Ch-2 Professional Ethics Learn with Fun

1. The professional accountants need to observe certain fundamental principles, which are covered in the Code of
Ethics of the Institute of Chartered Accountants of India. Briefly explain each of the five principles which needs to
be complied by the Chartered Accountants? [Nov-22]

Fundamental Principles: In order to achieve the objectives of the Accountancy profession, professional accountants
have to observe a number of prerequisites or fundamental principles. The fundamental principles as discussed in Code
of Ethics of ICAI, to be complied, are given below:

(i) Integrity – A professional accountant shall comply with the principle of integrity, which requires an accountant to
be straightforward and honest in all professional and business relationships. Integrity implies fair dealing and
truthfulness.

(ii) Objectivity – A professional accountant shall comply with the principle of objectivity, which requires an accountant
not to compromise professional or business judgment because of bias, conflict of interest or undue influence of
others.

(iii) Professional Competence and Due Care – A professional accountant shall comply with the principle of
professional competence and due care, which requires an accountant to:
(a) Attain and maintain professional knowledge and skill at the level required to ensure that a client or employing
organization receives competent professional service, based on current technical and professional standards and
relevant legislation; and
(b) act diligently in accordance with applicable technical and professional standards.

(iv) Confidentiality – A professional accountant shall comply with the principle of confidentiality, which requires an
accountant to respect the confidentiality of information acquired as a result of professional and employment
relationships.

(v) Professional Behaviour – A professional accountant shall comply with the principle of professional behaviour,
which requires an accountant to comply with relevant laws and regulations and avoid any conduct that accountant
knows or should know might discredit the profession.

Conduct that might discredit the profession includes conduct that a reasonable and informed third party would be
likely to conclude adversely affects the good reputation of the profession.

A professional accountant shall not knowingly engage in any employment, occupation or activity that impairs or might
impair the integrity, objectivity or good reputation of the profession, and as a result would be incompatible with the
fundamental principles.

2. A professional accountant in public practice is always subject to various threats in compliance with fundamental
principles of his profession and you, as a professional accountant, are worried about engagement specific threat in
your audit assignment of M/s Soft Ltd. and want to implement some measures to eliminate and reduce the same.
Enumerate some engagement specific safeguards which you may introduce in your work environment to ward off
such threats. (May-19 New)

Engagement-specific safeguards in the work environment may include:

• Assigning additional time and qualified personnel to required tasks when an engagement has been accepted
might address a self-interest threat.

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• Having an appropriate reviewer, who was not a member of the team, review the work performed or advise as
necessary might address a self-review threat.
• Using different partners and engagement teams with separate reporting lines for the provision of non-assurance
services to an assurance client might address self-review, advocacy or familiarity threats.
• Involving another firm to perform or re-perform part of the engagement might address self-interest, self-review,
advocacy, familiarity or intimidation threats.
• Separating teams when dealing with matters of a confidential nature might address a self-interest threat.

3. The audit team is preparing to conduct audit for ABC Company for the period ending 31.3.2020. However, the
audit team has not received its audit fees from ABC Company for its audit concluded for the period ended 31.3.2019.
The audit team might be tempted to issue a favorable report so that ABC Company is able to secure a loan to settle
the fees outstanding for their 31.3.2019 audit. The audit team is not complying the fundamental principles of
auditing hence hindering the Auditor's Independence. Explain the types of threats that may hinder Auditor's
Independence while issuing Audit Report. (Jan-21 New)

In given case of ABC Company, audit team is preparing to conduct its audit for the F.Y ending on 31.03.2020. Audit
firm did not receive its fees for the F.Y ending on 31.03.2019. Audit team is tempted to issue a favourable report so
that auditee can secure a loan to settle auditor’s outstanding fees. The audit team did not comply with fundamental
principles of auditing and hence compromising Auditor’s Independence.

The Code of Ethics for Professional Accountants prepared by the International Federation of Accountants (IFAC)
identifies five types of threats. These are:

1. Self-interest threats, which occur when an auditing firm, its partner or associate could benefit from a financial
interest in an audit client. Examples include (i) direct financial interest or materially significant indirect financial
interest in a client, (ii) loan or guarantee to or from the concerned client, (iii) undue dependence on a client’s fees
and, hence, concerns about losing the engagement, (iv) close business relationship with an audit client, (v) potential
employment with the client, and (vi) contingent fees for the audit engagement.

2. Self-review threats, which occur when during a review of any judgement or conclusion reached in a previous audit
or non-audit engagement (Non audit services include any professional services provided to an entity by an auditor,
other than audit or review of the financial statements. These include management services, internal audit, investment
advisory service, design and implementation of information technology systems etc.), or when a member of the audit
team was previously a director or senior employee of the client. Instances where such threats come into play are (i)
when an auditor is having recently been a director or senior officer of the company, and (ii) when auditors perform
services that are themselves subject matters of audit.

3. Advocacy threats, which occur when the auditor promotes, or is perceived to promote, a client’s opinion to a
point where people may believe that objectivity is getting compromised, and e.g. when an auditor deals with shares
or securities of the audited company, or becomes the client’s advocate in litigation and third party disputes.

4. Familiarity threats are self-evident, and occur when auditors form relationships with the client where they end up
being too sympathetic to the client’s interests. This can occur in many ways: (i) close relative of the audit team
working in a senior position in the client company, (ii) former partner of the audit firm being a director or senior
employee of the client, (iii) long association between specific auditors and their specific client counterparts, and (iv)
acceptance of significant gifts or hospitality from the client company, its directors or employees.

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5. Intimidation threats, which occur when auditors are deterred from acting objectively with an adequate degree of
professional skepticism. Basically, these could happen because of threat of replacement over disagreements with the
application of accounting principles, or pressure to disproportionately reduce work in response to reduced audit fees.

4. P, a Chartered Accountant in practice provides management consultancy and other services to his clients. During
2020, looking to the growing needs of his clients to invest in the stock markets, he also advised them on Portfolio
Management Services whereby he managed portfolios of some of his clients. Is P guilty of professional misconduct?
(SM)
Advising on Portfolio Management Services: The Council of the Institute of Chartered Accountants of India (ICAI)
pursuant to Section 2(2)(iv) of the Chartered Accountants Act, 1949 has passed a resolution permitting
“Management Consultancy and other Services” by a Chartered Accountant in practice. A clause of the aforesaid
resolution allows Chartered Accountants in practice to act as advisor or consultant to an issue of securities including
such matters as drafting of prospectus, filing of documents with SEBI, preparation of publicity budgets, advice
regarding selection of brokers, etc. It is, however, specifically stated that Chartered Accountants in practice are not
permitted to undertake the activities of broking, underwriting and portfolio management services. Thus, a
chartered accountant in practice is not permitted to manage portfolios of his clients. In view of this, P would be guilty
of misconduct under the Chartered Accountant s Act, 1949.

5. Mr. G, a Chartered Accountant in practice as a sole proprietor has an office in Mumbai near Church Gate. Due to
increase in professional work, he opens another office in a suburb of Mumbai which is approximately 80 kilometers
away from the municipal limits of the city. For running the new office, he employs three retired Income-tax Officers.
Is Mr. G guilty of professional misconduct? (SM)

In terms of section 27 of the Chartered Accountants Act, 1949, if a chartered accountant in practice has more than
one office in India, each one of these offices should be in the separate charge of a member of the Institute. There is
however an exemption for the above if the second office is located in the same premises, in which the first office is
located; or the second office is located in the same city, in which the first office is located; or the second office is
located within a distance of 50 kms from the municipal limits of a city, in which the first office is located. Since the
second office is situated beyond 50 kms of municipal limits of Mumbai city, he would be liable for committing a
professional misconduct.

6. Mr. K, a practicing Chartered Accountant gave 50% of the audit fees received by him to a non-Chartered
Accountant, Mr. L, under the nomenclature of office allowance and such an arrangement continued for a number
of years. Discuss this in the light of Professional Ethics issued by ICAI. (SM)

Sharing of Audit Fees with Non-Member: As per Clause (2) of Part I of First Schedule to the Chartered Accountants
Act, 1949 a member shall be held guilty if a Chartered Accountant in practice pays or allows or agrees to pay or allow,
directly or indirectly, any share, commission or brokerage in the fees or profits of his professional business, to any
person other than a member of the Institute or a partner or a retired partner or the legal representative of a deceased
partner, or a member of any other professional body or with such other persons having such qualification as may be
prescribed, for the purpose of rendering such professional services from time to time in or outside India.

In the instant case, Mr. K, a practising Chartered Accountant gave 50% of the audit fees received by him to a non-
Chartered Accountant, Mr. L, under the nomenclature of office allowance and such an arrangement continued for a
number of years. In this case, it is not the nomenclature to a transaction that is material but it is the substance of the
transaction, which has to be looked into.

The Chartered Accountant had shared his profits and, therefore, Mr. K will be held guilty of professional misconduct
under the Clause (2) of Part I of First Schedule to the Chartered Accountants Act, 1949.

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7. Mr. X who passed his CA examination of ICAI on 18th July, 2020 and started his practice from August 15, 2020. On
16th August 2020, one female candidate approached him for articleship. In addition to monthly stipend, Mr. X also
offered her 1 % profits of his CA firm. She agreed to take both 1 % profits of the CA firm and stipend as per the rate
prescribed by the ICAI. The Institute of Chartered Accountants of India sent a letter to Mr. X objecting the payment
of 1 % profits. Mr. X replies to the ICAI stating that he is paying 1 % profits of his firm over and above the stipend
to help the articled clerk as the financial position of the articled clerk is very weak. Is Mr. X liable to professional
misconduct? (SM)

Sharing Fees with an Articled Clerk: As per Clause (2) of Part I of First Schedule to the Chartered Accountants Act
1949, a Chartered Accountant in practice shall be deemed to be guilty of professional misconduct if he pays or allows
or agrees to pay or allow, directly or indirectly, any share, commission or brokerage in the fees or profits of his
professional business, to any person other than a member of the Institute or a partner or a retired partner or the
legal representative of a deceased partner, or a member of any other professional body or with such other persons
having such qualification as may be prescribed, for the purpose of rendering such professional services from time to
time in or outside India.
In view of the above, the objections of the Institute of Chartered Accountants of India, as given in the case, are correct
and reply of Mr. X, stating that he is paying 1 % profits of his firm over and above the stipend to help the articled clerk
as the position of the articled clerk is weak is not tenable.
Hence, Mr. X is guilty of professional misconduct in terms of Clause (2) of Part I of First Schedule to the Chartered
Accountants Act 1949.

8. M/s XYZ, a firm in practice, develops a website “xyz.com”. The colour chosen for the website was a very bright
green and the web-site was to run on a “push” technology where the names of the partners of the firm and the
major clients were to be displayed on the web-site without any disclosure obligation from any regulator. Is this
website in compliance with guidelines issued by ICAI in this regard? (SM)

Posting of Particulars on Website: The Council of the Institute had approved posting of particulars on website by
Chartered Accountants in practice under Clause (6) of Part I of First Schedule to the Chartered Accountants Act, 1949
subject to the prescribed guidelines.
The relevant guidelines in the context of the website hosted by M/s XYZ are:
¨ No restriction on the colours used in the website;
¨ The websites are run on a “pull” technology and not a “push” technology;
¨ Names of clients and fees charged not to be given.

However, disclosure of names of clients and/or fees charged, on the website is permissible only where it is required
by a regulator, whether or not constituted under a statute, in India or outside India, provided that such disclosure is
only to the extent of requirement of the regulator.

Where such disclosure of names of clients and/or fees charged is made on the website, member/ firm shall ensure
that it is mentioned on the website [in italics], below such disclosure itself, that
“This disclosure is in terms of the requirement of [name of the regulator] having jurisdiction in [name of the
country/area where such regulator has jurisdiction] vide [Rule/ Directive etc. under which the disclosure is required by
the Regulator].

In view of the above, M/s XYZ would have no restriction on the colours used in the website but failed to satisfy the
other two guidelines. Thus, the firm would be liable for professional misconduct since it would amount to soliciting
work by advertisement.

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9. A partner of a firm of chartered accountants during a T.V. interview handed over a bio-data of his firm to the
chairperson. Such bio-data detailed the standing of the international firm with which the firm was associated. It
also detailed the achievements of the concerned partner and his recognition as an expert in the field of taxation in
the country. The chairperson read out the said bio-data during the interview. Discuss whether this action by the
Chartered Accountant would amount to misconduct or not. (SM)

Clause (6) of Part I of the First Schedule to the Chartered Accountants Act, 1949 prohibits solicitation of client or
professional work either directly or indirectly by circular, advertisement, personal communication or interview or by
any other means since it shall constitute professional misconduct.

Bio-data was handed over to the chairperson during the T.V. interview by the Chartered Accountant which included
details about the firm and the achievements of the partner as an expert in the field of taxation. The chairperson simply
read out the same in detail about association with the international firm as also the achievements of the partner and
his recognition as an expert in the field of taxation. Such an act would definitely lead to the promotion of the firms’
name and publicity thereof as well as of the partner and as such the handing over of bio-data cannot be approved.

The partner would be held guilty of professional miscount under Clause (6) of Part I of the First Schedule to the
Chartered Accountants Act, 1949.

10. (a) An advertisement was published in a Newspaper containing the photograph of Mr. X, a member of the
institute wherein he was congratulated on the occasion of the opening ceremony of his office.

(b) Mr. X, a Chartered Accountant and the proprietor of X & Co., wrote several letters to the Assistant Registrar of
Co-operative Societies stating that though his firm was on the panel of auditors, no audit work was allotted to the
firm and further requested him to look into the matter. (SM)

(a) Publishing an Advertisement Containing Photograph: As per Clause (6) of Part I of the First Schedule to the
Chartered Accountants Act, 1949, a Chartered Accountant in practice shall be deemed to be guilty of misconduct if he
solicits clients or professional work either directly or indirectly by a circular, advertisement, personal communication
or interview or by any other means.

In the given case, Mr. X published an advertisement in a Newspaper containing his photograph on the occasion of the
opening ceremony of his office. On this context, it may be noted that the advertisement which had been put in by the
member is quite prominent. If soliciting of work is allowed, the independence and forthrightness of a Chartered
Accountant in the discharge of duties cannot be maintained.

The above therefore amounts to soliciting professional work by advertisement directly or indirectly. Mr. X would be
therefore held guilty under Clause (6) of Part I of the First Schedule to the Chartered Accountants Act, 1949.

(b) Soliciting Professional Work: As per Clause (6) of Part I of the First Schedule to the Chartered Accountants Act,
1949, a Chartered Accountant in practice shall be deemed to be guilty of misconduct if he solicits clients or
professional work either directly or indirectly by a circular, advertisement, personal communication or interview or
by any other means.

In given case, Mr. X, a Chartered Accountant and proprietor of M/s X and Co., wrote several letters to the Assistant
Registrar of Co-operative Societies, requesting for allotment of audit work. In similar cases, it was held that the
Chartered Accountant would be guilty of professional misconduct under Clause (6) of Part I of the First Schedule to
the Chartered Accountants Act, 1949.

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Consequently, Mr. X would therefore be held guilty under Clause (6) of Part I of the First Schedule to the Chartered
Accountants Act, 1949.

11. A practising Chartered Accountant uses a visiting card in which he designates himself, besides as Chartered
Accountant, Cost Accountant. Is this a misconduct? (SM)

Cost Accountant: As stated in the Illustration given in clause 7 with reference to tax consultant, this would also
constitute misconduct under section 7 of the Act read with Clause (7) of Part I of the First Schedule to the Chartered
Accountants Act, 1949. A chartered accountant in practice cannot use any other designation than that of a chartered
accountant.

Nevertheless, a member in practice may use any other letters or descriptions indicating membership of accountancy
bodies which have been approved by the Council. Thus, it is improper for a chartered accountant to state in his
documents that he is a “Cost Accountant”. However as per the Chartered Accountants Act, 1949, the Council has
resolved that the members are permitted to use letters indicating membership of the Institute of Cost and Works
Accountants but not the designation “Cost Accountant”.

12. Mr. Nigal, a Chartered Accountant in practice, delivered a speech in the national conference organized by the
Ministry of Textiles. While delivering the speech, he told to the audience that he is a management expert and his
firm provides services of taxation and audit at reasonable rates. He also requested the audience to approach his
firm of chartered accountants for these services and at the request of audience he also distributed his business
cards and telephone number of his firm to those in the audience. Comment. (Apr-21 MTP + May-22)

Using Designation Other Than a CA and Providing Details of Services Offered: Clause (6) of Part I of the First Schedule
to the Chartered Accountants Act, 1949 states that a Chartered Accountant in practice shall be deemed to be guilty
of misconduct if he solicits clients or professional work either directly or indirectly by a circular, advertisement,
personal communication or interview or by any other means. Such a restraint has been put so that the members
maintain their independence of judgment and may be able to command respect from their prospective clients.

Section 7 of the Chartered Accountants Act, 1949 read with Clause (7) of Part I of the First Schedule to the said Act
prohibits advertising of professional attainments or services of a member. It also restrains a member from using any
designation or expression other than that of a chartered accountant in documents through which the professional
attainments of the member would come to the notice of the public.
Under the clause, use of any designation or expression other than chartered accountant for a chartered accountant
in practice, on professional documents, visiting cards, etc. amounts to a misconduct unless it be a degree of a
university or a title indicating membership of any other professional body recognised by the Central Government or
the Council.

Member may appear on television and films and agree to broadcast in the Radio or give lectures at forums and may
give their names and describe themselves as Chartered Accountants. Special qualifications or specialized knowledge
directly relevant to the subject matter of the programme may also be given but no reference should be made, in the
case of practicing member to the name and address or services of his firm. What he may say or write must not be
promotional of his or his firm but must be an objective professional view of the topic under consideration.

Thus, it is improper to use designation “Management Expert” since neither it is a degree of a University established
by law in India or recognised by the Central Government nor it is a recognised professional membership by the Central
Government or the Council. Therefore, he is deemed to be guilty of professional misconduct under both Clause (6)
and Clause (7) as he has used the designation “Management Expert” in his speech and also he has made reference

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to the services provided by his firm of Chartered Accountants at reasonable rates. Distribution of cards to audience
is also a misconduct in terms of Clause (6).

13. Mr. A is a practicing Chartered Accountant working as proprietor of M/s A & Co. He went abroad for 3 months.
He delegated the authority to Mr. Y a Chartered Accountant his employee for taking care of routine matters of his
office. During his absence Mr. Y has conducted the under mentioned jobs in the name of M/s A & Co.
(i) He issued the audit queries to client which were raised during the course of audit.
(ii) He issued production certificate to a client under the GST Act.
(iii) He attended the Income Tax proceedings for a client as authorized representative before Income Tax
Authorities.
Please comment on eligibility of Mr. Y for conducting such jobs in name of M/s A & Co. and liability of Mr. A under
the Chartered Accountants Act, 1949. (SM)

Delegation of Authority to the Employee: As per Clause (12) of Part I of the First Schedule of the Chartered
Accountants Act, 1949, a Chartered Accountant in practice is deemed to be guilty of professional misconduct “if he
allows a person not being a member of the Institute in practice or a member not being his partner to sign on his behalf
or on behalf of his firm, any balance sheet, profit and loss account, report or financial statements”.

In this case CA A proprietor of M/s A & Co., went to abroad and delegated the authority to another Chartered
Accountant Mr. Y, his employee, for taking care of routine matters of his office who is not a partner but a member of
the Institute of Chartered Accountants

Council has clarified that power to sign routine documents on which a professional opinion or authentication is not
required to be expressed may be delegated and such delegation will not attract provisions of this clause like issue of
audit queries during course of audit, asking for information or issue of questionnaire, attending to routing matters in
tax practice, subject to Sec 288 of Income Tax Act etc.

(i) In the given case, Mr. Y, a chartered accountant being employee of M/s A & Co. has issued audit queries which
were raised during the course of audit. Here Y is right in issuing the query, since the same falls under routine
work which can be delegated by the auditor. Therefore, there is no misconduct in this case as per Clause (12) of
Part I of First schedule to the Act.
(ii) Further, issuance of production certificate to client under GST Act by Mr. Y being an employee of M/s A & Co.
(an audit firm), is not routine work and is outside his authorities. Thus, CA A is guilty of professional misconduct
under Clause (12) of Part I of First Schedule of the Chartered Accountants Act, 1949.
(iii) In this instance, Mr. Y, CA employee of audit firm M/s A & Co. has attended the Income tax proceedings for a
client as authorized representative before Income Tax Authorities. Since the council has allowed the delegation
of such work, chartered accountant employee can attend to routine matter in tax practice as decided by the
council, subject to provisions of Section 288 of the Income Tax Act. Therefore, there is no misconduct in this case
as per Clause (12) of Part I of First schedule to the Act.

14. XYZ Co. Ltd. has applied to a bank for loan facilities. The bank on studying the financial statements of the
company notices that you are the auditor and requests you to call at the bank for a discussion. In the course of
discussions, the bank asks for your opinion regarding the company and also asks for detailed information regarding
a few items in the financial statements. The information is available in your working paper file. What should be
your response and why? (SM)

As per Clause (1) of Part I of the Second Schedule of the Chartered Accountants Act, 1949, a Chartered Accountant
in practice is deemed to be guilty of professional misconduct if he discloses information acquired in the course of his

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professional engagement to any person other than his client, without the consent of the client or otherwise than as
required by law for the time being in force.

SA 200 on " Overall Objectives of the Independent Auditor and the Conduct of an Audit in Accordance with
Standards on Auditing" also reiterates that, "the auditor should respect the confidentiality of information acquired
in the course of his work and should not disclose any such information to a third party without specific authority or
unless there is a legal or professional duty to disclose".

In the instant case, the bank has asked the auditor for detailed information regarding few items in the financial
statements available in his working papers. Having regard to the position stated earlier, the auditor cannot disclose
the information in his possession without specific permission of the client.

As far as working papers are concerned, working papers are the property of the auditor. The auditor may at his
discretion, make portions of or extracts from his working papers available to his client".

Thus, there is no requirement compelling the auditor to divulge information obtained in the course of audit and
included in the working papers to any outside agency except as and when required by any law.

15. Mr. A, a newly qualified Chartered Accountant, started his practice and sought clients through telephone calls
from his family and friends, almost all of them employed in one or other retail trade business. One of his friends
Mr. X gave him an idea to start online services and give stock certifications to traders with Cash Credit Limits in
Banks. Mr. A started a website with colourful catchy designs and shared the website address on his all social media
posts and stories and tagged 30 traders of his local community with caption “Easy Online Stock Certification
Services”. Besides, Mr. A entered in an agreement with a Digital Marketer to give 5% commission on each service
procured through him. Discuss if actions of Mr. A are valid in light of Professional Ethics and various
pronouncements and guidelines issued by ICAI. (SM)

As per Clause (6) of Part I of the First Schedule of the Chartered Accountants Act, 1949, a Chartered Accountant in
practice is deemed to be guilty of professional misconduct if he solicits clients or professional work either directly or
indirectly by circular, advertisement, personal communication or interview or by any other means.

Mr. A is wrong in seeking clients through family and friends. Creating a website is not a non - compliance provided it
is in line with the guidelines issued by the Institute in this regard. One of the guidelines is that the website should not
be in push mode.
Further, mentioning of clients’ names is also prohibited as per the guidelines.

In the given situation, Mr. A shared the website address on his all social media posts and stories and tagged 30 traders
of his local community with the caption “Easy Online Stock Certification Services” mentioning his current clients as
well. This is in complete contravention of the guidelines on website issued by the ICAI.

Thus, CA, A would be held guilty of professional misconduct under clause 6 of Part 1 of First Schedule of the Chartered
Accountants Act, 1949.

Author’s note: ICAI has asked this Q. twice & ignored Clause(2), Part I, First Schedule, so kindly avoid that.

16. Mr. D, a practicing CA, is appointed as a Director Simplicitor in XYZ Pvt. Ltd. After one year of appointment, Mr.
D resigned as the Director and accepted the Statutory Auditor position of the company. Is Mr. D right in accepting
the auditor position? (SM + Dec-21 New)

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As per Clause (4) of Part I of the Second Schedule of the Chartered Accountants Act, 1949, a Chartered Accountant
in practice is deemed to be guilty of professional misconduct if he expresses his opinion on financial statements of
any business or enterprise in which he, his firm, or a partner in his firm has a substantial interest.

Section 141 of the Companies Act, 2013 specifically prohibits a member from auditing the accounts of a company in
which he is an officer or employee. Although the provisions of the aforesaid section are not specifically applicable in
the context of audits performed under other statutes, e.g. tax audit, yet the underlying principle of independence of
mind is equally applicable in those situations also. Therefore, Council’s views are clarified in the following situations.

As per the clarifications issued by the Council, a member shall not accept the assignment of audit of a Company for
a period of two years from the date of completion of his tenure as Director, or resignation as Director of the said
Company.

In the instant case, Mr. D, a practicing CA, is appointed as a Director Simplicitor in XYZ Pvt. Ltd. After one year of
appointment, Mr. D resigned as the Director and accepted the Statutory Auditor position of the company. In view of
above provisions Mr. D cannot accept statutory audit of company until completion of two years after his resignation.

Thus, CA, D would be held guilty of professional misconduct under clause 4 of Part 1 of Second Schedule of the
Chartered Accountants Act, 1949.

17. Mr. F, a Chartered Accountant, gave advisory services to PQR Pvt. Ltd. Further, he gave them GST consultancy
and helped in ERP set up. Later, the company turned out to be a part of a group of companies involved in money
laundering. Mr. F was asked to provide details of the companies. Mr. F refused on the grounds that he gave only
consultancy services to the company and wasn’t supposed to keep any information about the company. Is Mr. F
right as per the guidelines issued by the ICAI? (SM)

The financial services industry globally is required to obtain information of their clients and comply with Know Your
Client Norms (KYC norms). Keeping in mind the highest standards of Chartered Accountancy profession in India, the
Council of ICAI issued such norms to be observed by the members of the profession who are in practice.

In the given situation, CA. F, gave GST consultancy and helped in ERP set up along with advisory services to PQR Pvt.
Ltd. Mr. F was asked to provide details of the companies as the company, turned out to be a part of a group of
companies, involved in money laundering. Contention of Mr. F that he gave only consultancy services to the company
and wasn’t supposed to keep any information about the company is not valid as Mr. F should have kept following
information in compliance with KYC Norms which are mandatory in nature and shall apply in all assignments pertaining
to attestation functions.
In the given case of PQR Pvt. Ltd., a Corporate Entity, Mr. F should have kept following information:
A General Information
ü Name and Address of the Entity
ü Business Description
ü Name of the Parent Company in case of Subsidiary
ü Copy of last Audited Financial Statement

B. Engagement Information Type of Engagement

C. Regulatory Information
ü Company PAN No.
ü Company Identification No.
ü Directors’ Names & Addresses
ü Directors’ Identification No.

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18. Mr. S, the auditor of ABC Pvt. Ltd. has delegated following works to his articles and staff:
i. Issue of audit queries during the course of audit.
ii. Issue of memorandum of cash verification and other physical verification.
iii. Letter forwarding draft observations/financial statements.
iv. Issuing acknowledgements for records produced.
v. Signing financial statements of the company.
Is this correct as per the Professional Ethics and ICAI’s guidelines and pronouncements? (SM)

As per Clause (12) of Part I of the First Schedule of the Chartered Accountants Act, 1949, a Chartered Accountant in
practice is deemed to be guilty of professional misconduct if he allows a person not being a member of the institute
in practice or a member not being his partner to sign on his behalf or on behalf of his firm, any balance sheet, profit
and loss account, report or financial statements.

The Council has clarified that the power to sign routine documents on which a professional opinion or authentication
is not required to be expressed may be delegated in the following instances and such delegation will not attract
provisions of this clause:
(i) Issue of audit queries during the course of audit.
(ii) Asking for information or issue of questionnaire.
(iii) Letter forwarding draft observations/financial statements.
(iv) Initiating and stamping of vouchers and of schedules prepared for the purpose of audit.
(v) Acknowledging and carrying on routine correspondence with clients.
(vi) Issue of memorandum of cash verification and other physical verification or recording the results thereof in
the books of the clients.
(vii) Issuing acknowledgements for records produced.
(viii) Raising of bills and issuing acknowledgements for money receipts.
(ix) Attending to routine matters in tax practice, subject to provisions of Section 288 of Income Tax Act.
(x) Any other matter incidental to the office administration and routine work involved in practice of accountancy.

In instant case, Mr. S, the auditor of ABC Pvt. Ltd. has delegated certain task to his articles and staff such as issue of
audit queries during the course of audit, issue of memorandum of cash verification and other physical verification,
letter forwarding draft observations/financial statements, issuing acknowledgements for records produced and
signing financial statements of the company.

Therefore, Mr. S is correct in allowing first four tasks i.e. issue of audit queries during the course of audit, issue of
memorandum of cash verification and other physical verification, letter forwarding draft observations/financial
statements, issuing acknowledgements for records produced to his staff and articles.

However, if the person signing the financial statements on his behalf is not a member of the institute in practice or a
member not being his partner to sign on his behalf or on behalf of his firm, Mr. S is wrong in delegating signing of
financial statements to his staff.

Conclusion: In view of this, S would be guilty of professional misconduct for allowing signing of financial statements
on his behalf to his articles and staff under Clause 12 of Part 1 of First Schedule of the Chartered Accountants Act,
1949.

19. Nam & Co., conducted Stock Audit of DEF Ltd. as per instructions issued by HEG Bank. However instead of visiting
the site where the stock was lying, the firm relied on the Management Information Systems report along with
inspections reports and photographs of Stock taken by the employees of DEF Ltd. The photographs were also

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carrying the date and time printed on them. Comment with reference to the Chartered Accountants Act, 1949 and
its schedules thereto. (Jan-21 New)

According to Clause (7) of Part I of Second Schedule to the Chartered Accountants Act, 1949, a Chartered Accountant
in practice is deemed to be guilty of professional misconduct if he “does not exercise due diligence or is grossly
negligent in the conduct of his professional duties”.

It is a vital clause which usually gets attracted whenever it is necessary to judge whether the accountant has
honestly and reasonably discharged his duties. The expression negligence covers a wide field and extends from the
frontiers of fraud to collateral minor negligence.

In the instant case, CA. Nam &Co. did not exercise due diligence and is grossly negligent in the conduct of his
professional duties since it did not visit the site where the stock was lying and instead the firm relied on the MIS report
along with inspection reports and photographs of stock taken by the employees of DEF Ltd, which is incorrect.

To conduct stock audit, ascertainment of existence and physical condition of stocks, cross tallying the stock with Stock
statement submitted by bank borrower, correct classification of stocks for valuation purpose etc. is essential. Further
submitting stock audit report without physically verifying the stock amounts to gross negligence.

From the above, it can be concluded that Nam & Co. is guilty of professional misconduct under Clause (7) of Part I of
Second Schedule to the Chartered Accountants Act, 1949.

20. CA N was appointed as an auditor of JAL Ltd. The company has branches all over the state of Haryana. CA N, in
consultation with management, decided to Visit 6 out of 10 branches. Management decided to pay him advance of
₹ 2.00 Lacs against the estimated expenses of ₹ 2.50 Lacs on visits to be conducted as a part of services rendered.
As agreed, ₹ 2.00 Lacs was transferred in his bank account from which he met all the expenses. Comment with
reference to Chartered Accountants Act, 1949 whether the action of CA N of receiving the advance money in his
saving accounts and not keeping it in separate bank account is valid. (Jan-21 New)

As per Clause (10) of Part I of Second Schedule to the Chartered Accountant Act, 1949, a Chartered Accountant in
practice will be deemed to be guilty of professional misconduct if he fails to keep moneys of his client other than the
fees or remuneration or money meant to be expended in a separate banking account or to use such moneys for
purposes for which they are intended within a reasonable time.

In the course of his engagement as a professional accountant, a member may be entrusted with moneys belonging to
his client. If he should receive such funds, it would be his duty to deposit them in a separate banking account, and to
utilize such funds only in accordance with the instructions of the client or for the purposes intended by the client.

In this connection the Council has considered some practical difficulties of the members and the following suggestion,
among other suggestions, has been made to remove these difficulties: “An advance received by a Chartered
Accountant against services to be rendered does not fall under Clause (10) of Part I of the Second Schedule”

In the given case, CA N was given an advance of ₹ 2 Lakhs against the estimated expenses of ₹ 2.50 Lakhs on visits to
be conducted as a part of services rendered.

Applying the above, it can be concluded that CA N is not guilty of professional misconduct under Chartered
Accountants Act, 1949.

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21. CA AB, a practicing chartered accountant, is a promoter director of ABG Pvt. Ltd. and moreover he is also a
sleeping partner in his family business of garments manufacturing firm. Is CA. AB liable for professional misconduct
as per Chartered Accountant Act 1949? (Jan-21 New)

Clause (11) of Part I of the First Schedule to the Chartered Accountants Act, 1949 debars a chartered accountant in
practice from engaging in any business or occupation other than the profession of chartered accountancy unless
permitted by the Council of the Institute so to engage.

Promoter/Promoter Director - There is no bar for a member to be a promoter / signatory to the Memorandum and
Articles of Association of any company. There is also no bar for such a promoter / signatory to be a Director
Simplicitor of that company irrespective of whether the object of the company include areas which fall within the
scope of the profession of chartered accounts. Therefore, members are not required to obtain specific permission of
the Council in such cases.
Sleeping partner in the family business-

Prior Approval – Members of the Institute in practice may engage in the following category, among other points, of
business or occupations, after obtaining the specific and prior approval of the Council in case of:
Interest in family business concerns (including such interest devolving on the members as a result of inheritance /
succession / partition of the family business) or concerns in which interest has been acquired as a result of
relationships and in the management of which no active part is taken.

In the given case, CA AB is a promoter director of ABG Pvt Ltd and also he is a sleeping partner in his family business
of garments manufacturing firm.
Applying the above to the given case, it can be concluded that-CA AB:
• As Promoter Director- Not guilty of professional misconduct under Chartered Accountants Act, 1949
• As Sleeping Partner- guilty of professional misconduct under Chartered Accountants Act, 1949 as he did not obtain
prior approval of the Council.

22. CA Natraj, in practice, accepted an assignment as advisor and consultant to the public issue of shares by his
client M/s Super Ltd. Besides helping the company as an advisor, he also underwrote the public issue of the
company to the extent of 25% at a commission of 1%. Remaining shares were underwritten by banks and other
financial institutions at the same rate of commission. He contends that above assignments are part of management
consultancy work permitted by the council of the Institute. Do you agree with the view of CA Natraj? Decide in the
light of applicable code of conduct. (May-19 New)

Assignment as Advisor and Consultant: The Council of the Institute of Chartered Accountants of India (ICAI) pursuant
to Section 2(2)(iv) of the Chartered Accountants Act, 1949 has passed a resolution permitting “Management
Consultancy and other Services” by a Chartered Accountant in practice. A clause of the aforesaid resolution allows
Chartered Accountants in practice to act as advisor or consultant to an issue of securities including such matters as
drafting of prospectus, filing of documents with SEBI, preparation of publicity budgets, advice regarding selection of
brokers, etc. It is, however, specifically stated that Chartered Accountants in practice are not permitted to undertake
the activities of broking, underwriting and portfolio management services.

In the instant case, CA Natraj accepted an assignment as advisor and consultant to the public issue of shares by his
client M/s Super Ltd. In addition, he also underwrote the public issue of the company to the extent of 25% at a
commission of 1%. Contention of CA. Natraj that advisor, consultant and underwriting work is part of management
consultancy work and permitted by the council is not correct as Chartered Accountants in practice are not permitted
to undertake the activities of broking, underwriting and portfolio management services.

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Conclusion: In view of this, CA. Natraj would be guilty of misconduct under the Chartered Accountants Act, 1949.

23. CA Sant, a newly qualified professional with certificate of practice, approached CA Pant, the auditor of his
father's company M/s Max Ltd., to allow him to have some practical and professional knowledge and experience
in his firm before he can set up his own professional practice. CA Pant allowed him to sit in his office for 6 month
and allotted a small chamber with other office infrastructure facility. In the course of his association with CA Pant'
s office, he used to provide tax consultancy independently to the client of the firm and also filed few IT and GST
return and represented himself before various tax authorities on behalf of the firm although no documents were
signed by him. During his association in CA Pant's office, he did not get any salary or share of profit or commission
but only re-imbursement of usual expenses like conveyance, telephone etc. was made to him. After the end of the
agreed period, he was given a lump sum amount of ₹ 3,00,000 by CA Pant for his association out of gratitude.
Examine the case in the light of code of professional misconduct. (May-19 New + MTP Apr-22/May-23)

Clause (1) of Part I of the First Schedule to the Chartered Accountants Act, 1949 states that a chartered accountant
in practice shall be deemed to be guilty of professional misconduct if he allows any person to practice in his name as
a chartered accountant unless such person is also a chartered accountant in practice and is in partnership with or
employed by him.

The above clause is intended to safeguard the public against unqualified accountant practicing under the cover of
qualified accountants. It ensures that the work of the accountant will be carried out by a Chartered Accountant who
may be his partner, or his employee and would work under his control and supervision.

In the instant case, CA Pant allowed CA Sant (who is a newly qualified CA professional with COP) to sit in his office for
6 months, and allowed him to provide tax consultancy independently to his firm’s clients, filing of some IT and GST
Returns. He also allowed him to appear before various tax authorities on behalf of his firm. CA Sant was only
reimbursed with his usual expenses and was not paid any salary or share of profit for the same. However, after the
end of agreed period he was given a lump-sums of rupees 3,00,000 for his association out of gratitude.

Thus, in the present case CA. Pant will be held guilty of professional misconduct as per Clause (1) of Part I of First
Schedule to the Chartered Accountants Act, 1949 as he allowed CA Sant to practice in his name as Chartered
accountant and CA Sant is neither in partnership nor in employment with CA. Pant.

Author’s Note: Clause (2) won’t be attracted as sharing fees with another member of ICAI is allowed.

24. Comment with reference to the Chartered Accountants Act, 1949 and schedules thereto: A special notice has
been issued for a resolution at 3rd annual general meeting of LED Ltd., providing expressly that CA. Anoop shall not
be re-appointed as an auditor of the· company. Consequently, CA. Anoop submitted a representation in writing to
the company with a request to circulate to the members. In the detailed representation, CA. Anoop included the
contributions made by him in strengthening the control procedures of the company during his association with the
company and also indicated his willingness to continue as an auditor if reappointed by the shareholders of the
company. (Nov-19 New)

Soliciting Clients: As per Clause (6) of Part I of First Schedule to the Chartered Accountants Act, 1949, a Chartered
Accountant in practice is deemed to be guilty of professional misconduct if he solicits clients or professional work
either directly or indirectly by circular, advertisement, personal communication or interview or by any other means
except applying or requesting for or inviting or securing professional work from another chartered accountant in
practice and responding to tenders.

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Further, section 140(4)(iii) of the Companies Act, 2013, provides a right, to the retiring auditor, to make
representation in writing to the company. The retiring auditor has the right for his representation to be circulated
among the members of the company and to be read out at the meeting. However, the content of letter should be set
out in a dignified manner how he has been acting independently and conscientiously through the term of his office
and may, in addition, indicate, if he so chooses, his willingness to continue as auditor, if re- appointed by the
shareholders.

The proposition of the auditor to highlight contributions made by him in strengthening the control procedures in the
representation should not be included in such representations because the representation letter should not be
prepared in a manner so as to seek publicity.

Thus, highlighting contributions made by him in strengthening the control procedures, while submitting
representation U/S 140(4)(iii) of the Companies Act 2013, would amount to canvassing or soliciting for his continuance
as auditor.

Therefore, CA. Anoop will be held guilty for professional misconduct under Clause (6) of Part I of First Schedule to
the Chartered Accountants Act, 1949.

25. Mr. 'K’, a practicing Chartered Accountant is the proprietor of M/s K & Co. since 1995. He went abroad in the
month of December 2018. He delegated the authority to Mr. ‘Y’ a Chartered Accountant, his employee for taking
care of the important matters of his office. During his absence Mr. 'Y' has conducted the undermentioned jobs in
the name of M/s K & Co.
(i) He issued Net worth certificate to a client for furnishing to a Bank.
(ii) He attended the GST proceedings for a client as authorized representative before GST Authorities.
Please comment on eligibility of Mr. 'Y' for conducting such jobs in name of M/s K & Co. and liability of Mr. 'K’ under
the Chartered Accountants Act, 1949. (Nov-19 New)

Delegation of Authority to the Employee: As per Clause (12) of Part I of the First Schedule of the Chartered
Accountants Act, 1949, a Chartered Accountant in practice is deemed to be guilty of professional misconduct “if he
allows a person not being a member of the Institute in practice or a member not being his partner to sign on his behalf
or on behalf of his firm, any balance sheet, profit and loss account, report or financial statements”.

In this case CA. ‘K’ proprietor of M/s K & Co., went abroad and delegated the authority to another Chartered
Accountant Mr. Y, his employee, for taking care of the important matters of his office who is not a partner but a
member of the Institute of Chartered Accountants of India.

The Council has clarified that the power to sign routine documents on which a professional opinion or authentication
is not required to be expressed may be delegated and such delegation will not attract provisions of this clause like
issue of audit queries during the course of audit, asking for information or issue of questionnaire, attending to routing
matters in tax practice, subject to provisions of Section 288 of Income Tax Act etc.
(i) In the given case, Mr. ‘Y’, a chartered accountant being employee of M/s K & Co. has issued net worth certificate
for furnishing to a bank. Since the issuance of net worth certificate to a client by Mr. “Y” being an employee of
M/s K& Co. (an audit firm), is not a routine work and it is outside his authorities. Thus, CA. ‘K’ is guilty of
professional misconduct under Clause (12) of Part I of First Schedule of the Chartered Accountants Act, 1949.
(ii) Further, Mr. “Y”, CA employee of the audit firm M/s K& Co. has attended the GST proceedings for a client as
authorized representative before GST Authorities. Since the council has allowed the delegation of such work,
the chartered accountant employee can attend to routine matter in tax practice as decided by the council.
Therefore, there is no misconduct in this case as per Clause (12) of Part I of First schedule to the Act.

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26. Mr. 'C', a Chartered Accountant employed as Senior executive in charge of Tax in a company, and not holding
certificate of practice recommends a particular lawyer to his employer in respect of a case. The lawyer, out of the
professional fee received from the employer of Mr. 'C' paid a particular sum as referral fee to Mr. 'C'. Comment
with reference to the Chartered Accountants Act, 1949 and schedules thereto. (Nov-19 New & Old)

Referral Fee from Lawyer: According to Clause (2) of Part II of First Schedule of the Chartered Accountant Act, 1949,
a member of the Institute(other than a member in practice) shall be guilty of professional misconduct, if he being an
employee of any company, firm or person accepts or agrees to accept any part of fee, profits or gains from a lawyer,
a chartered accountant or broker engaged by such company, firm or person or agent or customer of such company,
firm or person by way of commission or gratification.

In the present case, Mr. C who is an employee and by referring a lawyer to the company in respect of a case, he
receives a particular sum as referral fee from the lawyer out of his professional fee.

Conclusion: Therefore, Mr. C is guilty of professional misconduct by virtue of Clause (2) of Part II of First schedule.

27. Comment with reference to the Chartered Accountants Act, 1949 and schedules thereto: CA Dice had signed the
Balance sheet of QR Ltd. for the year ended 31st March, 2019 which failed to give disclosure of the charge created
for ₹ 4.35 crores against the Corporate Guarantee given in favour of a Group Company. The Balance Sheet size of
the company filed with the Registrar of Companies was ₹ 26.12 crores. (Nov-19 New)

Failure to Disclose Material Facts: As per Clause (5) of Part I of Second Schedule to the Chartered Accountants Act,
1949, a chartered Accountant in practice will be held liable for misconduct if he fails to disclose a material fact known
to him which is not disclosed in a financial statement, but disclosure of which is necessary in making such financial
statement not misleading where he is concerned with that financial statement in a professional capacity.

It may be observed that this clause refers to failure to disclose a material fact, which is known to him, in a financial
statement reported on by the auditor. It is obvious, that before a member could be held guilty of misconduct,
materiality has to be established. The determination of materiality has been provided in SA 320, “Materiality in
Planning and Performing an Audit”.

Financial reporting frameworks often discuss the concept of materiality in the context of the preparation and
presentation of financial statements. Although financial reporting frameworks may discuss materiality in different
terms, they generally explain, among other points, that Judgments about materiality are made in the light of
surrounding circumstances, and are affected by the size or nature of a misstatement, or a combination of both.

In this case, CA Dice has signed a Balance Sheet which failed to give disclosure of ₹ 4.35 crores (considered material
fact applying above SA 320 principle) against the corporate guarantee given in favour of a Group Company. Size of
Balance Sheet of QR Ltd is ₹ 26.12 crore.

This material fact has to be disclosed in the financial statements. Keeping in view the above, he is attracted by the
provisions of professional misconduct under Clause (5) of Part I of Second Schedule to the Chartered Accountants
Act, 1949.

Author’s Note: In ICAI SM, same example is given under Clause(6) of Part I of Second Schedule of Chartered
Accountants Act, 1949. So, it’s better you quote both if this question repeats in exam.

28. Mr. Kushal, a practicing Chartered Accountant has signed the GST Audit Reports, Tax Audit Reports u/s 44AB of
the Income tax Act, 1961 for the financial year 2019-20 that are filed online using Digital Signature and without

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generating UDIN on the ground that there is no field for mentioning UDIN on digitally signed online reports. Is the
contention of Mr. Kushal valid? Give your comments with reference to the Chartered Accountants Act, 1949 and
schedules thereto. (Nov-20 New)

Non Generation of UDIN: Whereas, to curb the malpractice of false/certification/attestation by the unauthorized
persons and to eradicate the practice of bogus certificates and to save various regulators, banks, stakeholders etc.
from being misled, the Council of the Institute decided to implement an innovative concept to generate Unique
Document Identification Number (UDIN) mandatorily for all kinds of the certificates/GST and tax audit reports and
other attest function in phased manner, for which members of ICAI were notified through various announcements
published on website of ICAI at the relevant times.

In exercise of the powers conferred on it under clause 1 of Part II of the Second Schedule to the Chartered
Accountants Act,1949, Council of ICAI issued following guidelines for information of public and necessary compliance
by members of the Institute-
A member of the Institute in practice shall generate UDIN for all kinds of certification, GST and Tax Audit Reports and
other Audit, Assurance and Attestation functions undertaken/signed by him which are made mandatory from the
following dates through announcements published on the website of the ICAI-
• For all Certificates w.e.f. 1st February,2019.
• For all GST and Tax Audit Reports w.e.f. 1st April, 2019.
• For all other Audit, Assurance and Attestation functions, w.e.f. 1st July, 2019.

Conclusion: UDIN will be applicable to GST & Tax Audit Reports signed by Mr. Kushal for the financial year 2019-20
that are filed online using Digital Signature. In case where there is no field for mentioning UDOIN on digitally signed
online reports, UDION has to be generated and communicated to “Management” or “Those Charged with
Governance” for disseminating it to the stakeholders from their end.

Hence he will be held guilty under Clause 1 of Part II of the Second Schedule to the Chartered Accountants Act,1949.

Alternative Answer
According to Clause (9) of Part I of Second Schedule to the Chartered Accountants Act, 1949, a Chartered Accountant
in practice shall be deemed to be guilty of professional misconduct if he fails to invite attention to any material
departure from the generally accepted procedure of audit applicable to the circumstances.

This clause implies that audit should be performed in accordance with “generally accepted procedure of audit
applicable to the circumstances” and if for any reason the auditor has not been able to perform the audit in
accordance with such procedure, his report should draw attention to the material departures from such procedures.

What constitutes “generally accepted audit procedure” would depend upon the facts and circumstances of each case,
but guidance is available in general terms from the various pronouncements of the Institute is issued by way of
statements and Guidance Notes and SAs to members.

A member of the Institute in practice shall generate Unique Document Identification Number (UDIN) for all kinds of
the certification, GST and Tax Audit Reports and other Audit, Assurance and Attestation functions undertaken/signed
by him.

In given case, Mr. Kushal has signed GST Audit Reports, Tax Audit Reports under section 44AB of Income Tax Act, 1961
for the F.Y.2019-20 and also has filed online using Digital Signature without generating UDIN on the ground that there
is no field for mentioning UDIN on digitally signed online reports. Applying the above clause, UDIN provision etc. to
the given case, Mr. Kushal would be held guilty of professional misconduct.

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29. Comment with reference to the Chartered Accountants Act, 1949 and schedules thereto: Mr. Vineet, a chartered
accountant in practice, created his own website in attractive format and highlighted the contents in purple colour.
The website also displayed the nature of assignments handled along with the names of clients without such
requirement from any of the regulator. He also circulated the information contained in the website through e-mail
to acknowledge public at large about his expertise. However, he did not intimate his website address to the
Institute. (Nov-20 New)

Circulating Information Contained in Own Website: As per Clause (6) of Part I of the First Schedule to the Chartered
Accountants Act, 1949, a Chartered Accountant in practice is deemed to be guilty of professional misconduct if he
solicits clients or professional work either directly or indirectly by circular, advertisement, personal communication or
interview or by any other means.

1. However, guidelines approved by Council of ICAI permit creation of own website by a chartered accountant in his
or his firm name and no standard format or restriction on colours is there. Hence there is no misconduct as per
Clause (6) of Part I of the First Schedule to the Chartered Accountants Act, 1949.

2. The chartered accountant or firm, as per the guidelines, should ensure that none of the information contained in
the website be circulated on their own or through E-mail or by any other mode except on a specific “Pull” request.
Mr. Vineet has circulated the information contained in the website through e-mail to public at large. Therefore, he is
guilty of professional misconduct under Clause (6) of Part I of the First Schedule to the said Act.

3. Nature of assignments handled (to be displayable only on specific “pull” request). Names of clients and fee
charged cannot be given without such requirement from any of the regulator. Mr. Vineet has displayed the nature of
assignments handled along with the name of clients without such requirement from the regulator. Therefore, he is
guilty of professional misconduct under Clause (6) of Part I of the First Schedule to the said Act.

4. The website address of the member be obtained on annual basis in the annual form required to be filed by the
member while paying fee and the same be taken as entry on record.

Thus guilty of professional misconduct.

30. P, a CA availed a loan against his securities held as investments from a nationalized bank. He issued 2 cheques
towards repayment of the said loan. Both the cheques were returned unpaid by the bank with the remark “Refer
to Drawer”. Comment with reference to the Chartered Accountants Act, 1949 as amended by the Chartered
Accountants (Amendment) Act, 2006 and Schedules thereto. (Jan-21 Old)

Bringing Disrepute to the Profession: A Chartered Accountant is expected to maintain the highest standard of
integrity even in his personal affairs and any deviation from these standards, even in his non-professional work would
expose him to disciplinary action.

A member is liable to disciplinary action under Section 21 of the Chartered Accountants Act, if he is found guilty of
any professional or “Other Misconduct”.

As per Clause (2) of Part IV of the First Schedule to the Chartered Accountants Act, 1949, a member of the Institute,
whether in practice or not, shall be deemed to be guilty of other misconduct, if he in the opinion of the Council, brings
disrepute to the profession or the Institute as a result of his action whether or not related to his professional work.
The question whether a particular act or omission constitutes “other misconduct” should be based on fact and
circumstances of each case.

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Under Negotiable Instruments Act 1881, where any cheque drawn by a person for the discharge of any liability is
returned by the bank unpaid, either for insufficiency of funds or the cheque amount exceeds the arrangements made
by the drawer of the cheque, the drawer of such cheque shall be deemed to have committed an offence.

In the given case the cheque was dishonoured with the remark “refer to drawer”. However, such dishonour need not
necessarily be only due to insufficiency of funds.

If it is proved that the cheques were dishonoured due to insufficiency of funds, the CA P would be held guilty of “other
misconduct”.

Author’s Note: Most students forget to quote reference of Negotiable Act and give wrong conclusion.

31. Mr. P, a practicing Chartered Accountant did not reply within a reasonable time and without any cause to the
letter received from the local Police Station, a public authority, soliciting his suggestions as regards some non-
professional work. Comment with reference to Chartered Accountant Act, 1949. (Jan 21- Old)

Section 21 of the Chartered Accountants Act, 1949 provides that a member is liable for disciplinary action if he is
guilty of any professional or “Other Misconduct.” Though the term “Other Misconduct” has not been defined in the
said Act, this provision enables the Council to enquire into any misconduct of a member even if it does not arise out
of his professional work.

This is considered necessary because a chartered accountant is expected to maintain the highest standards of integrity
even in his personal affairs and any deviation from these standards even in his non-professional work, would expose
him to disciplinary action. The Council has also laid down that among other things “non-replying within a reasonable
time and without a good cause to the letter of the public authorities.” would amount to “other misconduct”.

In the given scenario, CA. P did not reply within a reasonable time and without any cause to the letter received from
the local police station, a public authority regarding soliciting his suggestion as regards some non-professional work.
Thus, in the instant case, CA. P would be liable for disciplinary action.

Author’s Note: Don’t confuse it with clause(3)/Part II/Second Schedule its about false info to ICAI

32. A Chartered Accountant in practice, empanelled as an Insolvency Professional (IP) has mentioned the same on
his visiting cards, letter heads and other communications also. A person residing in his neighbourhood, has filed a
complaint for professional misconduct against the said member for such mention of IP. You are required to examine
the same with reference to the Chartered Accountants Act, 1949. (May-19 Old)

Using Designation of Insolvency Professional: As per Clause (7) of Part I of First Schedule to the Chartered
Accountants Act, 1949, a CA in practice is deemed to be guilty of professional misconduct if he (i) advertises his
professional attainments or services or (ii) 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 recognized by the Central Government or a title indicating membership of the ICAI or of any other
institution that has been recognized by the Central Government or may be recognized by the council.

Here, a Chartered Accountant empanelled as IP (Insolvency Professional) can mention “Insolvency Professional” on
his visiting cards, letter heads and other communication, as this is a title recognised by the Central Government in
terms of Clause 7 of Part 1 of First Schedule to the Chartered Accountants Act, 1949. Thus, complaint of neighbour is
not enforceable/ valid.

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33. Mr. A, Chartered Accountant in practice as a sole proprietor at Mumbai has an office in the suburbs of Mumbai.
Due to increase in the income tax assessment work, he opens another office near the income tax office, which is
within the city and at a distance of 30 kms from his office in the suburbs. For running the new office, he has
employed a retired Income Tax Commissioner who is not a Chartered Accountant. Examine the above with respect
to the Chartered Accountants Act, 1949. (May-19 Old)

Maintenance of Branch Office in the Same City: As per section 27 of the Chartered Accountants Act, 1949 if a
chartered accountant in practice has more than one office in India, each one of these offices should be in the separate
charge of a member of the Institute.

However, a member can be in charge of two offices if the second office is located in
ü the same premises or
ü in the same city, in which the first office is located; or
ü is located within a distance of 50 kms from municipal limits of a city, in which first office is located.

In given case, Mr. A, Chartered Accountant in practice as a sole proprietor at Mumbai has an office in suburbs of
Mumbai and due to increase in the work he opened another branch within the city near the income tax office. He also
employed a retired income tax commissioner to run the new office and the second office is situated within a distance
of 30 kilometers from his office in the suburb.

Conclusion: In view of above provisions, there will be no misconduct if Mr. A will be in-charge of both the offices.
However, he is bound to declare which of the two offices is the main office.

34. CA. P is a newly qualified Chartered Accountant in practice and in order to increase his professional practice and
client base, entered into an agreement with Mr. A, a qualified and experienced registered valuer, to share 20%
professional fees for all cases of valuation referred to him by CA. P. Based on this, CA. P received ₹ 1,20,000 during
the year 2018-19 from Mr. A. Is CA. P guilty of misconduct under the Chartered Accountants' Act, 1949?
(Nov-19 Old)
Sharing Professional Fees with Registered Valuer: As per Clause (3) of Part I of the First Schedule to the Chartered
Accountants Act, 1949, a chartered accountant will be guilty of professional 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.

A member cannot share his fees with a non-member. Similarly he is also not permitted to receive and share the fees
of others except for sharing with Member of such professional body or other person having such qualification as may
be prescribed (Regulation 53A of the Chartered Accountants Regulations, 1988) by the Council. Under the Regulation
53-A of the Chartered Accountants Regulations, 1988, registered valuer is not included.

In the instant case Mr. P, who is a newly qualified Chartered Accountant in practice entered into an agreement with
Mr. A, a qualified and experienced registered valuer, to share 20% professional fees for all case of valuation referred
to him by CA. P. CA. P also received rupees 1,20,000 for the same from Mr. A. Thus, CA P will be held guilty for
misconduct under clause (3) of Part I of the First Schedule to the Chartered Accountants Act, 1949.

35. A firm of Chartered Accountants was appointed by a company to evaluate the costs of the various products
manufactured by it for its information system. One of the partners of the firm was a Non-Executive Director of the
company. Comment with reference to the Chartered Accountants Act, 1949 and Schedules thereto. (Nov-20 Old)

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Evaluation of Cost of Products: Clause (4) of Part I of the Second Schedule to Chartered Accountants Act, 1949,
states that expressing an opinion on financial statements of any business or enterprise in which he, his firm or a
partner in his firm has a substantial interest would constitute misconduct.

Also, the Council of the Institute of Chartered Accountants of India has stated that in cases where a member of the
Institute is a director of a company, or the firm in which the said member is a partner, he should not express any
opinion on its financial statements.

As per facts of the case, the firm has been retained to evaluate the cost of products manufactured by it for its
information system. It is a part of management consultancy service of the firm and, moreover, its partner was on the
Board.

Hence, the firm can perform this assignment and it will not constitute misconduct. However, the firm while accepting
the position as auditor in future would have to consider whether it would be possible to act in an independent manner
and express opinion on financial statements.

36. Comment on the following with reference to the Chartered Accountants Act, 1949 and schedules thereto:
(a) OPAQ & Associates, a firm of Chartered Accountants responded to a tender issued exclusively for Chartered
Accountants by an organisation in the area of tax audit. However no minimum fee was prescribed in the tender
document. (RTP May-20)

Responding to Tenders: Clause (6) of Part I of the First Schedule to the Chartered Accountants Act, 1949 lays down
guidelines for responding to tenders, etc. It states that a member may 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.

However, a member of the Institute in practice shall not respond to any tender issued by an organization or user of
professional services in areas of services which are exclusively reserved for Chartered Accountants, such as audit and
attestation services.

Though, such restriction shall not be applicable where minimum fee of the assignment is prescribed in the tender
document itself or where areas are open to other professionals along with Chartered Accountants.

In instant case, OPAQ & Associates responded to a tender of tax audit which is exclusively reserved for Chartered
Accountants even though no minimum fee was prescribed in the tender document.

Therefore, OPAQ & Associates shall be held guilty of professional conduct for responding to such tender in view of
above-mentioned guideline.

(b) Agarwal Pvt Ltd. approached CA. Prem, a Chartered Accountant in practice, for debt recovery services. CA Prem
accepted the work and insisted for fees to be based on 2% of the debt recovered.

Charging of Fees based on Percentage: Clause (10) of Part I to First Schedule to the Chartered Accountants Act, 1949
prohibits a Chartered Accountant in practice to charge, to offer, to accept or accept fees which are based on a
percentage of profits or which are contingent upon the findings or results of such work done by him.
However, this restriction is not applicable where such payment is permitted by the Chartered Accountants Act, 1949.
The Council of the Institute has framed Regulation 192 which exempts debt recovery services where fees may be
based on a percentage of the debt recovered.

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In the given case, CA. Prem has insisted for fees to be based on percentage of the debt recovered (which is exempted
under Regulation 192).
Hence, CA. Prem will not be held guilty for professional misconduct.

(C) Mr. P and Mr. Q are running a firm of Chartered Accountants in the name of PQ & Co. On 23.05.2019, they
included the name of Mr. R, a practicing Chartered Accountant, without his knowledge, as a partner while
submitting an application for empanelment as auditor for branches of a public sector bank, to the Institute.
However, they added Mr. R as a partner to their firm offering a share of 25% of the profits, on 25.05.2019.

Submitting Wrong Information to the Institute: As per Clause (3) of Part II of the Second Schedule to the Chartered
Accountants Act, 1949, a member of the Institute, whether in practice or not, shall be deemed to be guilty of
professional misconduct if he includes in any information, statement, return or form to be submitted to the Institute,
Council or any of its committees, Director (Discipline), Board of Discipline, Disciplinary Committee, Quality Review
Board or the Appellate Authority any particulars knowing them to be false.

In the instant case, Mr. P and Mr. Q, partners of PQ & Co., included the name of Mr. R, another Chartered Accountant,
as partner in their firm, without his knowledge, in their application for empanelment as auditor of branches of Public
Sector Banks submitted to the Institute. However, such a member was not a partner of the said firm as on the date of
application submitted. Here, Mr. P and Mr. Q have submitted wrong information to the Institute.

Therefore, Mr. P and Mr. Q, both, would be held guilty of professional misconduct under Clause (3) of Part II of the
Second Schedule to the Chartered Accountants Act, 1949.

37. C.A. Ajitnath is Special Executive Magistrate. He also took over as the Executive Chairman of Software Company
on 1.4.2020. He is also a leading income tax practitioner and consultant for derivative products. He resides in
Chennai near to the ION commodity stock exchange and does trading in commodity derivatives. Every day, he
invests nearly 40% of his time to settle the commodity transactions. He has not taken any permission for becoming
Special Executive Magistrate. However, he has got special permission of Council of ICAI for becoming Executive
Chairman. Is C.A. Ajitnath liable for professional misconduct?
(RTP May-21)
Engaging into a Business: As per Clause (11) of Part I of First Schedule of Chartered Accountants Act, 1949, a
Chartered Accountant in practice is deemed to be guilty of professional misconduct if he engages in any business or
occupation other than the profession of Chartered Accountant unless permitted by the Council so to engage.

However, the Council has granted general permission to the members to engage in certain specific occupation. In
respect of all other occupations specific permission of the Institute is necessary.

In this case, C.A. Ajitnath is Special Executive Magistrate, engaged in the occupation of trading in commodity
derivatives and also took over as the Executive Chairman on 01.04.2020.

In this context, it may be noted that the Special Executive Magistrate which is generally permitted for Members of
the Institute in practice, further specific permission is required for holding the position of Executive Chairman and
getting engaged in the occupation of trading in commodity derivatives.

In the given situation, C.A. Ajitnath is acting as Special Executive Magistrate which is generally permitted for Members
of the Institute in practice. Further, He is engaged in the occupation of trading in commodity derivatives which is not
covered under the general permission. He also took over as the Executive Chairman for which specific permission is
required. CA. Ajitnath got the permission for the same from the Council of ICAI.

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Conclusion: Hence, CA. Ajitnath is not guilty for acting as Special Executive Magistrate as it is covered under the
general permission. He is also not guilty for holding the position of Executive Chairman after getting specific
permission of the Institute.

However, he is guilty of professional misconduct under Clause (11) of Part I of First Schedule of Chartered Accountants
Act, 1949 for getting engaged in the occupation of trading in commodity derivatives which is not covered under the
general permission.

38 (a) Loans were given out of the funds of an Employees Provident Fund to the employer company in contravention
of the applicable rules. As the auditor of the said Provident Fund, M discloses the contraventions to the Trustees of
the fund, but failed to do so to the members of the fund. Comment. (PM)

Failed to Report Material Misstatement: As per Clause (5) of Part I of Second Schedule to the Chartered Accountants
Act, 1949, if a member in practice fails to disclose a material fact known to him which is not disclosed in a financial
statement, but disclosure of which is necessary to make the financial statement not misleading, where he is
concerned with that financial statement in a professional capacity, he will be held guilty under Clause (5).

Further, as per Clause (6) of Part I of Second Schedule if he fails to report a material misstatement known to him to
appear in a financial statement with which he is concerned in a professional capacity, he will be held guilty under
Clause (6).

In given Case, CA M has contravened Clause (5) of Part I of Second Schedule as it is duty of a CA in practice to disclose
material facts known to him so that the financial statement does not become misleading. Further the auditor CA
should disclose such facts to beneficiaries of a fund in applicable cases. Technically, appointment of an auditor could
be done by a company through its directors, but in substance the auditor in such cases addresses to the beneficiaries
just like he gives his report to the shareholders of a company.

Therefore, in the instant case Mr. M is found guilty of professional misconduct.

(b) M/s Amudhan & Co., a firm of Chartered Accountants, received ₹ 2.8 lakhs in January, 2019 on behalf of one of
their clients, who has gone abroad and deposited the amount in their Bank account, so that they can return the
money to the client in July, 2019, when he is due to return to India.

Money of Clients to be Deposited in Separate Bank Account: Clause (10) of Part I of Second Schedule states that a
Chartered Accountant shall be deemed to be guilty of professional misconduct if “he fails to keep money of his clients
in separate banking account or to use such money for the purpose for which they are intended”.

In the given case, M/s Amudhan & Co. received the money in January, 2019 which is to be paid only in July 2019,
hence, it should be deposited in a separate bank account. Since in this case M/s Amudhan & Co. has failed to keep the
sum of ₹ 2.8 lakhs received on behalf of their client in a separate Bank Account, it amounts to professional misconduct
under Clause (10) of Part I of Second Schedule.

(c) CA Raman who is contesting Regional Council Elections of Institute, engages his Articled Assistant for his election
campaigning promising him that he will come in contact with influential people which will help to enhance his
career after completion of his training period.

Other Misconduct: CA Raman has engaged his Articled Assistant for his own election campaigning for the Regional
Council elections of ICAI.

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This aspect is covered under ‘Other Misconduct’ which has been defined in Part IV of the First Schedule and Part III of
the Second Schedule. These provisions empower the Council even if it does not arise out of his professional work. This
is considered necessary because a Chartered Accountant is expected to maintain the highest standards of integrity
even in his personal affairs and any deviation from these standards, even in his non-professional work, would expose
him to disciplinary action.

Thus, when a Chartered Accountant uses the services of his Articled Assistant for purposes other than professional
practice, he is found guilty under ‘Other Misconduct’. Hence, CA Raman is guilty of 'Other Misconduct'.

(d) Mr. Anil, a practicing Chartered Accountant, did not complete his work relating to the audit of the accounts of
a company and had not submitted his audit report in due time to enable the company to comply with the statutory
requirements. (Oct-20 MTP)

Not Exercising Due Diligence: According to Clause (7) of Part I of Second Schedule of Chartered Accountants Act,
1949, a Chartered Accountant in practice is deemed to be guilty of professional misconduct if he does not exercise
due diligence or is grossly negligent in the conduct of his professional duties.

It is a vital clause which unusually gets attracted whenever it is necessary to judge whether the accountant has
honestly and reasonably discharged his duties. The expression negligence covers a wide field and extends from the
frontiers of fraud to collateral minor negligence.

Where a Chartered Accountant had not completed his work relating to the audit of the accounts a company and had
not submitted his audit report in due time to enable the company to comply with the statutory requirement in this
regard, he was guilty of professional misconduct under Clause (7).

Since, Mr. Anil has not completed his audit work in time and consequently could not submit audit report in due time
and consequently, company could not comply with the statutory requirements, the auditor is guilty of professional
misconduct under Clause (7) of Part I of the Second Schedule to the Chartered Accountants Act, 1949.

39. Comment on the following with reference to the Chartered Accountants Act, 1949 and schedules thereto:
(RTP Nov-20)
(a) CA. Srishti and CA. Mishti are two partners of the CA firm ‘Srishti Mishti & Associates’. Being very pious, CA.
Srishti organised a religious ceremony at her home for which she instructed her printing agent to add her
designation “Chartered Accountant” with her name in the invitation cards. Later on, the invitations were distributed
to all the relatives, close friends and clients of both the partners.

(a) Printing of Designation “Chartered Accountant” on Invitations for Religious Ceremony: As per Clause (6) of Part
I of the First Schedule to the Chartered Accountants Act, 1949, a Chartered Accountant in practice shall be deemed
to be guilty of professional misconduct if he solicits clients or professional work either directly or indirectly by circular,
advertisement, personal communication or interview or by any other means.

However, the Council of the ICAI is of the view that the designation “Chartered Accountant” as well as the name of
the firm may be used in greeting cards, invitations for marriages, religious ceremonies and any other specified
matters, provided that such greeting cards or invitations etc. are sent only to clients, relatives and close friends of
the members concerned.

In the given case, CA. Srishti has instructed to write designation “Chartered Accountant” on invitation cards for a
religious ceremony and distributed the same to all the relatives, close friends and clients of both the partners.

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In this context, it may be noted that the Council has allowed using designation “Chartered Accountant” in invitations
for religious ceremony, provided these are sent to clients, relatives and close friends of the members concerned only.

Therefore, CA. Srishti would be held guilty of professional misconduct under the said clause for sending such
invitations to the relatives, close friends and clients of CA. Mishti as well.

(b) Ms. Preeto, a CA, had an account with a bank. The normal balance in this account remained at a level below ₹
5,000. The bank inadvertently credited this account with a cheque of ₹ 2,70,000 belonging to another account
holder. When CA. Preeto came to know about this she 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. CA. Preeto contested this
claim. Can the bank approach the Institute of Chartered Accountants of India for disciplinary action against CA.
Preeto?

Disrepute to the Profession: As per Clause 2 of Part IV of First Schedule of the Chartered Accountant Act, 1949, a
Chartered Accountant will be deemed to be guilty of other misconduct if he in the opinion of the Council brings
disrepute to the profession or the Institute as a result of his action whether or not related to his professional work.

In the instant case, CA. Preeto, a CA, had an account with a bank from which she withdrew the amount of ₹ 2,75,000
and closed the account. This amount of ₹ 2,75,000 was pertaining to ₹ 5,000 minimum balance and ₹ 2,70,000
belonging to other account holder and inadvertently credited to his account by the bank. The said act of CA. Preeto
to withdraw the money which does not belongs to her will bring disrepute to the profession. Hence under this clause
the bank can file a suitable complaint under Clause 2 of Part IV of First Schedule of the Chartered Accountant Act,
1949 with the Institute of Chartered Accountants of India.

(c) CA. Moni is practicing since 2009 in the field of company audit. Due to her good practical knowledge, she was
offered editorship of a ‘Company Audit’ Journal which she accepted. However, she did not take any permission
from the Council regarding such editorship. (+ Apr 21 MTP)

Permission from the Council: As per Clause (11) of Part I of First Schedule to the Chartered Accountants Act, 1949, a
Chartered Accountant in practice will be deemed to be guilty of professional misconduct if he engages in any business
or occupation other than the profession of Chartered Accountant unless permitted by the Council so to engage.

However, the Council has granted general permission to the members to engage in certain specific occupation. In
respect of all other occupations specific permission of the Institute is necessary.

In the instant case, CA. Moni accepted editorship of a journal for which she did not take any permission from the
Council. In this context, it may be noted that the editorship of professional journals is covered under the general
permission and specific permission is not required.

Therefore, CA. Moni shall not be held guilty of professional misconduct in terms of Clause (11) of Part I of First
Schedule to the Chartered Accountants Act, 1949.

40. M/s SS limited is a partly owned subsidiary of M/s HH limited. For the upcoming financial year, M/s DD & Co.,
Chartered Accountants, were appointed as the statutory auditors of SS limited. The CEO of the holding company
was impressed with the knowledge and experience of Mr. D, one of the partners of the firm and hence, he offered
Mr. D to take up the position of Director (not MD/ wholetime director) of HH limited. At the same time, Mr. D’s
friend approaches him with an assignment to act as a Recovery Consultant for a bank. Mr. D is now confused
whether to accept or reject the offers. He approaches you and seeks your advice on the same. Advise what Mr. D

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about what he can do with the offers with reference to the Chartered Accountants Act, 1949 and Schedules thereto.
(MTP Mar’21)
As per Clause (11) of Part I of First Schedule of Chartered Accountants Act, 1949, a Chartered Accountant in practice
is deemed to be guilty of professional misconduct if he engages in any business or occupation other than the
profession of Chartered Accountant unless permitted by the Council so to engage.
Provided nothing contained herein shall disentitle a chartered accountant from being a director of a company (not
being MD or whole-time director) unless he or his partners is interested in such company as auditor.

The Ethical Standards Board (ESB) noted that Public conscience is expected to be ahead of law. Members, therefore,
are expected to interpret the requirement as regards independence much more strictly than what the law requires
and should not place themselves in positions which would either compromise or jeopardise their independence. In
the view of the above, the Board, via a clarification, decided that the auditor of a Subsidiary company cannot be a
Director of its Holding company, as it will affect the independence of the auditor.

However, the Council has granted general permission to the members to engage in certain specific occupation. In
respect of all other occupations specific permission of the Institute is necessary. ‘acting as Recovery Consultant in the
banking sector’ is covered under general permission.

In the given situation, M/s SS limited is a partly owned subsidiary of M/s HH limited. For the upcoming financial year,
M/s DD & Co., Chartered Accountants, were appointed as the statutory auditors of SS limited. The CEO of the holding
company was impressed with the knowledge and experience of Mr. D, one of the partners of the firm and hence, he
offered Mr. D to take up the position of Director (not MD/ whole-time director) of HH limited. Further, Mr. D’s friend
approached him for an assignment for acting as a Recovery Consultant for a bank.

Therefore, in view of above in the given case, Mr. D should not accept the offer to be appointed as director of HH
Limited.

However, he can accept the assignment offered by his friend and can act as a recovery consultant for a bank.

41. A letter is sent by Mr. Raja, a Chartered Accountant in practice, to the Ministry of Finance inquiring whether a
panel of auditors is being maintained by the Ministry and if so to include his name in the panel. He also enclosed
his CV. Comment on the above with reference to the Chartered Accountants Act, 1949 and Schedules thereto.
(MTP Mar’21)
Clause (6) of Part I of the First Schedule to the Chartered Accountants Act, 1949 states that a Chartered Accountant
in practice shall be deemed to be guilty of misconduct if he solicits clients or professional work either directly or
indirectly by a circular, advertisement, personal communication or interview or by any other means. Such a restraint
has been put so that the members maintain their independence of judgement and may be able to command respect
from their prospective clients.

In case of making an application for the empanelment for the allotment of audit and other professional work, the
Council has opined that, “where the existence of such a panel is within the knowledge of the member, he is free to
write to the concerned organization with a request to place his name on the panel. However, it would not be proper
for the member to make roving inquiries by applying to any such organization for having his name included in any
such panel.”

Accordingly, Mr. Raja is guilty of misconduct in terms of the above provision as he has solicited professional work
from the Finance Ministry, by inquiring about the maintenance of the panel.

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42. Mr. Z, a newly qualified chartered accountant started his practice in February 2018 by setting up an office in the
hill station Kodaikanal. Initially, since he was getting very less assignments, he decided to set up a temporary office
in the nearby city Marudai, situated at about 100 kms from the main office. As planned, he took an office space on
rent for the months of April, May & June. During these months, his regular office was not closed and Mr. Z was in-
charge for both the offices. Mrs. A, another newly qualified chartered accountant who is also in practice in Marudai
came to know about the new office of Mr. Z. Thinking that he could be a potential competitor, she informed the
institute stating that Mr. Z had violated the provisions of the Chartered Accountant Act. As a member of the Board
of Discipline of ICAI, you are requested to analyse this complaint. (MTP Mar’21)

As per section 27 of Chartered Accountants Act 1949, if a Chartered Accountant in practice or a Firm of Chartered
Accountants has more than one office in India, each one of such offices should be in the separate charge of a member
of the Institute. Failure on the part of a member or a firm to have a member in charge of its branch and a separate
member in case of each of the branches, where there is more than one, would constitute professional misconduct.
This condition applies to any additional office situated at a place beyond 50 kms from the municipal limits in which
any office is situated.

However, exemption has been given to members in practicing in hill areas subject to certain conditions such as:
− Such member/ firm be allowed to open temporary offices in a city in the plains for a limited period not exceeding 3
months in a year.
− The regular office need not be closed during this period and all correspondence can continue to be made at the
regular office.
− The name board of the firm in temporary office should not be displayed at times other than the period such office
is permitted to function.
− The temporary office should not be mentioned in letter head, visiting card, any other documents as a place of
business of the member/ firm.
− Before commencement of every winter, it shall be obligatory on the member/firm to inform the Institute that he/it
is opening the temporary office from a particular date and after the office is closed at the expiry of the period of
permission, an intimation to that effect should also be sent to the office of the Institute by registered post.

In the given case, Mr. Z has set up his regular office in the hill area of Kodaikanal , he decided to set up a temporary
office in the nearby city Marudai, situated at about 100 kms from the main office. As planned, he took an office space
on rent for the months of April, May & June. During these months, his regular office was not closed. Further he was
in-charge for both the offices. In view of abovementioned criteria’s, he is eligible to avail the benefits of the above
exemptions. Also, it is given that the temporary office was open in Madurai for only 3 months and not beyond that.
The fact that Mr. Z is in-charge for both the offices, the temporary office being set-up in the plains which is 100 kms
away and the regular office kept open during the 3 months does not constitute any violation of the provisions of the
Chartered Accountant Act. Assuming Mr. Z has informed the Institute regarding such temporary office in the
prescribed manner.

Therefore, in the given case, no penal action needs to be taken on the basis of complaint registered by Mrs. A, as Mr.
Z is not guilty of professional misconduct.

43. Comment with reference to the Chartered Accountants Act, 1949 and schedules thereto: CA D, a practicing
Chartered Accountant, was appointed as a simplicitor Director in a Pvt. Ltd. company on 01-01-2020. After serving
18 months, Mr. D resigned as the Director. He accepted the appointment as the Statutory Auditor of the company
with effect from 01-10-2021. Is CA D right in accepting the audit?
(Dec-21 New)

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As per Clause (4) of Part I of the Second Schedule of the Chartered Accountants Act, 1949, a Chartered Accountant
in practice is deemed to be guilty of professional misconduct if he expresses his opinion on financial statements of
any business or enterprise in which he, his firm, or a partner in his firm has a substantial interest.

Section 141 of the Companies Act, 2013 specifically prohibits a member from auditing the accounts of a company in
which he is an officer or employee. Although the provisions of the aforesaid section are not specifically applicable in
the context of audits performed under other statutes, e.g. tax audit, yet the underlying principle of independence of
mind is equally applicable in those situations also. Therefore, the Council’s views are clarified in the following
situations.

As per the clarifications issued by the Council, a member shall not accept the assignment of audit of a Company for a
period of two years from the date of completion of his tenure as Director, or resignation as Director of the said
Company. In the instant case, Mr. D, a practicing CA, is appointed as a Director Simplicitor in Pvt. Ltd. Company. Mr.
D resigned as the Director and after 18 months of resignation accepted the Statutory Auditor position of the Company.
In view of above provisions Mr. D cannot accept the Directorship of the company as tenure of two years after his
resignation is yet to be completed.

Thus, CA, D would be held guilty of professional misconduct under clause 4 of Part 1 of Second Schedule of the
Chartered Accountants Act, 1949.

44. CA. Nikhil, in practice, started project consultancy work as a part of his practice and to advance the same, sent
mail to all the CAs in the country informing them of his services and for securing professional work. Comment with
reference to the Chartered Accountants Act, 1949, and Schedules thereto. (MTP May’20)

As per Clause (6) of Part I of First Schedule to the Chartered Accountants Act, 1949, a chartered accountant in practice
is deemed to be guilty of professional misconduct, if he solicit clients or professional work either directly or indirectly
by circular, advertisement, personal communication or interview or by any other means.

However, nothing herein contained shall be construed as preventing or prohibiting, any chartered accountant from
applying or requesting for or inviting or securing professional work from another chartered accountants in practice.

In the instant case, CA. Nikhil has written email to all the CA for securing professional work from them and has not
approached any other person or professional or communicated with any client,

Thus, as per exception to the Clause (6), CA. Nikhil is well within the regulation of the act and has not committed any
professional misconduct.

45. Mr. Vinod a practicing chartered accountant acting as liquidator of XYZ & Co. charged his professional fees on
percentage of the realization of assets. Comment with reference to the Chartered Accountants Act, 1949, and
Schedules thereto. (MTP May’20)

Chartered Accountant in Practice Acting as Liquidator: According to Clause (10) of Part I of First Schedule to the
Chartered Accountants Act, 1949, a Chartered Accountant in practice shall be deemed to be guilty of professional
misconduct if he 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.

However, CA Regulation allow the Chartered Accountant in practice to charge the fees in respect of any professional
work which are based on a percentage of profits, or which are contingent upon the findings or results of such work,

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in the case of a receiver or a liquidator, and the fees may be based on a percentage of the realization or disbursement
of the assets.
In the given case, Mr. Vinod, a practicing Chartered Accountant, has acted as liquidator of XYZ & Co. and charged his
professional fees on percentage of the realisation of assets.

Therefore, Mr. Vinod shall not be held guilty of professional misconduct as he is allowed to charge fees on percentage
of the realisation of assets being a liquidator.

46. Mr. Yuvi, a Chartered Accountant in practice, is the auditor of Prime Ltd. He advised the Managing Director of
the company to include ‘orders under negotiation’ in sales, to reflect higher profit and better financial position for
obtaining bank loans in future. Mr. Yuvi, thereafter, gave clean reports on the balance sheet prepared accordingly
without examining the accounts. Comment with reference to the Chartered Accountants Act, 1949, and Schedules
thereto. (MTP May’20)

Grossly Negligent and Bringing Disrepute to the Institute: Clause (7) of Part I of the Second Schedule to the Chartered
Accountants Act, 1949 states that a Chartered Accountant in practice shall be deemed to be guilty of professional
misconduct if he does not exercise due diligence, or is grossly negligent in the conduct of his professional duties.
Furthermore, Clause (2) of Part IV of the First Schedule to the said Act states that a member of the Institute, whether
in practice or not, shall be deemed to be guilty of other misconduct, if he, in the opinion of the Council, brings
disrepute to the profession or the Institute as a result of his action whether or not related to his professional work.

In the given case, Mr. Yuvi, a Chartered Accountant in practice, is grossly negligence in conduct of his professional
duties by issuing clean reports on the balance sheet without examining the accounts. Further, he has also brought
disrepute to the profession by advising unethical practice to the managing director of the company. Therefore, Mr.
Yuvi will be held guilty for professional and other misconduct under abovementioned Clauses to the Chartered
Accountants Act, 1949.

Author’s note: Most students here confuse Clause (2), its Other Misconduct as he knew he’s doing wrong. It isn’t
clause (2) Part I of Second Schedule

47. Mr. Aniket, a Chartered Accountant was the auditor of 'Alpha Limited' for the year 2018-19 and 2019-20. During
the financial year, the investment appeared in the Balance Sheet of the company amounting ₹ 11 lac and was the
same amount as in the last year 2018-19. Later on, it was found that the company's investments were only for ₹
45,000, however, the value of investments was inflated for the purpose of obtaining higher amount of Bank loan.
Comment with reference to the Chartered Accountants Act, 1949, and Schedules thereto. (MTP Oct-20)

Gross Negligence in Conduct of Duties: As per Part I of Second Schedule to the Chartered Accountants Act, 1949, a
Chartered Accountant in practice shall be deemed to be guilty of professional misconduct, if he, certifies or submits
in his name or in the name of his firm, a report of an examination of financial statements unless the examination of
such statements and the related records has been made by him or by a partner or an employee in his firm or by
another chartered accountant in practice, under Clause (2); does not exercise due diligence, or is grossly negligent in
the conduct of his professional duties, under Clause (7); or fails to obtain sufficient information which is necessary for
expression of an opinion or its exceptions are sufficiently material to negate the expression of an opinion, under
Clause (8).

The primary duty of physical verification and valuation of investments is of the management. However, the auditor’s
duty is also to verify the physical existence and valuation of investments placed, at least on the last day of the
accounting year. The auditor should verify the documentary evidence for the cost/value and physical existence of
the investments at the end of the year. He should not blindly rely upon the Management’s representation.

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In the instant case, such non-verification happened for two years. It also appears that auditors failed to confirm the
value of investments from any proper source. In case auditor has simply relied on the management’s representation,
the auditor has failed to perform his duty.

Conclusion: Accordingly, Mr. Aniket, will be held liable for professional misconduct under Clauses (2), (7) and (8) of
Part I of the Second Schedule to the Chartered Accountants Act, 1949.

48. Mr. Chintamani, a Chartered Accountant in practice has been elected as the treasurer the Regional Council of
the ICAI. The Regional Council had organized an international tour through a tour operator during the year for its
members. During the audit of the Regional Council, it was found that Mr. Chintamani had received a personal
benefit of ₹ 40,000 from the tour operator. Comment with reference to the Chartered Accountants Act, 1949, and
Schedules thereto. (MTP Oct-20)

Section 21 of the Chartered Accountants Act, 1949 provides that a member is liable for disciplinary action if he is
guilty of any professional or “Other Misconduct.” Other misconduct has been defined in part IV of the First Schedule
and part III of the Second Schedule. These provisions empower the Council to inquire into any misconduct of a member
even it does not arise out of his professional work. This is considered necessary because a chartered accountant is
expected to maintain the highest standards of integrity even in his personal affairs and any deviation from these
standards, even in his non-professional work, would expose him to disciplinary action. The Council has also laid down
that among other things “misappropriation by an office-bearer of a Regional Council of the Institute of a large amount
and utilization thereof for his personal use” would amount to “other misconduct”.

In the instant case, receipt of personal benefit of ₹ 40,000 from the tour operator by Mr. Chintamani for organising
an international tour as treasurer of a Regional Council of the Institute would amount to other misconduct as per
section 21. Therefore, Mr. Chintamani would be held guilty for other misconduct.

49. Mr. Mohan is a practising Chartered Accountant. He issued a certificate of consumption which did not reflect
the correct factual position of the consumption of raw material by the concerned entity. It is found that the
certificate is given on the basis of data appearing in the minutes of meeting of the Board of Directors. Comment on
above with reference to the Chartered Accountants Act, 1949, and Schedules thereto. (MTP Oct 18)

According to Clause (2) of Part I of Second Schedule to the Chartered Accountants Act, 1949 a chartered accountant
is held guilty of professional misconduct if he certifies or submits a report of an examination of financial statements
unless the examination of such statements and the related records has been made by him or by a partner or employee
in his firm or any other chartered accountant in practice.

Mr. Mohan has issued a certificate of consumption which does not reflect the correct factual position of the
consumption of raw material by the concerned entity. He has failed in his duty of examining the record. He has relied
on the minutes of Board of director’s meeting which is not proper evidence to show the consumption of raw material.
The relevant record of production and stock register should have been scrutinized thoroughly and properly.

Clause (7) of Part I of Second Schedule to the Chartered Accountants Act, 1949 also applies to this case which states
that a Chartered Accountant in practice shall be deemed to be guilty of professional misconduct, if he does not
exercise due diligence or is grossly negligent in the conduct of his professional duties.

Mr. Mohan will be held guilty of Professional Misconduct under Clause (2) & (7) of Part I of Second Schedule to the
Chartered Accountants Act, 1949.

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50. CA. X, a practicing Chartered Accountant, failed to return the books of account and other documents of ABC Ltd.
despite many reminders from the company. The company had settled his entire fees dues also. Comment with
reference to the Chartered Accountants Act, 1949. (MTP Oct 18)

Bringing Disrepute to the Profession: A member is liable to disciplinary action under section 21 of the Chartered
Accountants Act, 1949, if he is found guilty of any professional or “Other Misconduct”. As per Clause (2) of Part IV of
the First Schedule to the said Act, a member of the Institute, whether in practice or not, shall be deemed to be guilty
of other misconduct, if he , in the opinion of the Council, brings disrepute to the profession or the Institute as a result
of his action whether or not related to his professional work.

A member may be found guilty of “Other Misconduct” as per Clause (2) under the aforesaid provisions rendering
himself unfit to be member if he retains the books of account and documents of the client and fails to return these to
the client on request without a reasonable cause.

In the given case, CA. X failed to return the books of accounts and other documents of his client without any
reasonable cause, therefore, he would be guilty of other misconduct under the aforesaid provisions.

51. ENI Ltd; a company registered under the Companies Act, 2013 has created a separate Trust "ENI Employees
Gratuity Fund Trust". Both the Company and Trust are under the same management. Mr. A is the auditor of both
the entities. Mr. A has observed that some part of the expenditure was not applied towards the objects of the Trust.
He informed the matter to the Board of Trustees through a separate report but did not qualify the Audit Report of
the Trust. (Nov-18 Old)

Disclosure of Material Facts: A Chartered Accountant in practice is deemed to be guilty of professional misconduct
under Clause (5) of Part I of the Second Schedule if he “fails to disclose a material fact known to him which is not
disclosed in a financial statement but disclosure of which is necessary to make the financial statement not misleading”.

In this case, the Chartered Accountant was aware of some part of the expenses not applied towards the object i.e.
contraventions and irregularities committed by the trust as these were referred to in the separate report given by the
Chartered Accountant to the Board of Trustees of the company. However, he issued audit report without any
qualification which is not in order.

Therefore, CA A is deemed to be guilty of professional misconduct.

52. Mr. M, a Chartered Accountant in practice, has printed visiting cards which besides other details also carries a
Quick Response (QR) code. The visiting card as well the QR code contains his name, office and residential address,
contact details, e-mail id and name of the firm's website. Comment with reference to the Chartered Accountants
Act, 1949 and schedules thereto. (MTP Aug 18)

Printing of QR Code on Visiting Cards: As per Clause (7) of Part I of First Schedule to the Chartered Accountants Act,
1949, a Chartered Accountant in practice is deemed to be guilty of professional misconduct if he advertises his
professional attainments or services.

Ethical Standards Board has also clarified that a member in practice is allowed to print Quick Response Code (QR
Code) on the visiting Card, provided that the Code does not contain information that is not otherwise permissible to
be printed on a visiting Card.

In the given case, Mr. M has printed visiting cards which carries Quick Response Code (QR Code) besides other details.
The visiting card as well as the QR Code contains his name, office and residential address, contact details, e-mail id

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and name of the firm’s website which are otherwise allowed to be printed on the visiting cards of a Chartered
Accountant in practice.

Thus, Mr. M is not guilty under Clause (7) of Part I of First Schedule to the Chartered Accountants Act, 1949.

53. X, a practicing Chartered Accountant in an application for permission to study submitted by his Articled Assistant
to the council had confirmed that the normal working hours of his office were from 11 A.M. to 6 P.M. and the hours
during which the Articled Assistant was required to attend classes were 7.00 A.M. to 9.30 A.M. According to the
information from College, the Articled Assistant attended the College from 10 A.M. to 1.55 P.M. on all week days.
About the Articled Assistant attending the classes even during office hours, X pleaded ignorance. (PM)

Failure to Observe the Regulations: As per Clause (1) of Part II of Second Schedule to the Chartered Accountants
Act, 1949 a member shall be held guilty of professional misconduct if he contravenes any of the provisions of the Act
or the regulations made thereunder or any guidelines issued by the Council.

The chartered accountant, as per Regulations also, is expected to impart proper practical training. There is a specific
circular issued which guides on timing for training for articleship. In the instant case, the articled clerk must have not
been attending office on a regular basis and the explanation of the Chartered Accountant cannot be accepted. It is
also quite likely that the articled clerk would be availing leave quite often and coming late to the office. Under the
circumstances, the Chartered Accountant is guilty of misconduct for making a misstatement to the institute in regard
to the discharge of his professional duties.

Note: Alternative Solution is possible as per Schedule II, Part II, Clause (3), a member is deemed to be guilty of
professional misconduct if he includes in any information, statement, return or form to be submitted to the Institute,
Council or any of its Committees, Director (Discipline), Board of Discipline, Disciplinary Committee, Quality Review
Board or the Appellate Authority any particulars knowing them to be false. In the instant case, X knew about the
college timing of his articled assistant and he had given false information to the institute knowing them to be false
and hence he will be deemed to be guilty of professional misconduct.

54. Z, a practicing Chartered Accountant issued a certificate of circulation of a periodical without going into the
most elementary details of how the circulation of a periodical was being maintained i.e. by not looking into the
financial records, bank statements or bank pass books, by not examining evidence of actual payment of printers
bills and by not caring to ascertain how many copies were sold and paid for. (PM)

Failure to Obtain Information: Clause (8) of Part I of Second Schedule to the Chartered Accountants Act, 1949 states
that if a Chartered Accountant in practice fails to obtain sufficient information to warrant the expression of an opinion
or his exceptions are sufficient material to negate the expression of an opinion, the chartered accountant shall be
deemed to be guilty of a professional misconduct. In the instant case Mr. Z, a practicing Chartered Accountant issued
a certificate of circulation of a periodical without going into the most elementary details of how the circulation of a
periodical was being maintained i.e, by not looking into the financial records, bank statements or bank pass books, by
not examining evidence of actual payment of printers bills and by not caring to ascertain how many copies were sold
and paid for. The chartered accountant should not express his opinion before obtaining the required data and
information. As an auditor, Mr. Z ought to have verified the basic records to ensure the correctness of circulation
figures.

Thus, in the present case Mr. Z will be held guilty of professional misconduct as per Clause (8) of Part I of Second
Schedule to the Chartered Accountants Act, 1949.

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Alternative Solution is possible on the basis of Clause (7) of Part I of Second Schedule to the Chartered Accountants
Act, 1949.

55. Mr. B is a practising Chartered Accountant holding a valid certificate of practice. He accepted the appointment
as Director of the Green WorId Co. Ltd. Mr. C, a partner of Mr. B is statutory auditor of the said company. (PM)

Clause (11) of Part I of First Schedule to the Chartered Accountants Act, 1949 prohibits a member to engage in any
business or occupation other than the profession of chartered accountants unless permitted by the Council so to
engage. It does not prohibit a Chartered Accountant from being a director of a company, except managing director or
a whole time director. But if any of the partners is interested in such company as an auditor then he cannot be director
of the said company.

In the present case Mr. B has accepted the directorship in a Company, where his partner Mr. C is an auditor, without
obtaining specific permission of the council. Hence, Mr. B will be held guilty for professional misconduct under
Clause (11) of Part I of First Schedule to the Chartered Accountants Act, 1949.

Further, the Council of the Institute of Chartered Accountants of India has categorically stated that in cases where a
member is a director of a company, the firm, in which the said member is a partner, should not express any opinion
on its financial statements. Clause (4) of Part I of the Second Schedule to the Chartered Accountants Act, 1949 states
that expressing an opinion on financial statements of any business or enterprise in which he, his firm or a partner of
his firm has a substantial interest would constitute misconduct.

Additionally, Section 141(3)(c) of the Companies Act, 2013 also disqualifies a person to be appointed as an auditor if
he is a partner of an officer of the company. Furthermore, section 141(4) of the Companies Act, 2013 requires the
appointed auditor to vacate his office if he incurs any of the disqualifications mentioned under sub-section (3).

Therefore, in cases, where a member of the Institute is a director of a company, or the firm, in which said member is
a partner, should not express any opinion on its financial statements. Hence Mr. C, a partner of Mr. B, should vacate
the office.

56. CA D, a Chartered Accountant prepared a project report for one of his clients to obtain bank finance (long-term)
of ₹ 50 lakhs from a Commercial Bank. Consequent to the sanction of the loan by the bank CA D raised a bill for his
services @ 2% of the loan sanctioned.(Nov-08)

Charging of Fees based on Percentage: Clause (10) of Part I to First Schedule to the Chartered Accountants Act
prohibits a Chartered Accountant in practice to charge, to offer, to accept or accept fees which are based on a
percentage of profits or which are contingent upon the findings or results of such work done by him.
However, this restriction is not applicable where such payment is permitted by the Chartered Accountants Act, 1949.
The Council of the Institute has framed regulation 192 which exempts certain professional services from the operation
of Clause (10).

The services rendered by CA. D are not covered under the said exemption and hence CA. D is liable for professional
misconduct.

57. XYZ Ltd. appoints you as the auditor of the company. You observe that previous auditors A & Co., resigned. Also
Balance Sheet as at 31-03-2010 shows an audit fee payable of ₹ 25,000. What precautions you will take before
commencing the audit work? (4 Marks, November, 2010)

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Precautions before Commencing the Audit Work: In the instant case, before accepting the appointment as well as
commencing the audit work, the auditor should see the following-

(i) Check whether a statement, in the prescribed form, has been filed by the resigning auditor within a period of 30
days from the date of resignation, to the company and the registrar (or the Comptroller and Auditor-General of India,
as the case may be), indicating the reasons and other facts as may be relevant with regard to the resignation, for the
compliance of Section 140(2) of the Companies Act, 2013 (herein after referred as the Act).

(ii) Ascertain that the appointment of new Auditor is in compliance with Section 139(8) of the Act as mentioned above
i.e. the resolution appointing the new auditor has been approved by the company in the general meeting as in the
case of casual vacancy by resignation.

(iii) The auditor must obtain the NOC from previous auditor. He should also refer the resignation statement file by
the previous auditor and communicate with him (previous auditor) to ascertain the circumstances which led up him
to retire.

(iv) The auditor must ascertain whether there existed any circumstances on account of which he should not accept
the appointment.

(v) As per Section 139 of the Act, the auditor must ensure that before any appointment or reappointment of auditors
is made at an annual general meeting, a written certificate has been provided by him to the company that his
appointment is in accordance with the limits specified in Section 141(3)(g).

(vi) He should also satisfy himself that the notice provided for under Sections 139 and 140 has been effectively served
on the outgoing auditor.

Further, Clause (8) of Part I of the First Schedule to the Chartered Accountants Act, 1949, provides that a member in
practice shall be deemed to be guilty of professional misconduct if he accepts a position as auditor previously held by
another chartered accountant without first communicating with him in writing.

Moreover, Clause (9) of Part I of the same Schedule, provides that a member in practice shall be deemed to be guilty
of professional misconduct if he accepts an appointment as auditor of a company without first ascertaining from it
whether the requirements of Sections 224 and 225 of the Companies Act, 1956 (now Section 139 and 140 of the
Companies Act, 2013), in respect of such appointment have been duly complied with.

58. M, a practicing Chartered Accountant sent a letter to another firm of Chartered Accountants, claiming himself
to be a pioneer in liasoning with Central Government Ministries and its allied Departments for getting various
Government clearances for which he had claimed to have expertise and had given a list of his existing clients and
details of his staff etc. (May’12)

Soliciting Work Directly or Indirectly: As per Clause (6) of Part I of First Schedule to the Chartered Accountants Act,
1949, a member shall be held guilty if a Chartered Accountant in practice solicits clients or professional work either
directly or indirectly by circular, advertisement, personal communication or interview or by any other means.

Further, as per Central Council Guidelines for Advertisement for the members in practice, write up of the members
should not claim superiority over any other Member(s)/Firm(s) and should also not include the names of the clients.

In the present case, Mr. M, a practicing Chartered Accountant sent the letter to another firm of Chartered
Accountants, claiming himself to be a pioneer in liasoning with Central Government Ministries and its allied

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Departments for getting various Government clearances for which he had claimed to have expertise and had also
given a list of his existing clients and details of his staff etc. which seems to be indirect methods to adventure their
professional practice with a view to gain publicity and thereby solicit clients or professional work.

Hence, Mr. M was guilty of professional misconduct as per Clause (6) of Part I of First Schedule to the Chartered
Accountants Act, 1949.

59. M/s PQR & Co. is a partnership firm of 3 partners P, Q and R. All partners are exclusively associated with the
firm in practice and are not doing practice in individual capacity. For the year ended 31st March, 2019, the partners
have undertaken audits and signed audit reports under section 44AB / 44AD of the Income Tax Act 1961 as under :
Under section à 44AB 44AD
P 10 15
Q 60 5
R 100 5

Discuss whether there is any professional misconduct by the partners of the firm in regard to the aforesaid audits.

Tax Audit assignments under Section 44 AB of the Income-tax Act, 1961 : As per the Council General Guidelines
2008, under Chapter VI, a member of the Institute in practice shall not accept, in a financial year, more than the
“specified number of tax audit assignments” under Section 44AB of the Income-tax Act, 1961.

For the above purpose, “the specified number of tax audit assignments” means (a) in the case of a Chartered
Accountant in practice or a proprietary firm of Chartered Accountant, 60 tax audit assignments, in a financial year,
whether in respect of corporate or non - corporate assesses. (b) in the case of firm of Chartered Accountants in
practice, 60 tax audit assignments per partner in the firm, in a financial year, whether in respect of corporate or non-
corporate assesses.

In computing the “specified number of tax audit assignments”, the number of such assignments, which he or any
partner of his firm has accepted whether singly or in combination with any other Chartered Accountant in practice or
firm of such Chartered Accountants, shall be taken into account.

Where any partner of the firm is also a partner of any other firm or firms of Chartered Accountants in practice, the
number of tax audit assignments which may be taken for all the firms together in relation to such partner shall not
exceed the “specified number of tax audit assignments” in the aggregate.

In addition, where any partner of a firm of Chartered Accountants in practice accepts one or more tax audit
assignments in his individual capacity, the total number of such assignments which may be accepted by him shall not
exceed the “specified number of tax audit assignments” in the aggregate.

It may be noted that the audits conducted under Section 44AD, 44AE and 44AF of the Income Tax Act, 1961 shall
not be taken into account for the purpose of reckoning the “specified number of tax audit assignments”.

In the instant case, M/s PQR & Co., is a partnership firm of Partner P, Q and R. All the partners are exclusively
associated with the firm and are not doing practice in individual capacity. Here, in the instant case, 60 tax audit
assignments per partner in the firm, in a financial year will be considered for “specified number of tax audit
assignments” i.e.180 tax audits = 3 Partners x 60 tax audits.

In the given situation, number of tax audit reports signed under section 44AB are 170 (i.e.10 reports signed by Mr. P,
60 reports signed by Mr. Q and 100 reports were signed by Mr. R). and number of tax audit reports signed under

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section 44AD are 25 (i.e.15 reports signed by Mr. P, 5 reports signed by Mr. Q and 5 reports were signed by Mr. R). It
may be noted that the 25 audits conducted under Section 44AD, of the Income Tax Act, 1961 shall not be taken into
account for the purpose of reckoning the “specified number of tax audit assignments”.

In view of above provisions, partner Mr. P, Mr. Q and Mr. R of PQR & Co. have undertaken 170 audits which is not
more than 180 tax audits i.e. “specified number of tax audit assignments” under Section 44AB of the Income-tax Act,
1961. Therefore, there is no professional misconduct in regard to the abovesaid audits.

60. MNC Pvt. Ltd. appointed CA. Moksh for some professional assignments like company’s ROC work, preparation
of minutes, statutory register etc. For this, CA. Moksh charged his fees depending on the complexity and the time
spent by him on each assignment. Later on, MNC Pvt. Ltd. filed a complaint against CA. Moksh to ICAI that he has
charged excessive fees for the assignments comparative to the scale of fees recommended by the Board as well as
duly considered by the Council of ICAI. Comment with reference to the Chartered Accountants Act, 1949.
(MTP Apr’18)
Charging Excess Fees: The prescribed scale of fees for the professional assignments done by the chartered
accountants is recommendatory in nature. Charging an excessive fee for a professional assignment does not constitute
any misconduct in the context of the provisions of the Chartered Accountants Act, 1949 and regulation made
thereunder since the matter of fixation of actual fee charged in individual cases depends upon the mutual agreement
and understanding between the member and the client.

In the given case, CA. Moksh has charged excess fees compared to the scale of fees recommended by the Board as
well as duly considered by the Council of ICAI. In this context, it may be noted that the scale of fees is the minimum
prescribed scale of fees.

From the above facts and provisions, it may be concluded that CA. Moksh is not liable for any misconduct under the
Chartered Accountants Act, 1949. Therefore, the contention of MNC Pvt. Ltd. is not tenable.

61. During the opening ceremony of a new branch office of CA. Young, his friend CA. Old introduced to CA. Young,
his friend and client Mr. Rich, the owner of an Export House whose accounts had been audited by CA. Old for more
than 15 Years. After few days, Mr. Rich approached CA. Young and offered a certification work which hitherto had
been done by CA. Old. CA. Young undertook the work for a fee which was not less than fee charged by CA. Old in
earlier period. Comment whether CA. Young had done any professional misconduct. (Nov-18 New)

Acceptance of original professional work by a member emanating from the client Introduced to him by another
member: As per Clause (6) of Part I of the First Schedule to the Chartered Accountants Act, 1949, a Chartered
Accountant in practice shall be deemed to be guilty of misconduct if he solicits clients or professional work either
directly or indirectly by a circular, advertisement, personal communication or interview or by any other means.

Further, some forms of the soliciting work which the Council has prohibited include that a member should not accept
the original professional work emanating from a client introduced to him by another member. If any professional
work of such client comes to him directly, it should be his duty to ask the client that he should come through the other
member dealing generally with his original work.

In the given case, CA Old introduced his friend CA. Young to his friend and client Mr. Rich, the owner of an Export
House whose accounts has been audited by CA. Old for more than 15 years. After a few day Mr. Rich approached CA.
Young and offered a certification work which hitherto had been done by CA. Old. Fees charged by CA. Young is also
not less than fee charged by CA. Old.

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In view of above decision CA Young should ask the client to come through CA Old. However, CA Young undertook the
work without informing CA. Old. Thus, CA. Young is held guilty under Clause (6) of Part I of the First Schedule to the
Chartered Accountants Act,1949.

62. XYZ Associates, a Chartered Accountants Firm is having a relationship with a multinational accounting firm in
India. The ICAI required that all firms having networking relationship with any other entity need to furnish
information online within the stipulated time. XYZ Associates failed to respond. Comment on this with reference
to Professional misconduct, if any. (Nov-18 New)

Failed to Supply Information Called For: As per Clause (2) of Part III of the First Schedule to the Chartered
Accountants Act, 1949, a member, whether in practice or not, will be deemed to be guilty of professional misconduct
if he does not supply the information called for, or does not comply with the requirements asked for, by the Institute,
Council or any of its Committees, Director (Discipline), Board of Discipline, Disciplinary Committee, Quality Review
Board or the Appellate authority.

Thus, in the given case, Mr. XYZ Associates, a chartered accountant firm is failed to furnish the information of its
relationship with multi-national accounting firm in India. The ICAI required this information to be submitted online
within the stipulated time. XYZ Associates failed to respond and submit the required information. Therefore, XYZ
Associates is held guilty of professional misconduct as per Clause (2) of Part III of the First Schedule to the Chartered
Accountants Act, 1949.

63. CA R, a Chartered Accountant in practice is specializing in the field of Information Systems Audit. He is
considered to be one of the experts of this field because of his command over the subject. HKC Limited, a Company
engaged in rendering management consultancy offered him to appoint as its managing director. CA R accepted the
position of managing director without obtaining prior permission from the Institute. One of his friends , CA S
informed him that now he cannot retain full time certificate of practice, thus cannot do attest function and train
articled assistants. Comment with reference to the provisions of the Chartered Accountants Act, 1949 and schedules
thereto. (July-21 New)

As per Clause (11) of Part I of First Schedule to the Chartered Accountants Act, 1949, a Chartered Accountant in
practice will be deemed to be guilty of professional misconduct if he engages in any business or occupation other than
the profession of Chartered Accountant unless permitted by the Council so to engage.

The Council decided to allow members in practice to hold the office of Managing Director, Whole-time Director or
Manager of a body corporate within the meaning of the Companies Act, 2013 provided that the body corporate is
engaged exclusively in rendering Management Consultancy and Other Services permitted by the Council in pursuant
to Section 2(2)(iv) of the Chartered Accountants Act, 1949 and complies with the conditions(s) as specified by the
Council from time to time in this regard. The name of the Management Consultancy Company is required to be
approved by the Institute and such Company has to be registered with the Institute.

The members can retain full time Certificate of Practice besides being the Managing Director, Whole-time Director or
Manager of such Management Consultancy Company. There will be no restriction on the quantum of the equity
holding of the members , either individually and/ or along with the relatives, in such Company. Such members shall
be regarded as being in full- time practice and therefore can continue to do attest function either in individual capacity
or in Proprietorship/Partnership firm in which capacity they practice and wherein they are also entitled to train
articled/audit assistants.

Thus, the action of CA R is valid.

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64. M/s. SR & Associates is one of the three firms shortlisted by ARG Cooperative Bank for assignment of Statutory
Audit for the F.Y 2020-2021. Bank mailed the list of branches to the audit firms along with the maximum fee per
branch and asked them to submit the quotations. SR & Associates responded to the bank and submitted their
quotation. Comment with reference to the provisions of the Chartered Accountants Act, 1949 and schedules
thereto. (July-21 New)

As per Clause (6) of Part I of First Schedule to the Chartered Accountants Act, 1949, a Chartered Accountant in
practice will be deemed to be guilty of professional misconduct if he Solicits clients or professional work either directly
or indirectly by circular, advertisement, personal communication or interview or by any other means.

Provided that nothing herein contained shall be construed as preventing or prohibiting –

(i) Any Chartered Accountant from applying or requesting for or inviting or securing professional work from another
chartered accountant in practice; or
(ii) A member from responding to tenders or enquiries issued by various users of professional services or organizations
from time to time and securing professional work as a consequence.

However, as per the guideline issued by the Council of the Institute of Chartered Accountants of India, a member of
the Institute in practice shall not respond to any tender issued by an organization or user of professional services
in areas of services which are exclusively reserved for chartered accountants, such as audit and attestation services.

However, such restriction shall not be applicable where minimum fee of the assignment is prescribed in the tender
document itself or where the areas are open to other professionals along with the Chartered Accountants.
In the given case of ARG Cooperative Bank, Bank mailed the list of branches to the audit firms along with maximum
fees per branch, in response to which SR & Associates responded and submitted their quotation.

Keeping in view the facts, clause 6 and guideline issued by the council, it can be concluded that SR & Associates is
guilty of Professional misconduct.

65. CA B, is appointed to carry out internal audit of Stock brokers, AKA Finstock Ltd., listed with NSE. CA B started
his work and submitted his first monthly report. CA Z, a ·partner of AZA & Co., statutory auditors of AKA Finstock
Ltd., during his first visit got to see the internal audit report of CA B. CA Z feels that since CA B did not inform about
his appointment as an internal auditor to AZA & Co., this is violation of professional ethics. Comment with reference
to the Chartered Accountants Act, 1949 and Schedules thereto. (July-21 Old)

As per Clause (8) of Part I of First Schedule to the Chartered Accountants Act, 1949, a chartered accountant in practice
is deemed to be guilty of professional misconduct, if he accepts a position as auditor previously held by another
chartered accountant or a certified auditor who has been Issued certificate under the Restricted Certificate Rules,
1932 without first communicating with him in writing.

This clause is applicable in situation of replacing of one auditor by another auditor. Internal auditor and statutory
audition are parallel positions and not replacement positions. The management generally appoints the internal
auditor whereas the statutory auditor will be appointed by the shareholders in the AGM.

In this situation there is no need for communication by one to other. In the given situation CA. B, is appointed as
internal auditor of AKA Finstock Ltd., listed with NSE submitted his first month internal audit report. CA, Z, a partner
of AZA & Co., and statutory auditors of AKA Finstock Ltd. came to know about appointment of internal auditor and
raised an issue regarding violation of professional ethics as CA. B did not informed about his appointment to the
statutory auditors of AZA & Co.

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In view of above the contention of the statutory auditor is not correct and there is no question of communicating in
writing by CA. B.

66. M/s. AWE & Co, Chartered Accountants were appointed as Auditors of WOW Ltd. for the F.Y. 2019-20. Since
they declined to accept the appointment, the Board of Directors appointed M/s GDC & Co., a CA firm as the auditor
in the place of M/s. AWE & Co. This was accepted by M/s GDC & Co. Discuss this with reference to Chartered
Accountants Act, 1949 and Companies Act, 2013. (July-21 Old)

Compliance of Statutory Requirements Before Accepting Appointment: Clause (9) of Part I of the First Schedule to
Chartered Accountants Act, 1949 provides that a member in practice shall be deemed to be guilty of professional
misconduct if he accepts an appointment as auditor of a Company without first ascertaining from it whether the
requirements of Sections 139 and 140 of the Companies Act, 2013, in respect of such appointment have been duly
complied with.

Under this clause it is obligatory on the incoming auditor to ascertain from the Company that the appropriate
procedure in the matter of his appointment has been duly complied with so that no shareholder or retiring auditor
may, at a later date, challenge the validity of such appointment. Where the auditor other than the retiring auditor is
proposed to be appointed, the incoming auditor should ascertain whether the provisions of Sections 139 and 140
have been complied with.

In the given case, M/s. AWE & Co., Chartered Accountants were appointed as auditor of WOW Ltd., however, they
declined to accept the appointment. Therefore, Board of Directors appointed M/s. GDC & Co. as the auditor in place
of M/s. AWE & Co.

Under Sections 139(8)(i) and Section 139(6) of the Companies Act, 2013 Board can appoint the auditor in the case
of casual vacancy. The non-acceptance of appointment or decline to accept appointment by M/s. AWE Ltd does not
constitute a casual vacancy to be filled by the Board. In this case, it will be deemed that no auditor was appointed in
the AGM.

Further, as per Section 139(10) of the Companies Act, 2013 when at any annual general meeting, no auditor is
appointed or re-appointed, the existing auditor shall continue to be the auditor of the company. The appointment
of the auditor by the Board is defective in law. Hence M/s GDC & Co. is guilty of professional misconduct as per
Clause (9) of the First Schedule as M/s GDC & Co. being incoming auditor accepted the appointment without
verification of compliance of statutory requirements.

67. CA. Ritu is a leading Income Tax Practitioner in Delhi. She is very much fond of cooking. Due to this passion of
her, she also wrote a cookery book “Delight your tummy” during the year. But, she didn’t take any permission from
the Council of the Institute for engaging herself into authorship of such book. Comment. (MTP Apr-18)

Engaging into Business/Profession Other Than the Profession of CA: As per Clause (11) of Part I of First Schedule to
the Chartered Accountants Act, 1949, a Chartered Accountant in Practice is deemed to be guilty of professional
misconduct if he engages in any business or occupation other than the profession of Chartered Accountant unless
permitted by the Council so to engage.

Further, the Chartered Accountants Regulation, 1988 provides that a Chartered Accountant in practice shall not
engage in any other business or occupation other than the profession of accountancy except with the permission
granted in accordance with a resolution of the Council. According to the same, general permission has been granted
for authorship of books and articles.

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In the given case, CA. Ritu has written a cookery book without obtaining specific or prior approval of the Council.

On this context, it may be noted that no specific permission is required to be obtained for authorship of books and
articles. Therefore, CA. Ritu would not be held guilty of professional misconduct under Clause (11) of Part I of the
First Schedule to the Chartered Accountants Act, 1949.

68. As a Chartered Accountant in practice, you are asked to conduct a review of the "Profit Forecast" prepared by
a Company in connection with its application for a Term loans from a bank.

Certification of Financial Forecast: Under Clause (3) of Part I of Second Schedule to The Chartered Accountants Act,
1949, a CA in practice is deemed to be guilty of professional misconduct if he permits his name or the name of his firm
to be used in connection with an estimate of earnings contingent upon future transactions in a manner which may
lead to the belief that he vouches for the accuracy of the forecast.

Further, SAE 3400 “The Examination of Prospective Financial Information”, provides that the management is
responsible for the preparation and presentation of the prospective financial information, including the identification
and disclosure of the sources of information, the basis of forecasts and the underlying assumptions. The auditor may
be asked to examine and report on the prospective financial information to enhance its credibility, whether it is
intended for use by third parties or for internal purposes.

Thus, while making report on projection, the auditor need to mention that his responsibility is to examine the evidence
supporting the assumptions and other information in the prospective financial information, his responsibility does not
include verification of the accuracy of the projections, therefore, he does not vouch for the accuracy of the same.

Hence, the offer can be accepted if the above requirements are complied with.

69. Comment on the following with reference to the Chartered Accountants Act, 1949 and schedules thereto: A
practicing Chartered Accountant was appointed to represent a company before the tax authorities. He submitted
on behalf of his clients certain information and explanations to the authorities, which were found to be false and
misleading. (PM)

Submitting Information as Authorised Representative: As per Clause (5) of Part I of Second Schedule to the
Chartered Accountant Act, 1949, if a member in practice fails to disclose a material fact known to him which is not
disclosed in a financial statement, but disclosure of which is necessary to make the financial statement not misleading,
where he is concerned with that financial statement in a professional capacity, he will be held guilty under Clause (5).

As per Clause (6) of Part I of Second Schedule if he fails to report a material misstatement known to him to appear in
a financial statement with which he is concerned in a professional capacity, he will be held guilty under Clause (6). In
given case, the Chartered Accountant had submitted the statements before the taxation authorities. These statements
are based on the data provided by the management of the company. Although the statements prepared were based
on incorrect facts and misleading, the Chartered Accountant had only submitted them acting on the instructions of
his client as his authorized representative.

Hence the Chartered Accountant would not be held liable for professional misconduct.

70. Mr. SP, a Chartered Accountant, obtains registration as category IV Merchant Banker under the SEBI’s Rules and
Regulations and act as Advisor to a capital issue of MB Co. Ltd. He designates himself under the caption “Merchant
Banker” in client offer documents and ‘Advisor to issue’ in his own letterheads, visiting cards and professional
documents. (PM)

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Use of Designation other than Chartered Accountant: Clause (7) of Part I of First Schedule to the Chartered
Accountants Act, 1949 restrains a Chartered Accountant in practice from advertising his professional attainments or
services. It also prohibits a member from using any designation or expressions other than the Chartered Accountant
on professional documents, visiting cards, letter heads or sign boards unless it be a degree of a University established
by law in India or recognized by the Central Government or a title indicating membership of the Institute of Chartered
Accountants or of any other institution that has been recognized by the Central Government or may be recognized by
the Council.

It may be noted that, in Client Companies’ offer documents and advertisements regarding capital issue, name and
address of the Chartered Accountant acting as Advisor or Consultant to the Issue could be indicated under the caption
“Advisor/ Consultant to the Issue”. Further, such members should not use the designation of either ‘Merchant
Banker’ or ‘Advisor/Consultant to Issue’ in their own letterheads, visiting cards, professional documents, etc.

In the given case, Mr. SP, a Chartered Accountant, has obtained registration as category IV Merchant banker and acted
as advisor to a capital issue of MB Co. Ltd. He has designated himself under the caption “Merchant Banker” in client
offer documents and “advisor to issue’ in his own letterheads, visiting cards and professional documents.

Therefore, Mr. SP shall be held guilty of professional misconduct as per Clause (7) of Part I of First Schedule to the
Chartered Accountants Act, 1949.

71. A Chartered Accountant having CoP entered into partnership with persons, who are not the members of the
institute, for the purpose of carrying on business. The share of the chartered account in the profit and losses was
25%. He was to take part in the business and was entitled to represent the firm before Govt. authorities etc. He
was operating the bank account of the firm, was receiving moneys from the customers and was also looking after
the affairs of the Partnership.

Practicing CA Entering into Partnership and Carrying on Business: As per Clause (4) of Part I of First Schedule to the
Chartered Accountants Act, 1949, a Chartered Accountant in practice is deemed to be guilty of professional
misconduct if he enters into partnership, in or outside India, with any person other than Chartered Accountant in
practice or such other person who is a member of any other professional body having such qualifications as may be
prescribed, including a resident who but for his residence abroad would be entitled to be registered as a member
under clause (v) of sub-section (1) of section 4 or whose qualifications are recognized by the Central Government or
the Council for the purpose of permitting such partnerships. It may be noted that the Council has prescribed the list
of person qualified and the professional bodies for the purpose of entering into partnership under the Chartered
Accountants Regulations, 1988.

Further, according to Clause (11) of Part I of First Schedule to the said Act, a Chartered Accountant in practice shall
be deemed to be guilty of professional misconduct if he engages in any business or occupation other than the
profession of chartered accountant unless permitted by the Council so to engage. It may also be noted that a member
in practice is required to apply for specific and prior approval of the Council for entering into any business. In the given
case, a chartered accountant in practice has entered into partnership with persons who were not the members of the
Institute, for the purpose of carrying on business. The question is silent about with whom the partnership has been
entered into and whether the prior permission for entering into such business has been obtained.

Conclusion: It is assumed that the persons with whom the partnership has been entered into has not been allowed
under the Regulations and the prior approval of the Council has not been obtained for entering into such business.
Hence, the Chartered Accountant shall be held guilty of professional misconduct under Clause (4) and Clause (11).

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72. Mr. Hopeful, an aspiring student of ICAI, approached Mr. Witty, a practicing Chartered Accountant, for the
purpose of articleship. Mr. Witty, the principal, offered him stipend at the rate of ₹ 2,000 per month to be paid
every sixth month along with interest at the rate of 10% per annum compounded monthly to compensate such late
payment on plea that cycle of professional receipts from clients is six months. Mr. Hopeful agreed for such late
payment in the hope of getting extra stipend in the form of interest. Mr. Witty, however, used to disburse salary
to all of his employees on time.

Contravening Provisions of the Act: A member of the Institute, whether in practice or not, shall be deemed to be
guilty of professional misconduct under Clause (1) of Part II of the Second Schedule to the Chartered Accountants
Act, 1949, if he contravenes any of the provisions of this Act or the regulations made there under or any guidelines
issued by the Council.

In the given case, Mr. Witty has failed to make the payments of stipend to articled assistant every month in
accordance with Regulation 48. The fact that the articled assistant will be compensated with extra sum in the form
of interest on late payment is not relevant and the plea that cycle of professional receipts from clients is six months is
not acceptable as Mr. Witty has disbursed salary to all of his employees on time.

Therefore, Mr. Witty is guilty of professional misconduct under Clause (1) of Part II of the Second Schedule to the
Chartered Accountants Act, 1949 as he has contravened Regulation 48 by not making the payment every month.

73. Comment on the following with reference to the Chartered Accountants Act, 1949 and schedules thereto:
(a) Mr. Raj, a renowned practicing Chartered Accountant, decided to tie his knot with Ms. Anjani. While giving order
for marriage invitation cards, Mr. Raj instructed to add his designation “Chartered Accountant” with his name. Later
on, the cards were distributed to all his relatives, close friends and clients.

Printing of Designation “Chartered Accountant” on Marriage Invitations: As per Clause (6) of Part I of the First
Schedule to the Chartered Accountants Act, 1949, a Chartered Accountant in practice shall be deemed to be guilty
of professional misconduct if he solicits clients or professional work either directly or indirectly by circular,
advertisement, personal communication or interview or by any other means.

However, the Council of the ICAI is of the view that the designation “Chartered Accountant” as well as the name of
the firm may be used in greeting cards, invitations for marriages and religious ceremonies and any other specified
matters, provided that such greeting cards or invitations etc. are sent only to clients, relatives and close friends of
the members concerned.

In the given case, Mr. Raj instructed to write designation “Chartered Accountant” on his marriage invitation cards and
distributed the same to all his relatives, close friends and clients. On this context, it may be noted that the Council has
allowed using designation “Chartered Accountant” in invitations for marriages, provided these are sent only to clients,
relatives and close friends of the members concerned.

Therefore, Mr. Raj would not be held guilty of professional misconduct under Clause (6) of Part I of the First Schedule
to the Chartered Accountants Act, 1949.

(b) CA Ram is practicing in the field of financial management planning for over 12 years. He has gained expertise in
this domain over others. Mr. Ratan, a student of Chartered Accountancy course, is very much impressed with the
knowledge of CA. Ram. He approached CA. Ram to take guidance on some topics of financial management subject
related to his course. CA. Ram, on request, decided to spare some time and started providing private tutorship to
Mr. Ratan along with some other aspirants. However, he forgot to take specific permission for such private
tutorship from the Council.

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Permission for Providing Private Tutorship: As per Clause (11) of Part I of the First Schedule to the Chartered
Accountants Act, 1949, a Chartered Accountant in practice shall be deemed to be guilty of professional misconduct if
he engages in any business or occupation other than the profession of chartered accountant unless permitted by the
Council so to engage.

Further, regulation 190A of the Chartered Accountants Regulation, 1988 provides that a Chartered Accountant in
practice shall not engage in any other business or occupation other than the profession of accountancy except with
the permission granted in accordance with a resolution of the Council. According to the same there is no specific
permission from the council would be necessary in the case of private tutorship.

In the given case, CA. Ram has started providing private tutorship to Mr. Ratan along with some other aspirants,
without obtaining specific or prior approval of the Council. On this context, it may be noted that the Council has
provided general permission for providing such private tutorship.

Therefore, CA. Ram would not be held guilty of professional misconduct under Clause (11) of Part I of the First
Schedule to the Chartered Accountants Act, 1949.

(c) The manager of ZedEx (P) Ltd. approached CA. Vineet in the need of a certificate in respect of a consumption
statement of raw material. Without having certificate of practice (CoP), CA. Vineet issued the certificate to the
manager of the company, acting as a CA in practice and applied for the CoP to the Institute on very next day to
avoid any dispute.

Issuing Certificate without having Certificate of Practice: As per Clause (1) of Part II of Second Schedule to the
Chartered Accountants Act, 1949, a member of the Institute, whether in practice or not, shall be deemed to be guilty
of professional misconduct, if he contravenes any of the provisions of this Act or the regulations made thereunder or
any guidelines issued by the Council.

This clause requires every member of the Institute to act within the framework of the Chartered Accountants Act and
the Regulations made thereunder. Any violation either of the Act or the Regulations by a member would amount to
misconduct. In the given case, CA. Vineet has issued a certificate in respect of a consumption statement of raw
material to the manager of ZedEx (P) Ltd., as a Chartered Accountant in practice when he had not even applied for
the CoP to the Institute, thereby contravening the provisions of section 6 of the Chartered Accountants Act, 1949.

Therefore, CA. Vineet will be held guilty of professional misconduct in terms of Clause (1) of Part II of Second
Schedule to the Chartered Accountants Act, 1949 for contravention of provisions of this Act.

74. A is the auditor of Z Ltd., which has a turnover of ₹ 200 crore. The audit fee for the year is fixed at ₹ 50 lakhs.
During the year, the company offers A an assignment of management consultancy within the meaning of Section
2(2)(iv) of the CA Act, 1949 for a remuneration of ₹ 1 crore. A seeks your advice on accepting the assignment. (SM)

As per Council General Guidelines 2008, under Chapter IX on appointment as statutory auditor a member of the
Institute in practice shall not accepts the appointment as a statutory auditor of a PSUs’/Govt company(ies)/Listed
company(ies) and other public company(ies) having a turnover of ₹ 50 crores or more in a year and where he accepts
any other work(s) or assignment(s) or service(s) in regard to same undertaking(s) on a remuneration which in total
exceeds the fee payable for carrying out the statutory audit of the same undertaking. For this purpose, the other
work/services include Management Consultancy and all other professional services permitted by Council excluding
audit under any other statute, Certification work required to be done by the statutory auditor and any representation
before an authority.

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Conclusion: In view of the above position it would be a misconduct on A’s part if he accepts the management
consultancy assignment for a fee of ₹ 1 crore.

75. Mr. Shanti, a Chartered Accountant, employed as a paid Assistant with a Chartered Accountant firm, leaves the
services of the firm on 31st December, 2020. Despite many reminders from ICAI he fails to reply regarding the date
of leaving the services of the firm. Comment with reference to the Chartered Accountants Act, 1949, and Schedules
thereto. [MTP Mar-22]

Failed to Supply Information Called For: As per Clause (2) of Part III of the First Schedule to the Chartered
Accountants Act, 1949, a member, whether in practice or not, will be deemed to be guilty of professional misconduct
if he does not supply the information called for, or does not comply with the requirements asked for, by the Institute,
Council or any of its Committees, Director (Discipline), Board of Discipline, Disciplinary Committee, Quality Review
Board or the Appellate authority.

Thus, in the given case, Mr. Shanti has failed to reply to the letters of the Institute asking him to confirm the date of
leaving the service as a paid assistant. Therefore, he is held guilty of professional misconduct as per Clause (2) of Part
III of the First Schedule to the Chartered Accountants Act, 1949.

76. Sanyam, a chartered accountant in practice is owner of three agriculture lands. He lost his father due to Covid
Pandemic. After death of his father, he started carrying out agricultural activities. His neighbour Raja who is a
farmer, filed a complaint against him to ICAI that being a member he is carrying out agricultural activities, therefore,
he is liable for misconduct. You are required to examine the same with reference to the Chartered Accountants Act,
1949 and Schedules thereto. [MTP-Apr-22]

Engaging into Agricultural Activity: As per Clause (11) of Part I of First Schedule of Chartered Accountants Act, 1949,
a Chartered Accountant in practice is deemed to be guilty of professional misconduct if he engages in any business or
occupation other than the profession of Chartered Accountant unless permitted by the Council so to engage.

However, the Council has granted general permission to the members to engage in certain specific occupation. In
respect of all other occupations specific permission of the Institute is necessary.

In this case, CA. Sanyam is owner of 3 agriculture lands, and he is carrying out agricultural activities which is covered
under the general permission.

Therefore, CA Sanyam is not guilty of professional misconduct under Clause (11) of Part I of First Schedule of Chartered
Accountants Act, 1949 and complain of neighbor to the Institute is not correct.

77. CA Ravi, a practising Chartered Accountant, was proprietor of M/s Ravi & Associates. CA Ravi died on 15th
September, 2020 due to cardiac arrest. Only family member left behind CA Ravi was his wife, Roohi. On 30th
September, 2021, Roohi sold the practice of her husband to CA Balwan for ₹ 25 Lacs along with right to use the firm
name i.e., M/s. Ravi & Associates and requested the Institute to consider the effect of such sale. Give
your comments on the following issues with reference to the Chartered Accountants Act,
1949 and Schedules thereto:
(i) Whether Roohi can sell the practice to CA Balwan?
(ii) Can CA Balwan continue to practice as proprietor in name of M/s Ravi & Associates? [May-22]

Sale of Goodwill: With reference to Clause (2) of Part I to the First Schedule to Chartered Accountants’ Act, 1949,
the Council of the Institute of Chartered Accountants of India considered whether the goodwill of a proprietary

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concern of chartered accountant can be sold to another member who is otherwise eligible, after the death of the
proprietor.
It is being resolved that the legal heir of the deceased member has to obtain the permission of the Council within a
year of the death of the proprietor concerned.

It further lays down that the sale is permitted subject to certain conditions like such a sale is completed/effected in
all respects and the Institute’s permission to practice in deceased’s proprietary firm name is sought within a year
of the death of such proprietor concerned. In respect of these cases, the name of the proprietary firm concerned
would be kept in abeyance (i.e. not removed on receipt of information about the death of the proprietor as is being
done at present) only upto a period of one year from the death of proprietor concerned as aforesaid.

In the given case, Mrs. Roohi, widow of Mr. Ravi, proprietor of M/s. Ravi & Associates, has sold the practice along with
right to use the firm name after one year of his death for ` 25 lakhs. This sale is in effect the sale of goodwill.

From the discussion given above it can be concluded that:

(i) Mrs. Roohi cannot sell the practice of CA. Balwan with right to use the firm name.
(ii) CA Balwan cannot continue to practice in the name of the firm M/s. Ravi & Associates as a proprietor because the
name of the firm M/s. Ravi & Associates would be kept in abeyance only up to a period of one year from the death of
the proprietor.

78. CA K qualified as Chartered Accountant and started practice as proprietor in the name of M/s K & Associates in
the year 2015-16. LST Limited, a listed entity, appointed M/s K & Associates as Statutory Auditor for the year ended
31st March, 2022. CA K signed the balance sheet of LST Limited for the year ended 31st March, 2022 on 14th May,
2022. M/s K & Associates never subjected themselves to the Peer Review process of the Institute since its inception
of practice. Comment with reference to the Chartered Accountants Act, 1949 and Schedules thereto. [May-22]

Clause (9) of Part I of the Second Schedule to the Chartered Accountants Act, 1949 states that a Chartered Accountant
in practice shall be deemed to be guilty of misconduct if he fails to invite attention to any material departure from the
generally accepted procedure of audit applicable to the circumstances.

This clause implies that the audit should be performed in accordance with “generally accepted procedure of audit
applicable to the circumstances” and if for any reason the auditor has not been able to perform the audit in accordance
with such procedure, his report should draw attention to the material departures from such procedures. What
constitutes “generally accepted audit procedure” would depend upon the facts and circumstances of each case, but
guidance is available in general terms from the various pronouncements of the Institute is issued by way of
Engagement and Quality Control Standards, Statements, General Clarifications, Guidance Notes Technical Guides,
Practice Manuals, Studies and Other Papers.

Audit of Listed Companies: Pursuant to SEBI Notification, statutory audit of listed companies under the Companies
Act, 2013 shall be done by only those auditors who have subjected themselves to the Peer Review process of the
Institute, and hold a valid certificate issued by the Peer Review Board of the ICAI.

In the given case of M/s. K & Associates, who is appointed auditor of a listed entity LST Limited for the year ended
31.03.2022, CA K, the proprietor signed the balance sheet on 14.05.2022 but never subjected the firm to the Peer
Review process of the Institute. CA K would be held guilty of professional misconduct under clause (9) of Part I of
Second Schedule of the Chartered Accountants Act, 1949. Also, CA K did not comply with the SEBI Notification which
was required to be complied with.

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Alternative Solution
Clause (1) of Part II of the Second Schedule to the Chartered Accountants Act, 1949 states that a chartered accountant
in practice shall be deemed to be guilty of misconduct if he contravenes any of the provisions of this Act or the
regulations made thereunder or any guidelines issued by the Council. It requires every member of the institute to act
within the framework of the Chartered Accountants Act, 1949 and the regulations and guidelines made by Council
thereunder.

The Statement on Peer Review shall be deemed to be a guideline of the Council under Clause (1) of Part II of Second
Schedule to the Act and it is obligatory for the Practice Unit to comply with the provisions contained in this Statement.
As per the Statement every Practice Unit including its branches who has conducted Statutory Audit of Enterprises
whose equity or debt securities are listed in India or abroad as defined under SEBI(LODR) regulations, 2015, will be
subject to Peer Review in accordance with this statement.

Audit of Listed Companies: Pursuant to SEBI Notification, Statutory Audit of Listed Companies under the Companies
Act, 2013 shall be done by only those auditors who have subjected themselves to the Peer Review process of the
Institute, and hold a valid certificate issued by the Peer Review Board of the ICAI.

In the given case of M/s K & Associates, who is appointed auditor of a listed entity LST Limited for the year ended
31.03.2022, Mr K, the proprietor signed the Balance sheet on 14.05.2022 but never subjected the firm to the Peer
Review process of the Institute. Hence, CA K would be held guilty of professional misconduct under clause (1) of Part
II of Second Schedule of the Chartered Accountants Act, 1949.

79. Mr. Shreyansh, a Chartered Accountant in practice was invited to deliver a seminar on Amendments in Schedule
III and CARO 2020 which was attended by professionals as well as by representatives of various Industries. One
section of audience raised a particular issue unique to the industry to which it pertains. Mr. Shreyansh
enthusiastically explained the issue and elaborated how he solved this, for his client facing the same issue with
worked out examples from the computer storage device using the actual data of one of his clients with full
identification of client details being displayed to the group for the sake giving clarity on a topic in a real-life
situation. Comment with reference to the Chartered Accountants Act, 1949, and Schedules thereto. [Nov-22]

Disclosure of Information to third Party: Clause (1) of Part I of the Second Schedule to the Chartered Accountants
Act, 1949 states that a chartered accountant in practice shall be deemed to be guilty of professional misconduct if he
discloses information acquired in the course of his professional engagement to any person other than his client,
without the consent of the client or otherwise than as required by law for the time being in force.

SA 200 on " Overall Objectives of the Independent Auditor and the Conduct of an Audit in Accordance with
Standards on Auditing" also reiterates that, "the auditor should respect the confidentiality of information acquired
during his work and should not disclose any such information to a third party without specific authority or unless there
is a legal or professional duty to disclose".

In the instant case, Mr. Shreyansh is a Chartered Accountant in practice and he was invited to deliver a seminar on
Amendments in Schedule III and CARO 2020 which was attended by professional as well as by representatives of
various industries. During his session, a query was raised on particular issue and Mr. Shreyansh used the actual data
of one of his clients with full identification of client details displayed to explain and elaborate such query. Applying
the above provision, the auditor cannot disclose the information in his possession without specific permission of the
client.

Thus, CA. Shreyansh will be liable for professional misconduct under clause 1 of Part I of the Second Schedule to the
Chartered Accountants Act, 1949.

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80. The Cashier of a company committed a fraud and absconded with the proceeds thereof. The Chief Accountant
of the company also did not know when the fraud had occurred. In the course of the audit, 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. Comment with reference to the Chartered Accountants Act, 1949 and
schedules thereto. [Nov-22]

In the given case, in the course of audit, auditor failed to discover the fraud. It is clearly given that investigation
indicated that the auditor did not exercise reasonable skill and care and performed his work in a casual and
unmethodical manner.

According to Clause (7) of Part I of Second Schedule of Chartered Accountants Act, 1949, a Chartered Accountant in
practice is deemed to be guilty of professional misconduct if he “does not exercise due diligence or is grossly negligent
in the conduct of his professional duties”.

As per SA 240, "The auditor's responsibilities relating to fraud in an audit of financial statements", it can be
concluded that the auditor did not plan and perform the audit with an attitude of professional skepticism.
Thus, having regard to this and a fraud has actually taken place during the year, committed by the absconding cashier,
it is reasonable to think that prima facie there is a case against the auditor for gross negligence.
From the facts given in the case and by applying Clause (7) and SA 240, it is clear that the auditor is guilty of
professional misconduct and the directors can file disciplinary proceedings against the auditor.

81. CA Mehta was appointed as the Auditor of CS Ltd. for the year 2020-21 in the place of retiring auditor CA Gupta.
CA Mehta accepted the appointment after obtaining a certificate from the management that the provisions of the
Sections 139 and 140 of the Companies Act, 2013 have been complied with. Comment with reference to the
Chartered Accountants Act, 1949 and schedules thereto. [Nov-22]

In the given case, CA Mehta accepted the appointment in place of retiring auditor after obtaining a certificate from
the management that the provisions of the Sections 139 and 140 of the Companies Act, 2013 have been complied
with.

Clause (9) of Part I of the First Schedule to Chartered Accountants Act, 1949 provides that a member in practice shall
be deemed to be guilty of professional misconduct if he accepts an appointment as auditor of a Company without first
ascertaining from it whether the requirements of Sections 139 and 140 of the Companies Act, 2013, in respect of such
appointment have been duly complied with.

Under this clause it is obligatory on the incoming auditor to ascertain from the Company that the appropriate
procedure in the matter of his appointment has been duly complied with so that no shareholder or retiring auditor
may, at a later date, challenge the validity of such appointment.

Under Clause (9) of Part I of the First Schedule to the Chartered Accountants Act, 1949, the incoming auditor has to
ascertain whether the Company has complied with the provisions of the above sections. The word "ascertain” means
“to find out for certain”. This would mean that the incoming auditor should find out for certain as to whether the
Company has complied with the provisions of Sections 139 and, 140 of the Companies Act, 2013. In this respect, it
would not be sufficient for the incoming auditor to accept a certificate from the management of the Company that
the provisions of the above sections have been complied with. It is necessary for the incoming auditor to verify the
relevant records of the Company and ascertain as to whether the Company has, in fact, complied with the provisions

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of the above sections. If the Company is not willing to allow the incoming auditor to verify the relevant records in
order to enable him to ascertain as to whether the provisions of the above sections have been complied with, the
incoming auditor should not accept the audit assignment.

Applying the above clause to the given case, the Company is not willing to allow the incoming auditor to verify the
relevant records in order to enable him to ascertain as to whether the provisions of the above sections have been
complied with, the incoming auditor, CA Mehta should not have accepted the audit assignment. But on the other
hand, CA Mehta accepted the appointment in place of retiring auditor after obtaining a certificate from the
management which is not enough and hence CA Mehta is deemed to be guilty of professional misconduct.

82. Mr. Joe, a practicing chartered accountant, has accepted an appointment as auditor of cooperative society and
agreed to charge fees @ 7% of the profits of the society during the financial year 2020-21. Comment on action of
Mr. Joe with reference to the Chartered Accountants Act, 1949 and Schedules thereto. [Dec-21 Old]

According to Clause (10) of Part I of First Schedule to the Chartered Accountants Act, 1949, a Chartered Accountant
in practice shall be deemed to be guilty of professional misconduct if he 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.
However, this restriction is not applicable where such payment is permitted by the Chartered Accountants Act, 1949.
The Council of the Institute has framed regulation 192 which exempts certain professional services from the operation
of Clause (10).

CA Regulation allow the Chartered Accountant in practice to charge the fees in respect of any professional work which
are based on a percentage of profits, or which are contingent upon the findings or results of such work, in the case of
an auditor of a co-operative society, the fees may be based on a percentage of the paid-up capital or the working
capital or the gross or net income or profits.

In the given case, Mr. Joe, a practicing Chartered Accountant, has acted an appointment as auditor of co-operative
society and agreed to charge his professional fees on percentage of the profits of the society.

Therefore, Mr. Joe shall not be held guilty of professional misconduct as he is allowed to charge fees on percentage
of the profits of the co-operative society.

83. AJ & Associates and PK & Co., chartered accountant firms have joined the Network firm A to Z & Affiliates
registered with Institute. AJ & Associates was statutory auditor of B Ltd. for last 10 years. Due to rotation of auditor
as per section 139 (2) of Companies Act, 2013, B Ltd. retires AJ & Associates and appoints PK & Co., as auditor for
the year 2020-21. Comment as per Chartered Accountant Act, 1949 - Guidelines for Networking.
[May-22 + MTP Sep-22]
As per Council General Guidelines, 2008, Chapter XV, Guidelines for Networking, once the relationship of network
arises, it will be necessary for such a network to comply with all applicable ethical requirements prescribed by the
Institute from time to time in general and the following requirements in particular in those cases where rotation of
firms is prescribed by any regulatory authority, no member firm of the network can accept appointment as an auditor
in place of any member firm of the network which is retiring.

In the given situation, AJ & Associates was statutory auditor of B Ltd. For last 10 years and due to rotation of auditor
as per section 139(2) of the Companies Act, 2013 B L td., retires AJ & Associates and appoints PK & Co. as auditor for
the year 2020-21.

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It may be considered that AJ & Associates and PK & Co., chartered accountant firms have joined the network firm
namely A to Z & Affiliates registered with Institute. In view of above Guidelines for Networking PK & Co., is disqualified
for appointment as an auditor of B Ltd.

84. Comment on the following with reference to the with reference to the Chartered Accountants Act, 1949 and
Schedules thereto: [RTP Nov-22]

(a) CA Dev started practice in Punjab in the year 2019. CA Dev issued ‘Turnover Certificate’ for M/s. ASAUS Traders
to be forwarded to the Bank for the purpose of availing cash credit facility and machinery term loan. Brother of CA
Dev was proprietor of M/s. ASAUS Traders.

As per Clause (4) of Part I of Second Schedule to the Chartered Accountants Act, 1949, a Chartered Accountant in
practice is deemed to be guilty 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.

Further, it is not permissible for a member to undertake the assignment of certification, wherein the client is relative
of the member. The “relative" for this purpose would refer to the definition mentioned in Accounting Standard (AS) -
18.

In the given situation, CA Dev started practice in Punjab in the year 2019. CA Dev issued Turnover certificate for M/s.
ASAUS Traders to be forwarded to the Bank for the purpose of obtaining Loan. Brother of CA Dev is proprietor of M/s.
ASAUS Traders. Brother is very well covered in the definition of relative mentioned in Accounting Standard (AS)-18.

Hence, CA Dev is guilty of professional misconduct.

(b) Aagam Private Limited requested CA Sheetal, a practicing Chartered Accountant, to digitally sign the form
related to resignation of Mr. Rohit, one of the Director of Aagam Private Limited, along with the copy of Resignation
Letter to be uploaded on the website of Registrar of Companies. The signature of Mr. Rohit was simply copied and
pasted by another Director of Aagam Private Limited. CA Sheetal, without verifying the genuineness of the
resignation letter, digitally signed the form and the said form was uploaded on the website of Registrar of
Companies.

As per Clause (7) of Part I of Second Schedule to the Chartered Accountants Act, 1949, a Chartered Accountant in
practice is deemed to be guilty if he does not exercise due diligence or is grossly negligent in the conduct of this
professional duties.

In the given case, Aagam Private Limited requested CA Sheetal, a practicing chartered accountant, to digitally sign the
form related to resignation of Mr. Rohit, one of the Director of Aagam Private Limited, along with the copy of
Resignation Letter to be uploaded on the website of Registrar of Companies. The signature of Mr. Rohit was simply
copied and pasted by another Director of Aagam Private Limited.

CA Sheetal, without verifying the genuineness of the Resignation Letter, digitally signed the Form and the said form
was uploaded on the website of Registrar of Companies.

Due to forged resignation letter, the resignation of Mr. Rohit from directorship of the Aagam Private Limited had been
occurred. It was noted that CA Sheetal had not taken any step to verify forged signature on resignation letter which
anyone would have taken in normal circumstances.

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Consequently, CA. Sheetal would be held liable for professional misconduct as per Clause (7) of Part I of Second
Schedule to the Chartered Accountants Act, 1949.

85. CA Praful has recently qualified and has obtained certificate of practice. In the initial years, it is taking time to
set up his clientele base. He is also conducting audit of few entities. Simultaneously, he plans to provide coaching
to CA students online taking advantage of his fresh reservoir of knowledge. Therefore, he advertises his classes on
various social media platforms. Comment with reference to the Chartered Accountants Act, 1949, and Schedules
thereto. [MTP Nov-22]

Regulation 190A of CA Regulations, 1988 provides that a CAiP shall not engage in any business or occupation other
than profession of accountancy except with permission of Council. Council has passed a resolution under Regulation
190A granting general permission for private tutorship and part time tutorship under coaching organization of the
Institute.

Such general permission is subject to condition that direct teaching hours devoted to such activities not exceed 25
hours a week in order to perform attest functions.

However, Clause 6 of Part I of First Schedule to CA Act, 1949 states that CAiP shall be deemed to be guilty of
professional misconduct, if he solicits clients or professional work either directly or indirectly by circular,
advertisement, personal communication or interview or by any other means; Further, advertisement of online
coaching activities through social media platforms amounts to indirect solicitation as well as solicitation by another
means and violative of Clause 6/I/First.

Therefore, although a member in practice can engage in private tutorship subject to Council Guidelines but cannot
advertise coaching activities as it amounts to indirect solicitation of clients and professional work.

In given case, CA Praful is providing coaching to CA students online and also advertising his classes on various social
media platforms.

In view of above, CA. Praful is guilty of professional misconduct under Clause (6) of Part I of First Schedule to the
Chartered Accountants Act 1949 for advertising his classes on various social media platforms.

86. Mr. P, a Chartered Accountant did not maintain books of account for his professional work on the ground that
his income is assessed under Section 44ADA of the Income Tax Act, 1961. Comment with reference to the Chartered
Accountants Act, 1949 and Schedules thereto. [Nov-22]

Maintenance of Books of Account: As per the Council General Guidelines 2008, under Chapter 5 on maintenance of
books of accounts, it is specified that if a chartered accountant in practice or the firm of Chartered Accountants of
which he is a partner fails to maintain and keep in respect of his/its professional practice, proper books of account
including the Cash Book and Ledger, he is deemed to be guilty of professional misconduct.

Accordingly, it does not matter whether section 44AA of the Income Tax Act, 1961 applies or not.

Conclusion: Hence, Mr. P is guilty of professional misconduct.

87. Mr. X is a practising Chartered Accountant. Mr. Y is a practising advocate representing matters in the court of
law. X and Y decided to help each other in matters involving their professional expertise. Accordingly, Mr. X
recommends Mr. Y in all litigation matters in the court of law and Y consults X in all matters relating to finance and

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other related matters, which come to him in arguing various cases consequently they started sharing profits of their
professional work. Is Mr. X liable for professional misconduct ? [Nov-22]

Sharing fees with Advocates: According to Clause (2) of Part I of the First Schedule to the Chartered Accountants
Act, 1949, a Chartered Accountant in practice is deemed to be guilty of professional misconduct if he pays or allows
or agrees to pay or allow, directly or indirectly, any share, commission or brokerage in the fees or profits of his
professional business, to any person other than a member of the Institute or a partner or a retired partner or the legal
representati ve of a deceased partner, or a member of any other professional body or with such other persons having
such qualifications as may be prescribed, for the purpose of rendering such professional services from time to time in
or outside India.

Furthermore, Clause (3) of Part I of the First Schedule to the said Act states that a Chartered Accountant in practice
is deemed to be guilty of professional misconduct if he accepts or agrees to accept any part of the profits of the
professional work of a person who is not a member of the Institute.

However, a practicing member of the Institute can share fees or profits arising out of his professional business with
such members of other professional bodies or with such other persons having such qualifications as prescribed by the
Council under Regulation 53-A of the Chartered Accountants Regulations, 1988. Under the said regulation, the
member of “Bar Council of India” (Advocate) is included.

Therefore, Mr. Y, a practicing advocate, a member of Bar Council, is allowed to share part of profits of his professional
work with Mr. X. Hence, Mr. X, a practicing Chartered Accountant, will not be held guilty under any of the above-
mentioned clauses for paying and accepting part of profits to/from Mr. Y.

88. Mr. S is a practising chartered accountant based out of Chennai. During the weekends, he involved himself in
equity research and used to advise his friends, relatives and other known people who are not his clients. Apart from
this, he was also involved as a paper setter for Accountancy subject in the school in which he studied. He also owned
agricultural land and was doing agriculture during his free time. During the year 20X1, heavy losses were incurred
in agricultural activity due to natural calamities and misfortune, and he lost almost all of his wealth and became
undischarged insolvent. After a few court hearings, finally, in the year 20X3, he was declared discharged insolvent
and obtained a certificate from the court stating that his insolvency was caused by misfortune without any
misconduct on his part. You are required to comment on the above situation with reference to the Chartered
Accountants Act, 1949 and Schedules thereto, (especially from the point of section 8: Entry of name in Register of
Members). [RTP/MTP May-23]

Given situation can be visualised in following parts:

(A) Mr S used to involve himself in equity research and used to advise his friends, relatives and other known people:
As per the recent decisions taken by the Ethical Standards Board of ICAI, a Chartered Accountant in practice may be
an equity research adviser, but he cannot publish a retail report, as it would amount to other business or
occupation.

In the given case, though Mr S is involved in doing equity research and in advising people, it is clear that he does not
publish any retail report of his research. Hence, this act of Mr S shall not make him guilty of professional misconduct.

(B) Mr S is involved in paper-setting for the Accountancy subject in the school where he studied. He also owns
agricultural land and does agriculture activities: As per Clause 11 of Part I of First Schedule of Chartered Accountants
Act and regulation 190A of Chartered Accountants Regulations, a Chartered Accountant in practice is deemed to be
guilty of professional misconduct if he engages in any business or occupation other than the profession of chartered
accountant unless permitted by the Council so to engage.

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Further, Regulation 190A mentions the 'Permissions granted Generally' to engage in a certain category of
occupations, for which no specific permission of Council is required. Those cases include:
- Valuation of papers, acting as paper-setter, head examiner or a moderator, for any examination.
- Owning agricultural land and carrying out agricultural activities.
Therefore, in the given case, the activities of Mr S as a paper-setter and involvement in agricultural activities do not
make him guilty of professional misconduct.

(C) Mr. S was discharged insolvent: Disabilities for the Purpose of Membership : Section 8 of the Chartered
Accountants Act, 1949 enumerates the circumstances under which a person is debarred from having his name entered
in or borne on the Register of Members, If he, being a discharged insolvent, has not obtained from the court a
certificate stating that his insolvency was caused by misfortune without any misconduct on his part. Here it may be
noted that a person who has been removed from membership for a specified period shall not be entitled to have his
name entered in the Register until the expiry of such period.

In addition, failure on the part of a person to disclose the fact that he suffers from any one of the aforementioned
disabilities would constitute professional misconduct. The name of the person, who is found to have been subject at
any time to any of the disabilities discussed in section 8, can be removed from the Register of Members by the Council.

In the given case, it is clearly stated that Mr S was discharged insolvent, and he has also obtained from the court a
certificate stating that his insolvency was caused by misfortune without any misconduct on his part. Hence, Mr S
has not violated the provisions of Section 8, and he is not debarred from having his name entered in the Register of
Members.

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