Other Cases Date on which application and fee
received
Penalty for False Claim as Member [Sec.24]

Offence Punishment
Any person who, not being a Member of the Institute: First Conviction: Fine upto `
represents that he is a Member of the Institute, or 1,000.
uses the designation Chartered Accountant, or Subsequent Conviction: Fine
being a Member of the Institute, but not having a certificate of upto ` 5,000 and / or
practice, represent that he is in practice or practices as a CA. imprisonment upto 6 months.
Misconduct
Professional Misconduct & Other Misconduct[Sec.22]

1. ―Ethics‖ is defined as ―moral principles, quality of practice, a system of moral principles, morals of
individual action or practice‖.
2. The ethics of an Accountant would signify his behaviour towards his fellows in the profession and
other professions and towards Members of the public. A Code of Professional conduct is referred to as
―Professional Ethics‖.
3. A Member is liable to Disciplinary Action u/s 21, if he is found guilty of any Professional or Other
misconduct.
4. ―Professional or Other Misconduct‖ shall be deemed to include any act or omission specified in any
of the Schedules to the CA Act. But nothing u/s 22 shall be construed to limit or abridge in any way
the power conferred or duty cast on the Director (Discipline) u/s 21(1) to inquire into the conduct of
any Member of the Institute under any other circumstances. [Sec.22]

Professional Negligence vs Professional Misconduct:
Particulars Professional Negligence Professional Misconduct
Meaning It connotes any failure to perform a duty It is the conduct, i.e. act or omission or
according to accepted professional default etc. of a Chartered Accountant,
standards, which has resulted in some loss, which is punishable under the CA Act
damage or detriment to the party who had and Regulations framed thereunder.
engaged a professional,
Nature It is an act or omission, which gives rise to It may involve a charge for non-
a civil liability to compensate. performance of a duty, commission or
some default in its performance or an
unauthorised behaviour.
Loss to Third To establish a liability in respect of a third To establish professional misconduct, it is
Party party, it is necessary that such third party not necessary to show that any loss or
should have suffered a loss of damage on damages had been caused to the Client or
account of the professional negligence. to a third party, arising out of a CA‘s
failure to discharge his duties in the
expected manner.
Coverage Professional Negligence is necessarily to Professional Misconduct includes ―other
the duties in a professional capacity. Misconduct‖
Other Misconduct [Sec.22]

―Other Misconduct‖ relates to any misconduct of a Member even if it does not arise out of his
professional work. Some illustrative examples, where a Member may be found guilty of ―Other
Misconduct‖ are -
1. Conviction by a Competent Court for an offence involving moral turpitude punishable with
transportation or imprisonment or for an offence not of a technical nature committed by the Member in
his professional capacity. [Sec.8(v)]
2. Retention of books of accounts and documents of the Client and failure to return these to the Client on
request without a reasonable cause.
3. Material misrepresentation by a CA.
4. Use of services of articled or audit clerk for purposes other than professional practice.
5. Forging the will of a relative, even though the forgery may not have been done in the course of his
professional duty.
6. Misappropriation by office-bearer of a Regional Council of the Institute, of a large amount and
utilisation thereof for his personal use.
7. Non-replying within a reasonable time and without a good cause to the letter of the public authorities.
8. Adoption of coercive methods on a bank for having a loan sanctioned to the CA.
―Other Misconduct‖ in relation to Members of the Institute under the Schedules of the CA Act
Part IV of First Schedule Part III of Second Schedule
A Member of the Institute, whether in practice or not, shall be A Member of the Institute,
deemed to guilty Other Misconduct, if he — whether in practice or not, shall
is held guilty by any Civil or Criminal Court for be deemed to be guilty of Other
offence an which is punishable with imprisonment for a term not Misconduct, if he is held guilty
exceeding 6 months. by any Civil or Criminal Court
in the opinion of the Council, he brings disrepute to the for an offence which is
profession or the Institute as a result of his action, whether or not punishable with imprisonment for

related to his professional work. a term exceeding 6 months.
A CA authored a book titled ―Tax Planning for Secret Income (Black

Money)‖. The Council found him guilty of ―Other Misconduct‖ and Council of ICAI vs P C Parekh
removed his name from the Register for a period of 6 months initially. [2003] 129 Taxman 80 (Guj)
But, the High Court removed his name for a period of five years, for
the totally unacceptable misconduct.
If a Member of the Institute is found, prima fade, guilty of conduct,
which, in the opinion of the Council renders him unfit to be a Member
Council of ICAI vs B
of the Institute, even though such conduct may attract any of the
Mukherjee (Supreme
provision of the Schedules, it would still be open to the Council to hold
Court decision)
an inquiry against the Member in respect of such conduct and a
finding, against him, in such an inquiry, would justify appropriate
action being, taken by the High Court.
A CA forged the Advance Tax Challans of his Clients and filed returns
claiming refunds. He also gave his address for communication and Council of ICAI vs
obtained the refunds himself. He opened various bank accounts in the Mukesh R Shah [(2003) CA
names of Assessees and encashed the refund orders. Held guilty of Journal Jan 2004]
―Other Misconduct‖ warranting removal from the Membership
permanently.
Submission of Bogus Bills/ Receipts for Halting Allowance expenses Council of [CAl vs Rishi K
for audit of bank branches amounts to ―Other Misconduct‖. The CA‘s Gupta [High Court of
name was removed from the Register of Members for a period of 15 Delhi] [Jan 08 CA Journal
days. Page 1130]
CA was in possession of bogus Bank Certificates and blank ICAI vs A L Ghael [High Court
acknowledgement Income-Tax Returns affixed with seal. Held (Guj)] [June 09 CA
guilty of ―Other Misconduct‖ u/s 21 and 22 as he acted contrary to Journal Page 2054]
the conduct befitting a Chartered Accountant.
Issuing vague certificate to facilitate the Client to obtain Bank Loans ICAI vs Dayal Singh FCA
amounts to ―Other Misconduct‖ u/s 21 & 22. & Anr [Delhi (HC)] [Oct
09 CA Jounal Pg 589]
Receipt of large amount of advance money, claiming excess expenses ICAT vs lokesh Dhawan
beyond entitlement, using the position as Statutory Auditor for [High Court of Delhi]
personal benefits, and hiring the services of other CA who is neither [Feb 10 CA Journal Page
Partner nor Employee, constitutes Other Misconduct u/s 21 and 22. 1230]
A CA floated a NBFC and was its Vice—Chairman. Cheques issued
ICAI vs Deepak Parti &
by NBFC were dishonoured by the Bank. Also, NBFC failed to comply
Anr [Delhi (HC) [Mar 10
with CARE‘S and Company Law Board‘s Regulations from time to
CA Journal Pg 1424]
time. This constitutes Other Misconduct u/s 21 and 22.
Illustration: Other Misconduct

Shyam, a CA availed a Term Loan of 10 Lakhs from a Nationalised Bank for furnishing his office. He
issued two cheques for` 1 Lakh each towards repayment of the Loan. The cheques were dishonoured with
the remark ―Refer to Drawer‖. Is the CA liable for misconduct?
CA Final May 2000, 2008
1. 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.
2. Due to lack of statutory definition of ‗Other Misconduct‘, the question whether a particular act, or
omission constitutes ‗Other Misconduct‘ should be based on facts and circumstances of each case. [B
Mukherjee‘s case]
3. Under Negotiable Instruments Act, 1881, where any cheque drawn by a person for the discharge of
any liability is returned by the Bank unpaid, for the reason of insufficiency of the amount of money
standing to the credit of the account on which the cheque was drawn or for the reason that it exceeds
the arrangements made by the drawer of the cheque with the bankers for that account, the drawer of
such cheque shall be deemed to have committed an offence.
4. Conclusion: 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. However, if it is
proved that the cheques were dishonoured due to insufficiency of funds, then Mr. X would be held
guilty of ―Other Misconduct‖.

YKS & Ca, 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. Comment.
CA Final Nov. 2010
Hint / Principle: Refer Point 1 & 2 in previous Illustration. The Member is guilty u/s 22. (Other
Misconduct)

Siva, a CA, has an account with a Bank. The normal balance in this account remained at a level about
25,000. The Bank inadvertently credited this account with a cheque of ` 2,50,000 belonging to another
Account Holder. When Siva came to know about this, he withdrew the amount of ` 2,75,000 and closed the
Bank Account. After 1 year, the Bank noticed the mistake and claimed `2,75,000 with interest. Siva
contested this claim. Can the Bank approach the ICAI for disciplinary action against Siva?
The act of Siva will certainly bring disrepute to the profession. Hence, the Bank can file a complaint with
ICAI for disciplinary action under First Schedule, Part IV, Clause 2 - Other Misconduct.

Raina, a CA 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 Raina had received a personal benefit
of 50,000 from the Tour Operator. Discuss.
CA Final Nov. 2002
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‖ under the Act. S, the CA
would be liable for disciplinary action.
Illustration Other Misconduct

Bahadur was an Auditor of a Firm M/s Manmeet Corporation. He retained the books of account, voucher
files and failed to hand over them to the Firm regardless of their repeated requests. Is he guilty of
professional misconduct?
Retention of Client‘s books of accounts and documents, and failure to return these to the Client on request,
without reasonable cause, would constitute ―Other Misconduct‖. Hence, the CA would be liable for
disciplinary action.
Disciplinary Proceedings relating to Misconduct
1. Disciplinary Directorate [Sec.21(1)]: The Council shall, by notification, establish a Disciplinary
Directorate headed by an Officer of the Institute designated as Director (Discipline) and such other
employees for making investigations in respect of any information or complaint received by it.
2. Prima Facie Opinion [Sec.21.(2)]: On receipt of any information or complaint along with the
prescribed fee, the Director (Discipline) shall arrive at a prima facie opinion on the occurrence of he
alleged misconduct.
3. Forwarding [Sec.21(3)]: The Director (Discipline) shall place the matter before the appropriate forum
as under —
Where the Director (Discipline) is of the opinion that a Member is He shall place the matter
guilty of any professional or other misconduct mentioned in the — before —
First Schedule Board of Discipline.
Second Schedule or in both the Schedules Disciplinary Committee.
4. Procedure in Investigation [Sec.21(4)]: In order to make investigations under the provisions of this
Act, the Disciplinary Directorate shall follow the prescribed procedure.
5. Withdrawal of Complaint [Sec.21(5)]: Where a complainant withdraws the complaint, the Director
(Discipline) shall place such withdrawal before the Board of Discipline or, as the case may be, the
Disciplinary Committee, and the said Board or Committee may, if it is of the view that the
circumstances so warrant, permit the withdrawal at any stage.
6. No prima facie case [Sec.21A(4)]: The Director (Discipline) shall submit before the Board of
Discipline all information and complaints where he is of the opinion that there is no prima facie case
and the Board of Discipline may, if it agrees with the opinion of the Director (Discipline), close the
matter, and in case of disagreement, may advise the Director (Discipline) to further investigate the
matter.
7. Board of Discipline rsec.21A1 and Disciplinary Committee rsec.21B1
Item Board of Discipline Disciplinary Committee
Constitution 1. A person with experience in law and 1. The President or the Vice—
having knowledge of the disciplinary President of the Council as the
matters and the profession, to be the Presiding Officer.
Presiding Officer. 2. Two Members to be elected
2. Two Members one of whom shall be from amongst the Members of
Member of the Council elected by the the Council.
Council, and the other Member shall be 3. Two Members to be nominated
nominated by the Central Government by the Central Government from
from amongst the persons of eminence amongst the persons of
having experience in the field of Law, eminence having experience in
Economics, Business, Finance or the field of Law, Economics,
Accountancy. Business, Finance or
3. Director (Discipline), as the Secretary of Accountancy.
the Board. The Council may constitute more
Disciplinary Committees as and
when it considers necessary.
Procedure The Board of Discipline shall follow summary Disciplinary Committee shall follow
disposal procedure in dealing with all the cases the specified procedure, in
before it. considering the cases placed before
it.

Guilt of Professional or Other Misconduct mentioned Professional or Other Misconduct
Misconduct in the First Schedule. mentioned in the Second Schedule
or in both the Schedules.
Nature of Where the Board of Discipline is of opinion Where the Disciplinary Committee
Orders that a Member is guilty, it may take any one or is of the opinion that a Member is
more of the following actions, namely- guilty, it may take any one or
Reprimand the Member. more of the following, namely —
Remove the name of the Member from the Reprimand the Member,
Register upto a period of 3 months. Remove the name of the
Impose such fine as it may think fit which Member from the Register
may extend to ` 1,00,000. permanently or for such period,
as it thinks, fit.
Impose such fine as it may think
fit, which may extend to `
5,00,000.
Note: The Member shall be given an opportunity of being heard, by the Board of Discipline /
Disciplinary Committee, before any order is made against him.
8. Powers of Civil Court [Sec.21C]: For the purposes of an inquiry under the Act, the Authority, the
Disciplinary Committee, Board of Discipline and the Director (Discipline) shall have the same powers
as are vested in a Civil Court, in respect of the following matters, namely-
(a) Summoning and enforcing the attendance of any person and examining him on oath,
(b) Discovery and production of any document, and
(c) Receiving evidence on affidavit.
9. Past Members included: For the purposes of Sec.21, 21A, 21B, 21C and 22, ―Member of the Institute‖
includes a person who was a Member of the Institute on the date of the alleged misconduct although he
has ceased to be a Member of the Institute at the time of the inquiry.
Appeals Procedure in Disciplinary Proceedings

1. Constitution of Appellate Authority [Sec.22A]: The Central Government shall, by notification,
constitute an Appellate Authority consisting of the following Members (as Part-Time Members):
(a) A person who is or has been a judge of a High Court, to be its Chairperson.
(b) Two Members to be appointed from amongst the persons who have been Members of the Council
for at least one full—term and who is not a sitting Member of the Council.
(c) Two Members to be nominated by the Central Government from amongst persons having
knowledge and practical experience in the field of Law, Economics, Business, Finance or
Accountancy.
2. Term of Office [Sec. 22B]
3 years from the date whichever is earlier. on which he enters upon his office
Chairperson
or until he attains the age of 65 years, whichever is earlier
3 years from the date whichever is earlier. on which he enters upon his office
Member
or until he attains the age of 62 years, whichever is earlier
3. Allowances etc. [Sec.22C]: The allowances payable to, and other terms and conditions of service of,
the Chairperson and Members and the manner of meeting expenditure of the Authority by the Council
and such other authorities shall be such as may be specified.
4. Procedure [Sec.22D]: The office of the Authority shall be at Delhi. The Authority shall regulate its
own procedure. All orders & decisions of the Authority shall be authenticated by an Officer duly
authorised by its Chairperson.

5. Officers and Staff [Sec.22E]: The Council shall make available, Officers and other staff Members as
may be necessary for the efficient performance of the functions of the Authority. The Salaries and
allowances and conditions of service of the Officers and other staff Members of the Authority shall be
such as may be prescribed.
6. Resignation [Sec.22F]: The Chairperson or Member may resign, by giving written notice to the
Central Government. However, the Chairperson or a Member shall, unless he is permitted by the
Central Government to relinquish his office sooner, continue to hold office until the expiry of 3
months from the date of receipt of such notice or until a person duly appointed as his successor enters
upon his office or until the expiry of term of office, which is earlier.
7. Removal [Sec.22F]: The Chairperson or a Member shall not be removed from his office except by an
order of the Central Government on the ground of proved misbehaviour or incapacity after an inquiry
made by such person as the Central Government may appoint for this purpose. The Chairperson or a
Member concerned should be informed of the charges against him and given a reasonable opportunity
of being heard in respect of such charges.
8. Appeal to Authority [Sec.22G]:
Any Member of the Institute aggrieved by an order of the Board of Discipline or the
Appellant Disciplinary Committee imposing on him any of the penalties referred u/s 21A(3) /
21B(3). Director (Discipline), if so authorized by the Council.
Within 90 days from the date on which the order is communicated to him.
Time Limit The Authority may entertain any such appeal after the expiry of the said period of 90
days, if it is satisfied that there was sufficient cause for not filing the appeal in time.
The Authority shall give an opportunity of being heard to the parties concerned
Hearing
before passing any order.
The Authority may, after calling for the records of any case, revise any order made
by the Board of Discipline or the Disciplinary Committee u/s 21A(3) / 21B(3) and
may:
(a) Confirm, modify or set aside the order.
Powers
(b) Impose any penalty or set aside, reduce, or enhance the penalty imposed by the
of
order.
Authority
(c) Remit the case to the Board of Discipline or Disciplinary Committee for such
further enquiry as the Authority considers proper in the circumstances of the
case.
(d) Pass such other order as the Authority thinks fit.
Quality Review Board

1. Establishment of Quality Review Board [Sec.28A]:
(a) The Central Government shall, by notification, constitute a Quality Review Board (QRB)
consisting of a — (a) Chairperson, (b) 5 Members nominated by the Council and 5 Members
nominated by the Central Government.
(b) The Chairperson and Members of QRB shall be appointed from amongst the persons of eminence
having experience in the field of law, economics, business, finance or accountancy.
2. Functions of Board [Sec. 28B]: The QRB shall perform the following functions —
(a) to make recommendations to the Council with regard to the quality of services provided by the
Members,
(b) to review the quality of services provided by the Members of the Institute including audit
services, &
(c) to guide the Members of the Institute to improve the quality of services and adherence to the
various statutory and other regulatory requirements.
3. Procedure of Board [Sec. 28C]: QRB shall meet at such time and place and follow in its meetings
such procedure as may be specified.
4. Terms & Conditions of services, etc. [Sec. 28D]:
(a) Terms and conditions of service of Chairperson and Members of QRB, and their allowances shall
be as specified.
(b) The expenditure of the QRB shall be borne by the Council.
Powers of Central Government to make Rules [Sec. 29A]

The Central Government may, by notification, make rules to carry out the provisions of the CA Act. Such
Rules may provide for all or any of the following matters, namely —
1. Manner of Election and Nomination in respect of Members to the Council u/s 9(2),
2. Terms and conditions of service of the Presiding Officer and Members of the Tribunal, place of
meetings and allowances to be paid to them u/s10B(3),
3. Procedure of investigation u/s 21(4),
4. Procedure while considering the cases by the Disciplinary Committee u/s 21B (2), and the fixation of
allowances of the nominated Members u/s 21B (4),
5. Allowances and terms and conditions of service of the Chairperson and Members of the Appellate
Authority and the manner of meeting expenditure by the Council u/s 22C,
6. Procedure to be followed by the Board in its meetings u/s 28C, and
7. Terms and conditions of service of the Chairperson and Members of QRB u/s 28D (1).
In exercise of the powers conferred above, the Central Government has notified the Chartered Accountants
(Procedure of Investigations of Professional and Other Misconduct and Conduct of Cases) Rules, 2007.
Powers of Central Government to issue Directions [Sec.30C]

1. In the event of non-compliance by the Council of any provisions of this Act, the Central Government
may give to the Council such general or special directions as it considers necessary to ensure
compliance, and the Council shall, in the discharge of its functions under this Act, comply with such
directions.
2. If, in the opinion of the Central Government, the Council has persistently made default in giving effect
to the directions issued u/s 30C(1), it may, after giving an opportunity of being heard to the Council,
by notification, dissolve the Council, whereafter a new Council shall be constituted in accordance with
the provisions of this Act with effect from such date as may be decided by the Central Government.
The Central Government shall ensure constitution of a new Council in accordance with the provisions
of this Act within 1 year from the date of its dissolution.
3. Where the Central Government has issued a Notification u/s 30C(2) dissolving the Council, it shall,
pending the constitution of a new Council in accordance with the provisions of this Act, nominate any
person or body of persons not exceeding 5 Members to manage the affairs and discharge all or any of
the functions of the Council under this Act.
First Scheduled to the CA Act
Professional Misconduct u/s 22- Acts / omissions by Members

Acts or omissions which comprise Professional Misconduct within the meaning of Sec.22 are defined in
two Schedules viz – The First Schedule and the Second Schedule.

Sch. Part Particulars Aspect covered Clauses
First I Professional Misconduct Independence and Conduct of Members vis-a- 12
of Members in practice vis co-professionals and other professionals.
First II Professional Misconduct Integrity and Trustworthiness aspects of 2
of Members in service Members in service.
First III Professional Misconduct Falsity, Misrepresentation and Responsibility to 3
of Members generally the Institute.
First IV Other Misconduct of Bringing disrepute to the profession or ICAI. 2
Members generally
Second I Professional Misconduct Performance of the profession or assignments. 10
of Members in practice
Second II Professional Misconduct Compliance with CA Act and Regulations, and 4
of Members generally Council Directions.
Second III Other Misconduct of Guilty of offence punishable with imprisonment 1
Members generally exceeding 6 months.
Part I of First Schedule

Under Part I of First Schedule, a CA in practice shall be deemed to be guilty of professional misconduct
if he –
Clause Particulars
1 Allows any person to practice in his name as a Chartered Accountant, unless such person is also
a Chartered Accountant in practice, and is in Partnership with or employed by him.
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) a
Member of the Institute, or (b) a Partner, or (c) a Retired Partner, or (d) the legal representative
of a Deceased Partner, or (e) a Member of any other professional body, or (f) 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.
Note: ―Partner includes a person residing outside India, with whom a CA in practice has entered
into Partnership which is not in contravention of Clause (4) below.
3 Accepts or agrees to accept any part of the profits of professional work of a person who is not
member of the Institute.
Note: However, a CA in practice is not prohibited 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 qualification, as referred in Clause (2).
4 Enters into Partnership, in or outside India with any person other than – (a) a CA in practice, or
(b) 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 u/s 4(1)(b) or whose qualifications are recognized by Central
Government or the Council for the purpose of permitting such Partnerships.
5 Secures, either through the services of a person who is not an employee of such CA or who is not
his Partner, or by means which are not open to a Chartered Accountant, any professional
business.
Note: This shall not be construed as prohibiting any arrangement permitted in terms of Clauses
(2), (3) & (4) above.
6 Solicits Client or professional work, either directly or indirectly, by circular, advertisement,
Imp personal communication or interview or by any other means. Open
Empanelment
Note: Nothing herein contained shall be construed as preventing or prohibiting –

any CA from applying or requesting for or inviting or securing professional work from another
CA in practice, or a Member from responding to tenders or enquiries issued by various users of
professional services or organization from time to time and professional work as a consequence.
7 Advertises his professional attainments or services, or uses any designation or expressions 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 ICAI or of any other institution that
has been recognised by the Central Government or may be recognised by the Council.
Note: A Member in practice may advertise through a write-up setting out the services provided
by him or his Firm and particulars of his Firm, subject to guidelines issued by the Council.
8 Accepts a position as an Auditor previously held by - (a) another Chartered Accountant, or (b) a
Certified Auditor who has been issued certificate under the Restricted Certificate Rules, 1932
without first communicating with him in writing.
9 Accepts an appointment as an Auditor of a Company, without first ascertaining from it whether
the requirements of Sec.225 of the Companies Act, 1956, in respect of such appointment have
been duly complied with.
10 Charges or offers to charge, accepts or offers to accept in respect of any professional
employment, fees which are 10 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.
11 Engages in any business or occupation other than the profession of Chartered Accountant unless
permitted by the Council so to engage.
Note: Nothing contained herein shall disentitle a CA from being a Director (other than Managing
Director or Whole Time Director) of a Company, unless he or any of his Partners is interested in
such Company as an Auditor.
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 or Loss
Account, Report or Financial Statements.
Note: -
Term Applicability Meaning
Notified Clause (2), (3) and (5) of 1. The Institute of Company Secretaries of India,
Professional Part 1 of First Schedule 2. The Institute of Cost and Works Accountants of India,
Bodies 3. Professional bodies outside India relating to
accountancy & recognized by the Council,
4. The Indian Institute of Architects,
5. The Institute of Actuaries of India, and
6. Bar Council of India.
Professionals Clauses (2), (3), (4) and 1. Company Secretary,
qualified in (5) of Part I of First 2. Cost Accountant,
India Schedule 3. Actuary
4. Bachelor in Engineering / Technology / Architecture /
Law from Recognised University or Institution, and
5. MBA from Recognised Universities or Technical
Institutions.
Professionals Clause (4) of Part I of 1. Company Secretary,
notified for First Schedule 2. Cost Accountant,

entering into 3. Advocate,
partnerships 4. Engineer,
5. Architect,
6. Actuary, and
7. Members of Professional bodies outside India relating to
accountancy and recognized by the Council.
Clause (1) - Part I — First Schedule

1. Under Clause (1) of Part I of First Schedule, a CA in practice is deemed to be guilty of professional
misconduct, if he allows any person to practice in his name as a CA in practice, unless such person is
also a CA and is in Partnership with or employed by him.
2. This is intended to — (a) safeguard the public against unqualified accountants practicing under the
cover of qualified CA‘s, and (b) ensure that the work of the accountant will be carried out by a CA
who may be his Partner or his employee, and who would work under his control and supervision.
Clause (2) — Part I — First Schedule

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) a Member of the Institute, or (b) a Partner, or (c) a Retired Partner,
or Cd) the legal representative of a Deceased Partner, or (e) a Member of any other professional
body, or (f) 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. [Refer Table
below Q.No.30]
2. This rule is directed against arrangements and understandings, whereby for a consideration,
professional work will be introduced to a Member by a third party.
3. ―Partner‖ includes a person residing outside India, with whom a CA in practice has entered into
Partnership which is not in contravention of Clause (4).
A CA entered into an agreement whereby he had clearly agreed to pay the share
Vadilal V Shah vs
in profits of his professional business to two non-Members. Held as guilty under
J.B.Sanghavi (1974)
Clause (2).
A CA gave 50% of the Audit Fees received by him, to a non-CA, for a number of
D.S.Sadri vs
years, under the head ―Office Allowance‖. Held as guilty under Clause (2). It is
B.M.Pithewala
not the nomenclature to a transaction that is material, but it is the substance of the
(1974)
transaction which has to be looked into. CA Final May 2012
The widow of a deceased Member, whose professional work consisted mainly of
Income Tax Representation, cannot receive a monthly lump-sum payment for a Council’s Decision
period of 5 years or a specified percentage of income.
Where Govt or Govt Authorities require the Auditor to deposit a percentage of
their Audit Fees in the State treasury, for recovering administrative and other Council’s Decision
expenses, Auditors can do so.
Illustration: Clause (2) - Part I — First Schedule

Situation Hint/Answer
Mr. X who passed his CA Examination of ICAI on  Training: A Member (ACA or FCA) who is in

18th July 2014, and started his practice from 15th continuous practice for a period upto 3 years /
August 2014. On 16th August 2014, one female employed under another CA for a period upto 3
candidate approached him for articleship. In years is eligible to train One Articled Assistant.
addition to monthly stipend, Mr. X also offered her Hence Mr. X is eligible to train 1 Assistant.
1% Profits of his CA Firm. She agreed to take both  Sharing Profits with Articled Assistant: Under
1% Profits of the CA Firm and Stipend as per the Clause (2) Part I of First Schedule, CA is guilty
rate prescribed by the ICAI. The ICAI sent a letter if he pays or allows or agrees to pay if any
to Mr. X objecting the payment of 1% Profits. Mr. Share, Commission or Brokerage in the Fees or
X replies to the ICAI stating that he is paying 1% Profits of his professional business to any person
Profits of his Firm over and above the Stipend to other than the specified persons.
help the Articled Clerk as the financial position of  Conclusion: In the above case, Mr. X is guilty
the Articled Clerk is very weak. Is Mr. X liable to of Professional misconduct. Weak Financial
professional misconduct? Position of Articled Clerk, etc. do not absolve
CA Final Nov. 2013 the CA of misconduct.
Profit Sharing – Death of a Partner/ Proprietor of Firm

1. Death of Partner: (M 09)
(a) When there are two or more Partners and one of them dies, the widow or legal representative of the
deceased Partner can continue to receive a share of the Firm, only where the Partnership Agreement
contains a specific stipulation to that effect.
(b) The widow of a Partner, when the Partnership Agreement does not contain a provision entitling to
share in profits, would not be entitled to such profits.
2. Death of Proprietor:
(a) There cannot be any fee sharing between the widow or the legal representative of the Proprietor of
a single Member Firm and the purchaser of goodwill of the Firm, on the death of the Sole
Proprietor of the Firm.
(b) Goodwill can be paid to the widow / legal representative of a deceased Proprietor in instalments,
provided there a stipulation to that effect in the agreement for sale of goodwill, and these payments
are not linked up with participation in the Firm‘s earnings.
Sale of Goodwill of Proprietary Firms — ICAI Guidelines

Sale of Goodwill: Goodwill of a Proprietary Firm of CA can be sold/ transferred to another eligible
Member of the Institute, after the death of the Proprietor. The following points are relevant:
Situation Condition
If the death of the Proprietor  The sale should be completed / effected in all respects.
concerned occurred on or after  ICAI‘s permission to practice in deceased‘s Proprietary Firm
30/08/1998. Name is sought within 1 year of the death of such proprietor
concerned.
 The name of the Proprietary Firm would be kept in abeyance
till 1 year from the date of death
If the death of the Proprietor  The information as to the existence of the dispute should be
concerned occurred on or after received by t ICAI within 1 year of the death of the
30/08/1998 and there existed a dispute proprietor concerned.
as to the legal heir of the deceased  The name of the Proprietary Firm would be kept in abeyance
Proprietor. till 1 year from t date of settlement of dispute.
If the death of the Proprietor  The sale / transfer should have been completed! effected.
concerned had occurred on or for by  ICAI‘s permission to practice in the deceased‘s Proprietary
28/08/1999. Firm Name is sought for by 28/08/1999.
 The Firm name concerned should be still available with the
Institute.
(This would apply irrespective of the time lag between the date
of death of the Proprietor concerned and the date of sale/transfer
of goodwill completed/ to be completed.)
In case of a Partnership Firm when all the Partners die at the same time, the above would be applicable.
Illustration: Sale of G/w of Proprietary Firm

Mr.Q, a CA in practice as a Proprietor, died in a Principle: Sale/ transfer of Goodwill in the case of a
road accident. His widow sold the practice of her Proprietary Firm of chartered Accountant to another
husband to Mr.P, another CA in practice for 5 eligible Member of the Institute shall be permitted.
Lakhs. The price also included right to use the [Note: Students should write the principles in Point
Firm Name of Mr.Q & Associates. Can the widow 1 above]
of Mr.Q sell the practice and can Mr.P continue to Conclusion: In the above case, the widow of Mr.Q
practice in that name as a Proprietor? sells the practice to another Member Mr.P. The sale
CA Final Nov. 2002, 2004, 2012 of the practice and the right to use the name is also
permissible, as per the Council‘s decision in this
regard.

misconduct, if he 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.
2. However, a CA in practice is not prohibited 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 referred to in Clause (2). [Refer Table
below Para 20.3.2]
3.
Illustration: Clause (3) - Part I — First Schedule I
Situation Hints/Answers
Ramana, a CA in practice and a lawyer agree to pay to each other 12% of
the Gross Fees received by them from Clients referred by them to each to
In the all cases, the CA is not
each other. It is agreed that both of them will maintain a record in respect
guilty of professional
of such Clients‘ and the account will be settled at the end of each year.
misconduct as the concerned
However, at the end of the first year, the CA refuses to receive or pay the
Non- Member, (i.e.
referral fee as per the agreement and tells the lawyer that the agreement
Advocate, Chemical
stands terminated. Is the CA guilty of professional misconduct?
Engineer, Consulting
CA Final May 1997
Engineer,
Ajay is a practicing CA. Vijay is a practicing Advocate representing
etc.) are Members of the
matters in Courts of Law. Ajay and Vijay agree to help each other in
prescribed professional
matters involving their professional expertise. Accordingly Ajay
body or other persons
recommends Vijay in all tax litigations in courts of law. Vijay consults
having prescribed
Ajay on all matters relating to finance and related matters, which come to
qualifications.
him for arguing in various Courts of Law. Ajay seeks your advice on how
he and Vijay should — (i) remunerate each other (ii) ‗share‘ the
remuneration. CA Final Nov. 2000

Mr. Dashing, a practising CA, has accepted the assignment of preparation
of a project report for a chemical industry jointly with a Chemical
Engineer. Is there any misconduct in the above situation? Give reasons.
A CA in practice examines the financial aspects of a consultancy job
obtained by a Consulting Engineer and shares profit with him. Is he guilty
of professional misconduct?
Clause (4) of Part I of First Schedule

Under Clause (4) of Part I of First Schedule, a CA in practice is deemed to be guilty of professional
misconduct if he enters into partnership, in or outside India, with any person other than —
(a) a CA in practice, or
(b) 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 u/s 4(1)(b), or whose qualifications are recognized by the Central Government or the
Council for the purpose of permitting such Partnerships.
[Refer Table below Para 20.3.2]
Illustration: Clause (4) — Part I — First Schedule

A CA in practice entered into A CA in practice cannot engage in any business or
Partnership with his uncle in Textile occupation other than the profession of Chartered
business, which, however, did not take Accountant unless permitted by the Council so to engage.
off. Will he be held guilty of Even if the agreement is not acted upon, the mere fact that
professional misconduct? he entered into Partnership by such an agreement would
CA Final May 1998 constitute misconduct. Hence, the CA will be guilty under
Clause 4 and 11.
A CA practising in India enters into CA in practice will not be guilty of professional misconduct
Partnership with — (1) A Certified if the person with whom he enters into Partnership, is covered
Public Accountant in New York, and (2) by Item (b) of Clause (4).
A Chartered Accountant from the
Institute of Chartered Accountants of CA Practising outside India:
England and Wales in London. In each 1. The CA Act, 1949 extends to the whole of India [Sec.
case, the Members concerned take the 1(2)]. A Member practising outside India is not governed
profits earned in their own country. Will by the provisions of the Act.
this amount to professional misconduct? 2. The question of Professional Misconduct under the
Will it make any difference, if an Indian Schedules does not arise, if an Indian CA practising
CA is practicing outside India and outside India becomes a Partner with the aforesaid
becomes a Partner with the aforesaid accountants in New York I London and enters into
accountants? Partnership in that country with a Member of the Institute
Ca Final Nov. 2000 of that country.
Illustration: Clause (4) - Part I — First Schedule

Ram, a practising CA from Rameswaram, has entered into partnership with Rahim, a practicing CA of a
foreign recognised professional body for sharing fees of their Partnership within India. Is Ram guilty of
professional misconduct? CA Final May 1996
John, a practising CA, entered into partnership with Salim, a qualified Chartered and Cost Accountant,
holding Certificate of Practice as a Cost Accountant. Is John guilty of professional misconduct?
CA Final May 1996
Mr.P, a CA in practice, entered into a 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. Give your views in light of CA Act and Schedules thereto.
CA Final Nov.2005
Hint/Principle: Refer Clause (4) of Part I of First Schedule.
In the above cases, the CA in practice will not be guilty of professional misconduct, if the person with
whom he enters into Partnership, is covered by (b) above.
Illustration: Clause (4) — Part I - First Schedule

Can Members of the ICAI form Multi-Disciplinary Firms and offer Multi—Professional Services in a
competitive and commercial manner?
Hint / Principle: Refer to the provisions of Clause (4) of Part I of First Schedule
1. The ICAI‘s Council and Central Government have the power to prescribe such Professional Bodies
with whom Members of ICAI can enter into Partnership.
2. The Resident Members of ICAI residing abroad but entitled to be registered as a Member of Institute
u/s 4(1)(v), or whose qualifications are recognized by Central Government or the Council to enter into
Partnership, can form Partnership Firms with any practicing CA.
3. This amendment has enabled the Members of ICAI to form Multi—Disciplinary Firms and offer
Multi—Professional services in a competitive and commercial manner.
Clause (5) — Canvassing of all forms prohibited:
misconduct, if he secures, either through the services of a person who is not an employee of such CA or
who is not his Partner, or by means which are not open to a CA, any professional business.
2. The CA must seek work through the respect he enjoys, professional skill and talent, his confidence and
reputation. He must not seek work through any agency. All forms of canvassing on that account are
regarded unethical and are prohibited.
3. Nothing in Clause (5) shall be construed as prohibiting any profit—sharing or partnership arrangement
permitted in terms of Clauses (2), (3) & (4) of Part I of First Schedule.
Clause (6) — Solicitation of all forms prohibited:

misconduct, if he solicits Client or professional work either directly or indirectly, by circular,
advertisement, personal communication or interview or by any other means.
2. This 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.
3. A Member can obtain professional work only by gradually building confidence in his ability and
integrity. The service tendered by an Accountant is of personal and intimate nature, and its value can be
appraised only by personal contact and experience.
4. Unabashed advertisement would affect the public esteem in which the profession is held and would act
to the disadvantage of its Members. An advertisement is not a key to success in the profession. It is the
quality of service, which attracts and retains the Clients.
5. Nothing in Clause (6) shall be construed as preventing or prohibiting —
(a) any CA from applying or requesting for or inviting or securing professional work from another CA
in practice, or
(b) a Member from responding to tenders or enquiries issued by various users of professional services
or organization from time to time and securing professional work as a consequence.
Situation Hint / Answer

Mr. P, CA, Proprietor of M/S P & Co. requests Principle: Write the principles given above.
the Manager of a Bank Branch to sanction him a Conclusion: In the given case, the Member is guilty
Loan for ` 10 Lakhs. He offers free services to of misconduct under Clause 5 & 6 of Part I of First
the Manager and the staff for also filing Income Schedule.
Tax Returns for 3 years. Comment. CA Final
Nov. 2008, 2011
Mr. Honest, a CA in practice, wrote two letters Principle: Write the principles given above.
to M/s XY Co, a Firm of CAs, requesting them Conclusion: Nothing in Clause (6) shall be construed
to allot him some professional work. As he did as preventing or prohibiting any CA from applying or
not have a significant practice or Clients, he also requesting for or inviting or securing professional work
wrote a letter to M/s ABC, a Firm of CAs for from another CA in practice. In the given case, as Mr.
securing professional work. Mr. Clever, another Honest solicited work from another CA Firm, he is not
CA, informed ICAI regarding Mr. Honest‘s guilty of misconduct under Clause 5 & 6 of Part I of
approach to secure the professional work. Is Mr. First Schedule.
Honest wrong in soliciting professional work?
CA Final Nov. 2013
Advertisements and Press notes — ICAl Guidelines

The following rules apply in respect of advertisement and notes in the press —
Prohibited Items Allowed Items
1. Advertisements for soliciting work. 1. Requesting another CA in practice for professional work.
2. Insertions which can be interpreted as 2. Advertisement on changes in Partnerships or dissolution
for soliciting or offering to undertake of a Firm, or of any change in address of practice and
professional work. telephone numbers (bare statement of facts subject to area
3. Circulating letters to a small field of of distribution of the newspaper / magazine and the
possible Clients, number of insertions).
4. Personal canvassing. 3. Classified Advertisement in ICAI‘s Journal / Newsletter
to Canvassing for Clients of previous Employer give
information for sharing professional work on through the
help of the Employees, assignment basis or for seeking
partnership or salaried Advertisement for any part—time
work undertaken employment of an accountancy nature
(only CA‘s name, by practicing CA‘s. address or
telephone number, fax number, e-mail address, etc.
allowed).
Empanelment/ Response to Tenders - ICAI Guidelines

1. A Member can respond to tenders or enquiries issued by various users of professional services or
organizations from time to time, and secure professional work as a consequence.
2. Government Departments, Government Companies/Corporations, Courts, Co-Operative Societies,
Banks, etc. prepare panels of Chartered Accountants for allotment of audit and other professional
work.
3. Where the Member knows the existence of a panel, he is free to write to the concerned organisation
with a request to place his name on the panel. Further roving enquiries are not allowed.
4. It is permissible to quote fees on enquiries being received from such bodies, which maintain such
panel. However, printed or cyclostyled copies of the scale of fees shall not be sent in reply to such
enquiries.
Situation Hint! Answer
A letter is sent by a CA to the Ministry of Finance Principle: Write the principles given above.
inquiring whether a panel of Auditors is being Conclusion: In the given case, the Member is
maintained by the Ministry, and if so, to include his guilty of misconduct in terms of the above
name in the panel (Bio-data Enclosed). Discuss the provision, as he has solicited professional work
CA‘s professional responsibility in this regard. from the Finance Ministry, by inquiring about the
CA Final May 2011 maintenance of the panel.
M/s LMN, a Firm of CA‘s, responded to a tender Principle: Write the Proviso to Clause (6) of Part I
from a State Government for computerization of of First Schedule.
Land Revenue records. For this purpose, the Firm Conclusion: The Firm can respond to the Tender,
also paid ` 50,000 as Earnest Money Deposit as part and also pay the Earnest Money Deposit as per the
of the terms of the tender. Give your views. terms of tender. There is no professional
CA Final May 2006, May 2010 misconduct in the above case.
Publication of Name in Telephone Directories – ICAI Guidelines

1. Entries in Telephone Directory based on special request or additional payment is not allowed.
2. Entries in respect of CA‘s and their Firms under specified groups in telephone / trade directories,
electronic media like internet, telephone services like ―Ask Me Services‖, etc. is subject to the
following conditions —
(a) The entry should appear in the Section / category of ―Chartered Accountants‖.
(b) The Member! Firm should belong to the town / city in respect of which the Directory is being
published.
(c) The entry should be in normal type of letters. Entry in bolder type or abnormal type of letters or in
a box is not permissible.
(d) The order of the entries should be alphabetical and logical.
(e) The entry should not appear in a manner giving the impression of publicity/advertisement. Entry
should not be given in a manner, which gives prominence to it as compared to other entries.
(f) The payment, if any, for the entry should not be unreasonable.
(g) The entries should not be restricted, and should be open to all the CA‘s / Firms of CA‘s in the
particular city / town in respect whereof the Directory is published.
Greeting Cards & Invitations — ICAI Guidelines

Members should not indicate their professional designation (―Chartered Accountant‖), name of the Firm,
status and qualification, etc. in any greeting cards or personal invitations, except —
1. Greeting Cards.
2. Invitations for Marriages and Religious Ceremonies.
3. Invitation for Opening or Inauguration of Office of the Members.
4. Change in Office Premises and Change in Telephone Numbers.
Note: Such Greeting Cards, Invitations, etc. are sent only to Clients, Relatives and close friends of the
Members concerned.
Scope of Representation by Members under Companies Act

1. Right to make representation does not mean / indicate any perspective right or a lien on an audit.
2. The letter should merely set out in a dignified manner how he has been acting independently and
conscientiously through the term of office and may, in addition, indicate if he so chooses his
willingness to continue as Auditor, if reappointed by the Shareholders.
3. The wording of his representation should be such that —
(a) The opportunity should not be abused to secure needless publicity or to abuse the Company.
(b) It should not tantamount directly or indirectly to canvassing or soliciting for his continuance as an
Auditor.
Situation Hint /Answer
Sethi, a CA in practice, who is proposed to be Principle: Refer to principles given above.
removed as the Auditor of a Company, makes Conclusion: Use of derogatory remarks by the CA
unsubstantiated and derogatory remarks against the amounts to abusing the Company, secure needless
Management of the Company in his representation publicity and solicit audit work. This is in clear
to the Members under Companies Act. Is there any violation of Clause 6 of Part I of First Schedule and
professional misconduct in the above case? ICAI pronouncements in this regard. Hence, the CA
CA Final May 1997, May 2011 would be guilty of professional misconduct.
In a representation to be submitted to a Company Principle: Refer to principles given above.
under the Companies Act, the Partner of the Firm Conclusion: The proposal of the Partner to
of CA‘s wants to include the contributions made highlight contributions made by the Firm in
by the Firm in strengthening the control procedures strengthening the control procedures in the
of the Company during their association with the representation letter is not acceptable because the
Company. As a practising CA, do you approve the representation letter should not be prepared in a
above? If not, why? CA Final Nov 2001 manner so as to seek publicity. Such an action will
make him guilty of professional misconduct.
Website by CA’s in practice & CA Firm(s) — ICAI Guidelines

ICAT‘s rights: The address of the website should be intimated to the ICAI within 30 days. The ICAI at its
sole discretion, may vet any of the websites created by its Members or individual CA‘s / Firms. The ICAI
has powers to direct deletion of certain portions and/or issue specific directions. Action under CA Act,
1949 and Regulations can be taken in case of any violation of the guidelines.
Pull Model: The websites should be on a ―pull‖ model and not ―push‖ model of the technology. Only a
person who wishes to locate the CA‘s I Firms would have access to the information and the information
should be provided only on the basis of specific ―pull‖ request.
Permissible Information: The following information may be displayed —

(a) Member / Trade / Firm Name.
(b) Year of Establishment.
(c) Member I Firm‘s address (both Head Office and Branches), Telephone Numbers, Fax Numbers, e-
mail id(s).
(d) Nature of services rendered (displayable only on specific ―pull‖ request).
(e) Partners — Name, Year of Qualification, Other Qualifications, Home, Office & Mobile Telephone
Numbers, e—mail address, Areas of Expertise (area of expertise displayable only on specific ―pull‖
request).
(f) Details of Employees — Professional, Others, Name, Designation and Areas of Expertise (area of
expertise displayable only on specific ―pull‖ request).
(g) Job vacancies for the Chartered Accountant / Firm of Chartered Accountants (including articleship).
(h) Number of Articled Clerks (displayable only on specific ―pull‖ request).
(i) Nature of Assignments handled (displayable only on specific ―pull‖ request), Names of Clients and fee
charged cannot be given.
Permitted Features:
(a) Photograph: Display of Passport Size Photograph is permitted.
(b) Format: The CA‘s I Firms can create their own website subject to the overall guidelines laid down by
the Council. There is no actual format of website, prescribed by the ICAI.
(c) Colours: There is no restriction on the colours, which may be used in the website.
(d) Webpages: Individual Members would also be permitted to have their Web Pages in their Trade Name
or Individual Name.
(e) Different address: The address of the website can be different from the name of the Firm. But it should
not amount to soliciting Clients or professional work or advertisement of professional attainments or
services. The website address should be as near as possible to the Individual Name/ Trade Name, Firm
Name of the CA / Firm.
(f) Articles: Articles, Professional Information, Professional Updation and other matters of larger
importance or of professional interest can be displayed.
(g) Bulletin Boards: Bulletin Boards can be provided.
(h) Chat Rooms: Chat rooms can be provided to permit chatting amongst ICAI Members and between
Firms and the Clients. Confidentiality protocol should be observed.
(i) Online service: The Members / Firms can provide online advice to their Clients who specifically
request for the advice, whether free of charge or on payment.
(j) Search Facility: Listing on suitable search engine is allowed. (on fields of ―Chartered Accountants‖ or
―CA‖ or ―Indian CA‖, ―Indian CPA‖, ―Indian CA‖ or any permutation or combination related thereto).
(k) Secrecy: Adequate secrecy of the matters of the Clients handled through website should be ensured.
(l) Links: The Website may provide a link to the website of ICAI, its Regional Councils and Branches
and also the Website of Government / Government Departments / Regulatory Authorities / other
Professional Bodies such as, American Institute of Certified Public Accountants (AICPA), The
Institute of Chartered Accountants of England and Wales (ICAEW) and The Canadian Institute of
Chartered Accountants (CICA).
(m) Date: The website should mention the date upto which it is updated and the information should not be
at material variance from the information as per the ICAI‘s records.
(n) Listing: Listing of website address in databases of — (I) CA Societies, (ii) Professional Body or
Association or Chamber of Commerce in which the CA I Firm is a Member, or (iii) Other bodies
offering listing to CA‘s, is permitted with / without payment.
Prohibited Features:
(a) No private circulation: The information contained in the website should not be circulated on their own
or through e-mail or by any other mode or technique except on a specific ―pull‖ request.
(b) No request to hit website: No circular / other advertisement / other material of any kind soliciting
people to visit the website, shall be issued. However, website address can be mentioned on letterheads
and professional stationery.
(c) No Logo: No logo of any sort can be used on the website.
(d) No Advertisements: No advertisement in the nature of banner or any other nature will be permitted.

(e) No Advertising: The details in the Website should be so designed that it does not amount to soliciting
Client or professional work or advertisement of professional attainments or services.
(f) No unwanted information: The website should be befitting the profession of CA‘s and should not
contain any information or material which is unbecoming of a CA.
Inclusion in other websites:

(a) Some websites of non-CA‘s, corporates like Banks, Finance Companies and Newspapers, provide
advisory services on taxation and other areas where CA‘s render professional service.
(b) A CA I Firm may provide consultation and advice through such websites, subject to the following:
(c) The contact address of the CA concerned should not be provided on the website.
(d) Any material which advertises professional achievements (except the fact that they are CA‘s) or status
of such CA shall not be allowed.
(e) The name of CA‘s Firm with suffix ―Chartered Accountants‖ would not be permitted.
Situation Hint/ Answer
M/s XYZ, a Firm in practice, develops  Firm Name is used as website name. Hence, there is no
a website ―xyz.com‖. The colour violation.
chosen for the website was a very  There is no restriction on colours used. So, there is no
bright green and the web-site was to violation.
run on a ―push‖ technology where the  Website should work on ―Pull‖ model only. Hence, this
names of the Partners of the Firm and guideline has been violated.
the major Clients were to be displayed  Names of Partners can be given. But names of Major Clients
on the web-site. Discuss in view of the cannot be given. Hence, this guideline has been violated.
CA Act and Schedules thereto.  Since the Firm has not complied with all the guidelines, it
CA Final Nov. 2002 would be liable for professional misconduct, as it would
amount to soliciting work by advertisement.
PQR and Associates, Chartered  Mentioning Website in Letterhead is permitted.
Accountants have their website, and  Including the words ―Visit our website‖ tantamounts to
on the letterhead of the Firm it is solicitation, and is hence not permissible.
mentioned that ―Visit our Website:  Name of Clients, fees charged cannot be mentioned in
PQR.com‖. In the website the nature website.
of assignments handled, names of  Nature of services could be mentioned on ―Pull‖ request.
prominent Clients and fees charged is  Since the Firm has not complied with all the guidelines, it
also displayed. Discuss. would be liable for professional misconduct, as it would
CA Final Nov. 2010 amount to soliciting work by advertisement.
XYZ & Associates, a Firm with 5  Principle: Write the Permitted Links as per Point 4(l)
Partners, developed a website above.
―www.xyzassociates.com‖. The  Conclusion: Providing a link to ―All India Chartered
website also contained a link to ―All Accountants Association‖ (irrespective of whether X is Vice-
India Chartered Accountants President of such Association or not), constitutes violation of
Association‖, a voluntary association the guidelines and attracts misconduct under Clause (6) of
where X, a Partner of the Firm is Part I of First Schedule.
currently the Vice—President. Discuss
in view of the CA Act and Schedules
thereto. CA Final May 2006
M/s XYZ, a Firm of CA‘s, developed  Principle: Refer (in brief) to the Website related Guidelines
a website ―www.xyzindia.com‖. The given above.
website besides containing details of  Conclusion: There is no violation of any of the guidelines in
the Firm and bio-data of the Partners, this case as such, provided the ―pull‖ request related
also contains the photographs of all the guidelines are adhered to. Hence, as such, the Firm / CAs is
Partners of the Firm. Discuss in view not guilty of professional misconduct.
of the CA Act and Schedules thereto.
CA Final May 2005
Prohibited Types of Solicitation - ICAI Guidelines

1. Issuing Hand Bills: A Member is prohibited from distributing hand bills ostensibly for the guidance,
of persons other than his regular Clients, in matters such as changes in tax laws.
2. Publication of Books or Articles: A Member is not permitted to indicate in a book or an article,
published by him, the association with any Firm of CAs.
3. Soliciting Professional work by making roving inquiries: It is not permissible for a Member to
address letters, circulars to persons who are likely to acquire services of a CA since it would
tantamount to advertisement.
4. Acceptance of original professional work by a Member emanating from the Client introduced to
him by another Member: If any professional work of a Client introduced to him by another Member
comes to him directly, the CA should ask the Client that he should come through the other Member
dealing generally with his original work.
5. Giving public Interviews: While giving any interview or otherwise furnishing details about
themselves or their Firms in public interviews or to the press or at any forum, Members should ensure
that it should not result in publicity. Due care should be taken to ensure that such interviews or details
about the Members or their Firms, are not given in a manner highlighting their professional
attainments.
6. Use of Box number: Members I Firms are prohibited from inserting advertisements for soliciting
Clients or professional work under Box Numbers in the newspapers.
A CA sent printed card and circular letter soliciting work. Held as guilty M.J.Gadre Vs
under Clause (6). W.G.Ambekar (1952)
A CA wrote to the Ministry of Commerce & Industry to enroll the name of
K.C.G.Satyawadi
his Firm in the list of Auditors maintained by the Department. Held as guilty
(1955)
under Clause (6)
A CA Firm issued a Letter of Authority to another CA to accept and carry
out audits of Co-operative societies on the Firm‘s behalf. The other CA
V.B.Kirtane (1957) and
issued circulars of which the Firm was not aware. Held the Firm was not
M.R.Walke (1957)
guilty under Clause (6). The person in whose favour the letter of authority
was held guilty.
A CA sent an application to the Chairmen of Co-operative society offering G.K.Joglekar (1957)
himself for appointment as an Auditor. Held that the infringement was a and D.G.Jawalker
serious breach of professional ethics and guilty under Clause (6). (1957)
A CA sent a letter of request for being appointed as Auditor. Guilty under
S.K.Swain (1960)
Clause (6)
A CA sent a printed circular to a person unknown to him offering his services
in profit planning and profit improvement programmes. The circular
B.S.N.Bhushan (1965)
conveyed the idea that it was meant for strangers only. Held guilty under
Clause (6) for using circulars to solicit Clients and professional work.
A CA wrote several letters to the Assistant Registrar of Co-operative D.C.Pal (1966)
Societies, Government of West Bengal, stating that though his firm was on D.N.Dasgupta (1969),

the panel of Auditors, no audit work was allotted to the Firm and requested B.B.Mukherjee (1969)
them to consider them for allotment of audit. Held guilty under Clause (6).
Writing several letters to Registrar of Co-operative Societies and
Government Departments is misconduct under Clause (6) since –
Roving enquiries should not be made with Government Department for Chief Auditor of Co-
empanelling the name unless it has been ascertained in advance that specific operative Societies,
panel was being maintained. West Bengal Vs
An Auditor of Co-operative Societies under a license granted by Co- B.B.Mukherjee (1967)
operative Department was not its employee and therefore he could not solicit
work.
A CA approached the Principal of a School through a third person known to
the Principal for his appointment as Auditor of that School. Further, the CA
misrepresented to the previous Auditor that he had been offered appointment
as Auditor of the School and enquired of his objections, if any, though the
M.L.Agarwal (1973)
appointment was not made. Held guilty under Clause (6).
However, held that writing of letter by CA to the previous Auditor offering
his services to audit the accounts of school was not wrong as it was an offer
to a previous colleague and not to a prospective Client.
An assistant of the CA under his authorisation, wrote letter to a stranger
S.N.Mukherjee & Co
association requesting for appointment as Auditor. Held, the CA was guilty
Vs P.K.Ghose (1975)
under Clause (6)
A CA issued circular letter regarding change of address of his Firm to K.K.Mehta vs
persons who were not in professional relationship with him. He also wrote M.K.Kaul (1975)
letters to the Shareholders of a Company thanking them for appointing him V.K.Goenka etc. vs
as Auditor. Held as guilty under Clauses (6) and (7). P.K.Lodha (1996)
A Newspaper Advertisement containing the Member‘s Photograph
congratulated him on the occasion of the opening ceremony of his office.
Held guilty under Clauses (6). High Court held –
The advertisement which had been put in by the Member is a noticeable one
and the profession of Chartered Accountancy should maintain high standards G.P.Agrawal (1982)
of integrity, professional ethics and efficiency.
If soliciting of work is allowed, the independence and forthrightness of a CA
in the discharge of duties cannot be maintained and therefore some discipline
must be maintained by the profession.
A CA published an advertisement, in a newspaper inviting professional work
Vallabh C Shah (1983)
for amount writing, Income Tax Matters, etc. Held as guilty under Clause (6)
A CA published a Newspaper Advertisement offering his services in matters
of Accounts, Income Tax, Labour Laws, Law matters and Management Anil K Garg (1987)
Services. Held guilty under Clauses (6) and (7).
A CA issued a circular letter highlighting his attainments and offering his
R.K.Chawla (1987)
professional services. Held guilty under clause (6).
A CA had an advertisement published in a newspaper regarding inauguration
of his professional office. It was held as solicitation of professional work by
advertisement, having regard to – (a) the nature of the advertisement, (b) the
Shashindra S Ostwal
function organized on that occasion, (c) the persons invited, (d) the medium
(1988)
used, (e) the names of various concerns which had conveyed there good
wishes, (f) the advertisement having been released by the Member himself.
Held guilty under Clause (6)
A CA issued a printed a printed circular letter to a company highlighting the
Parimal Majumder
details of his professional attainments and services which he could render in
(1989)
various fields offering his professional services on contractual basis. Held
guilty under clause (6)
A CA wrote a letter to a Company in standard format highlighting his
expertise in Sales Tax matters and had requested for a draft of ` 200, if his
K.A.Gupta (1989)
knowledge of Sales Tax matters was found worthwhile. Held guilty under
Clause (6).
A CA sent a letter to another Firm of CA‘s introducing himself as pioneer in
liaisoning with Central Govt. Ministries and its departments for getting
various Govt. clearances for which he had claimed to have expertise. He also Bijoy Kumar (1991)
gave a list of his existing Clients and details of his staff. Held guilty under
Clause (6).
A CA personally visited the Clients for securing the appointment as Auditors J.S.Bhati Vs Aggarwal
of the institutions. Held guilty under Clause (6). (1991)
A CA sent an undated but signed letter to a bank requesting for empanelment
of his Firm as Auditor alongwith the particulars of his Firm showing the past
experience and other details of the Firm. A Member of Parliament had also Naresh C Aggarwal
sent a letter to the Bank recommending the name of the said CA Firm for (1991)
immediate empanelling for Internal Audit / Inspection Audit / Management
Audit / Expenditure Audit. Held guilty under Clause (6).
A CA published a newspaper advertisement with Box Numbers mentioning
that he was a senior CA having administrative ability and was available on
D.M.Kothari (1993)
retainership for setting up Accounts Department / Internal Auditing /
Financial Management. Held guilty under Clause (6).
A CA issued an undated and unsigned cyclostyled inland letter containing the
name and address of his Firm and also bearing his Firm‘s rubber stamp with
address on its reverse in the space earmarked for sender‘s name and address, V.M.Challani (1993)
seeking audit assignment from a Co-Operative Society. Held guilty under
Clause (6).
A CA sent a letter on his Firm‘s letterhead, to a non-Member, introducing
Vijay Kumar Goel
himself as a CA giving details of services rendered by him and schedule of
(1994)
his fees for rendering various kinds of services. Held guilty under Clause (6).
A CA wrote a letter to a Co-operative society stating that he had been
authorised by the Registrar of Societies to conduct the statutory of the M.V.Lonkar (1996)
societies and requested it to contact him. Held guilty under Clause (6).
A CA solicited Clients and professional work by personal communication as
K.Bhattacharjee Vs
also by enclosing a circular with his communication, utilized the influence of
B.K.Chakraborty
a Minister as well as created political pressure to secure professional work
(1996)
etc. Held guilty under Clause (6).
A CA wrote letter to the MD of a company seeking appointment as Internal
Auditor, on the bonafide belief that the Company might be maintaining a
P.G.Biswas (1997)
panel of CA‘s for assigning Internal Audit work. Held guilty under Clause
(6).
A CA wrote letter to Officers of different Army Canteens giving details of
Jethanand Sharda vs
his experience, his Partners, Office and norms of charging Audit Fees. Held
Deepak Mehta (1998)
guilty under Clause (5) and (6).

A CA sent New Year Greeting Cards containing ―List of Superhit Books
Suresh D Chauhan
written by S.D.Chauhan – Income Tax Raid – Contact for any type of Bank
(2001)
for Institutional Loans or Deposits‖. Held guilty under Clause (6) & (7).
A CA published advertisement giving details of his Firm, Office Address,
Timings, etc. in a souvenir published by a Welfare Centre. Held guilty under A R Ranawat (2001)
Clause (6).
A CA published advertisement in Hindustan Times, offering his professional
Rajeev Sharma (2001)
services and contact phone number. Held guilty under Clause (6)
A CA approached the Chairman of an Institution and offered to accept the audit LK Kathare vs G
of that Intitution. Held guilty under Clause (6). Sreenivasa (2003)
A CA issued an offer letter to a Government Agency seeking work, A K Gupta vs Habibullah

tantamounting to enquiries, advertisement and soliciting work. Held guilty under (2004)
Clause (6).
Situation Hint / Answer

X & Co, CA‘s, informed selected multinational  Principle: Write the provisions of Clause 6
organisations, who are not their Clients, that Mr. Y, the and 7 of Part I of First Schedule.
former Partner-in-charge of Taxation of one of the  Conclusion:
largest accounting Firms of the world, had joined them (a) Issuing Circular to persons who are not
as a Partner. Is this action liable for professional Clients but may likely requires services of a
misconduct? CA Final Nov. 1999 CA would tantamount to advertisement,
since it is solicitation of professional work
by making roving enquiries.
(b) Usage of the words ―one of the largest
accounting Firms of the World‖ and the
specification of specialisation in ―Taxation‖
would amount to advertisement and, thus,
constitute professional misconduct.
A Junior CA in practice requests in writing to a Senior  Principle: Write the provisions of Clause 6
Member of his profession who is over-burdened with and Proviso (i) of Part I of First Schedule.
professional work to divert some of his (Senior  Conclusion: Since the case is covered by
Member‘s) work to him on profit sharing basis. Is there Proviso (i) to Clause (6), there is no
any offence in seeking professional work by a Member professional misconduct in the above case.
from another Member? Give reasons for your answer.
Mr.X, a CA, and the Proprietor of X & Co, wrote
several letters to the Asst Registrar of Co-operative Guilty of Professional Misconduct
Societies stating that though his Firm was on the panel under Clause 6, Part I, First Schedule.
of Auditors, no Audit work was allotted to the Firm and [D C Pal, D N Dasgupta and B B Mukherjee
further requested him to look into the manner. Case]
CA Final Nov.2009
An advertisement was published in a newspaper
containing the photograph of Mr.X, a Member of the Guilty of Professional Misconduct
Institute wherein he was congratulated on the occasion under Clause 6, Part I, First Schedule.
of the opening ceremony of his Office. [Shashindra S Oshwal (1988) case]
CA Final Nov. 2009
M, a practicing CA, sent a letter to another Firm of CAs Guilty of Professional Misconduct

claiming himself to be a pioneer in liasoning with under Clause 6, Part I, First Schedule.
Central Government Ministries and its allied [Bijoy Kumar(1991) case]
Departments for getting various Government
Clearances for which he had to have expertise, and had
given a list of existing clients and details of his staff,
etc. Comment. CA Final May 2012
A CA published a Book and gave his personal details as Guilty of Professional Misconduct under
the Author. These details also mentioned his Clause 6, Part I, First Schedule.
professional experience and his present association as A Member is not permitted to indicate in a
Partner with M/s RST, a Firm. Is he guilty of Book or an Article, published by him, the
professional misconduct? association with any Firm of CAs.
Clause (7) of Part I First Schedule – Use of Designation

1. Clause (7): Under Clause (7), a CA in practice is deemed to be guilty of professional misconduct, if
he:
(a) Advertises his professional attainments or services, or
(b) Uses any designation or expressions other than ―Chartered Accountant‖ on professional
documents, visiting cards, letterheads 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 ICAI or of any other institution that has been recognised by the Central
Government or may be recognised by the Council.
2. Exception: A Member in practice may advertise through a write-up setting out the services provided
by him or his Firm and particulars of his Firm, subject to such guidelines as may be issued by the
Council.
3. Where to use designation: The designation ―Chartered Accountant‖ cannot be used, except on
professional documents, visiting cards, letterheads or signboards and under the circumstances
specified under Clause 6.
4. Other Designations: A Chartered Accountant cannot state on his professional documents that he is an
Income-Tax Consultant / Cost-Consultant / Management Consultant / Corporate Lawyer.
5. Elected Positions: A Member must not use the designation such as ‗Member of Parliament‘,
‗Municipal Councillor‘ or any other functionary in addition to that of Chartered Accountant.
6. Logo / Monogram: Use of logo / monogram of any kind / form / style / design / colour etc.
whatsoever on any display material or media e.g paper, stationery, documents, visiting cards, magnetic
devices, internet, sign board, by the Members in practice and / or Firms is prohibited. Use / printing of
Member / Firm name in any other manner tan amounting to logo / monogram is also prohibited.
7. Associate Relationships: The use of expressions / words ‗in association with... ‗Associates of
‗Correspondents of etc, on the Letterheads, Visiting Cards, Professional Documents, etc. of Firms of
CA‘s (whether Indian or Foreign Firm) is not permissible.
8. Date of Practice: Date of setting up the practice by a Member or the date of establishment of the Firm
cannot be given on letterheads and other professional documents. (But, in the website, the year of
establishment can be given on specific ―pull‖ request.)
9. CA cum Advocates: Members in practice who are otherwise eligible, may practice as advocates
subject to the permission of the Bar Council. However, they should not use the designation ‗Chartered
Accountant‘ for matters involving the practice as an advocate. In other matters they should use the
designation ‗Chartered Accountant‘ but they should not use the designation ‗Chartered Accountant‘
and ‗Advocate‘ simultaneously.
10. Listing in Directories:

(a) The name, description and address of Member (or Firm) may appear in any directory or list of
Members of a particular body in which the names are listed alphabetically.
(b) For a specialised directory or publication such as a ―Who‘s who‖ (including those compiled on
purely local basis), a Member should use his discretion in supplying information, bearing in
mind the nature and purpose of the publications.
(c) Where appropriate, a Member may give, Directorships held and reasonable personal details, and
may also state his outside interests.
(d) The Member should not give the names of any of his Clients or details of the service offered by
his Firm.
11. Network:
(a) Firms constituting a Network are permitted to use the words Affiliates/ Members of (a Network of
Indian CA Firms) on their professional stationery.
(b) The Network shall comply with all applicable ethical requirements as prescribed by ICAI.
Publication of CA’s Name in the Press — ICAI Guidelines

1. Publicity in Magazines: Publication of photographs and brief particulars of Members in magazines is
permitted, provided no payment is made for such publication and there is no advertisement of
professional attainments.
2. Articles in the Press: Members writing articles or letters to the press on subjects concerned with the
profession may give their names and use the description ‗Chartered Accountant‘.
3. Press Advertisements: Publication of the Member‘s Name and Address or that of his Firm, with the
description Chartered Accountant(s), may be advertised only in the following matters —
(a) Advertisements for recruiting staff in the Member‘s own office.
(b) Advertisements inserted on behalf of Clients requiring staff or wishing to acquire or dispose of
business or property.
(c) Advertisement for the sale of business or property by a Member acting in a professional capacity
as Trustee, Liquidator or Receiver.
4. Conditions for Press Advertisements:
(a) The advertisement is not displayed more prominently than is usual for such advertisements.
(b) The name of the Member or that of his Firm with the designation Chartered Accountant(s)
appears in type not bolder than the substance of the advertisement.
(c) Expressions such as ―a well known Firm‖, should be avoided.
(d) The advertisements should not contain any promotional element nor should there be any
suggestion that the services offered by the CA or his Firm are superior to those offered by other
accountants.
5. Press Notice on Candidate‘s success:
(a) The candidate‘s name and address, school and local background, examination passed with details
of any prize or place gained, the name of the Principal, Firm and town in which the principal
practices may be published.
(b) Such Press Notices relating to the success in an examination of an individual candidate, should
not contain any element of undesirable publicity either in relating to the Articled I Audit Clerk or
an Employee or the Member or the Firm with whom he has served.
Appearance of Members in Public Forums — ICAI Guidelines
1. Appearance in TV, Films and Press:
(a) Members may appear on television and films and agree to broadcast in the radio or give lectures
at forums and may give their names and describe themselves as CAs.
(b) Special qualifications or specialised knowledge directly relevant to the subject matter of the
programme, may also be given.
(c) In case of CA‘s in practice, no reference should be made, to the name / address / services of the
Firm.
2. Appearance in Conferences & Seminars:
(a) Members giving talks or lectures or attending a conference may describe themselves as CAs only
when they are acting in their capacity as CA. Reference to the Firm Name is not permitted.
(b) What the Member may say or write must not be promotional of his or his Firm but must be an
objective professional view of the topic under consideration.
(c) In case of positions of local or national importance, etc. the Membership of the ICAJ may be
mentioned. But it should be aimed to achieve suitable publicity for the Institute and its Members
generally.
3. Training Courses: A CA in practice holding training courses, seminars, etc. for his staff may also
invite the staff of other CA‘s and Clients to attend the same. Undue prominence should not be given
to the name of the CA, in any booklet or document issued in connection therewith.
Name Boards of Members I Firms — ICAI Guidelines

1. Members should exercise their own discretion and good taste for size of office signboards.
2. Use of glow signs or lights on large sized boards is not proper.
3. Use of Name-Board at the residence with the designation of ―Chartered Accountant‖ is permitted,
provided it is a Name-Plate or Name-Board of an individual Member, and not of the Firm.
XY & Co. a Firm of CAs having 2 Partners X  Issue 1: Since the distance between offices
& Y, one in charge of Head Office and > 50 kms, having a separate CA in charge
another in charge of Branch at distance of 80 of such place is proper.
kms, puts up a Name-Board of the Firm in both  Issue 2: Refer principles above. Use of
premises and also in their respective residences. Firm‘s Name Board is permissible at Office
Give your views on the above. Premises, but not permissible at respective
Ca Final Nov. 2007 residences.
Publishing Information about CA Directors — ICAI Guidelines

1. Designation: The prospectus or public announcements issued by Companies in which a Member is a
Director, often publish descriptions about the CA‘s expertise, specialization and knowledge in any
particular field or add appellation or adjectives to their names. The use of the expression
‗Chartered Accountant‘ is permissible in such announcements.
2. Member‘s Duties: The Member should:
(a) Specifically invite the attention of the Company‘s Management to the restrictions in the First
Schedule.
(b) Request that before any such prospectus or public announcement or public communication
mentioning the name of the Member concerned is issued, the material pertaining to the Member
concerned should as far as practicable be got approved by him.
(c) Ensure that descriptions about his expertise, specialization and knowledge in any particular field
of other appellation or adjectives are not published with his name.
(d) Ensure that particulars of Directorship held by the Member in other Companies is given, but the
name of the Firm of CA‘s in which the Member is a partner, is not given.
(e) Use his good judgment, depending upon the facts and circumstances of each case to ensure that
the above provisions are complied with both in letter and spirit.
3. General Nature Such Prospectus or public announcements or public communications should not —
(a) Advertise his professional attainments, or

(b) Amount to solicitation of Clients for professional work by the Member, either directly or
indirectly.
DECISIONS ON PROFESSIONAL MISCONDUCT UNDER CLAUSE (7)

1. A CA used the designation ‗Incorporated Accountant London‘ and ‗Registered
Accountant, India‘ in the Balance Sheet. He also failed to report to the
Shareholders in the prescribed form under the Banking Companies Act. Held
the CA was guilty of the two charges. Mirza M.Hussain
2. When the Member contended that he was no longer a Member of ICAI at the (1955)
time of complaint, it was held that the word ‗Member‘ in Sec.21 would include
a Past Member for the purpose of inquiry. One should have been a Member at
the time of the commission of the alleged misconduct.
A CA used the designation ‗Industrial and Management Consultant‘ in addition to
B.S.N Bhushan
the designation ‗Chartered Accountant‘ on printed circular sent to a stranger. Held,
(1965)
guilty under Clause (7).
A CA wrote several letters to Government Department, inter alia, pointing out
seniority of his Firm, sending his life sketch and stating that he had a glorious record
Sridhar P S
of service to the country as well as to the organisation of accountancy profession
Sodhbans (1969)
with a view to get the audit work. These letters were clearly in the nature of
advertising professional attainments. Held guilty under Clause (7).
A CA had used the designation ‗Manager (Liaison & Sales)‘ in his Firm‘s letterhead. Bijoy Kumar
Held guilty under Clause (7). (1991)
A CA issued two insertions in a Journal published by a Chamber of Commerce
N.O.Abraham
expressing his willingness to offer concessions in respect of all services offered by
Isaac Raj (1992)
him. Held as guilty under Clauses (6) and (7).
A CA addressed a letter to the Managing Director of a Company offering his
services as a practicing CA and giving impression that the letter had been addressed Yogash Gupta
to more than one organisation for the above purpose. Held that the Member was (1996)
guilty under Clauses (6) and (7).
A CA used the designation and expression other than ―Chartered Accountant‖. He
K.Battarcharjee
also mentioned his experience as General Manager of a Cooperative Bank and
vs
expressed himself as President and Chief Executive of an Institute in his professional
B.K.Chakraborty
documents. He had also depicted religion and politics in his letterheads and letters
(1996)
for professional attainments. Held guilty under Clause (7).
A CA published a classified advertisement in a newspaper saying that his services as
S C Gupta (1996)
CA were available for various types of work. Held guilty under Clause (7).
A CA advertised services and used designations / expression other than CA, in SN Prasad vs V
professional stationery. Held guilty under Clause (7). Aggarwal (2004)
A CA advertised services and used designations / expression other than CA, in SN Prasad vs V
professional stationery. Held guilty under Clause (7). Aggarwal (2004)
Council of ICAI
 Certification of P&L A/c, with an error of 1,00,000 on the expenditure side of
vs
the A/c, constitutes Professional and / or Other Misconduct under Clause (7) Part
S.Ranganathan
I First Schedule.
[Nov 07 CA
 However, in the absence of dishonesty, reprimand of the Member would be
Journal Page
adequate & proper.
795]
A CA used the designation ―Share & Stock Sub—Broker‖ along with the designation A.R.Ranawat

of ―Chartered Accountant‖. Held guilty under clause (7). (2001)

T, a practicing Chartered Accountant uses the Member must not use designation such as‘
designation, ‗Municipal Councilor‘ apart from the Member of Parliament‘, ‗Municipal Councilor‘ or
expression ‗FCA‘ on his visiting card. Comment. any other functionary in addition to that of
Chartered Accountant. Hence, guilty under
Clause 7 of Part 1 of I Schedule.
A CA in practice appearing on Television on Budget In the given case — (1) Reference to name of the
Proposals was introduced to the viewers, on the basis Firm, (2) Use of adjective expressions such as ―a
of the bio—data furnished by him, as the Senior— leading Firm of CA‘s‖ and ―Senior—most
most Partner of M/S Tick and Tag, a leading Firm of Partner‖, and (3) Reference to the date of
CA‘s established in Delhi in 1948. See whether there establishment of Firm, violate of the Code of
is any professional misconduct in this case. Conduct. Hence, the CA will be guilty of
CA Final Nov.1998 professional misconduct under Clause 7 of Part I
of First Schedule.
A Partner of a Firm of CA‘s during a TV Interview Clause 6 of Part I of First Schedule: The Bio—
handed over his bio—data to the Chairperson. The Data containing details of professional
bio—data detailed the standing of the International ―achievements‖, ―recognition as an expert in the
Firm with which the Firm was associated, the field of taxation‖, and ―standing of the associated
achievements of the concerned Partner and his international Firm‖ was handed over by the CA to
recognition as an expert in the field of taxation. the Chairperson.
The Chairperson read out the said bio—data during This would lead to the promotion of the Firm‘s
the interview. Do you approve the CA‘s action? If name and publicity thereof as well as of the
not, why? Partner. The Partner is guilty of professional
CA Final Nov.2001, 2010 misconduct.
A practising CA uses a visiting card in which he 1. Members are permitted to use letters
designates himself, besides as CA, as — (a) Tax indicating
Consultant, and (b) Cost Accountant. Is he guilty of Membership of the Institute of Cost
professional misconduct? Accountants of India (e.g. AICWA) but not
CA Final Nov. 2000 the designation ―Cost Accountant‖
Mr. Enterprising, who recently started his practice, 2. Here, the CA would be guilty of professional
has put up signboards outside his office describing misconduct,-
himself as a ‗Chartered Accountant and Management (a) Under Clause (7) of Part I of First
Consultant‘. What is the nature of misconduct, if any, Schedule, and (b) under Clause (1) of Part II
committed here? of Second Schedule for contravening Sec.7 of
the Act.
Mr. Nigal, a CA in practice, delivered a speech in the Following acts of the CA in practice constitute
National Conference organized by the Ministry of professional misconduct under Clause 6 & 7 Part
Textiles, While delivering the speech, he told to the I of First Schedule.
audience that he is a Management Expert and his (a) Reference as ―Management Expert‖, by a CA
Firm provides services of taxation and audit at in practice,
reasonable rates. He also requested the audience to (b) Disclosing nature of services rendered by the
approach his Firm of Chartered Accountants of these Firm, and the fee charged,
services and at the request of audience he also (c) Soliciting the audience to approach his Firm
distributed his business cards and telephone number of CA‘s,
of his Firm to those in the audience. Comment. N 13 (d) Distribution of Business Cards with Firm
Details and Telephone Numbers to the
Audience.
B, a CA in practice, is a Partner in 3 Firms. While Clause 7 of Part I of First Schedule: There is no
printing his personal letterheads, he gave the names prohibition for printing names of all the 3 Firms
of all 3 Firms in which he is a Partner. Is there any on the personal letterheads in which a Member
professional misconduct? holding COP is a Partner. Thus, B is not guilty of
CA Final May 2006, 2009, 2010 any professional misconduct in the above case.
Z, a CA wrote several letters to a Government Clause 6 and 7 of Part I of First Schedule: The
Department, pointing out seniority of his Firm, CA is guilty of professional misconduct. [Refer
sending his life sketch and stating that he had a Sridhar P S Sodhbans (1969) case above.]
glorious record of service to the country as well as to
the organization of accountancy profession with a
view to get the audit work. Is he guilty of
professional misconduct?
CA Final Nov. 2003
The Offer Document of a Listed Company in which If a Public Company, in which a CA in practice is
Mr.D, a practising CA is a Director, mentions the a Director, issues a Prospectus or gives any
name of Mr.D as a Director along with his various announcement that gives descriptions about the
professional attainments and spheres of CA‘s expertise, specialisation and knowledge in
specialization. Is there any misconduct on the any particular field, it will attract professional
part of the CA in this case? misconduct under Clauses 6 & 7, Part I, First
CA Final May 2002 Schedule.
Clause (8) - Part I - First Schedule

1. Clause (8): Under Clause (8) of Part I of First Schedule, a CA in practice is deemed to be guilty of
professional misconduct, if he accepts a position as Auditor previously held by — (a) another
Chartered Accountant, or (b) a Certified Auditor who has been issued a Certificate under the
Restricted Certificate Rules, 1932, without first communicating with him in writing.
2. Objectives: The objective of communication with the Previous Auditor are -

(a) To know the reasons for the change in order to safeguard his own interest, the legitimate interest
of the public and the independence of the Existing Auditor.
(b) To find out whether there are any professional or other reasons why he should not accept the
appointment.
(c) Professional courtesy.
3. Possible Reasons for change: Change in Auditor may arise in the following cases —
(a) Where there is a change of venue of business and a local accountant is preferred, or
(b) Where the Partner who has been dealing with the Client‘s affairs retires or dies, or
(c) Where temperaments clash, or
(d) Where the Client has some good reasons to feel dissatisfied.
4. Disputed Fees or Non - payment of Fees:

(a) Provision for Audit Fee made in the accounts signed by both the Auditee and Auditor shall be
considered as ‗undisputed‘ Audit Fees.
(b) Disputed Fees or Non - payment of Fees to the Previous Auditor would not necessarily
constitute valid professional reasons on account of which an audit should not be accepted by the
new Auditor.

(c) However, the Incoming Auditor should, in appropriate circumstances use his influence in favour
of his predecessor to have the disputes as regards the fees settled. The decision in this regard
must rest with the good sense of the Member himself.
5. Professional Reasons for non - acceptance: Professional reasons for not accepting an audit could
be -
(a) Non - compliance of the provisions of the Companies Act as per Clause (9),
(b) Under - cutting of fees,
(c) Non - Payment of Undisputed Audit Fees by Auditees, other than in case of sick units for
carrying out the statutory audit under the Companies Act, or various other statutes, and
(d) Issuance of a Qualified Report.
In the first three cases, an Auditor who accepts the audit would be guilty of professional
misconduct. In the last case, he may accept the audit if he is satisfied that the attitude of the Retiring
Auditor was not proper and justified, based on full facts of the case.
6. Responsibilities of New Auditor:

(a) The New Auditor (to be appointed) should ask the Client whether the Retiring Auditor has been
informed of the intention to change.
(b) If yes, then a communication should be addressed to the Retiring Auditor. If not and the Client is
not
(c) willing to inform the Retiring Auditor, the reason for proposed change should be enquired.
(d) If there is no valid reason for a change, it would be healthy practice not to accept the audit. If he
decides to accept the audit he should address a communication to the Retiring Auditor.
(e) The communication to the previous Auditor should be evidenced by a letter sent under RPAD,
or by hand against a written acknowledgement. Mere posting of a letter ―under Certificate of
Posting‖ is not sufficient.
(e) The Previous Auditor, on receiving communication from the New Auditor, should send a
reply to him as soon as possible setting out in detail the reasons which according to him had
given rise to the change and other attended circumstances but without disclosing any
information as regards the affairs of the Client which he is not competent to do.
(f) The New Auditor appointed can act, after waiting for a reasonable time for a reply
There should be positive evidence of the fact that the communication addressed to J.S.Bhati
the Outgoing Auditor by the Incoming Auditor, reached the former‘s hands. vs
Certificate of Posting of a letter, cannot be taken as positive evidence of its Council of
delivery to the addressee. ICAI
7. The Council has also laid down the following –
(a) Compulsory Communication: The requirement in communicating with the previous Auditor
being a CA in practice would apply to all types of audit, viz. Statutory Audit, Tax Audit, Internal
Audit, Concurrent Audit or any other kind of audit.
(b) Optional Communication: The practice of communication with the Predecessor may also be
followed for — (i) Certification, (ii) Verification of the books of account for special purpose,
(iii) Appointment as a Liquidator, Trustee or Receiver and his predecessor was a CA. In case of
assignments done by other professionals not being CA‘s, it would be a healthy practice to
communicate. It would also be a healthy practice if a Tax Auditor appointed for conducting

Special Audit under the Income Tax Act, communicates with the Member who has conducted
Statutory Audit.
(c) Previous Auditor means the immediately preceding Auditor who held same or similar
assignment comprising same I similar scope of work. Communication is required even where the
Previous Auditor happens to be an Auditor for a year other than the immediately preceding year.
(d) Lack of Time: In case of Government assignments, where the time schedule given for the
assignment is such that there is no time to wait for the reply from the Outgoing Auditor, the
Incoming Auditor may give a conditional acceptance of the appointment and commence the
work which needs to be attended to, immediately after he has sent the communication to the
Previous Auditor. In his acceptance letter, he should make clear to the Client that his acceptance
of appointment is subject to professional objections, if any, from the Previous Auditor and that
he will decide about his final acceptance after taking into account the information received from
the Previous Auditor.
A CA commenced the work of audit on the very day he sent letter to the Previous S.N. Johri vs
Auditor. Held, guilty under Clause (8). The appointment could be accepted only N.K.Jain
when the Outgoing Auditor does not respond within a reasonable time. (1973)
A CA sent a Registered Letter to the Previous Auditor after the commencement Radhey Shyam vs
of the audit by him. Held guilty under Clause (8). Dubey (1974)
A CA commenced the audit within 5 days of the date of his appointment without
S.B.Chidrawaar vs
sending any communication to the Previous Auditor. The Previous Auditor also
C.K.Rao (1974)
denied the receipt of any communication. Held guilty under Clause (8).
A CA sent a communication to the Previous Auditor under Certificate of Posting
without obtaining any acknowledgement thereof. Held, guilty under Clause (8). M.L.Agarwal vs
Certificate of Posting of a letter could not be taken as positive evidence of its J.S.Bhati (1975)
delivery to the addressees.
Sending letter alone under Certificate of Posting is not sufficient in case of
audit of –
Societies — A.K.Thodani vs A.P.Bhadani (1988)
Charitable Societies — J.Patnaik vs Y.Pani (1988)
Schools — J.S.Bhati vs M.L.Aggarwal (1991)
Tax Audit of Partnership Firms — S.K.Jain vs D.K.Karmakar (1989), V.A.
Various Cases
Parikh vs R.I.Galledar (1991), M R Daga & Co vs R K Vora (1992)
Tax Audit of State Textile Corpn — M S Padmanabhan Nair vs R
Chidambaram (1996)
Co—Operative Banks — D.H.Firke vs L.B.Jadhav (1991)
Statutory Audit of Companies — S.K.Kansal vs S.L.Gupta (1992),
N.H.Kumbhani & Co vs P.V.Dalal (1993)
Mehra Khanna &
A CA sent under Postal Certificate, letters to the Previous Auditor before Co vs
appointment and also before commencement of audit by him. There was no proof Man Mohan
that they were received by the Previous Auditor. Held guilty under Clause (8). Mehra
(1976)
A CA sent a letter by ordinary post to the Previous Auditor after the acceptance of K.K.Sud Vs
the audit assignment. No evidence was produced to show that the said letter was K.N.Chandia

either sent to or was received by the Previous Auditor. Held guilty under Clause (1978)
(8).
Requirement of communication with the previous Auditor is absolute and
Rajeev Kumar vs
applicable even in respect of appointment by the Government agencies and even
R.K.Agarwal
in case where the Member is aware that the Previous Auditor had been made
(1988)
aware of the appointment.
The requirements of Clause (8) can be considered to have been complied with
R.M.Singhai vs
only — (a) If there is evidence that a communication to the Previous Auditor had
R.V.Agarwal
been by RPAD, or (b) If there was positive evidence about delivery of the
(1988)
communication to the Previous Auditor.
A CA had not replied to 2 letters which were sent to him and had conducted the V.K.Gupta vs A.K.
audits without communicating with Previous Auditor. Held guilty under Clause Jain
(8). (1991)
A CA accepted the position of Internal Auditor without communicating with the JR Shah vs RajivB
Previous Auditor and without having appointment letter for the same. Held guilty Pethkar (2005)
under Clause (8). MR Daga vs RK
Vora
(1992)
A CA accepted the position of Internal Auditor without communicating with the N C Bhargava vs
Previous Auditor in writing. Held guilty under Clause (8). Akshaykumar
(1997)
A CA accepted the tax audit and communicated with the Previous Auditor, after Kamlesh Agarwal
completing the assignment. Held guilty under Clause (8). vs PK Agarwal
(2001)
A CA on being approached by the Company, accepted the position as Statutory S P Khemka vs T

Auditor even while another Firm was doing its audit and raised audit queries. G Ramanathan
Held guilty under Clause (8) and (9). (2002)

Raj accepted his appointment as an Auditor Rajesh will be guilty of professional
immediately after intimating his appointment over the misconduct (under Clause 8 of Part I of First
phone to the Previous Auditor. Is he guilty of Schedule) on account of failure to — (a)
professional misconduct? Give brief answer. communicate with the Retiring Auditor
CA Final Nov. 1996 through the approved mode, and (b) wait for a
reasonable length of time for a reply to be
received from Previous Auditor.
X, a CA, accepted his appointment as Tax Auditor of a
Firm u/s 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, X Refer Clauses 8 of Part I of First Schedule.
realised his The CA is guilty of professional misconduct.
mistake of accepting this tax audit without sending any Refer Kamlesh K Agarwal vs PK Agarwal
communication to the Previous Tax Auditor. In order to (2001) case above.
rectify his mistake, before signing the Tax Audit
Report, he sent a Registered Post to the Previous
Auditor and obtained the postal acknowledgement. Is X
guilty under the CA Act? CA Final May 2003
W, a CA has sent letters under Certificate of Posting to Clause 8 of Part I of First Schedule: The CA
the Previous Auditor informing him his appointment as is guilty of professional misconduct since the
an Auditor before the commencement of audit by him. Certificate of Posting is not conclusive
Can he be hauled up for professional misconduct under evidence of communication with the previous
CA Act? Auditor. Refer M.L.Agarwal vs J.S.Bhati
CA Final Nov. 2003, May 2009 (1975) & other cases above.
X & Co, a Firm of practising CA‘s, was appointed the 1. Clause 8 is applicable in situations of
Internal Auditor of a Company. They failed to intimate replacement of the Auditor by another
their appointment to the Statutory Auditor. Is there any Auditor.
breach of Code of Conduct in this case? 2. X & Co, have been appointed the Internal
Auditor of Company. Internal Auditor and
Statutory Auditor are parallel positions and
not replacement positions.
3. Management generally the Internal
whereas the Statutory Auditor will be
appointed by the Shareholders in the
AGM. There is no question of
communicating in writing for the two
different assignments.
4. X & Co. is not guilty of professional
misconduct.
BC & Co, a Firm of CAs, accepted an assignment for
audit under State Level VAT Act, without any prior Guilty of Professional Misconduct
communication with the previous Auditor. under Clause 8 of Part 1 of First Schedule.
CA Final May 2008
Kishore, a practicing CA, was appointed as Tax Principle: Refer Clause 8 of Part I of
Auditor of a Company. He accepted the appointment First Schedule and Point 7(b) above.
and proceeded with the work without communicating to Conclusion: It would be a healthy practice
the Company‘s Statutory Auditor. Comment. if a Tax Auditor under the Income Tax
CA Final May 2011 Act, communicates with the Member who
has conducted Statutory Auditor.

A Summary of company Auditor‘s duties vis - à - vis appointment is given below -
Situation Incoming Auditors‘ Duties
When the appointed auditor is the first Auditor of the Verify whether the Board of Directors has
company appointed by the Board if Directors. passed the resolution for his appointment
within 1 month of the date of registration of
the Company.
When the appointed Auditor is the First Auditor of the Verify whether the Company has issued a
Company appointed by Shareholders. proper notice convening the General
Meeting.
Examine whether the resolution has been
validly passed at the General Meeting of
the Company.
When the Auditor is appointed to fill up a casual Verify whether the Board has powers to
vacancy. fill the casual vacancy.
Examine the Board Resolution for filling
the casual vacancy.

When the Auditor is appointed in place of Existing See whether a proper resolution filling the
Auditor who has resigned. vacancy has been passed at the General
Meeting of the Company.
When the Auditor is appointed in place of an Existing See that proper resolution has been passed
Auditor who has been removed before the expiry of at the General Meeting of the Company.
his term of office. Verify whether the Company has obtained
the previous approval of the Central
Government.
When the Auditor is appointed in place of an Compliance: Ascertain whether the
existing Auditor who has resigned or has been provisions of the Companies Act been
removed or has ceased to hold office for any other complied with.
reason. Special Notice: See whether a Member of
When the Auditor(s) appointed by the Company the Company has given special notice of
were holding this office jointly with others and one the resolution under the Act at least 14
or more of such Joint Auditors are not re— days before the date of the AGM/EGM,
appointed. Obtain a true copy of this notice.
When one or more of the Auditors appointed by the Information to Members: See whether
Company was/were not holding this office earlier. the Special Notice has been sent to all the
Members as required under the Co.Act at
least 7 days before the date of the AGM/
EGM. Verify the Despatch Register,
Postage Register, acknowledgement or
evidence for despatch, etc.
Notice to Retiring Auditor: See whether
the Special Notice has been sent to the
Retiring Auditor forthwith as required
under the Companies Act, under
appropriate mode.
Representation: See whether the
representation received from the Retiring
Auditor has been sent to the Members.
Also see whether the same has been
considered at the General Meeting.
Resolution: See whether the resolution
proposed by the special notice has been
properly passed at the meeting. Obtain a
true copy of the resolution.
misconduct, if he accepts an appointment as Auditor of a Company, without first ascertaining from it
whether the requirements of Sec.225ofCompaniesACt, 1956, in respect of such appointment have
been duly complied with.
[Note: Presently, Sec.140 of Companies Act, 2013, is applicable in this regard.]
2. It is obligatory on the Incoming Auditor to ascertain from the Company that the appropriate procedure
in the matter of his appointment has been duly complied with, so that no Shareholder or Retiring
Auditor may, at a later date, challenge the validity of such appointment.
3. The word ‗ascertain‘ used in Clause (9) means ―to find out for certain‖. The Incoming Auditor
should not merely accept a certificate from the Management of the Company that the provisions of law
in relation to appointment have been complied with. He has to verify the relevant records of the
Company and ascertain compliance with the provisions of the Companies Act.

4. 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 above provisions have been complied with, the Incoming
Auditor should not accept the audit assignment.
5. If the Incoming Auditor is satisfied that the Company has complied with the provisions of the
Companies Act, he should first communicate with the Outgoing Auditor in writing as provided in
Clause (8) above, before accepting the audit assignment.
The Company failed to appoint the Auditor at its AGM. The Board
appointed a CA as Auditor of a Company. The Incoming Auditor wrote to
the Previous Auditor of his appointment and U.C Majumdar vs
and finished the audit on the same date. Held that the vacancy was not a J.N.Saikia (1954)
casual vacancy and as the CA was under misapprehension as to the true
legal position, he was warned.
A CA failed to communicate in writing with the Previous Auditor of his

Kharwandikar vs
appointment as Auditor of a Co - Operative Bank. Held guilty under
D.K.Borkar (1952)
Clause (9).
A CA applied in response to an advertisement in a newspaper for

appointment as Auditor and was appointed by the Directors. He failed to
B.N.Mohan vs
communicate with the Previous Auditor and ascertain from the Company
K.C.J.Satyawadi
whether the requirements of the Companies Act as regards the
(1955)
appointment of Auditors were duly complied with. Held guilty under
Clauses (8) and (9).
A CA accepted the appointment, as Statutory Auditor of a Company

based on Board‘s resolution. There was no compliance with the
requirement of Companies Act. The appointment should have been made M.K.Biswas (1962)
by the Central Government as the Company did not make appointment in
the General Meeting. Held, guilty under Clause (9).
A CA was disqualified under the provisions of Companies Act, as he was

indebted to the Company towards a loan, taken for the purchase of a car,
Ram Prasad Handa &
in the ordinary course of financing business of the Company against HP
Han Krishan Khosla vs
agreement. On borrowing the loan, he would be deemed to have vacated
B.K.Choudhury (1968)
his office as Auditor. Held as guilty under Clause (9). The word
‗indebted‘ means obligation to pay.
A CA accepted the appointment as Company Auditor without ascertaining

whether a vacancy existed against which he was appointed, whether the M.Abdul Rahim vs
notice of the EGM at which he was appointed was given to Previous L.R.Kamath (1974)
Auditor. Held guilty under Clause (9).
In a case, the Central Government agreed to the removal of Previous

Auditor and the appointment of another CA as Auditor in his place subject
to the approval of the Shareholders in General Meeting. However, the CA D.L.Sukhadia (1976)
accepted the audit based on Board‘s resolution and before the General
Meeting ratified the Board‘s resolution. Held guilty under Clause (9).
Special Notice received from one of the Shareholders though sent to

Outgoing Auditor, was not sent to the Members. Another CA accepted the M.R.Gulati vs
appointment without ascertaining compliance of the Companies Act. Held S.C.Chirania (1978)
he was guilty under Clause (9).
A CA had accepted appointment of a Private Limited Company without S I Majumdar (1996) V

ensuring compliance with the Companies Act, and completed the audit on K Gupta (1996)
the same day and signed the Balance Sheet on the very next day. Held
guilty under Clause (8) and (9).
A CA realized non - compliance of provisions of Companies Act, only

after acceptance. Held guilty under Clause (9) since he had not taken care
Y.S.Mazumdar & Co vs
to see if he had been properly appointed as he had — (a) accepted the
H.S.Sardeshpande
appointment the very next day, (b) satisfied himself on the basis of ‗No
(1988)
Objection Certificate‘ from the Previous Auditor, but without going
through the Directors Report, Minutes Book or any other documents.
A CA was appointed the First Auditor of a Company within 30 days of

the incorporation. Later another Member was appointed as Joint Auditor C.L.Tomson vs
after 8 months of incorporation of the Company, by a Board resolution. A.Chandrashekara
The second Member did not ascertain compliance with the Companies Menon (1989) & B.B.
Act. He did not communicate with the First Auditor. Held guilty under Shah vs Nagarkar
X & Co, CA‘s, were informed by True Ltd, that
they have been appointed as Auditor of the
Company in place of ABC & Co, who have been
removed, however, subject to the approval of the
Shareholders in the ensuing AGM. X & Co.
accepted the appointment and commenced the
work without their appointment being approved by
shareholders of the company. Is the action of X &
Co. correct?
The CA is guilty of professional
CA Final Nov.1999
misconduct under Clause 9 of Part
I of First Schedule.
P, a CA, had accepted appointment as an Auditor
of QRS Ltd without ascertaining from the
Company whether the requirement of the
Companies Act had been complied with. However
he realized this defect only after acceptance. Is he
guilty of professional misconduct?
CA Final Nov.2003
X was appointed Statutory Auditor in ABC Ltd for

the year ended 31st March. On inquiry X found that
X is deemed to be Shareholder (Joint inquiry, He is
his wife had acquired before a few years, 100
disqualified to be Auditor, and also guilty of
Shares in the said company. She was still holding
professional misconduct under
the Shares with the name of X as Joint Holder..
Clause (9) of part I of First Schedule.
Can X accept the appointment?
CA Final May 2010
Illustration:
Mr X a Practicing CA accepts the appointment as Auditor of ABC Ltd, which was previously held by
another CA. Explain the circumstances in which the Incoming Auditor be deemed to be guilty of
professional misconduct under the CA Act

The coming Auditor would be considered guilty of professional misconduct under the CA Act and
Regulations, if he accepts - appointment as the Auditor of a Company, which was previously held by
another CA under the following circumstances -
1. Failure to communicate with the Previous Auditor in writing. [Clause 8, Part I, First Schedule]
2. Failure to ascertain compliance with the requirements of Companies Act. [Clause 9, Part I, First
Schedule]
3. Where the Previous Auditor had issued a Qualified Audit Report and the Incoming Auditor does not
ascertain the full facts of the case before accepting the assignment, and accepts the assignment too
readily.
Ethical Standards Board (ESB)

1. Objectives: The Ethical Standards Boards (ESB) has been set up by the ICAI to –
(a) To examine various issues concerning Code of Ethics governing the Members of ICAI.
(b) To formulate and establish Ethical Standards for the Profession.
(c) To examine and advice on any ethical matters referred to the Committee.
(d) To review periodically and publish the revised Code of Ethics and their publications relating to
Ethics.
(e) To promote Public Awareness and Confidence in the Integrity, Objectivity, Competence and
Professionalism of Members and to co—ordinate with other Committees.
(f) To examine and deal with the complaints of Members against their unjustified removal as Auditors
of any Entity as per procedure evolved and to take necessary steps to protect the interest of the
Members.
2. Notice of Resignation:
(a) Where a CA resigns his appointment as an Auditor of a Company or does not offer himself for
reappointment as Auditor of such Company, he shall send a written communication to the Board of
Directors of the Company giving reasons therefore, if he considers that there are professional
reasons connected therewith, which, in his opinion, should be brought to the Board‘s notice.
(b) A copy of such communication shall be sent to the Institute.
(c) The Incoming Auditor, before accepting appointment, should obtain a copy of such
communication, from the Board and consider the same before accepting the appointment.
3. Notice of Representation:
(a) Where an Auditor, though willing for re - appointment has not been re - appointed, he may send a
representation to the Company for circulation among the Shareholders. However, it is undesirable
on the part of an Auditor to pressurize for re - appointment even when he feels that he has been
wrongly removed.
(b) The Auditor shall also file with the Institute, a copy of such statement.
(c) The Incoming Auditor, before accepting appointment, should obtain a copy of such a
communication from the Company and consider it before accepting the appointment.
4. Review by ESB:
(a) ESB, on a review of notice of resignations or representations, may call for such further information
as it may require from the Incoming Auditor, the Outgoing Auditor and the Company and make a
report to the Council in cases where it considers necessary. [The procedure may be followed even
in case of removal of Auditors by Government or other statutory authorities.]
(b) A Member may send a complaint (in the form of Statement of Reasons) to ESB, regarding his
unjustified removal or non re - appointment due to alleged qualifications / queries. ESB can ask for
explanations from the Incoming Auditor, including a copy of his Audit Report. ESB may issue
appropriate interim orders, in appropriate cases.

A CA Firm was appointed as Statutory Branch Auditor of two branches for the year
ended 31st March by their Head Office letter dated 16th March. The Firm sent its
acceptance on 31 March to the Head Office, under Certificate of Posting. The Firm
ESB
started the audit of first branch and completed the same on 10th April. On contacting
Case
the second branch on 11th April, the Firm was informed that their appointment was
cancelled by Bank‘s Divisional Office due to non - receipt of acceptance letter. Held
that the Bank‘s cancellation order was not valid.
Note: ESB‘s powers were vested earlier with CESURA (Committes on Ethical Standards & Unjustified
Removal of Auditors)

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 as permitted under any regulations made under this Act.
2. Members are prohibited from charging or accepting any remuneration based on a percentage of profits
or on the happening of a particular contingency, e.g. successful outcome of an appeal in revenue
proceedings. Such charging of fees would undermine his integrity and impairing his independence.
3. Fees should not be regarded as being contingent, if fixed by a Court or other Public Authority.
4. Exceptions: Regulation 192 exempts Members from the operation of this clause in the following cases -
Category Fees based on a percentage of
Receiver or Liquidator. Realisation or disbursement of assets.
Auditor of a Co-Operative Society. Paid - Up Capital / Working Capital / Gross or
Net Income Profits.
Valuer for the purposes of Direct Taxes & Duties. Value of Property valued.
A CA charged fees at a certain percentage of the expected relief. Held that he R.B.Basu vs
was guilty under Clause (10). P.K.Mukerji(1956)\
Jaydev has charged a fee for representing his The CA is guilty of professional misconduct under
Client in an Income Tax appeal based on the Clause 10 of Part I of First Schedule. Refer R B
expected relief to his Client as a result of appeal. Is Basu vs P K Mukerji above.
there any professional misconduct?
CA Final Nov 1996
The Chairman of an Audit Committee of a 1. Refer Clause 10 and Para 2 above. The action of
Bluechip Company, who is a CA, asked the Firm the CA Firm to quote fees on success fee basis to
in which he was previously a Partner, to quote their ensure their appointment, is an act of professional
fee on a success fee basis so as to ensure that a misconduct.
professional work is assigned to such Firm. Is this 2. Also, the Chairman of Audit Committee is a CA.

action allowed under professional ethics? If not, He is also guilty of professional misconduct under
why? CA Final Nov. 2001 Clause 10 of Part 1 of First Schedule of the CA
Act, 1949.
An Auditor of a Co—operative Society has agreed Refer Exemption under Regulation 192.
to charge fees at 5% of the Profits of the Society CA not guilty under Clause 10 of Part I of First
CA Final Nov. 2009 Schedule.
Miss Moongi, a practising CA, accepts her
appointment as a Valuer of Goodwill of a business Refer Exemption under Regulation 192.
for the purpose of determining the value of gift CA not guilty under Clause 10 of Part I of First
under the Gift Tax Act on the condition that she Schedule, since the CA has been appointed only for
would be paid 5% of the value of the Goodwill so the purpose of determining the Taxable Value of
determined as her fees. Is she guilty of professional Gift under the Gift Tax Act.
misconduct? CA Final May 1996
A CA acting as Liquidator of a Company Refer Clause 10 of Part I of First Schedule.
(a) Charged fees as a percentage of realisation of (a) Under Regulation 192, a CA acting as Liquidator
assets, and may charge fees as acting as a Liquidator a
(b) Refused to hand over accounting records and percentage of realization or disbursement of the
valuables of the Company in liquidation to the assets. Hence, the CA is not guilty of
successor appointed by the Court. professional misconduct.
Can he be held liable for professional misconduct (b) Refusal by the CA to part with the Company‘s
on the above counts? records and valuables without reasonable cause
CA Final Nov. 1998 is wrong. Thus, he will be held guilty of ‗Other
Misconduct‘. [Refer B Mukherjee‘s case given
above.]
Mr. Bountiful, a practising CA, who is appointed The CA is guilty of professional misconduct under
to value the goodwill of a running concern for the Clause 10 of Part I of First Schedule.
purpose of its take - over, charged his fees on the
basis of a pre - determined percentage of the value
of the goodwill. Is there any misconduct on his
part?

1. Clause 11: Under Clause (11) of Part I of First Schedule, a CA in practice is deemed to be guilty of
professional misconduct, if he engages in any business or occupation other than the profession of
Chartered Accountants, unless permitted by the Council so to engage.
However, nothing contained in Clause (11) shall disentitle a Chartered Accountant from being a\
Director (not being a Managing Director or Whole Time Director) of a Company, unless he or any of his
Partners is interested in such Company as an Auditor.
2. Objectives: This provision is required to meet two objectives -

(a) To restrain Members from carrying on any other business in conjunction with the profession of
accountancy and combining such work with any business, which is not in keeping with the dignity
of the profession.
(b) To ensure that Members do not advertise for their other business and thereby secure an unfair
advantage in their professional practice.

3. Permitted Part—time Activities: Regulation 190A provides that a CA in practice shall not engage in any
business or occupation other than the profession of accountancy except with the Council‘s permission.
Regulation 191 specifies the activities with which a Member in practice can associate himself provided
his employment is not on a Salary - cum - full - time basis. These are –
(a) Liquidator.
(b) Trustee.
(c) Executor.
(d) Administrator.
(e) Arbitrator.
(f) Receiver.
(g) Adviser.
(h) Representative for Costing, Financial or Taxation matter.
(i) Appointment made by Government or Court or other legal authority.
(j) Secretary in his professional capacity.
Occupations for which General Permission is Granted

General Permission: Members in practice are generally permitted to engage in the following categories of
occupations, for which no specific permission from the Council would be necessary in individual cases
1. Employment under CA‘s in practice or l9rms of such CA‘s.
2. Private Tutorship.
3. Authorship of Books and Articles.
4. Holding of Life Insurance Agency Licence for the limited purpose of getting Renewal Commission.
5. Attending Classes and appearing for any examination.
6. Holding of Public Elective Offices such as M.P, M.L.A and M.L.C.
7. Honorary Office - Bearership of Charitable, Educational or other non - commercial organisations.
8. Acting as Notary Public, Justice of the Peace, Special Executive Magistrate and the like.
9. Part - Time Tutorship under the coaching organisation of the Institute.
10. Valuation of Papers, acting as Paper - Setter, Head Examiner or a Moderator, for any examination.
11. Editorship of Professional Journals.
12. Acting as Surveyor or Loss Assessor under the Insurance Act, 1938 provided they are otherwise
eligible (for Fire Insurance, Marine Cargo Insurance, Miscellaneous Insurance and LOP Insurance).
13. Acting as Recovery Consultant in the Banking Sector.
Occupations for which Special Permission is required

Specific Permission: Members in practice may engage in the following categories of business or
occupations, after obtaining 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 Concerns.
3. Office of Managing Director or a Whole Time Director of a Body Corporate, provided the Member and
/ or his relatives do not hold substantial interest iii that concern.
4. Interest in family business concern(s) (including such interest devolving on the Members as a result of
an 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.
[See Note below]
5. Interest in an Educational Institution.

6. Part - Time or Full - Time Lectureship for Courses other than those relating to the ICAI‘s exams
conducted under the auspices of the ICAI or the Regional Councils or their branches.
7. Part - Time or full - Time Tutorship under any Educational Institution other than coaching organisation
of ICAI.
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.
The Council may refuse permission in individual cases, even though covered under any of the above
categories.
Meaning of Terms:
1. ‗Relative‘, in relation to a Member, means the husband, wife, brother or sister or any lineal ascendant or
descendant of that Member.
2. A Member shall be deemed to have a ―Substantial Interest‖ in a concern

(a) In case of a Company, if its Shares (not being Shares entitled to a fixed rate of dividend whether
with or without a further right to participate in profit) carrying not less than 20°h of voting power at
any time, during the relevant years are owned beneficially by such Member or by any one or more
of the following persons or partly by such Member and partly by one or more of the following
persons -
one or more Relatives of the Member,

any concern in which any of the persons referred to above has a substantial interest.
(b) In the case of any other concern, if such Member is entitled or the other person referred to above or
such Member and one or more of the other persons referred to above or persons of such number and
/ or are more sections of such persons are entitled in the aggregate, at any time during the relevant
years not less than 20% of the profits of such concern.
3. Relevant Years: For the purpose of Clause (11) Part I First Schedule, read with Appendix 10, ―Relevant
Year‖ means Year / Period in which not less than 20% of voting power / 20% share of profits were
owned beneficially.
4. Interest in Family Business:

(a) A Member of the Institute can acquire interest in family business in any of the following manner -
(i) as a proprietor of a Proprietary Firm, or (ii) as a Partner of Partnership Firm, or (iii) in the name
and style of HUF as its Karta or a Member.
(b) The Member should provide evidence that — (i) interest in the family business concern devolved
on him as a result of inheritance / succession / partition of the family business, and (ii) he was not
actively engaged in carrying on the said business and that the family business concern in question
was not created by him.

Mr. Ample, a practising CA, has accepted a joint Refer to Clause 11 of Part I of First Schedule.
authorship of a book Management Accounting Under Regulation 190A, a Practicing CA is generally
along with his colleague who is a Cost Accountant permitted to author books and articles. So, Mr.Ample
in the College, where he is a Part Time Lecturer. Is is not guilty of any misconduct.
there any misconduct in the above case?
Mr A, a CA in Practice has been appointed Editor This is a Non - Professional Journal, as it may be
of a monthly journal which analyses performance circulated to general public and non - professionals
of the Stock Market and Mutual Fund Schemes. also. Hence, Special Permission of the Council is
Comment. CA Final Nov. 2008 required in this case.
J, a CA in practice, engages himself as Part Time J has to obtain specific permission from ICAI, in
Finance Manager of Quick Return Securities Ltd. respect of his part - time employment. Even if the
He is of the view that as both functions are specific permission is granted, such Member shall not
independent, he need not take permission from be entitled to - (a) perform attest function, or (b) train
ICAL. Comment. CA Final Nov. 2006 Articled Clerks.
K, a practicing CA, took over as the Executive Specific and Prior approval of the Council is required
Chairman of Software Company on 1 April. On in this case. A is guilty of professional misconduct, as
10th April he applied to the Council for he has not obtained prior permission from the
permission. Comment. CA Final May 2010 Council of ICAI.
Members not in Full - time Practice - No Attest Function

1. Members engaged in part-time practice, i.e. holding COP and engaged in any other business or
occupation, in terms of general or specific permission granted, shall not be entitled to — (a) perform
attest function, or (b) train Articled Clerks.
2. Attest Function includes services pertaining to Audit, Review, Certification, Agreed Upon Procedures,
and Compilation, as defined in the Framework of Statements on Standard Auditing Practices and
Guidance Notes on Related Services.
3. Exceptions: The exceptions to the above rule are -
(a) Authorship of Books and Articles.
(b) Holding of Life Insurance Agency Licence for the limited purpose of getting Renewal Commission.
(c) Attending Classes and appearing for any examination.
(d) Holding of Public Elective Offices such as M.P., M.L.A. & M.L.C.
(e) Honarary Office-Bearership of Charitable, Educational or other Non - Commercial Organisations.
(f) Acting as Notary Public, Justice of the Peace, Special Executive Magistrate and the like.
(g) Part - Time Tutorship under the Coaching Organisation of the Institute.
(h) Valuation of Papers, acting as Paper—Setter, Head Examiner or a Moderator for any examination.
(i) Editorship of Professional Journals — (not in full time employment)
(j) Acting as Surveyor and Loss Assessor under the Insurance Act, 1938— (not in employment)
(k) Acting as Recovery Consultant in the Banking Sector — (not in employment)
(l) Coaching Assignment organized by Institute, its Regional Councils and Branches of Regional
Councils.
(m) Engagement as Lecturer in a University, Affiliated College, Educational Institution, Coaching
Organisation, Private Tutorship, provided the direct teaching hours devoted to such activities taken
together do not exceed 25 hours a week.
(n) Engagement in any other business or occupation permitted by Executive Committee from time to
time.
Direct Selling Agent (DSA) — by CA in Practice

A CA in practice -
1. is not permitted to market any specific product.
2. may verify credit card credentials.
3. may provide services which are in the nature of — (a) verification, (b) other assurance services, (c)
management consultancy and other services, and can perform all those services which a CA can
provide.
Directorship of Companies - by CA in Practice

1. Director Simplicitor:
(a) The expression ‗Director Simplicitor‘ means an ordinary / simple Director, i.e. one who attends
only the Board Meetings and does not draw any remuneration other than Sitting Fees.
(b) A Member in practice is permitted generally to be a Director Simplicitor in any Company including
a Board managed Company. Specific permission of the Council is not required, irrespective of
whether he and / or his relatives hold substantial interest in that Company.
2. Promoter / Promoter Director:
(a) There is no bar for a Member to be a Promoter / Signatory to the MOA/ AOA of any Company
irrespective of whether the Company‘s objects areas which fall within the scope of the profession
of CA‘s. (However, u/s 25 of CA Act, no Company can practice as a Chartered Accountant.)
(b) A Member in practice is permitted generally to be a Promoter / Promoter Director. Specific
permission of the Council is not required in such cases.
3. Managing Director / Whole Time Director:
(a) Specific permission of the Council is required in individual cases for holding the Office of
Managing Director or a Whole Time Director of a Body Corporate.
(b) A person is deemed to be a Managing Director of a Whole Time Director if he is entrusted with the
whole or substantially the whole of the management of the affairs of the Company. [Sec.2(26) of
Companies Act]
(c) 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.
(d)
DECISIONS ON PROFESSIONAL MISCONDUCT UNDER CLAUSE (11)
A CA engaged himself in carrying on a business known as Shivaji Engineering D.S.Sadri vs
Works. Held guilty under Clause (11). B.M.Pithawalla (1977)
A CA in practice entered into Partnership for a 25% share, with non - Members,
for the purpose of carrying on business. He was to take part in the business & K.S.Dugar (1980) R K
represent the Firm before Government authorities. He operated the Firm‘s Bank Gupta vs M G Baig
account, received moneys from customers and looked after the affairs of (2001)
partnership. Held guilty under clause (11)
A CA in practice was authorised by a Board Resolution to look after the day
today affairs of a Company. Later on, he applied to the Council for permission
M.K.Abrol and
to hold the office of the Executive Chairman of the Company. Held that
S.S.Bawa vs V.P.Vijh
Member had engaged himself in ‗other occupation‘ from the date of resolution
(1988)
to date of application, without the Council‘s permission & hence guilty under
Clause (11).
A CA having COP & having 2 Articled Clerks with him, simultaneously
S.K.Kaul vs
worked as a Financial Controller of a Company I employee of Insurance
S.C.Mangal
Company without the Council‘s permission. Held guilty in terms of Clauses (4)
(1988) C M Mehrotra
& (11).

A Member, a Karta of his HUF, entered into partnership business for a short
(1999)
period with non - CA‘s for engaging in business other than the profession
Bhatt vs Parikh (1988)
without prior permission of the Council. Held guilty in terms of Clauses (4) and
V.Krishnamoorthy vs
(11).
T.T.Krishnaswami (92)
Prohibition to enter into any Partnership with any person other than a CA under
Nalin S Sualy vs ICAI
Clause (4) of Part I of the First Schedule is absolute but not so under Clause
(1989) (Bombay High
(11). Clauses (4) and (11) contemplate two distinct and separated contingencies.
Court)
It is always open to place reasonable restriction or to regulate any activity. It
Iqbal Hamid vs ICAI
may be necessary to have such regulatory provision, so that proper and
(1990) (Allahabacl
undivided attention of the person practicing a profession is available to those to
High Court) P.S.Rao
whom they are supposed to render their services. Hence, Clause (11) is
(1992)
reasonable.
A CA holding COP had not disclosed to the Institute at any time about his
engagement as a proprietor of a non - CA Firm. He had not furnished particulars
of his engagement as a Director of a Company despite various letters of the P.S.Rao (1992)
Institute which remained unreplied. Held guilty under Clause 11 of Part I and
Clauses (1) & (3) of Part III of the First Schedule.
A CA in practice had already held Salaried Employment with a Company R K Jain (1993) Anil
without prior permission of the ICAI, as required under the Regulations. Held Kumar (94) R K
guilty under Clause (11). Verma (1997) N K
Gupta (1998)
A CA in practice engaged himself in other occupation as an LIC agent in C.I.T (Admn) vs
another name. Held guilty under Clause (11). H.M.Giriya (1996)
A CA had offered to help another person in disposing of odd lot share holding.
Pradeep R.Ghatge vs
He sold them at much lower rates than what was indicated in the Contract
Ashvin Bajaria (1996)
Notes. The CA was personally involved in the Share Transfers and Broker‘s
business besides his professional activities. Held guilty under Clause (11).
A CA had more than 20% Shareholding in a Finance and Management J P Gupta vs T C Garg
Consultancy Private Company and was engaged in Broker‘s business. Held (1997) AC Sharma etc.
guilty under Clause (11) vs S.Abbot (2002)
A CA entered into Partnership in a Firm, and agreed to look after general
Satwant Kaur vs
administration, appointment of office staff, finance and legal matters of civil
Rakshit Khosla (1997)
and taxation nature. Held guilty under Clause (11).
A CA acted as Karta of HUF without taking prior permission from the Council. B L Asawa vs PK Garg
Held guilty under Clause (11). (2003)
A CA continued to remain as a Director of a company when one of his partner
was interested in that company as an Auditor. Held he was guilty of ROC, West Bengal vs
professional misconduct, by continuing to hold officer as a Director of that K.C.Lunawat (2003)
company.
Filling of two Income - Tax Returns by a CA in practice, one for his Council of ICAI vs H
Professional Income, and another for his LIC Commission Agent, amounts to Mohanlal Giriya [High
―Other Misconduct‖ and also misconduct under Clause (11) of Part I of First Court (Kar)] [Dec 07
Schedule. The CA‘s name was removed from the Register of Members for CA
period of 1 Year. Journal Page 948]

CA carrying the business on fraudulent manner amounts a professional ICAI vs Shri Sandeep
misconduct under clause (11) of Part I of First Schedule, and Other Abbott [Delhi HC]
Misconduct u/s 21 and 22. [Aug 09 CA Journal Pg
220]

A CA in practice takes up the appointment as 1. As per Clause 11 and Regulation 190A, a
Managing Director of a Public Limited Company. Is Member in practice cannot engage himself in
he guilty of professional misconduct? any business or occupation other than that of a
CA Final Nov. 2000, May 2007, 2010 CA except when permitted by the Council to be
so engaged.
2. As per the CA Regulations, 1988, a CA in
practice may hold the office of a Managing
Director or a Whole - Time Director of a Body
Corporate, provided that the Member and I or his
relatives do not hold substantial interest in such
concern, after obtaining the specific and prior
approval of the Council.
3. In the absence of specific and prior approval, the
CA is guilty of professional misconduct under
Clause 11 of Part I of the First Schedule.
Mr.Clever, a practising CA, accepts appointment as Refer Clause 4 and 11 of Part I of First Schedule.
a Full Time Lecturer in a Commerce College 1. Regulation 190A provides that Members in
affiliated to the Bombay University. Is he guilty of practice, to engage in part-time or full-time
professional misconduct? lecturership, should obtain specific and prior
CA Final May 1996 approval of the Council for courses other than
those relating to the ICAI‘s Examinations.
A CA holding COP & having 4 Articled Clerks 2. In the above case, a CA in practice has accepted
registered under him accepts appointment as a Full - full-time lectureship at a college, without
Time Lecturer in a College. Also he becomes a obtaining specific and prior approval of the
Partner with his brother in a business. Examine his Council. Hence, he will be guilty of professional
conduct in the light of CA Act and Regulations misconduct.
thereunder. 3. Entering into Partnership with a non - CA
CA Final May 2000 (brother) for a business is in violation of Clause
(4) and (11), and would constitute professional
misconduct.
A CA in practice holding Law Degree can practice Clause 11 of Part I of First Schedule.
both as a Chartered Accountant and as a Lawyer. 1. Regulations 190A & 191 provide general
State your views. permission for certain categories of occupation
CA Final Nov. 1999 and also providing for prior approval for certain
specified categories of occupations.
K, a practising CA as well as a Qualified Lawyer, 2. The Council has clarified that CAs in practice,
was permitted by the Bar Council to practice as a who are otherwise eligible may practice as
Lawyer also. His Visiting Card mentions his Advocates subject to the permission of the Bar
designation as Chartered Accountant and Advocate. Council, but they should not be allowed to use
Comment. both designations, that is, Chartered Accountant
CA Final May 2013 and Advocate, simultaneously.
J started his practice as CA in 2007. During 2012, Clause 11 of Part I of First Schedule &
he got an offer for the post of Chief Accountant of a Clause 1 of Part II of Second Schedule.
Software Development Company, as a full-time 1. As required under Clause 11, Regulation 190A
employee, for a Salary of 1.5 Lakhs p.m. On and Appendix 10, J is guilty of professional
accepting this offer J converted his practice into a misconduct, since he has accepted full-time
Partnership Firm by taking a fresh CA as his salaried, in addition to his practice, without
Partner. J neither intimated the ICAI nor obtained obtaining specific and prior permission of the
permission from ICAI about his employment. Institute.
Comment.
CA Final May 2003 2. Mr. J is also guilty of professional misconduct
under Clause (1) of Part II of Second Schedule
since he has contravened the provisions of the
Act, by his failure to inform the ICAI of his
employment.
Clause (12) – Part I – First Schedule

misconduct, if he allows — (a) a person not being a Member of the Institute in practice, or (b) a
Member not being his Partner, to sign on his behalf or on behalf of his Firm, any Balance Sheet, Profit
or Loss Account, Report or Financial Statements.
2. Also Sec.26 stipulates that ‗No person other than the Member of the Institute shall sign any document
on behalf of a CA in practice or a Firm of CA‘s in his or its professional capacity‘.
3. The term ‗Financial Statement‘ for this purpose, would cover an examination of the accounts or of
Financial Statements given under a statutory enactment or otherwise.
4. The term ‗Report‘ means a report arising out of a professional assignment undertaken by him or his
Firm and submitted by him or his Firm to the Client(s) or where so required, to an outsider on behalf
of himself or on behalf of his Firm. The subject matter of report should be the expression of a
professional opinion whether financial or non - financial.
5. The Financial Statements and the Reports referred hereto mean the Financial Statements and Reports
as ultimately finalized and submitted to outside authorities.
Situations when Signing Authority may be delegated

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
1. Issue of audit queries during the course of audit.
2. Asking for information or issue of questionnaire.
3. Letter forwarding draft observations I Financial Statements.
4. Initialling and stamping of vouchers and of schedules prepared for the purpose of audit.
5. Acknowledging and carrying on routine correspondence with Clients.
6. Issue of Memorandum of Cash Verification and other Physical Verification or recording the results
thereof in the books of the Clients.
7. Issue acknowledgements for records produced.
8. Raising of bills and issuing acknowledgements for money receipts.
9. Attending to routine matters in tax practice, subject to provisions of Sec.288 of the IT Act.

10. Any other matter incidental to office administration and routine work involved in practice of
accountancy.
Note: Where the authority to sign documents given above is delegated by a CA / Firm, the absolute
responsibility lies with the CA / Firm. The fact that the documents have not been signed by a CA is
not a defence to him or to the Firm in an enquiry relating to professional misconduct.
CA Smart, a practicing CA was on Europe tour Principle: Write the provisions of Clause
between 15th Sep and 25th Sep. On 18th Sep, a 12 of Part I of First Schedule, given above.
message was received from one of his Clients for a Conclusion: CA Smart is guilty of
Stock Certificate to be produced to the Bank on or Professional Misconduct.
before 20th Sep. 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. Comment on whether there is any
professional misconduct. CA Final May 2011
Mr. ‗A‘ is a practicing CA, working as Proprietor of Issue of Audit Queries & attending routine
M/s A & Co. He went abroad for 3 months. He matters as Authorised Representative is
delegated the authority to Mr. ‗Y‘ a Chartered permissible.
Accountant, his employee, for taking care of routine Issuing Production Certificate under Central
matters of his office. During his absence, Mr. ‗Y‘ has Excise Act, constitutes misconduct for
conducted the under mentioned jobs in the name of M/s Employee CA, for contravention of ICAI
A & Co. Regulations.
(i) He issued the audit queries to Client which Mr. A is guilty of Professional Misconduct
were raised during the course of audit. under Clause (12) of Part I of First
(ii) He issued Production Certificate to a Client Schedule.
under Central Excise Act, 1944.
(iii) He attended the Income Tax proceedings for a
Client as Authorized Representative before
Income Tax Authorities.
Please comment on eligibility of Mr. ‗Y‘ for
conducting such jobs in name of M/s A & Co, and
liability of Mr. ‗A‘ under the CA Act, 1949.
CA Final May 2014
A Firm of Auditors of a Limited Company gives Power Principle: Write the provisions of Sec.26 of
of Attorney to an Employee - CA to sign Reports and the CA Act and Clause 12 of Part I of First
Financial Statements of the Company. Comment. Schedule.
CA Final May 2007 Conclusion: The CA Firm is guilty of
professional misconduct under Clause 12 of
Part I of First Schedule and also under
Clause 1 of Part II of Second Schedule for
contravening Sec.26.
Profnl. Misconduct of Members in Service - part II - First Schedule

Part II of the First Schedule to the CA Act lays down that a Member of the Institute (other than a
Member in practice) shall be deemed to be guilty of professional misconduct, if he, being an employee of
any Company, Firm or person -
Clause Particular
1 Pays or allows or agrees to pay, directly or indirectly, to any person any share in the
emoluments of the employment undertaken by him.
2 Accepts or agrees to accept, any part of fees, profits or gains from a Lawyer, 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.
These clauses are similar to Clauses (2) and (3) of Part I of First Schedule. These would be applicable
irrespective of whole - or part - time employment.

A CA in service agrees to entrust the work of Principle: Write the provisions of Clause (1)
Investment Broker to Mr. X on the specific and (2) of Part II of I Schedule.
understanding that 20% of commission Mr. X Conclusion: The CA is guilty of Professional
earns would be paid to him. Is he guilty of Misconduct.
professional misconduct? CA Final Nov. 2000
Mr. ‗C‘, a CA, holds a COP while in employment Holding COP while in employment also,
also, recommends a particular lawyer to his requires prior permission, else guilty of
employer in respect of case. The Lawyer, out of the misconduct under Clause11, Part I of First
professional fee received from the employer, paid a Schedule.
particular sum as Referral Fee to Mr. ‗C‘. Give Fee Sharing attracts professional misconduct
your comments. CA Final May 2014 under Claus (2) of Part II of Second Schedule.
Profnl.Misconduct of Members Generally - Part Ill - First Schedule

Part III of the First Schedule to the CA Act lays down that a Member of the Institute, whether in practice
or not shall be deemed to be quality of professional misconduct, if he -
Clause Particulars
1 Not being a fellow of the Institute, acts as a Fellow of the Institute.
Does not supply the information called for, or does not comply with the requirements asked
2 for by the Institute, Council or any of its Committee, Directors (Discipline), Board of
Discipline, Disciplinary Committee, Quality Review Board or the Appellate Authority.
While inviting professional work from another CA or while responding to tenders or
3 enquiries or while advertising through a write—up, or anything as provided for in Clauses
(6) and (7) of Part I of First Schedule, gives information knowing it to be false.
DECISIONS ON ―FAILURE TO COMPLY WITH THE REQUIREMENT IF THE COUNCIL‖

A CA was suspended for six months from practice by an order of the High Court. He
failed to return the COP, when directed to do so by the ICAI. Held that no misconduct A.C.Kaher
has been established against the CA. Where misconduct is alleged against a person, it (1959)
must be established beyond all doubt.
Inspite of repeated reminders, a CA failed to reply to the letters of the Institute asking
A.Umanath
him to confirm the date of leaving the services by the Paid Assistant. Held guilty of
Rao (1965)
A CA did not disclose to ICAI at any time about his engagement as a Proprietor of a non
- CA Firm while holding COP. He did not furnish particulars of his engagement as a P. S. Rao
Director of a Company despite various letters of the ICAI, which remained unreplied. (1992)
Held guilty under Clause (11) of Part I & Clause (2) of Part Ill.
A CA continued to train an Articled Clerk though his name was removed from the S.M.Vohra

Membership of the Institute. He failed to send any reply to the Institute asking him to (1992)
send his explanation as to how he was training as his Articled Clerk when he was not a
Member. Held guilty of professional misconduct.
Situation Hints/Answers
A CA in practice, in spite of repeated requests from
the Secretary of ICAI, fails to submit Form 18. Is Guilty under Clause 2 of Part III of First Schedule
he liable for misconduct? CA Final May 2000
AB & Co. a Firm of CAs, included the name of P as
a partner while filing an application for
empanelment as Auditor for Public Sector Bank
Guilty under Clause 2 of Part III of First Schedule
Branches. It was subsequently noticed that on the
date of application, P was not a Partner with AB &
Co. Comment. CA Final Nov 2007
Mr. X, a CA, was employed as a Paid Assistant with
a CA Firm. On 31 December, he leaves the services
of the Firm. Despite many reminders from ICAI he
Guilty under Clause 2 of Part III of First Schedule
fails to reply regarding the date of leaving the
services of the Firm .Comment.
CA Final May 2010
Second Schedule
Profnl. Misconduct of CA’s in Practice - Part I - Second Schedule

Part I of the Second Schedule lays down that a CA in practice is deemed to be guilty of professional
misconduct if he –
Clause Particulars
1 Discloses information acquired in the course of his professional engagement to any
person other than his Client so engaging him, without the consent of his Client, or
otherwise than as required by any law for the time being in force.
2 Certifies or submits in his name or in the name of his Firm, a Report of an examination
of Financial Statements, unless the examination of such statements and the related
records has been made by him, or by a Partner, or an employee in his Firm, or by
another Chartered Accountant in practice.
3 Permits his name or the name of his Firm to be used in connection with an estimate of
earnings contingent upon future transactions in a manner, which may lead to the belief
that he vouches for the accuracy of the forecast.
4 Expresses his opinion on Financial Statements of any business or any enterprises in
which he, his Firm or a Partner in his Firm has a substantial interest.
5 Fails to disclose a material fact known to him which is not disclosed in a Financial
Statement, but disclosure of which is necessary in making such Financial Statement,
where he is concerned with that Financial Statement in a professional capacity.
6 Fails to report a material misstatement known to him to appear in a Financial Statement
with which he is concerned on a professional capacity.
7 Does not exercise Due Diligence, or is grossly negligent in the conduct of his
professional duties.
8 Fails to obtain sufficient information which is necessary for the expression of an
opinion, or its exceptions are sufficient material to negate the expression of an opinion.
9 Fails to invite attention to any material departure from the generally accepted procedure
of audit applicable to the circumstances.
10 Fails to keep moneys of his Client other than Fees, or Remuneration, or money meant
to expended, in separate Banking Account, or to use such moneys for purposes for
which they are intended within a reasonable time.
Clause (1) - Part I - Second Schedule

1. Under Clause (1) of Part I of Second Schedule, a CA in practice is deemed guilty of professional
misconduct, if he 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.
2. The information obtained during the course of audit work is of a highly confidential character. Such
information should be used only to facilitate the performance of his professional duties. Divulging such
information is a breach of professional confidence.
3. The Auditor‘s duty not to disclose continues even after the completion of his assignment.
4. The request or the initiative for providing details of information to authorities e.g. Exchange Control
Income Tax, etc. must come from the Client in relation to whose affairs the disclosure would be
entailed.
5. The request / consent should be from the authorised person based on the Client‘s form of organisation,
i.e. Proprietor, Partner or Managing Director / Board of Directors.
6. Working Papers of the Auditor constitute his property and should not be provided to Client / Joint
Auditors / Branch Auditors I Internal Auditor. However, the Auditor may, at his discretion, if
considered appropriate, make portion of or extracts from his working papers available to the Client.
7. If under any legal compulsion and if it is not legally permissible to claim privilege u/s 126 of the
Evidence Act, 1972, the disclosure may not be considered as misconduct.
A CA disclosed information acquired in the course of his professional

Jamandas Jharakchand
engagement without the consent of his Clients, to the Income Tax Officer.
etc. VS P.C.Parekh (1967)
Held, guilty under Clause (1)
A CA disclosed information acquired by him in the course of his
professional engagement to persons other than his Clients without consent Bank of India vs Ved
of his Client and without requirement in any law. Held guilty under Clause Prakash (1989)
(1).
Disclosure of information to ROC without the consent of the Client, is
Shree mdl. Rubber
neither in public interest not with a view to protect the Auditor‘s own
Works P Ltd vs
interest. The CA will be guilty of professional misconduct.
S.R.Khanna (2004)
(CA Final May 2013) (Also See Para.20.4.3 below)
Illustration:
Parekh, a CA, was invited by the Chamber of Commerce to present a paper in a symposium on the issues
facing Indian Leather / Textile Industry. During the course of his presentation, he shared some of the vital
information of his Client‘s business under the impression that it will help the Nation to compete with other
countries at International level. Comment on the above, with reference to the CA Act, 1949 and Schedules
thereto. CA Final May 2004, Nov. 2014
Note: Write the provisions of Clause 1 of Part I of Second Schedule.

1. Guilt of Mr.Parekh: Divulging information obtained in the course of professional work is a breach of
professional confidence. Even though the disclosure of information in the above case was under the
impression that it will help the Nation to compete with other countries at the international level, this
constitutes professional misconduct under Clause (1) of Part I of Second Schedule.
2. Exceptions: The request or the initiative for providing details of information to authorities e.g.
Exchange Control / Income Tax, etc. must come from the Client in relation to whose affairs the
disclosure would be entailed. If under any legal compulsion and if it is not legally permissible to claim
privilege u/s 126 of the Evidence Act, 1972, the disclosure may not be considered as misconduct.
Illustration:
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 few items in the Financial Statements. The information is available in your working
paper file. Explain your response in view of Professional Ethics. CA Final May 2000
Note: Write the provisions of Clause 1 of Part I of Second Schedule
1. 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. [SA 200]
2. 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. [SA 230]
3. In the above case, the Auditor cannot disclose information in his possession, without the specific
permission of the Client Company. If the queries by the Bank are in the nature of clarification of certain
Financial Statement items, the Auditor may provide the required explanations, after obtaining the
Client‘s consent.
Role of CAs for Unlawful Acts or Defaults by Clients

The principle of Confidentiality may give rise to difficulties where the Auditor has reason to believe that
the Client has been guilty of some unlawful act or default, e.g. the Client is guilty of tax evasion. The
Council has outlined the Members‘ liability and recommended the following, when the CA is not directly
involved in tax frauds committed by his Client, but he discovers such fraud in the course of his professional
work.
A. General Duties as to Disclosure:
1. Criminal Procedure Code: No duty is cast on a Member, under the Criminal Procedure Code, or by
any other enactment, to inform the Income-Tax Authorities about Taxation Frauds by his Client of
which he comes to know during course of his professional work.
2. Evidence Act [Sec.126]: A Barrister, Attorney, Pleader or Vakil is barred from disclosing except with
the express consent of his Client, any communication made to him in the course of and for the purpose
of his employment to state the contents or conditions of any document with which he has become
acquainted in such course. The privilege given and the restrictions imposed u/s 126 apply to CA‘s who
represent Clients in proceedings before the Income Tax Authorities. Also, nothing in Sec. 126 shall
protect from disclosure any fact observed by a Barrister, Pleader, Attorney or Vakil in the course of his
employment as such, showing that any crime or fraud has been committed since the commencement of
his employment.
3. General Duty to disclose: Subject to the above, it is not the duty of a Member to shield Client from the
consequences of his frauds. It is the guiding principle of professional conduct to discourage tax evasion.

4. Effect of Summons u/s 131: Where the Income—Tax Authorities summon the Member u/s 131 (1) of
the IT Act, for the purpose of examining him on oath or for production of books of account or other
documents, the immunity from disclosure u/s 126 of the Evidence Act, and the extent of such immunity
involve legal niceties. The refusal to disclose may be taken on record and he may be required to certify
it on oath.
5. Advise to Client: The Auditor should impress upon the Client that –
(a) While disclosure may entail only monetary penalties, non—disclosure and subsequent discovery
thereof may entail imprisonment and fine, in addition to penalties.
(b) Any intimation by the Member to the Income—Tax Authorities that the Member disassociates
himself from the case is certain to start investigation by them in the whole matter.
B. Intentional Suppressions/ Misstatements by the Client in his Tax Returns:

Period Auditor should
Fraud relates to accounts or tax Advise the Client to make a disclosure.
matters of past years (which does Ensure that past behaviour is not reflected in current
not affect the current year matters.
accounts), for which the Client was The CA may continue to act for the Client in respect of current
not represented by the Member. matters, but is under no obligation to do so.
Fraud relates to accounts, etc. Advise the Client to make a complete disclosure.
examined by the Member and Inform the Client that if fraud is not disclosed, the CA
reported upon, on the basis of would disassociate himself from the case, and that he would
which the tax assessment in the past inform the authorities that the accounts prepared by him
has been made, or is currently to be and/or reported upon by him are unreliable.
made. If the Client refuses to make the disclosure, make such a
report to the authorities. (But information obtained
subsequently should be disclosed only if the Client consents
in writing.)
Fraud relates to accounts or returns Advise the Client to make full / complete disclosure in the
currently being prepared. accounts and / or return.
In case of refusal by Client, make full reservation in the
report, and not associate himself with the return.
Fraud relates to accounts under No further duty if the Member‘s services are terminated before
audit but the Member‘s completion of accounts / finalisation of audit / filing of return.
employment is dispensed.
Suppression relates to accounts Advise the Client to make a complete disclosure. The CA
which are not prepared / reported may continue to prepare / report on business accounts if
upon, e.g. personal income from required to do so by the Client, but is under no obligation to
investment other than business do so.
investments.
C. Timing of Disclosure:
Situation Timing of disclosure
If disclosure is consented to by the Client. Immediately.
If the suppression is trivial. When the current return is submitted.
If there is any possibility that the collection of Immediately e.g. when Client disposes of his
tax would be prejudiced. property or removing himself from the jurisdiction
of that Income - Tax Authorities.

Illustration:
A CA in practice was engaged by a businessman to represent him before the Tax Authorities on current
matters and in the course of such employment he came across certain documents pointing to commission of
Tax Frauds in the preceding years for which he did not represent the Client. Is the Member liable to
disclose the existence and contents of the document to Tax Authorities? CA Final May 2009
A CA in practice, in the course of the audit of Listed Company, discovered serious violations of the
provisions of the Companies Act, informed the Registrar of Companies out of public Interest. Is there any
misconduct? CA Final May 2013
You are appointed to compile Financial Statement of Z & Company (a Partnership Firm) for tax purposes.
During the course of work, you learn that the Inventory is grossly understated. On pointing out the same,
the Partners of Z & Co., tell you that it is outside your scope since you are not conducting an audit and the
said figures duly certified by the Firm should be accepted. Comment. CA Final Nov. 2014
Hint/ Answer: It is not the duty of a Member to shield Client from the consequences of his frauds. Subject
to the restriction discussed above, the Member shall not be treated as Guilty of Professional Misconduct.

1. Clause (2) of Part I of Second Schedule: A CA in practice is deemed 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 — (a) by him, or
(b) by his Partner, or (c) by an Employee in his Firm, or (d) by another Chartered Accountant in
practice.
2. This clause is to ensure that the work entrusted to a CA is carried out by the Member either directly or
under his supervision before he renders his report. He can also rely on the work of another CA, e.g. Joint
Auditors, Branch Auditors, etc.
A CA issued certificates of consumption which did not reflect the correct
factual position. It was proved that he did not examine / scrutinize the JDI, Bombay vs
requisite records. Held guilty of professional misconduct under Clauses (2) B.K.Kurhade (2004)
and (7).
A CA issued false certificates to several parties for past exports for monetary
P.U.Patil (2004)
consideration without verifying any supporting records or documents. Held
P.V.Mehta (2004)
guilty of professional misconduct under Clauses (2) and (7).
Illustration:
A Practicing Member of ICAI also holds Membership of AICPA (i.e. CPA Qualification). He wants to
certify the Financial Statements of a Multinational Company having its presence in India. Is he permitted to
do so?
1. Members of ICAI, who are also Members of AICPA and are eligible to sign the Financial Statements as
CPA‘s (i.e. as Members of AICPA), may do so. The ICAI‘s Ethical Standards will still apply.
2. When ICAI Members sign the Financial Document(s) as CPA‘s, they will be required to indicate in an
appropriate manner, that their Firm is an Indian Accounting Firm registered with ICAI, under the CA
Act, 1949. The Member should reflect the fact that his Firm falls within the purview of the ICAI, in the
relevant document(s) certified by him.

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.
2. The CA can participate in the preparation of Profit or Financial Forecasts and can review them. But he –
(a) 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
(b) should not vouch for the accuracy of the forecasts.
Also, Refer to SAE — 3400 The Examination of Prospective Financial Information

MN& Co, a Firm of CAS, prepared and signed the forecast Accountants shall disclose the source
of a Company‘s Earnings upon future transactions without of information in Profit Forecasts.
mentioning the basis on which the said estimates were [As per SAE- 3400.]
prepared. A Bank granted a Loan to the said Company If the above guidelines are not
based on the above forecast signed by MN & Co. When the complied with, the CA Firm will be
Company defaulted in repayment of the Loan, the Bank guilty under Clause 3 & 9 of Part 1 of
field a complaint against M/s MN & Co. Comment under Second Schedule.
CA Act. CA Final Nov. 2009
As a CA in practice, you are asked to conduct a review of Clause 3 of Part I of Second Schedule:
―Profit Forecast‖ prepared by a Company in connection with The CA should disclose in his report the
its request for Term Loan from a Scheduled Bank. Can you sources of information, basis of forecasts
accept the offer? CA Final Nov. 1998, May 2008 and major assumptions involved, and
should not ―vouch for the accuracy of
forecast‖. Hence, the offer can be
accepted.
Mr. ‗E‘, a practicing CA, was requested by one of his The approach is correct. There is no
Clients to prepare a projection for next five years and also a Professional Misconduct under Clause (3)
report on the same. Mr.‘E‘ after having prepared the same of Part I of Second Schedule
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. Give your comments w.r.t CA Act
and Schedules thereto. CA Final May 2014
Clause (4) - Part I - of Second Schedule

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.
2. The words ―Financial Statements‖ would cover both Reports and Certificates usually given after an
examination of the accounts or the Financial Statements under a statute or for purposes of Income—Tax
assessments. It does not include statements prepared by Members in employment purely for the
information of their respective employers in the normal course of their duties and not meant for
submission to any outside authority.
Situation Council‘s Guidelines

Where a CA is appointed as Liquidator of a The Statement of Accounts should be audited by another
Company. CA and not the Liquidator CA.
Where a CA is in employment of a The Financial Statements of the concern should be audited
concern. by another CA, except if permitted by law.
Where CA serves as a part - time lecturer The CA or his Firm should not accept the Auditorship of
in a College. the College.
Where a partner of a CA is either an The CA or his Firm should not accept the Auditorship of
Employee or a Trustee of the Trust. the Trust.
Where a CA is either an Owner or a Partner The CA should not audit the Financial Statements of such
of an Enterprise / Concern. business or Enterprise.
Where a CA has a Partner or Relative who The CA should not audit the Financial Statements of such
has substantial interest in an Enterprise / business or Enterprise.
Concern.
Where a CA is a Director of a Company. The CA should not audit the Financial Statements of such
business or Enterprise.
Where a Partner or Relative of the CA is a The CA should not audit the Financial Statements of such
Director in the Company who has business or Enterprise.
substantial interest.
Where a Member is asked to write books of Members are not permitted to write books of account of
account of the business. their auditee Clients.
Where a CA is appointed as Internal The Company‘s Statutory Auditor cannot also be its
Auditor. Internal Auditor, as it will not be possible for him to give
independent & objective report.
Relative and Substantial Interest are as defined in Appendix 10. [Refer Para. 20.3.29]
Relevant Years for the purpose of Clause (4) of Part I of Second Schedule means the year / period to
which the Report / Certificate relates and the year / period during which the said Report / Certificate is
signed
A CA conducted the audit of accounts of an Evening College besides
working in the same College as Lecturer / Vice—Principal. Held H R Shetty (2003)
guilty under Clause (4).
A CA audited the accounts of a Private Company in which his wife
Promila Jain vs Hardesh Kant
held 65% Shares, i.e. holding substantial interest, and was also the
(2004) B.D.Bhatia (2004)
Director of the Company. Held guilty under Clause (4).
Doing Statutory Audit without disclosing substantial interest in the
ICAI vs Shri Vijay R Ashar
Company in the Auditor‘s Report violates Clause (4) of Part I of the
[Dec 08 CA Journal Page 1006]
Second Schedule.
Mr. A has been appointed as the Statutory Auditor This is permissible as the person having Substantial
of a Private Limited Company where his Spouses‘ Interest is not a Relative.
Sisters‘ husband is having 75% Ownership. Is it [Refer Para. 20.3.29 for meaning of Relative]
permissible? CA Final Nov. 2012
Mrs. Fair is a Director of XYZ Pvt Ltd, having The CA is guilty of Professional Misconduct
15% Shareholdings in the Company. During 2014, under Clause 4, Part I, Second Schedule, if
the Company appointed C.A. Mr.Lovely, Shareholding equals or exceeds 20% of Total

Mrs.Fair‘s Spouse, as its Statutory Auditor. On Voting Power.
Mr.Lovely‘s advice, the Company issued fresh In this case, the Shareholding is only 15%, and
Equity Shares in 2014-2015, in the ratio of 1 Share the percentage will remain the same after Bonus
for every 2 Shares held by the Shareholders of the Issue also, due to proportionate increase in the
Company. Mr.Lovely used to deliver Audit Report Paid Up Capital. Hence, as such, the provisions
for subsequent years without any comments or of Clause 4 are not attracted in this case.
disclosures, thereupon. Comment.
CA Final Nov. 2009
Note: Assume Mrs. Fair‘s holding does not exceed
the limits specified under the Companies Act.
A Firm of CA‘s was appointed by a Company to Clause 4 of Part I of Second Schedule:
evaluate the costs of the various products 1. Where a CA is a Director of a Company, the
manufactured by it for their information system. Firm in which the said Member is a Partner,
One of the Partners of the Firm was a Non - should not express any opinion on its Financial
Executive Director of the Company. Do you Statements.
approve the above? Why? 2. There is no ―expression of opinion‖ on
CA Final Nov.2001, 2004, 2010, 2014 Financial Statements in the given case. Since
the Firm has been appointed to evaluate the
Note: Assume that the said service provided by the costs of the various products manufactured by
Auditor is permissible under the Companies Act, it for their information system, it cannot be
2013. held liable for professional misconduct.
A practising CA accepted appointment as Part— The CA should not by himself or in his Firm Name
Time Lecturer of a College of which he was the accept the Auditorship of a College, if he is working
Auditor. Is he guilty of any professional as a Part - Time Lecturer in the college. In the above
misconduct? case, the CA is guilty of professional misconduct
under Clause 4 of Part I of Second Schedule and
Council‘s guidelines.
Shah, a CA, certified the Financial Statements of a The CA is guilty of professional misconduct under
Company in which his wife is a Director holding Clause (4) of Part I of Second Schedule and the
substantial interest. Is he guilty of any misconduct? cases cited above. He is also disqualified u/s 141 of
CA Final May 2004, 2009 Co. Act, 2013.
Balu is a practising CA holding a valid Certificate Balu can be a Director in the Company. [Refer
of Practice. He accepted the appointment as discussion in Para 20.3.32 above]
Director of the Green World Co. Ltd. Chandru, a Refer Second Schedule, Part I, Clause 4.
Partner of Balu, is appointed as the Statutory Chandru cannot accept the appointment as
Auditor of the said Company. Comment. Auditor, when his Partner is a Director. He has
CA Final Nov. 2010 to vacate his office. [Chandru is also disqualified
u/s 141 of Co. Act, 2013]

misconduct, 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 in making such Financial Statement, where he is
concerned with that Financial Statement in a professional capacity.
2. The important points in this Clause are - (a) Non - Disclosure, (b) Materiality of Fact, (c) Knowledge of
Member, and (d) Professional Capacity.
A CA failed to report to the Shareholders of a Company about the non - creation Davar & Sons Ltd. vs

of a sinking fund in accordance with the Debenture Trust Deed. He did not clarify M.S.Krishnaswamy
that the amounts shown as towards Sinking Fund were borrowed from the (1952)
Managing Agents of the Company. Held he was duty bound to see that the nature
and subject matter of the charge over a security and the nature and mode of
valuation of the Sinking Fund investment were disclosed in the Balance Sheet in
accordance with Form F and he was found guilty of misconduct.
A CA failed to report the heavy cash transactions entered into by the assessee, in
V.C.Agarwal (2004)
the Tax Audit Report u/s 44AB. Held guilty under Clause (5), (6), (7) and (8).
A CA issued wrong certificate of end use of funds for loan given by a Bank, Thamp of Mathews
without verifying the records. Held, guilty under clause (5), (6), (7) & (8). DGM, IIBI vs RK
Tayal (2007)
A CA failed to examine how debts become bad and were written off. Held guilty Duraiswami Naidu vs
under Clause (5) PN
Ragavendra Rao
(1965)
A CA failed to disclose 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 PF Rules. He failed to report on the default in clearing the Kishori Lal Dutta vs.
cheques received in repayment of the loan. Held guilty under Clause (5) by the P.K.Mukherjee
Supreme Court since it was no defence for the CA that he had disclosed the
irregularities to the Company as it was his duty to have made a disclosure thereof
to the beneficiaries of the PF.
A CA issued a false certificate certifying the existence of Investments of DGM, Rajasthan
` 4.65 Lakhs, whereas the actual investments were only ` 0.58 Lakhs. Held, Financial Corpn vs
guilty under Clause (5), (6), (7) and (8). CK.Vyas (2003)

The Superannuation-cum-Pension Fund for the Employees of a Company was
under a separate ―Trust‖. Both the Company and Trust were under the same
management. The Auditor, who was auditing the accounts of the Company as
well as the Trust, noted some irregularities in the operation of the Trust, and The CA is guilty of
commented upon these irregularities in the Confidential Report given to the professional misconduct
Trustees, but did not mention about these irregularities in his Report on the under Clause 5 of Part I
Annual Accounts of the Trust. Comment with reference to the CA Act and of Second Schedule.
Schedules thereto. CA Final Nov. 2006, May 2009 Refer
Joe, a CA, during the course of audit of M/S XYZ Ltd, came to know that the Kishori Lal Dutta‘s case
Company has taken a loan of 10 Lakhs from Employees Provident Fund. The above.
said loan was not reflected in the books of account. However, the Auditor
ignored this information in his report. Comment with reference to the CA Act
and Schedules thereto. CA Final May 2004, Nov. 11
Clause (6) — Part I — Second Schedule

misconduct, if he fails to report a material misstatement known to him to appear in a Financial
Statement with which he is concerned on a professional capacity.
2. The important points in this Clause are — (a) Non—Disclosure, (b) Materiality of Misstatement, (C)
Knowledge of Member, and (d) Professional Capacity.
[Note that Clause (5) deals with material facts, while Clause (6) deals with material misstatements.]
A CA prepared a Firm‘s B/Sheet and subsequently prepared a statement on
the Firm‘s State of Affairs without taking into account the B/Sheet already
prepared by him. He showed a lesser amount by way of Opening Stock and
Attorney General of
a lesser amount to the credit of the Proprietor. Later based on Client‘s
Kenya vs V.B.Joshi (1968)
instruction, he prepared a fresh B/Sheet and P & L Account for the same
year to tally with the earlier statement of affairs. He did not refer to the
actual account books and as such it was a false and incorrect Balance
Sheet. Held guilty under Clauses (5) and (6).
A CA failed to report that there was a reduction of capital with
corresponding reduction in the Loans & Advances on the Assets side,
ROC vs S.S.Iyer (1960)
which contravened the existent law. He also failed to report the non-
disclosure of forfeiture and cancellation of Shares. Held guilty under
A CA failed to disclose a misstatement / understatement of liabilities by a
Company, amounting to a suppression of the correct state of affairs. He also
ROC vs Bagadthey
failed to report a material misstatement by the Company in not giving the
(1961)
previous year figures in the corresponding column of the Balance Sheet.
Held guilty under Clauses (6) and (7).
Situation Hints / Answer

Mr.False has been appointed by True Ltd, to represent 1. The CA had prepared the statements to be
them before Tax Authorities and to prepare statements placed before the Taxation Authorities, based
required for the purpose, based on data to be provided on the data provided by the management of
by the Management. The Tax Authorities felt that True Ltd.
claims made through the statements prepared by 2. Although the statements were based on
Mr.False were incorrect and misleading. Is the CA incorrect facts and misleading, the CA had
guilty of professional misconduct? only prepared them acting on the instructions
CA Final Nov. 1997, 2007 of his Client as his Authorised
Representative.
3. Hence, the CA is not for professional
misconduct.
Mr. Extraordinary, a practising CA, had failed to The CA is guilty of professional misconduct
report regarding a material claim against the Company under Clause 5 and 6 of Part I of Second
of which he was aware and which the Management Schedule.
intentionally did not include in their Financial
Statements, as it would affect the price of their Shares
on the Stock Exchange. Is he guilty of professional
misconduct? CA Final Nov. 1997
Ashok Mittal is the Auditor of Partnership Firm The CA is guilty of professional misconduct
consisting & Ram and Shyam as Partners. In his Audit under Clause 5 and 6 of Part I of Second
Report to the Firm, he did not refer certain materially Schedule.
irregular transactions found in the Books of the Firm
for the reason that Ram, the Senior Partner approved
all such transaction. Comment.
Clause (7) - Part I – Second Schedule

Under Clause (7) of Part I of Second Schedule, a CA in practice is deemed guilty of professional
misconduct, if he — (a) does not exercise Due Diligence, or (b) is grossly negligent in the conduct of his
professional duties. These two aspects are explained below —
Aspect Failure to exercise Due Diligence Gross Negligence (CA Final May 2009)
Diligence means ―careful and thorough ―Gross Negligence‖ implies negligence of high
work or effort‖. degree, either arising out of recklessness or
Meaning
deliberate failure to act honestly and reasonably on
a material matter.
Covers inefficiency in the conduct / Covers misconduct, i.e. imputation of a certain
Nature
discharge of professional duties. mental condition is always involved.
Mere non-performance or defective Failure to act honestly and reasonably is covered
performance of a duty, may be under ―Gross Negligence‖.
Duties
considered as failure to exercise ―Due (S. Ganesan vs. A.K. Joscelyne)
Diligence‖.
―Gross Negligence is the same thing as ‗negligence‘ with the addition

Wilson vs. Brett
of vituperative epithet‖.
There need not be any element of dishonesty on the part of a Member,
Hariharan & Pathak (1982)
in case of gross negligence.
Misconduct implies failure to act honestly or reasonably either
according to the ordinary and natural standard or according to the ROC vs M.N.Basu (1962)
standard of a particular profession.
Not exercising due care and caution which is expected of a CA, will
Solomon vs Patnaik (1984)
make the Member guilty under Clause (7).
It is the duty of an Auditor to bring to bear on the work he has to
perform that skill, care and caution which a reasonably competent,
careful, and cautious Auditor would use. What is reasonable skill, care
and caution must depend on the particular circumstances of each case.
An Auditor is not bound to be a detective, or, as was said, to approach B Shantaram Rao (1977)
his work with suspicion or with a foregone conclusion that there is
something wrong. He is watchdog but not a bloodhound. If there is
anything calculated to excite suspicion he should probe it to the bottom,
but in the absence of anything of that kind he is only bound to be
reasonably cautious and careful.
A CA failed to indicate the mode of valuation of investments in shares
as required by the Companies Act and also to draw attention to the M.C.Poddar vs P.S.Sodhbans
inclusion of uniforms in the Depreciation Account. Held guilty under (1954)
Clause (7).
In a Bank Audit Report, a CA reported to the Shareholders that he had
not verified the Cash on Hand and that he has also signed the Balance
Sheet in anticipation of the receipt of confirmation letters from the S.N.Dasgupta (1955)
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 guilty
under Clause (7).
A CA issued false certificates guilty under Clause of Cash in Hand of a
R.Viraswami (1955)
Co-Operative Housing Society. Held guilty under Clause (7).

A CA certified the circulation of newspaper based on statistical records
but stated in his certificate that he had examined the books of account.
He did not verify whether the books of account agreed with statistical V.K.Madhava Rao (1956)
records and also ignored the return of copies unsold. Held guilty of
gross negligence.
A CA issued a wrong Certificate under the Insurance Act, 1938, as the
Company had granted loans on lapsed policies, claims in respect of two
Controller of Insurance vs
policies which had matured were not included in estimated liability in
H.C.Das (1957)
respect of Outstanding Claims shown in the Balance Sheet. Held guilty
under Clauses (7) and (8).
A CA appointed as Auditor of the Madras Branch of a Company based
at Bombay. He failed to report to the Bombay office that some entries in
The Fairdeal Corporation
the Bank Pass Book have not been passed in the Branch‘s Cash Book.
Ltd, Bombay vs
Held guilty of gross negligence. The small fee paid to the CA should not
K.Gopalakrishna Rao
come in the way to his doing duty without fear or favour, though it
(1957)
involved unpleasant consequences, viz., he might not be appointed
again.
A CA issued a certificate to a Proprietor of a Firm in respect of the
turnover of betel nuts to enable the firm, to obtain import license. He did
Sundar Lal Fatehpuria
so without checking the books and document himself, but relying on his
(1958)
articled clerk for its correctness. The Firm was not dealing in betel nuts
at all. Held the CA was guilty of gross negligence.
A CA failed to check the Bank Balance with Bank Pass Books and
failed to obtain certificate of Balances from Bankers in respect of those
D.B.Kulkarni (1960)
balances. Even if there was no proof of dishonesty or malafide intent on
his part, held guilty under Clauses (7) & (8).
The affairs of a Bank were investigated on liquidation. It was found that
the Bank Authorities failed to disclose the total indebtedness of the
Directors in the Balance Sheet and fictitious entries in the Bank‘s books
Superintendent of Police,
of from of account. Held that no Auditor could escape from personal
Madras vs M.Rajamany
liability by taking shelter under the misconduct of his own Employee.
(1961)
There was nothing to indicate the status, qualifications or capacity of the
assistants. The conduct of the CA in abdicating his functions to his sub-
ordinates amounts to gross negligence.
A CA failed to report on the overpayment of remuneration to the
Company‘s Managing Agents, which violated the prevent law. Held B.K.Ray (1962)
guilty under Clauses (5), (7) and (9).
A CA failed to report on the various violations of the Companies Act, in
S.R.Bhandary (2003)
his Report on the accounts of a Company. Held guilty under Clause (7).
A CA placed implicit reliance in his paid assistant who took absolutely
no step whatsoever to check the cash balance, faciliting and resulting, in
D.C.Sopariwala (1968)
serious defalcation. Held the CA was guilty under Clause (5), (6), (8)
and (9).
A CA certified the circulation figures of a newspaper stating that he had Audit Bureau of Circulations
checked the newsprint sheets and machine room returns. The publisher vs K.L.Agarwal (1967) Audit
did not maintain these particulars at all. Held guilty under clauses (5) Bureau of
and (7). Circulations Ltd vs
V.I.Oommen (1995)]
A CA issued a certificate stating that a firm has exported a certain
quantity of onions during a certain period. The Certificate contained
false and inaccurate particulars in respect of three items of invoice
G.P.Acharya (1962)
value, the particulars themselves related to exports not by this Firm but
by two other Firms. Held the CA was guilty of gross negligence.
A CA signed the accounts of an institution subject to separate notes.
Those notes were not in existence at the time of signing and were
Hitkarini Mahavidyalaya, vs
written at some later date on some facts, which were still to be verified
P.C.Madan (1963)
or ascertained. Held that the CA‘s act, though not suffering from biased
or vicious intention, was still an act of gross negligence.
On the basis of the investigation report on the affairs of a Company by
an inspector appointed by the Government, the Company Auditor was
ROC vs. T.S.V.Iyer (1963)
charged with failure of duty in not carrying out a complete audit, verify
Arunajatai (1962)
the assets and liabilities in the Balance Sheet and report on the
objectionable vouchers. Held guilty under Clause (7).
A CA gave clean reports on the Balance Sheets whereas the reports on
Special Audit conducted subsequently revealed certain irregularities Director of A/cs, Gujarat, vs.
which amounted to failure to examine the pass book and to verify the K.D.Patel (1968)
cash balance. Held guilty under Clause (7).
A Ca did not complete his work relating to the audit of a Company‘s
accounts. He did not submit his Audit Report in due time to enable the L.N.Saxena and J.M.Chadha
Company to comply with statutory requirements in this regard. Held, (1969)
guilty of misconduct under Clause (7). CA Final May 2013
A CA failed to exercise sufficient care and diligence in his professional
responsibilities in not checking the Cash Memos and not verifying the
alterations in the Trial Balance with the original books. In respect of O.M.Agency P Ltd etc. vs
another Company, he did not check the journal entries and the final Surendra Sastry (1969)
figures of the Balance Sheet with the General Ledger. Held guilty under
Clause (7).
In his Audit Report of a School, the CA failed to point out wrong and
misleading entries and a sum of 7,000 on account of Reserve Fund did
B.L.Choudhry vs M.K.Deb
not find a place at all in the original statement sent to the School. The
(1976)
correction slip alleged to be sent by the CA was never received by the
school. Held he was guilty of gross negligence.
A CA issued wrong Consumption Certificate in respect of raw material
and components based on which the Deputy Controller of Imports and
T.S.Vaidyanatha Iyer
Exports issued a license for a higher value. The CA did not examine the
(1977)
Stock Register and other relevant matters connected with the certificate.
Held he was guilty under Clause (7) and (8).
A CA was held guilty of gross negligence for — (a) having adopted
arbitrary valuation of Closing Stock, without verification, (b) accepting
the capitalization of a large sum of revenue expenditure, without any B.Shantharam Rao (1977)
reason therefor. Held, he had failed to apply his mind and bring to bear
on the subject the due diligence and care expected of a professional.
A Bank incurred a loss of 1.84 Lakhs on sale of investments but 21,500
was written off. The value of Investments in the Balance Sheet was
B.Warerker (1957)
inflated and it did not exhibit the correct position and the P & L Account
did not show a true balance of Profit and Loss. Held, the CA was guilty
under Clauses (5), (6), (7) and (8).
A CA was found guilty under Clauses (5), (6), (7) and (9) for not
V.V.Bapat (1974)
ensuring that the Fin. Statements of a Company were prepared in
Gangopadhyay (1981)
conformity with Statutory requirements.
A CA issued 2 different certificates of circulation of a daily for the same
period showing different figures for number of copies printed and P.K.Mukherji (1971)
circulated. Held guilty under Clause (7) & (8)
A CA certified the circulation claim of a periodical which was
V.Ramaratnam (1970)
practically not published. Held guilty under Clause (7).
A CA 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
Air Commodore Dilbagh
Cash Book and also checked the ―contra‖ entries of the bank and cash
Singh vs. C.Apte (1976)
columns of the Cash Book. Held guilty of professional misconduct
under Clauses (7), (8) and (9).
A CA failed to make a reference in the ―Income Certificates‖ prescribed
by the Audit Bureau of Circulations Ltd to the report which he had
A.C.Shinde (1968)
separately submitted to the newspaper concerned. The Certificate
M.L.Nanda (1968)
showed the correct state of affairs in all respects but was not sent by the
newspaper to the Bureau. Held guilty under Clauses (7) and (9).
A CA relied upon the Internal Control without satisfying himself about
the propriety and surrendered to the pressure of Management. He B.L Purohit vs J.N.Chandak
certified the accounts without examining and getting necessary (1980)
clarification. Held guilty of misconduct.
A CA failed to appear before the Income Tax Authorities on behalf of
his Client, without reasonable cause. Also false assurances, gross
Sushma Shourie vs Mahesh
negligence and lapses on the part of the CA resulted in attachment of the
Taneja (2001)
Client‘s property and heavy demand of additional tax. Held, the CA was
guilty of misconduct under Clause (7).
A CA certified a Profit & Loss A/c where expenditure was overstated by
1 Lakh, resulting in a Loss of 153. Had the expenditure been correctly Commr of Agri. Income Tax
stated, the profit would have been 99,847. Held, the difference was vs Ranganathan (2000)
material and also substantial, and the CA was guilty under Clause (7).
Failure to report violations by Company under the Companies Act, in Council of ICAI vs
Audit Report amounts to professional misconduct under Clause (7) of S.R.Bhandary [Mar 08 CA
Part I of Second Schedule. Journal Page 1519]
A CA failed to take reasonable care for carrying out the audit of a Trust,
and failed to verify the Fixed Deposit Receipts. Held, guilty under M.D.Loya (2004)
Issuing False Certificate on existence of Assets or Investments
Council of ICAI vs C K Vyas
constitutes professional misconduct under Clauses (5), (6), (7) and (8)
[HC GuI] [Feb 08 CA
of Part I of Second Schedule. The CA‘s name was removed from the
Journal Page 1312]
Register of Members for a period of six months.
Issuing Certificate without proper verification of records, relying
ICAI vs Shri P U Patil [HC
upon the trust and good faith in other person, constitutes professional
Bom] [Jan 09 CA Journal
misconduct under Clauses (2), (7) and (8) of Part I of Second Schedule.
Page 1198]
The CA‘s name was removed from the Register of Members for a
period of one month.

Issuing False Certificate under Tax Audit to avoid penalty u/s 271B ICAI vs Shri R C Jam [HC
of the Income-Tax Act, 1961 without preparation of B/Sheet & P&L Bom] [Mar 09 CA Journal
A/c amounts to professional misconduct under Clause (7) of Part I of Page 1600]
Second Schedule. The CA is reprimanded.
Signing of back—dated Tax Audit Report amounts to professional ICAI vs YM Mansuri [HC
misconduct under Clauses (5), (6) and (7) of Part I of Second Schedule. Guj] [May 09 CA Journal
Page 1879]
Though no fraud was occurred during the year under audit, ICAI vs Shri Rajesh Rastogi
inaccuracies and ambiguities in audited accounts amounts to [HC Del] [Sep 09 CA Journal
professional misconduct under Clause (7) of Part I of Second Schedule. Page 397]
A CA Firm failed to complete the audit of a Bank without any R.K. Goswanhi, Admin, Delhi
justification and being grossly negligent. Held, guilty under Clauses (7). Nagrik Sehkari Bank Ltd vs
Dalyal Sign &Co. (2008)
A CA being a Tax Consultant and Tax Auditor, failed to appear before RC Dutta vs Kailash Mishra
the Income Tax Authorities for his Client even after having instructions (2007)
from the Client.
The Proforma Balance Sheet for obtaining loan from the Bank issued by Assam Financial Corporation
the CA and the audited Balance Sheet of the Company revealed a totally vs Sk Beria (1992)
different picture. Held the CA was guilty under Clause 7 & 8.
Situation Hints/ Answer

Rakesh, a CA, was employed by the Complainant Refer Clause 10 Part I of First Schedule and
for the purpose of Income Tax Appeal before the Clause 7 Part I of Second Schedule.
Income Tax Appellate Tribunal (ITAT). The  Charging Fees as a percentage of relief of tax
remuneration for this purpose to be paid had been claimed in appeal, constitutes misconduct under
fixed on certain percentage of the relief of tax. Clause 10 Part I of First Schedule.
The Complainant now submitted a complaint to the  Failure to appeal at the hearing, false
ICAI on the following grounds: representation of the case, etc. constitutes gross
(a) That the Respondent failed to appear at the negligence covered by Clause 7 Part I of
hearing of the appeal before the Tribunal in Second Schedule.
spite of agreement between them.
(b) That a large sum of money were wrongfully
taken by him by false representation of the
case.
Mohan is a practising CA. He issued a certificate of Refer Clause 7 of Part I of Second Schedule.
consumption which did not reflect the correct  Principle: Refer T.S.Vaidyanatha Iyer (1977)
factual position of the consumption of Raw Material & ICAI vs Shri P U Patil [Bombay High Court]
by the concerned Entity. It is found that the [Jan 09 CA Journal Page 1198] cases above.
certificate is given on the basis of data appearing in  Conclusion: The CA is guilty under Clause 2,
the minutes of meeting of the Board of Directors. 7 & 8 of Part I of Second Schedule.
Comment under CA Act. CA Final Nov. 2010
X, a Partner of X & Co, CA‘s, has signed the  Refer the provisions of Clause 5, 6 and 7 of
Balance Sheet of False Ltd for submission to the Part I of Second Schedule.
Bankers of the said Company. X has also signed at  In the above case, the CA is guilty of
the request of the said Company, another Balance professional misconduct under the above
Sheet inflating the value of assets by 20% for Clauses.
submission to a Term Lending Institution. Both the

Balance Sheets were not in conformity with the
books of account maintained by the Company, as
they were not up-to-date. Is X guilty of professional
misconduct? CA Final Nov.1999
X, a Partner of X & Co, CA‘s, advised the Under all circumstances, it is expected that an
Managing Director of True Ltd. to include in Sales, Accountant must act ―honestly‖ and discharge
orders under negotiations to reflect a better financial his duties in a reasonable manner.
position for obtaining future Bank Loan. X & Co,  Since the intention of boosting Sales is to
are the Internal Auditors of True Ltd. Comment on reflect a better financial position and obtaining
his conduct and liability in the given case. future bank loans, the provisions of Clause (7)
CA Final Nov. 1999 Part I Second Schedule, are attracted.
 Hence, the CA is guilty of professional
misconduct in the above case.
Ramu, a CA was the Auditor of A Limited. During This constitutes Gross Negligence, and hence, the
a financial year, the Investments appeared in the CA is guilty of Professional Misconduct under
Balance Sheet, of the Company at ` 10 Lakhs, and Clauses 5, 6 and 7 of Part I, Second Schedule.
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. Comment. CA Final Nov. 2009
A CA sends his report by Value Paid Postage (VPP) Note: Refer Clause 7 Part I of Second Schedule.
to cover the Audit Fee Payable, without signing the  The Auditor has — (a) not signed the Report,
report. Discuss whether it attracts any misconduct. and (b) sent the report by V.P.P. so as to cover
his Audit Fees Payable. His intention, as implied
from his action and mental condition, is to
recover the fees.
 Hence, the CA will be guilty of professional
misconduct.
The Auditor of Sagar Ltd was not able to get the (1) Auditor has signed the Audit Report, without
confirmation about the existence and value of actually verifying the existence and value of M/c
certain machineries. However, the Management as appearing in the Financial Statements.
gave him a certificate to prove the existence and (2) He has merely accepted the statement furnished
value of the Machinery as appearing in the B/Sheet. by the Management and issued the report on that
The Auditor accepted the same without any further basis without undertaking any procedure to
procedure and signed the Audit Report. Is he right? check the veracity of the same.
CA Final Nov. 2004 (3) The Auditor is guilty of professional misconduct
under Clauses (2) & (7) of Part I of Second
Schedule.
Illustration:
Mr. Fair, a practising CA, was appointed to carry out a Balance Sheet Audit of a Non-Profit Organisation.
The Internal Auditors detected certain irregularities at one of the Branches of the organisation, which
Mr.Fair had failed to detect. Is Mr.Fair guilty of professional misconduct? CA Final Nov. 1997

1. In case of Balance Sheet Audit, the Auditor is expected to perform his duties by exercising due
diligence, reasonable care and skill. Such audits also involve portrayal of a true and fair view of the
Financial Statements on the whole reflecting branch results as well.
2. The Auditor is required to design the audit programme diligently, having regard to the nature of entity
to ensure that the audit covers all aspects and is carried out properly. It may not be possible for an
Auditor doing Balance Sheet Audit to go deeply into all the matters like those pertaining to branches.
3. The nature of irregularities and their impact on Financial Statements has not been specified.
4. If the CA had exercised due diligence and audit care, he may not be held guilty of professional
misconduct, even if irregularities have been detected by Internal Auditors later.
Illustration:
The Cashier of a Company committed a fraud and absconded with the proceeds thereof. This happened
during the course of accounting year. The Chief Accountant of the Company also did not know about the
fraud.
In the course of audit at the end of the year, the Auditor failed to discover the fraud. After 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. CA Final Nov. 2003
Note: Write the provisions of Clause (7) of Part I of Second Schedule.

1. S N Dasgupta‘s case: The Auditor cannot escape his responsibility by stating certain procedures were
not carried out by him. Verification of Cash is an essential duty of an Auditor, which he failed to
discharge and in signing the report, he had failed to perform his duties with the requisite skill &
diligence.
2. Companies Act Requirements: If the Auditor, in the course of performance of his duties, has reason to
believe that and offence involving fraud is being or has been committed against the Company, by
Officers or Employees of the Company, he should comply with the reporting requirements as to Fraud,
u/s 143. If the Auditor had exercised due care and skill in the execution of his work, he would have
detected the same, even if the audit procedures are not specifically directed at unearthing all frauds.
3. Case Decisions: In Armitage vs. Brewer & Knott (1942), the Auditors were held guilty of negligence
and responsible for the amount of defalcations, which arose subsequent to their failure to detect frauds
in an earlier period.
4. Conclusion: On the above counts, the Auditor will be held guilty of professional misconduct, since he
did not exercise proper care, and performed his work in a desultory and haphazard manner.
Illustration
A search was conducted u/s 132 of the Income-Tax Act in the premises of a leading merchant led to the
discovery of two sets of account books - one set to record all the income correctly, and another set to record
only limited income. Han, a CA has issued the Tax Audit Report on the basis of second set of account
books. Is he liable to the Income-Tax Department in the above circumstance? Will your answer be
different, if first set of books carried evidence of checking by the CA? Explain. CA Final May 1998
Ramesh, a CA, was appointed by Rajeev & Co. to prepare the Statement of Accounts and Income Tax
Returns. He examined the books of accounts and signed a few statements including the Trading and Profit
and Loss Account and Balance Sheet. He also forwarded the Statements of Account of the Firm to the
Income Tax Department, stating that the accounts were verified by him. But the Income Tax Department
late discovered that the profits shown in the above Statements were incorrect and false. The Department,
therefore, brought legal action against the Auditor for his negligence in duty. Comment.
In the assessment procedure of MIs Cloud Ltd, the Income Tax Officer observed some irregularities.
Therefore, he started investigation of the Books of Accounts audited and signed by Mr. Old, a practicing
CA. While going through the books, he found that MIs Cloud Ltd used to maintain two sets of Books of
Accounts, one is the official set and other is covering all the transactions. The Income Tax Department
filed a complaint with the ICAI saying Mr. Old had negligently performed his duties. Comment.
CA Final May 2014

Also Refer Commissioner of Income Tax vs G.M. Dandekar Case in Chapter 19
1. Situation (a): Where there was nothing in the accounts to raise his suspicion about the existence of
another set of account books, and if the CA has done his tax audit on the second set of accounts, with
due diligence, reasonable care, skill and caution, he cannot be held liable to the Income-Tax
Department.
The role of an Auditor to the Assessee is just like a lawyer or an advocate in a Court. It is the
responsibility of the Income Tax Officer to investigate the accounts. The Auditor owned no duty to the
Income Tax Department (third party) and as such, no question of negligence in duty could arise. The
Auditor was not held guilty for negligence.
2. Situation (b): Where the evidence of checking by the Auditor found in the first set of books of account
proves that he was aware of the existence of the books showing the true income, he will be guilty
under Clause (7). Also, he will be liable to prosecution for abetment of false returns u/s 278 of the
Income-Tax Act, 1961.
Illustration
A CA in practice was alleged to have signed two Balance Sheets on two different dates for the same
financial year, the first one with a Clean Report and the second one with a Qualified Report. In a criminal
proceeding he made a statement before the magistrate that he had signed only the second Balance Sheet.
Subsequently it was found that he had in fact given the Clean Report at a later date, but signed the first
Balance Sheet under an earlier date. Examine his conduct in the light of CA Act. CA Final May 1999
1. There are two counts of charge herein — (a) Signing two Balance Sheets on two different dates for the
same financial year, and (b) Making a false statement before the Magistrate.
2. On the first count, the CA is guilty of professional misconduct under Clause 7, based on his own
admission of the facts of signing the two Balance Sheets on two different dates for the same financial
year.
3. On the second count, the CA is guilty of ―Other Misconduct‖. The CA, whether in practice or not, will
be guilty of ―Other Misconduct‖, if in the opinion of the Council, he brings disrepute to the profession
or the Institute as a result of his action, whether or not related to his professional work. [Clause (2) of
Part IV of First Schedule]
Illustration:
You are the Auditor of a Company, which raised finance from the Capital Market on the basis of a
Prospectus issued a few years back. The main object for raising the finance was specified to be setting up a
project on Information Technology.
The Company advanced monies so raised to various parties ‗related‘ to Directors. These parties had no
standing whatsoever with information technology. In the Balance Sheet, these Advances appeared as a
Current Asset under the head ―Loans Unsecured - considered good‖. There was no mention in the Notes to
Accounts about the nature and purpose of such advances. You have given a routine Audit Report without
any qualifications.
One fine morning, the Directors and these ‗related‘ parties disappear. The Company has just vanished. Can
you be hauled up for professional misconduct? Do you have any liability under any law?
CA Final Nov. 2000
1. Schedule III Requirements:
(a) All unutilised monies out of the issue must be separately disclosed in the Balance Sheet of the
Company indicating the form in which unutilised funds have been invested.
(b) Loans granted by the Company to its Directors or parties (Firms, Private Companies, etc.) in which
the Director is a Member / Partner / Director, should be specifically disclosed.
(c) The Company has failed to comply with the requirements of Schedule III, thus vitiating the true
and fair view of Financial Statements.
2. Register for Transactions I Contracts in which Directors are Interested:

(a) Companies Act requires that every Company shall keep Registers showing particulars of all
contracts or arrangements in which Directors are Interested. The prescribed particulars should be
recorded in this Register.
(b) Since the Company advanced monies to various parties ―related‖ to Directors, these must have been
recorded in the Register.
3. Conclusion: In S.N. Dasgupta‘s case, it was laid down that the Auditor‘s duty was, ―verifying not
merely the arithmetical accuracy of the statements of account but also their substantial accuracy by
confirming that they include all the particulars requiring disclosure by the Articles or the Companies Act
and otherwise represents true and fair state of affairs of the Company.‖ Thus, in the given case, the
Auditor can be held guilty of professional misconduct under Clause (7).

misconduct, if he fails to obtain sufficient information which is necessary for the expression of an
opinion, or its exceptions are sufficient material to negate the expression of an opinion.
2. A CA should express his opinion on the truth and fairness of statements of accounts, after examining
their authenticity, with reference to information and explanations given to him.
3. He must determine the extent of information, which should be obtained by him, before he expresses an
opinion on the Financial Statements submitted to him for report.
4. The CA should not express an opinion before obtaining the required data and information. Also, the
Auditor should clearly express his disclaimer in no uncertain terms.
5. The Statement on Qualifications in Auditor‘s Report issued by the ICAT lays down guidelines for
making qualifications, the manner of disclosure etc. While qualifying a report, it is important to
appreciate —
(a) As to which of the various items (the statements of fact and opinion) require a qualification,
(b) Whether the Auditors are in active disagreement with something which has been done by the
Company or are merely unable to form an opinion in regard to items for which there is lack of
adequate information,
(c) Whether the matters in question are so material as to affect the presentation of a true and fair view of
the whole of the affairs of the Company or are of such a nature as to affect only a particular item
disclosed in the accounts, and
(d) Whether the matters constituting qualification involve a material contravention of any requirements
of the Companies Act, which have a bearing on the accounts.
Illustration: The Auditor could not obtain / see any evidence of the existence and / or calculation of
Investments, which constituted the only asset of a Company.
His report should read as under: His report should not read as under:
―As we have been unable to verify the existence ―Subject to the verification of the existence and
and value of the investments of the Company, we value of the investments the Balance Sheet shows a
are unable to state whether the Balance Sheet ― true and fair view‖
shows a true and fair view ― true and fair view‖
DECISIONS ON PROFESSIONAL MISCONDUCT UNDER CLAUSE 8

 A CA relied on the work of internal Auditor of a Company and stated in his
report that the Internal Auditor had examined the books of account and
supporting vouchers.
 Held that the qualification amounted to an exception sufficiently material to
negate the expression of an opinion and that the CA is guilty under the latter J.C.Chandiok
part of Clause (8). (1964)
 A Statutory Auditor would be guilty, if he performed his work so recklessly as
to give his report without looking into the books of account of a Company, on
the basis of the work of the Internal Auditor whose opinion turned out to be
false.
A CA issued a clean certificate of circulation without any qualification and thereby
expressing the opinion that he had conducted the audit in the manner prescribed by
ABC Regulations. The interpolation of stock and sales entries in the books and the
absence of documents to support the receipts of monies from the agent should have Audit Bureau of
raised the suspicion and the CA entries in the books without asking for further Circulations Ltd vs
information in that regard. He was wrong in accepting entries in the book without S.Narayanan (1977)
asking further information. The CA was required to verify substantial accuracy
with all the skill, care and caution, and not merely arithmetical accuracy of the
accounts Held guilty of misconduct under Clause (8).
A CA issued a Certificate of circulation of a periodical without going into the most
elementary detail of how the circulation of periodical was being maintained, i.e. by Registrar of
not looking into the Financial Records, Banks Statements or Pass Books, by not Newspapers vs.
examining evidence of actual payment of printers bills and by not caring to K.Rajender Singh
ascertain how many copies were sold and paid for. Held he was guilty under Clause (1971)
(8).
Failure to discharge the duties responsibly by merely being satisfied with the ICAI vs Shri V C
answers of the client, amounts to professional misconduct under Clauses (5), (6), Agarwal [Bombay
(7) and (8) of Part I of Second Schedule. The CA‘s name was removed from HC] [Oct 08 CA
Register of Members for a period of 6 months. Journal Pg 646]
Issuing False Certificate under Tax Audit in order to save his Client from Penalty ICAI vs Shri Raj
u/s 271B of Income-Tax Act, 1961, despite non-completion of audit due to non- Kumar N Iyer
availability of accounts, amounts to professional misconduct under Clause (8) of [Bombay HC] [Feb
Part I of Second Schedule. 09 CA Journal Pg
1377]
Illustration:

Mr. Jam, a CA, certified the circulation of ―Good Luck‖, a weekly magazine, without examination of
financial records and other required documents. Comment on the above, with reference to the CA Act,
1949 and Schedules thereto. CA Final May 2014, Nov. 2011
Z, a practicing CA, issued a certificate of circulation of a periodical without going into the most elementary
details of how the circulation of a periodical was being maintained, i.e. by not looking into the Financial
Records, Bank Statements or Bank Pass Books, by not examining evidence of actual payment of Printers
Bills, and by not caring to ascertain how many copies were sold and paid for. Comment on the above.
CA Final May 2012
X, a practicing CA, issued a circulation certificate for a periodical on the basis of Outward Memos, which
was later found to be false. Comment on the above. CA Final May 2010
Note: Write the provisions of Clause (8) of Part I of Second Schedule.

In the above case, the CA is guilty of professional misconduct.

misconduct, if he fails to invite attention to any material departure from the generally accepted
procedure of audit applicable to the circumstances.
2. If for any reason the Auditor has not been able to perform the audit in accordance with ―generally
accepted procedure of audit applicable to circumstances‖, his report should draw attention to the
material departures therefrom.
3. What constitutes ―generally accepted audit procedure‖ would depend upon the facts and circumstances
of each case. However, these procedures can be inferred by reference to ICAI‘s pronouncements
(Guidance Notes, Statements, Standards on Auditing, Accounting Standards), Companies Act
Requirements, Special Procedures for Bank Audit, Audit Bureau of Circulations Ltd, etc.
In a Company audit, the CA did not conduct simple checking of the Bank
M.Ramanathan vs.
Accounts and did not carry out vouching with respect to the transactions reflected
A.Umanath Rao
in the accounts. He depended upon his assistants who were entrusted with the
(1968)
auditing work. Held guilty under Clauses (7), (8) and (9).
While issuing a certificate, a CA failed to verify the actual disbursement of
amounts by examining various items of purchases and insisting for production of Punjab State Govt.
bills. Mere payment would not constitute utilization of the amount for the vs.
purpose for which it was meant. Held the CA was guilty under Clauses (7), (8), K.N.Chandla (1972)
and (9).
A CA checked the cash book totals but not the bank column totals, had verified
all the transaction in the bank columns but not the contra-entries, had taken the Air Commodore
casting only of personal ledger and that too not of all accounts, had restored to Dilbagh singh vs
test check when there was no system of internal check, had not seen the pay-in- E.S.Venkatraman
slips, had not checked the Bank Reconciliation Statements for all the months. (1976)
Held guilty under Clauses (7), (8) and (9).
Issuing Certificate on Consumption? Production without proper verification ICAI vs B K Kurhade
constitutes professional misconduct under Clauses (7) & (8) of Part I of Second [HC Born] [June 08
Schedule. CA Journal
Pg 2016], ICAI vs
Ramesh R Kapadia
[HC Bom] [Aug 08
CA Journal Pg 292]
Negligence while conducting Statutory Audit constitutes professional ICAI vs Shri Ashit R
misconduct under Clauses (7) and (8) of Part I of Second Schedule. But if it Mehta [HC Born]
occurs due to inadequate experience in the early years of practice and the CA is [Apr 09 CA
candid in accepting the guilt, then reprimand of the Member would be proper. Journal Page 1743]
Issuing certificate in order to facilitate borrowings and confirmation on end ICAI vs Shri R K
use of funds without proper verification of records amounts to professional Tayal & Anr. [HC
misconduct under Clauses (5), (6), (7) and (8) of Part I of Second Schedule. Del] [Nov 09 CA
Journal Page 737]
Acting as Accountant as well as Auditor to the same Client, and also gross ICAI vs K K Gupta
negligence in discharging his duties on both the angles amounts to & Anr [HC Del] [Jan
professional misconduct under Clauses (6), (7), (8) & (9) of Part I of Second 10 CA Journal Page
Schedule. 1065]

misconduct, if he fails to-
(a) keep moneys of his Client, other than Fees or Remuneration or money meant to be expended, in
separate banking account, or
(b) use such moneys for purposes for which they are intended, within a reasonable time.
2. Fees Advance received by a CA against services to be rendered does not fall under this Clause.
However, a Member entrusted with moneys belonging to his Client, should deposit them in a separate
banking account, and utilize them only in accordance with the Client‘s instructions or for the
purposes intended by the Client, within a reasonable time.
Nature of moneys received Auditors‘ Duties

Moneys received for expenses to be incurred, e.g. payment of Need not be put in a separate
prescribed Statutory Fees, purchase of Stamp Paper, etc. which are Banking Account. Should be used
to be spent within a reasonably short time. for intended purposes forthwith.
 Moneys received for expenses to be incurred which are not To be put in a separate bank
intended to be spent within reasonably short time. account immediately.
 Moneys received by a CA in his capacity as Trustee, Executor,
Liquidator, etc.
A Refund Voucher issued in the name of the Client by the Income N.S.Chenoy vs K.V.Subba Rao
Tax Department was credited by the CA to his bank account. Held (1973)
guilty under Clauses (7) and (10).
A CA was found guilty under Clause (10) for not keeping the Murgai vs S.K.Gadh & Bajaj
Client‘s money in a separate account and not using for the purpose (1981)
for which it was given.
A CA received large sums of money from his Client for making
S.Seshadri vs R.Srinivasan
investments, and depositing Income-Tax on behalf of his Client, but
(1998)
failed to do the same. Held, guilty under Clause (10) and also guilty
of ―Other Misconduct‖.
A CA did not use the amount of `13,000 given to him for the work Deepak Pahwa vs A.K.Gupta
of incorporation of a Company and filing Form 8. Held guilty under (2000)
Clause (10).
Fraudulent utilization of the funds of the Client amounts to ICAI vs Shri Basab Kumar

professional misconduct under Clause (10) of Part I of Second Sarkar [HC Cal] [July 09 CA
Schedule and other misconduct u/s 21 & 22. Journal Page 99] ICAI vs M K
Sachdeva & Anr. [HC Del] [Dec
09 CA Journal Pg 910]
Situation Hints / Answer

M/s ABC, a Firm of CAs, received ` 2 Lakhs in March, 2014 from  Principle: Write provisions of
a Client to pay the Advance Tax. However, the firm has used that Clause 10 Part I of Second
money for its own purpose and later on adjusted the same with the Schedule.
Outstanding Fee Payable. Comment.  Conclusion: Z is guilty of
CA Final Nov. 2014 professional misconduct on the
above principles.
Z, a practicing CA, received a sum of Z ` 1 Lakh on 1 September  Principle: Write the provisions
of a Financial Year from a Client who intends to leave abroad for of Clause 10 Part I of Second
a period of 1 year, with a request that his Advance Tax Liabilities Schedule.
to be paid over the 3 installments (on 15th Sep, 15th Dec, and 15th  Conclusion: Z is guilty of
Mar of that Financial Year). After remitting the 1st installment on professional misconduct on the
15th September, Z did not keep the Balance Money in a separate above principles.
Bank Account & he is of the opinion he will remit the money
within reasonable time as per payment schedule of Advance Tax.
Comment on his action. CA Final May 2010
A Charitable Institution entrusted ` 10 Lakhs with its Auditors  Principle: Write the provisions
M/s Ram & Co, a CA Firm, to invest in a profitable portfolio. The of Clause 10 Part I Second
Auditors pending investment of the money, deposited it in their Schedule.
Savings Bank Account and no investment was made in the next 3  Conclusion: The CA is guilty
months. Comment on the above, with reference to the CA Act, & of professional misconduct on
Schedules thereto. CA Final May 2004 the above principles.
M/S XYZ, a Firm of CA‘s, received Z ` 2 Lakhs in January on  Principle: Write the provisions
behalf of one of their Clients, who has gone abroad, and deposited of Clause 10 Part I Second
the amount in their Bank Account, so that they can return the Schedule.
money to the Client in July, when the Client is due to return to  Conclusion: The CA is guilty
India. Is there any misconduct in this case? CA Final Nov. 2006 of professional misconduct.
Professional Misconduct under Part II of Second Schedule

Under Part II of the Second Schedule, a CA, whether in practice or not, shall be deemed to be guilty of
professional misconduct if he -
Clause Description
1 Contravenes any of the provisions of this Act or the regulations made thereunder or any
guidelines issued by the Council.
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.
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.
4 Defalcates or embezzles moneys received in his professional capacity.

A Member while working as Financial Advisor misappropriated the funds
Tara Pada Banerjee,
of his Client by way d of converting a Savings Bank account in his
DGM, Bank of Baroda
individual name to that of joint account with the Client without his consent
vs B.K.Sarker (2006)
and fraudulently discharged 3 FDRs in the Client‘s name. Held guilty under
clause 4 of Part II of the Second Schedule.
Clause (1)— Part Il—Second Schedule

Under Clause (1) of Part II of Second Schedule, a CA is deemed guilty of professional misconduct, if he
contravenes any of - (a) the provisions of this Act, or (b) the regulations made thereunder, or (C) any
guidelines issued by the Council.
The Regulations of the ICAI include engagement / registration of Articled Clerks, Payment of Stipends,
Termination or Assignment of Articles, Conduct of Elections, Branch Offices, Prohibition on other
business or operation, Restriction on Fees, etc.
A CA certified that an Audit Clerk was in service with him while he was also
employed elsewhere with another Employer between 11 A.M. and 5 P.M. He
J.K.Ghosh (1955)
attended the CA‘s office thereafter until 8 P.M. Held the CA was guilty of
misconduct for making a misstatement to the ICAI.
A CA id not pay stipend to Articled Clerks as per Regulations and asked the
Articled Clerks to work in excess of the hours prescribed under the Various Cases
Regulations. Held guilty under Clause (1).
A CA agreed to take a person as an Articled Clerk in a vacancy shortly to
arise. He received the premium for the purpose and made him believe that he
was taking him in vacancy. Infact the CA had filled up that vacancy earlier by A.K Basu vs
taking another Audit Clerk. The Audit Clerk came to know from the Institute P.K.Mukherjee
that the Deed of Articles was not registered as that was forwarded with a (1956).K Ghosh(1955)
request for entertaining an extra Articled Clerk. Held the CA was guilty of
serious misconduct.
A CA – (1) issued false certificates to two Articled Clerks stating that he had
refunded the entire premium, while a part of it was claimed as a set off against
food and halting allowances given to them while they were working in out -
stations, (2) violated Regulation 62 by not refunding the premium within the M.N.Bhargava (1958)
time specified, and (3) the refund of premium in instalments in one case was
not as specified in the certificate. Held guilty of dishonest behavior both as
regards his Clients and Articled Clerks.
A CA entered into an improper arrangements to permit his Articled Clerk to
Lawrence Tellis vs
serve his articles under another CA in another place, and sent false particulars
S.G.Mandre (1951)
to the Institute, knowing them to be false. Held, guilty of misconduct.
A CA took into Articles, a government Employee, and granted him a
certificate of completion of services, without informing the Institute. Held M Rajamany (1952)
guilty of misconduct.
A CA after signing the Articles of Agreement, failed to forward the articles
and the statement of particular to the ICAI, inspite of repeated enquiries from
Mohan Sehwani vs.
the Articled Clerk. He failed to take notice of communications addressed to
Sunderlal Fatehpuria
him in that behalf. He had two other Articled Clerks along with the present one
(1958)
whose articles were not sent for registration and took up a fourth Articled
Clerk without being entitled to do so. Held guilty for breach of Regulations.

A CA issued a certificate in respect of consumption statement of a concern as a
N.K.Ray Chowdhury
CA in practice on a date when he had not even applied for a Certificate of
(1973)
Practice.
A CA issued a confidential and private circular to Clients where, in addition to
himself as ―Chartered Accountant‖ he also described himself as ‗Investment
.
Consultant and Public Accountant‖. By this circular, he introduced himself to
B.M.LaIa (1976)
the Public and Private Limited companies which were accepting Fixed
Deposits and Loans through him. Held guilty of professional misconduct.
A CA took loan from a Firm in which the Articled Clerk and his father were
both interested, against the provisions of the CA Regulations, which prohibit
M.K.Tripathi (1979)
taking of loan or deposit etc, from the Articled Clerk. Held guilty of
A CA did not pay stipend to his Articled Clerk, in accordance with CA
Regulations, while to another Articled Clerk, he was paying stipend every
month. The stipend was paid only after the Articled Clerk left him after
working for a few months and complaint was lodged with the ICAI. The plea Radhey Mohan (1979)
of the CA that he had an agreement with the Articled Clerk to pay stipend on
annual basis was found to be misconceived as the same is against the
provisions of Regulation 48.
A CA argued that the payment of stipends was not made in view of a letter
written by an advocate who introduced the Articled Clerk to the effect that the
B.B.Rohatgi (1980)
payment should not be made directly to the Articled Clerk but to his father
R.C.Gupta (1980)
whenever desired. Held guilty of misconduct for non-payment of stipends on a
month - to - month basis.
A CA received ` 2,000 by way of security from the Articled Clerk‘s father as a Virendar Kumar vs
consideration for taking him as an Articled Clerk. Held he was guilty under the Madan
clause. (1980)
A CA was guilty of professional misconduct, as the stipend had been paid only M.L.Surana (1986)
after a complaint was lodged with the ICAI.
A CA did not disclose that he was in full—time salaried employment, but
Malhotra (2000)
trained Articled Clerks and submitted the forms to ICAI. Held guilty under
A.P.Gupta (2000)
Clause (1).
Non-Payment of stipend to Articled Clerks on monthly basis, and subjecting U V Benadikar vs N
the Articled Clerk to work over normal working time, and non - observance of G Kulkarni [HC
Central Government holidays including Sundays amounts to professional Bom] [Apr 08 CA
misconduct under Clause (1) of Part II of Second Schedule, and contravenes Journal Page 1744] A
Regulation 32B of CA Regulations. R Chitlangi v P L
Tapdiya [HC Born]
[May 08 CA Journal
Page 1890]
Illustration:
Mr.Brilliant, a practising CA, received a major professional assignment. To complete the said assignment
he was required to buy 4 Computers. Due to his inability to provide funds for acquiring the same he
borrowed money from a Firm, where one of the Articled Clerks and his father were interested. Is he guilty
of professional misconduct? CA Final Nov. 1997
Rehman, a CA in practice, took a loan of Z 20,000 from a Firm in which his Articled Clerk and his father
were both interested, Is he guilty of professional misconduct?
M/s. XYZ, a Firm of CAs 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. Comment. CA Final Nov. 2014
Note: Write the provisions of Clause (1) of Part II of Second Schedule.
1. Regulation 47 of CA Regulations, 1988 dealing with ―Premium from Articled Clerks‖ reads as under:
―No amount shall be charged from, or be payable by, an articled clerk or any other person on his behalf,
directly or indirectly, whether by way of premium or as loan or deposit or in any other form in
connection with his engagement as an Articled Clerk‖.
2. Accepting a loan from the Firm where an Articled Clerk is interested will violate Regulation 47, only if
it can be proved that the engagement of Articled Clerk is dependent upon this fact.
3. If the Articled Clerk has already been engaged and his engagement is not related to the loan transaction,
Regulation 47 will not be attracted. Therefore, the CA will be guilty of professional misconduct under
Clause (1), if it is proved that the loan was related to the engagement of the Articled Clerk.
Note: As the Articled Clerk is interested in the lending Firm, it is assumed that before taking the loan, the
CA has ensured that the Articled Clerk had sought the permission of the Council under Regulation 65, for
engaging in any other occupation.
Illustration:
A CA 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
the College, it was ascertained that the Articled Clerk used to attend classes from 10 a.m. to 1.55 p.m. The
CA pleaded ignorance about the Articled Clerk attending the College Classes during office hours. Will the
CA be held guilty of professional misconduct? CA Final May 2003, 2012
Note: Write the provisions of Clause (1) of Part II of Second Schedule.
1. As per the CA Regulations, the CA is expected to impart proper practical training. The CA did not
obtain any Certificate from the Principal of the College regarding the class timings.
2. The CA is guilty of professional misconduct in the discharge of his professional duties.
Illustration:
While taking ―Q ―as his Articled Assistant, Sri. R, a practicing CA proposed that the Stipend as per
regulations will be paid once a year calculated on the monthly rates prescribed by lCAl to which Q also
agreed. Comment.
1. Principle: As per Regulation 48, Stipend to Articled Assistant should be paid on a monthly basis. Non
compliance thereof would constitute misconduct under Clause 1 of Part 2 of Second Schedule.
2. Conclusion: R will be deemed to be guilt of professional misconduct for non - payment of stipend on
monthly basis, even though his Articled Assistant also agreed to his proposal.
Council General Guidelines, 2008

(Council Guidelines No.1—CA(7)/02/2008, dated 8th August, 2008) Source: Oct 2008 CA
Journal

1. Applicability: These Guidelines shall be applicable to all Members of ICAI whether in practice or not,
wherever the context so requires.
2. Conduct of Employee Member: A Member who is an Employee shall exercise due diligence and shall
not be grossly negligent in the conduct of his duties.
3. Appointment of a Member as Cost Auditor: Refer Chapter 7
4. Opinion on Financial Statements when there is Substantial Interest: A Member 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 Companies Act, have, either by themselves or in conjunction with
such Member, a substantial interest in the said business or enterprise.
Explanation: ―Substantial Interest‖ shall have the same meaning as per Appendix (9) to the CA
Regulations, 1988.
5. Maintenance of Books of Accounts: A Member in practice or the Firm of CAs of which he is a
Partner, shall maintain and keep in respect of his / its professional practice, proper books of account
including the following - (a) Cash Book, and (b) Ledger.
6. Tax Audit assignments u/s 44 AB of IT Act: Refer Chapter 10
7. Appointment of Auditor in case of Non—Payment of Undisputed Fees: A Member in practice shall
not accept the appointment as Auditor of an Entity, in case the Undisputed Audit Fee of another CA for
carrying out the statutory audit under the Companies Act, or various other statutes has not been paid.
This prohibition does not apply to a Sick Unit. [Note: Undisputed Audit Fee is the provision for Audit
Fee in accounts signed by both the Auditee and the Auditor. Sick Unit is a unit whose Net Worth is
negative.]
8. Specified Number of Audit Assignments: A Member in Practice shall not hold at any time
appointment of more than the specified number of audit assignments of Companies under the
Companies Act. [Refer Chapter 2.]
9. Restrictions on Appointment as Statutory Auditor:
(a) A Member in practice shall not accept the appointment as Statutory Auditor of Public Sector
Undertaking(s)/ Government Company(ies)/Listed Company(ies) and other Public Company(ies)
having turnover of ` 50 Crores or more in a year if he accepts any other work(s) or assignment(s) or
service(s) in regard to the same Undertaking(s)/ Company(ies) on a remuneration which in total
exceeds the fee payable for carrying out the Statutory Audit of the same Undertaking/company.
(b) In case appointing Authority(ies)/Regulatory body(ies) specify(ies) more stringent
condition(s)/restriction(s), the same shall apply instead of the aforesaid conditions/restrictions.
(c) The above restrictions shall apply in respect of fees for other work(s) or service(s) or assignment(s)
payable to the Statutory Auditors and their Associate Concern(s) put together.
(d) Restriction on Other Assignments: In regard to taking up other work(s) or service(s) or
assignment(s) of the Undertaking/Company referred to above, it shall be open to such Associate
Concern or Corporate Body to render such work(s) or service(s) or assignment(s) so long as
aggregate remuneration for such other work(s) or service(s) or assignment(s) payable to the
Statutory Auditor/s together with fees payable to its Associate Concern(s) or Corporate Body(ies)
do/does not exceed the aggregate of fee payable for carrying out the statutory audit.
(e) Meaning:
―Other Work(s)‖ / ―Service(s)‖ / ―Assignment(s)‖ shall include Management Consultancy and
all other professional services permitted by the Council u/s 2(2)(iv) of the CA Act, 1949 but
shall not include –

(i) audit under any other Statute,
(ii) certification work required to be done by the Statutory Auditors, and
(iii) any representation before an authority.
―Associate Concern‖ means any Corporate Body or Partnership Firm which renders the
Management Consultancy and all other. professional services permitted by the Council,
wherein the Proprietor and/or Partner(s) of the Statutory Auditor Firm and/or their ―relative(s)‖
is/are Director/s, or Partner/s and/or jointly or severally hold ―substantial interest‖ in the said
Corporate Body or Partnership,
―Relative‖ & ―Substantial Interest‖ shall have the same meaning as under Appendix (9) to CA
Regulations.
10. Appointment of an Auditor when he is Indebted to a concern: A Member 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.
11. Directions in case of Unjustified Removal of Auditors: A Member in practice shall follow the
direction given by the Council or an appropriate Committee or on behalf of any of them, to him
being the Incoming Auditor(s) not to accept the appointment as Auditor(s), in the case of
unjustified removal of the earlier Auditor(s).
12. Meaning of Statutory Auditor:

(a) For the purpose of these Guidelines, the expression ―Statutory Auditor‖ means and includes
a CA appointed as an Auditor under a Central/State or Provincial Act as well as an Auditor
appointed under any agreement.
(b) The Council has clarified that for the above purpose, audit of Provident Fund Trust, Gratuity
Fund, etc. carried out by the Statutory Auditor are to be considered as separate and distinct
audit, so that the above restrictions are applicable to it.
A is the Auditor of Z Ltd, which has a Turnover Refer Clause (1) of Part II of Second Schedule
of ` 200 Crores. The Audit Fee for the year is and Point 9 of Council General Guidelines, 2008
fixed at ` 50 Lakhs. During the year, the above.
Company offers A an assignment of Management A cannot accept the assignment as specified here.
Consultancy within the meaning of Sec.2(2)(iv) If accepted, he will be guilty of Professional
of the CA Act, 1949 for a remuneration of 1 Misconduct.
Crore. A seeks your advice on accepting the
assignment. CA Final May 2007, Nov. 2010
D, who conducts the Tax Audit u/s 44AB of the Recovery of Fees on progressive basis is
Income Tax Act, 1961 or M/s ABC, a Partnership permissible. So, not guilty of professional
Firm, has received the entire Audit Fees of misconduct.
25,000 on 3 April 2015, in respect of the Tax
Audit for the year ended 31.3.2015. The Audit
Report was, however, signed on 30.04.2015.
CA Final May 2009
C accepted the Statutory Audit for financial year Clause (1) of Part II of Second Schedule: In the
2014 - 15 of M/s PSU Ltd, whose Net Worth for above case, since the PSU is a Sick Unit (i.e.
the year 2013 - 14 is negative. The audited negative Net Worth), there is no professional
accounts for year 2013 - 14 showed liability for misconduct on the part of C.
payment of Tax Audit Fees of 15,000 in favour of
Mr. E, the Previous Auditor. Is C guilty of
professional misconduct? CA Final Nov. 2005
K a CA not in practice, was employed by Do— 1. On facts, it appears that the Internal Auditor
well Ltd on salaried basis as Chief Internal had merely relied on the work of his
Auditor to be in charge of Internal Control and unqualified assistants and failed to exercise
Internal Audit Department of the Company. K reasonable care and skill and thus grossly
largely relied on the work of other unqualified negligent in the performance of his duties.
employees of the Company. 2. If it can be proved that his negligence was not
The Statutory Auditor subsequently found that willful, i.e. deliberate or there is sufficient
the Internal Control was weak, that there were evidence to prove that he discharged his duties
omissions to record Cash Sales and collections conscientiously and diligently, then he cannot
from Debtors and the statements attested by the be considered guilty even if there were
Chief Internal Auditor were all either untrue or omissions to record Cash Sales and collections
false. The Company seeks your advice whether from Debtors.
any action could be taken against K under 3. Hence, K will be held guilty of professional
provisions of CA Act. CA Final May 1998 misconduct only if he is willfully and grossly
negligent in the performance of his duties.
A CA did not maintain books of account for his Clause (1) of Part II of Second Schedule: The CA
professional earnings on the ground that he was is guilty of professional misconduct. It does not
not obliged to keep them as his Income did not matter whether Sec.44AA of IT Act, applies or not.
exceed the limits prescribed u/s 44AA of Income [S.C.Katyal vs OPC lain & OP Sharma (2001)]
Tax Act. Is he liable for professional misconduct?
CA Final Nov.1998, 2009, May 2005
1. U/s 141 of the Companies Act, 2013, a person is
not eligible for appointment as Auditor if his
Relative is a Director or is in the Employment of
Mr. Ram, a relative of a Director was appointed
the Company as a Director or KMP.
as an Auditor of the Company. Comment.
2. Though Clause (4) of Part I of Second Schedule,
does not deal with Relatives, as per Council
Guidelines, Ram cannot accept the appointment.
Hari, Proprietor of M/s Han & Co. is the 1. CA is disqualified u/s 141 of Companies Act,
Statutory Auditor of the Company which deals 2013 if he is indebted for an amount exceeding
with Sale of Cars. During the year, Hari ` 5,00,000.
purchased a Car from his Client costing 2. Refer Point 10 of Council Guidelines above. Hari
` 4,00,000 for his son. He did not make any has not complied with the above Guidelines.
payment for the same, but asked the Company to 3. Hari is guilty of professional misconduct under
adjust the same against the Audit Fees payable of Clause (1) of Part 2 of Schedule II, for not
` 6,00,000. Is he guilty of any professional complying with Council Guidelines.
misconduct? CA Final Nov. 2012
Clause (3) - Part II - Second Schedule

Under Clause (3) of Part II of Second Schedule, a CA, whether in practice or not, is 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.

DECISIONS ON ―MAKING STATEMENTS KNOWING THEM TO BE FALSE‖
A CA recommended to the ICAI and permitted his Articled Clerk to attend college
during his regular office hours. He pleaded ignorance inspite of the fact that the
Articled Clerk took leave often and came late to the office. Held the CA was guilty
M.A.Dave (1974)
of professional misconduct. Articled training is mutual obligation, which requires
an abiding interest by the employer in the Articled Clerk, which needs constant
watchfulness and vigilance.
A CA was employed as a Manager of a Firm of Registered Accountants. He
applied for admission as Fellow stating that he was a Partner, while he was not. J.R.Chatrath
Held guilty of misconduct as he had made the statement that he was a Partner (1952)
knowing it to be false.
A CA in practice while applying for renewal of his COP indicated that he was not
engaged in any other business or occupation. The admitted fact was that he had
entered into Partnership with Non-Members for the purpose of carrying on
K.S.Dugar (1980)
business. He was operating the Bank Account, receiving the money from customers
and looking after the affairs of the partnership. Held guilty of professional
misconduct.
A CA permitted his Articled Clerk to be in whole-time employment elsewhere
without the permission of the Council. It was proved that the CA was fully aware
of this fact. Held guilty since he - (a) allowed the Articled Clerk to work elsewhere N.K.Gupta (1980)
without the Council‘s permission, and (b) failed to disclose this fact to the ICAI in
the prescribed Form.
During the course of the hearing before Disciplinary Cases, a Member gave a
wrong statement duly verified and also a wrong statement on oath knowing it to be K.S.Dugar (1987)
false. Held guilty of professional misconduct.
A Member stated that another Member was working in his Firm as a Paid P.C.Sood
Assistant. This statement was found to be false and was found to have been made P.B.Kapoor
knowing it to be false. Held guilty of professional misconduct. (1988)
A CA included another CA‘s name as Partner in his Firm, in his application for
empanelment as Auditor of Branches of Public Sector Banks, submitted to the
L.N.Gupta (1991)
Institute. In fact the said Member was not a Partner of the said Firm on the date of
the said application. Held guilty of professional misconduct.
H.K.Gupta
A CA wrongly stated that he was in full-time practice in the Bank Audit
(1999)
Empanelment Form, whereas he was in employment as Manager (F&A) with a
S C Srivastava
Company. Held guilty of professional misconduct.
(2001)
A CA submitted an application of his Firm for Bank Audit Empanelment
mentioning under the head ―Details of Disciplinary proceedings pending against
any Partner / Proprietor‖ as ―NIL‖, whereas a prima fade case against the Member A.K.Mehra
existed. Held guilty of professional misconduct, as he had deliberately furnished (1991)
false information when he was fully aware that disciplinary proceedings were
pending against him.
A Member can be associated with a cultural or religious organisation but this K.Bhattacharjee
association and facilities connected with it cannot be used, as a vehicle to gain vs
professional work. B.K.Chakraborty
It is undesirable on the part of a Member to pressurize for re-appointment even (1988)

in cases when he feels that he has been wrongly removed.
Indicating several places as branches in the letterhead, though factually he had
no branches is violation of Clause (3).
A CA confirmed his status as in full time practice while giving information for
RJain(1993)
publication in the List of Members / Bank Audit Empanelment. He did not disclose
R.K.Seth (1997)
his engagement as Salaried Employee at the time of furnishing particulars. Held
N.K.Gupta (1998)
guilty of misconduct.
A CA did not disclose that he was in full – time employment / managing director in N K Malhotra
a company, While submitting the forms for training Articled Clerks. Held, guilty of (2001) &
professional misconduct. various other
cases
Illustration:
Mr. ‗G‘, while applying for a Certificate of Practice, did not fill in the columns which solicit information
about his engagement in other occupation or business, while he was indeed engaged in a business. Give
your comments. CA Final May 2014
Refer K.S.Dugar Case above. G is guilty of professional misconduct under Clause (3) of Part II of
Second Schedule.
Self - Regulatory Measures recommended by ICAI

1. Branch Audits: Branch Audits of a Company should not be conducted by its Statutory Auditors
consisting of 10 or more Members, but should be conducted by the local Firms of Auditors consisting
of less than 10 Members. This restriction may not apply - (a) where the accounting records of the
Branches are maintained at the head office of the respective Companies, and (b) where significant
operations of an undertaking of a Company are carried out at its Branch Office.
2. Joint Audit: In the case of large Companies, the practice of associating a Firm with less than 5
Members as Joint Auditors should be encouraged. Where a Client desires to appoint such a Firm as
Joint Auditors, the Senior Firm should not object to the same.
3. Ratio Between Qualified and unqualified Staff: A practicing Firm of CA‘s engaged in audit work
should have atleast 1 Member for every 5 Non-Qualified Members of the Staff, excluding Articled and
Audit Clerks, Typists, Peons and other persons not engaged directly in such professional work.
4. Disclosure of Interest by Auditors in other Firms: Auditors should make a disclosure of the
payments received by them for other services through the medium of a different Firm or Firms in
which the said Auditor may be either a Partner or Proprietor.
5. Ceiling on Fees: 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(s) in which he or his Partner(s), from one or
more Clients or Companies under the same management, should not exceed 40% of the gross annual
fees of the Firm, Firms and Partners referred to above. Such ceiling will not be applicable in case of -
(a) Fees not exceeding ` 2 Lakhs, or (b) Audit of Government Companies, Public Undertakings,
Nationalised Banks, Public Financial Institutions or where Government appoints the Auditors.
6. Scale of Fees: The Council of ICAI from time to time recommends the Scale of Fees chargeable for
the work done by the Members of ICAI. The services rendered by a CA has been broadly classified
into 13 categories and fees has been recommended thereon (for Metros & for Non-Metros separately).
These are recommendatory in nature and Members can charge any other amounts based on the
complexity of the work involved.
ANNEXURE
CONTINUING PROFESSIONAL EDUCATION AND THE REQUIREMENTS FOR A
QUALIFIED CA
1. Continuing Professional Education: CPE is a Post Qualification requirement that must be complied
by every Member. It is used to describe the educational activities that assist Chartered Accountants
(CA5) to achieve and maintain the required quality in the professional services that they render.
2. Requirement: Every Member is required to devote the minimum amount of time, as may be prescribed
the ICAI, in relation to professional learning and development. Such learning could either be Structured
(S) or Unstructured Learning (U). This requirement is explained as under -
3. Structured Learning: CPE Programmes in the form of Conferences, Seminars, Workshops, Modular
Training Programmes, Refresher Programmes, Certificate Courses, Conventions, faculty in CPE
seminars,e - Learning, etc
4. Unstructured Learning: Self-learning Modules & courses, Reading and individual home study in the
Journal, ‗The Chartered Accountant‘ of ICAI, reading technical, professional, financial or business
literature, Group or bilateral discussion on technical issues, Acting as visiting faculty or guest faculty at
the various Universities / Management Institutions I Institutions of National Importance, Providing
solutions to questionnaires / puzzles available on Web / Professional Journals, Internal Training
Programmes being organised by firms of CAs having 7 or more partners, Viewing of programmes
hosted on the web channel of ICAI, etc.
RULES OF NETWORK AMONGST FIRMS REGISTERED WITH ICAI
A. DEFINITIONS:
1. Network: ―Network amongst two or more Firms means an arrangement to facilitate the better
functioning of the affiliate Member Firms in the interest of the profession and not for acquisition of
any gain. Such Network shall include the formal Network to use the collective resources such as
turnover, infrastructures, manpower, location for execution of professional services of one or more
type.‖
Explanation:
(a) An Affiliation as referred to above shall also include –
having an association with an accounting entity within or outside India such that it results
directly or indirectly in a common professional economic or beneficial interest.
one or more of the entities holding out that it is so affiliated or networked.
(b) An Entity shall not be treated as an affiliate of another merely for the reason that they –
share professional knowledge and data base,
refer certain professional assignments or authorize the other to represent certain specific
matters.
(c) If different Indian Firms are networked with a common Multi—National Accounting Firm (MAF)
then irrespective of the presence I absence of any ‗affiliate‘ relationship between the Indian Firms
inter - se, they shall be considered as part of a Network.
2. Formal Network:
(a) Formal Network means a Network amongst two or more Firms registered with the ICAI, where
the object of Network is to use the collective resources of the affiliates for execution of
professional services of one or more types at one and / or at multi—locational points.
(b) The resources would include financial, technical and other logistic support required to execute the
professional assignments. In such type of network, the common resources may be pooled and
exhibited together before the service user as those belonging to one particular set of professionals.
3. Referral Practice: Referral Practice means a practice to refer professional work by a Firm to one of
its associate / affiliate either situated at a different place or rendering professional services not
provided by it, to the user of the services. The pre—dominant objective of such a Network is not to
pool in their collective resources and exhibit them as those belonging to one particular set of
professionals.
B. NAME OF NETWORK:
1. The Network may have distinct name which should be approved by the ICAI. To distinguish a
―Network‖ from a ―Firm‖ of CA‘s, the words ―& Affiliates‖ should be used after the name of the
network and the words ―& Co.‖ / ―& Associates‖ should not be used. The name of the Network should
be approved by the ICAI.
2. Standards prescribed in Regulations 190 of the CA Regulations, 1988 shall be applicable to the name of
Network. However, even if a name is provided and subsequently it is found that the same is undesirable
then, the said name can be withdrawn at any time by the ICAI. The ICAI shall reject any undesirable
name and provisions in respect of names of Companies as prescribed in the Companies Act, shall be
applicable in spirit.
3. The Network should neither be permitted to advertise nor to use logo. The Firms constituting the
Network are permitted to use the words ―Affiliates / Members of ....― (a network of Indian CA Firms) on
their professional stationery.
4. Network may work without a Name also.
C. CONSTITUTION OF NETWORK:
1. Proprietory / Partnership Firm(s) as well as individual Member(s) are permitted to form a Network.
2. A Proprietory / Partnership Firm as well as individual Member are allowed to join only one Formal
Network.
3. Firms having common Partners shall join only one Network.
D. REGISTRATION:
1. A Formal Network is required to be registered with the ICAI.
2. Referral Practice requires no registration.
3. It is for each Firm to decide whether its affairs and relations with another Firm results in creation of a
Formal Network. The Network shall evaluate for itself whether or not it is a Formal Network requiring
registration with the ICAI.
4. If different Indian Firms are networked with a common MAF, then irrespective of the presence /
absence of any ‗affiliate‘ relationship between the Indian Firms inter—se, they shall be considered as
part of a Network. As such, for these Firms the registration with the ICAI is not mandatory. It is only if
these Indian Firms decide to constitute a Formal Network, then the registration with the ICAI is
mandatory.
E. INTERNAL BYELAWS OF NETWORK REQUIRING REGISTRATION:

To streamline the Networking, a Network shall formulate operational Bye—Laws. Bye—Laws may
contain the following clauses (illustrative and not exhaustive) on which the affiliates of the Network may
enter into a written agreement among themselves -
1. Appointment of a Managing Committee, from among the managing Partners of the Member Firms of
the Network and the terms and conditions under which it should function. The minimum and
maximum number of Members of the Managing Committee shall also be agreed upon.
2. Administration of the Network.
3. Contribution of Membership Fees to meet the cost of the administration of the Network.
4. Identifying a Partner of any of the Member Firms of the Network to be responsible for the
assignment (Engagement Partner).
5. Dispute settlement procedures through arbitration and conciliation.
6. Development of training materials for Members for the Network.
7. Issue of Newsletters for Staff and Clients.
8. Development of software for different types of assignments.
9. Development and maintenance of data bases relevant for different types of assignments.
10. Library.
11. Appointment of a Technical Director to whom references can be made.
12. Determining the methodology for drawing resources from each Member Firm.
13. Determining compensation to Member Firms for resources to be drawn from them.
14. Peer Review of the Member Firms.
F. ETHICAL COMPLIANCE:
Once the relationship of Network arises, whether registered or not with the ICAI, it will be necessary for
such a Network to comply with all applicable ethical requirements prescribed by the ICAI from time to
time in general, and the following requirements in particular -
1. If one Firm of the Network is the Statutory Auditor of an Entity, then the Associate [including the
Networked Firm(s)] or the said Firm directly / indirectly should not accept the Internal Audit or Book
Keeping or such other professional assignments which are prohibited for the Statutory Auditor Firm.
2. Notification No. 1 -CA(7) / 60 / 2002 dated 8th March, 2002 in respect of ceiling on Non—Audit Fees
is applicable in relation to a Network as follows -
(a) For a constituent Member of a Network who is doing statutory audit (including its Associate
Concern and / or Firm(s) having common Partnership), it shall be the same as mentioned in the
said Notification, and
(b) For other constituent Member(s) of the same Network collectively, it shall be 3 times of the fee
payable for carrying out the statutory audit of the same undertaking I Company.
3. In cases where rotation of Firms is prescribed by any regulatory authority, no Member Firm of the
Network can accept appointment as an Auditor in place of any Member Firm of the network which is
retiring. However, this restriction shall not apply in case of appointment as Statutory Central Auditor
of Government Agencies / Undertakings such as PSUs, Public Sector Banks and Financial Institutions
etc.
4. The Constituent Member Firms of a Network & the Network shall comply with all the Ethical
Standards prescribed by the Council from time to time.
G. OTHER ASPECTS:
Aspect Description
The Network itself will not carry on any business for acquisition of gain for itself and
Object of
only act as a facilitator for its Members / constituent Member Firms to pursue their
Network
professional jobs.
Consent of The Network shall obtain consent of the Client to engage an affiliate in discharging
Client the professional assignments.
Responding Only one Firm / Member can apply on behalf of the Network showing the collective
to Enquiries strength of all the constituent Firms of the Network, when responding to any enquiry.
Issuing Only the Firm(s) / Member(s) forming Network are eligible to issue / sign / attest any
Reports Certificate I Report I Professional Document I Assignment.
In case of alleged violation of the provisions of the Act, Regulations framed
Violation of thereunder, guidelines I directions laid down by the Council from time to time and
Act Code of Ethics, by the Network Firm, the Proprietary / Partnership Firm(s) I
Individual Member constituting the Network would be answerable.
H. EXIT FROM NETWORK:

A constituent Member Firm / Member of a Network can exit from the Network by sending the prescribed
declaration to the ICAI and also to each and every constituent of the Network. The concurrence I
acceptance of the same by other Firms forming part of the Network Firm shall not be required.
GUIDELINES FOR PRACTICING MEMBER TO BE PART OF CORPORATE FORM
1. Practice in Corporate Form:

(a) Members in Practice are allowed to hold the office of the MD, WTD or Manager of a Body
Corporate within the meaning of Companies Act, provided that the Body Corporate is exclusively
engaged in rendering Management Consultancy and Other Services permitted by the Council (vide
Sec.2(2)(iv) of the CA Act, 1949).
(b) Full time COP: Such Members can retain full time COP besides being the MD, WTD or Manager
of such Companies.
(c) Equity Holding: There will be no restriction on the quantum of the Equity-holding of the
Members, either individually and / or along with the Relatives, in such Company.
(d) Attest Functions: Such Members shall be regarded as being in Full-Time Practice, and therefore
can continue to do attest function either in individual capacity or Proprietorship I Partnership Firm.
They are also entitled to train Articles / Audit Assistants.
2. Conditions:
(a) Name: The Management Consultancy Company shall have a distinct name which shall be
approved by ICAI.
(b) Registration: After approval of the Name, the Company is required to get itself registered with the
Institute.
(c) Logo: The Management Consultancy Company shall not be permitted to use logo.
(d) Ethical Requirement: If the Individual Practitioner / Sole-Proprietorship Firm / Partnership Firm
are the Statutory Auditor of an Entity then the Management Consultancy Company should not
accept the Internal Audit or Book keeping or such other Professional Assignment which are
prohibited for the Statutory Auditor Firm.
(e) Advertisements: The Management Consultancy Company shall give an undertaking that it shall
comply with Clauses (6) & (7) of Part-I of the First Schedule to the CA Act, 1949 (non -
advertisements, non solicitation of Clients) and such other directives as may be issued by the
Institute from time to time.
(f) Object Clause: The Object Clause of such a Company should restrict itself only to the
Management Consultancy & Other Services prescribed by the Council pursuant to powers u/s
2(2)(iv) of the CA Act, 1949.
GUIDELINES ON WRITE UPS FOR THE MEMBERS IN PRACTICE

(ICAI Guidelines No.1 - CA(7)/ Council Guidelines/O1/2008, Dated 14th May, 2008) Not
1. Purpose: The Members may advertise through a Write Up setting out their particulars or of their
aske
Firms and Services Provided by them subject to the following Guidelines and must be presented in d
such a manner as to maintain the profession‘s Good Reputation, Dignity and its Ability to serve the
Public Interest.
2. Objective: The Member(s)/Firm(s) should ensure that the contents of th Write up are True to the
best of their knowledge and belief and are in conformity with these Guidelines and be aware that
the ICAI does not own any responsibility whatsoever for such contents or claims by the Writer
Member(s) / Firm(s).
3. Meaning: ―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.
4. Contents: The Write - Up may include only the following information –

For Members For Firms
1. Name……….Chartered Accountant 1. Name of the Firm Chartered Accountants
2. Membership No. with Institute 2. Firm Registration No. with Institute
3. Age, Languages Known 3. Year of establishment.
4. Date of becoming ACA, Date of becoming 4. Professional Address(s)
FCA 5. Working Hours
5. Date from which COP held 6. Tel. No(s)/Mobile No./Fax No(s), Web
6. Recognized Qualifications address, E – mail
7. Telephone/Mobile/Fax No. 7. No. of Partners
8. Professional Address, Web, E - mail 8. Name of the Proprietor/Partners and their
9. C A Logo, Passport Size Photograph particulars on the lines allowed for a
10. Details of Employees (Nos.) Member as stated above including passport
(a) Chartered Accountants - size photograph.
(b) Other Professionals - 9. CA Logo
(c) Articles/Audit Assistants 10. Details of Employees (Nos.) — classified in
(d) Other Employees the same lines as that for Members
11. Names of the Employees and their 11. Names of the Employees of the Firm and
particulars on the lines allowed for a their particulars on the lines allowed for a
Member as stated above. member as stated above
12. Services provided 12. Services provided:
The write—up may have the Signature, Name of the Member/ Partner signing on behalf of the Firm,
Place and Date.
5. Other Conditions: The Write-Up should not –
(a) be False or Misleading and bring the Profession into Disrepute.
(b) claim superiority over any other Member(s)/Firm(s).
(c) be indecent, sensational or otherwise of such nature which may likely to bring the profession into
disrepute.
(d) contain Testimonials or Endorsements concerning Member(s).
(e) contain any other Representation(s) that may like to cause a person to misunderstand and/or to be
deceived.
(f) violate the provisions of the ‗Act‘, Rules made there under and ‗The Chartered Accountants
Regulations, 1988‘.
(g) include the names of the clients (both past and present)
(h) be of Font Size exceeding 14.
(i) contain any information other than stated in Para above.
(j) contain any information about achievements / award or any other position held.
Note: Membership Registration Number and Firm Registration Number is mandatory for every
Write up.

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CA ACT & PROFESSIONAL ETHICS

Other Services rendered by CA in practice [u/s 2(2)(iv)]

‗Management Consultancy Services‘ shall not include the functions of-

‗Management Consultancy Services‘ shall include the following-

1 CREDENT PROFESSIONAL STUDIES

Illustration: Other Services by CA

Refer to Point 19 Explanation in Para 20.1.2. The CA is guilty of professional misconduct.

Illustration: Other Services by CA

Refer to Point 19 Explanation in Para 20.1.2

Illustration: Other Services by CA

Fellow Member & Associate Member [Sec.5]

Certificate of Practice (COP) [Sec.6]

Effective date and period of cancellation:

Illustration: Suspension of COP

4 CREDENT PROFESSIONAL STUDIES

5 CREDENT PROFESSIONAL STUDIES

Illustration: Branch Office

Illustration: Branch Office

6 CREDENT PROFESSIONAL STUDIES

Entry of Names in Register [Sec.4]

Disqualifications for Membership purpose [Sec.8]

7 CREDENT PROFESSIONAL STUDIES

Penalty for False Claim as Member [Sec.24]

Professional Misconduct & Other Misconduct[Sec.22]

8 CREDENT PROFESSIONAL STUDIES

Other Misconduct [Sec.22]

9 CREDENT PROFESSIONAL STUDIES

A CA authored a book titled ―Tax Planning for Secret Income (Black

Illustration: Other Misconduct

Illustration: Other Misconduct

Illustration: Other Misconduct

Illustration: Other Misconduct

Illustration Other Misconduct

12 CREDENT PROFESSIONAL STUDIES

Appeals Procedure in Disciplinary Proceedings

13 CREDENT PROFESSIONAL STUDIES

Quality Review Board

Powers of Central Government to make Rules [Sec. 29A]

Powers of Central Government to issue Directions [Sec.30C]

First Scheduled to the CA Act

Professional Misconduct u/s 22- Acts / omissions by Members

15 CREDENT PROFESSIONAL STUDIES

Part I of First Schedule

Note: Nothing herein contained shall be construed as preventing or prohibiting –

17 CREDENT PROFESSIONAL STUDIES

Clause (1) - Part I — First Schedule

Clause (2) — Part I — First Schedule

Illustration: Clause (2) - Part I — First Schedule

18 CREDENT PROFESSIONAL STUDIES

Profit Sharing – Death of a Partner/ Proprietor of Firm

Sale of Goodwill of Proprietary Firms — ICAI Guidelines

Illustration: Sale of G/w of Proprietary Firm

Clause (3) — Part I — First Schedule

20 CREDENT PROFESSIONAL STUDIES

Clause (4) of Part I of First Schedule

Illustration: Clause (4) — Part I — First Schedule

Illustration: Clause (4) - Part I — First Schedule

Illustration: Clause (4) — Part I - First Schedule

Clause (5) — Part I — First Schedule

Clause (5) — Canvassing of all forms prohibited:

Clause (6) — Part I — First Schedule

Clause (6) — Solicitation of all forms prohibited: