Professional Ethics

Basic of Chapter

Fundamentals, Threats & Membership of Institute

Safeguards of Principles
Types of Membership Restoration of
NOCLAR Membership
Applicability Steps to responding Disabilities of Removal of Name
Difference of SA 250 vs NOCLAR Member (Sec 8) from Registrar
Penalty of falsely claiming
to member (Rs. 1000)

Chartered Accountant in Practice

Maintenance of
Significance Branch Office
of COP Member deemed to
be in Practice Member prohibited using
Cancellation and
restoration of COP other designation: Guilty
Management consultancy under Cl 7 P1S1
and Other Service

Schedules to the Act

First Schedule Second Schedule
Professional Misconduct Other Misconduct Professional Misconduct Other Misconduct

Part 1 Part 2 Part 3 Part 4 Part 1 Part 2 Part 3

CAiP CA in Service All CA All CA CAiP All CA All CA

Council General Guidelines, 2008: Chapter 1 to Chapter XVII

Recommended Self-Regulatory Measures
Recent Decision of Ethical Board of Standard (imp)

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 Fundamental Principles - Code of Ethics of ICAI
(a) Integrity: Straightforward & honest
Not knowingly be associated with reports where he believes that info –
• Contains statement provided negligently or materially false or misleading statement.
• Omits required information where such info. is misleading.
(b) Objectivity: Not to compromise professional judgment due to bias, conflict of interest or undue influence of
Others.
(c) Professional Competence & Due Care:
• Attain & maintain professional knowledge & skill as required to ensure client received competent service.
• Act diligently as per technical & professional standards.
• Continue development enables professionals to develop & maintain the capabilities to perform.
• It requires a continuing awareness and understanding of relevant technical, professional development.
(d) Professional Behaviour: Comply with law & regulation & avoid any conduct that might discredit profession.

(e) Confidentiality:
Not disclose confidential information acquired as a result of professional and employment relationships
Outside the firm or within organization (including prospective and Ex- client/employer) without proper &
specific authority, unless there is a legal or professional duty or right to disclose.
➢ Circumstances where professional accountants might be required to disclose confidential information:
• Disclosure is required by law (Production of document in legal proceedings)
• Disclosure is permitted by law and is authorized by the client or the employing organization.
• When there is a professional duty or right to disclose, when not prohibited by law:
✓ comply with the requirements of Peer Review or Quality Review.
✓ respond to an inquiry or investigation by a professional or regulatory body.
✓ protect the professional interests of a professional accountant in legal proceedings.
✓ comply with technical and professional standards, including ethics requirements.
➢ In deciding whether to disclose confidential information, professional accountants should consider:
• Whether the interests of any party, including third parties whose interests might be affected.
• Whether all the relevant information is known and substantiated.
• The proposed type of communication, and to whom it is addressed.
• Whether the parties to whom the communication is addressed are appropriate recipients.

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 Notes:
• In situation of complying with one fundamental principle conflicts with complying with one or more other
fundamental principles: He should consult with Others within Organization/ TCWG / ICAI / Legal Council.
• If a professional accountant is in doubt about whether a form of proposed advertising is appropriate, then he
should consult with the Ethical Standards Board of ICAI.

Types of Threat and Safeguards

Threats to compliance with the fundamental principles:
Financial or other interest will inappropriately influence Accountant’s judgment or behavior.
Examples:
• Direct financial interest in client or close business relationship with client.
Self- Interest • Quoting a low fee to obtain a new engagement and the fee is so low that it might be difficult
Threats to perform the professional service.
• Access to confidential information that might be used for personal gain.
• Holding financial interest and receiving loan from that organization.
• Undue dependence on total fee from client.
Professional accountant not appropriately evaluate the results of a previous judgment made;
or an activity performed by the accountant.
Examples:
Self-Review • Issuing assurance report on effectiveness of financial systems after implementing systems.
Threats
• Determining appropriate accounting treatment for business combination after performing
feasibility study supporting purchase decision.
• Having prepared original data used to generate records that are subject matter of engagement.
Professional accountant promote client’s or employing organization’s position to the point
that accountant’s objectivity is compromised.
Examples:
Advocacy • Promoting the interests of, or shares in, a client.
Threats
• Acting as an advocate on behalf of a client in litigation or disputes.
• Lobbying in favor of legislation on behalf of a client.
• Manipulate information in prospectus to obtain favorable financing.
Familiarity Due to long or close relationship with a client, or employing organization, a professional
Threats accountant will be too sympathetic to their interests.

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 Examples:
• Close or immediate family member is related to client.
• Long association of Accountant/ audit team with client or individual making business decision.
• Director or officer of client, exert significant influence over matter, having recently served as EP.
Professional accountant deterred from acting objectively because of actual or perceived
pressures, including attempts to exercise undue influence.
Examples:
Intimidation • Threatened of dismissal from engagement due to disagreement about matter.
Threats
• Pressured to agree with judgment of a client because client has more expertise on the matter.
• Being informed that promotion will not occur unless he agrees with inappropriate decision.
• Accepting gift from client & threatened that acceptance will be made public.

Addressing the threat on compliance on fundamental principles

If professional accountant determines that the identified threats are not at an acceptable level, accountant
shall eliminate or reduce the threat:
• Eliminating the circumstances, including interest which create threats.
• Declining specific professional activity.
• Applying safeguards to reduce threats to an acceptable level.

Safeguards to address threats: To reduce threats to an acceptable level

• Assigning additional time and qualified personnel to required tasks.
• Having an appropriate reviewer, who was not a member of team, review work performed as necessary.
• Using different partners and engagement teams with separate reporting lines for the non- assurance
services to an assurance client.
• Involving another firm to perform or re-perform part of the engagement.
• Separating teams when dealing with matters of a confidential nature.

Non- Compliance with Laws and Regulations (NOCLAR)

During course of providing service to a client for an employer, Professional accountant may come across an
instance of NOCLAR or suspected NOCLAR committed or about to be committed by client or employer, or by
TCWG, management or employees of client or employer.
NOCLAR comprises of acts of omission or commission, intentional or unintentional, which are contrary to the

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 prevailing laws or regulations.
NOCLAR does not address personal misconduct unrelated to the business activities of the client/ employing
organization & non-compliance by parties other than listed out of NOCLAR definition.

Applicability of Responding to NOCLAR in India:

Professional Accountants • Senior professional accountants in service, being employees of listed
in service entities which are KMP {directors, officers or senior employees}

Professional Accountants • Audit engagements of Listed entities in India having networth of Rs.
in practice 250 Cr or more

Examples Covered under NOCLAR

Fraud, Corruption & Bribery, Money laundering, Security Market & Trading, Data Protection, etc.

Steps to responding to NOCLAR

Obtain Understanding of Matter Addressing the matter Seeking Advice

Determine whether to Determine if further

Documentation Imminent Breach disclose to appropriate action is needed
authority
NOCLAR vs SA 250
NOCLAR SA 250
• Applicable on Professional Accountant in service & in • Applicable only to Audit, not other engagements.
practice. • It covers auditor’s responsibilities for laws having
• It covers non-compliance that cause substantial direct
effect on the determination of material amounts and
harm in financial or non-financial items. disclosures in F.S.
• It related to effect of non-compliance on investors, • Does not define stakeholders.
creditors, employees. •• No Provision of imminent breach
• If Professional Accountant become aware of imminent
breach of law or regulation, he shall determine whether
to disclose this immediately to appropriate authority
to prevent consequences of such imminent breach.

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 Membership of Institute
➢ Types of Members of the Institute
• Associate Member: Whose name has been entered in register, & entitled to use letter A.C.A. after his name.
• Fellow Member: Following type of members shall be registered as fellow of ICAI & entitled to use letter F.C.A.
after his name, on payment of fee along with application-
✓ Associate who is in continuous practice in India for at least 5 years
✓ Associate who possesses such qualification experience equivalent to 5 years of continuous practice.

➢ Disabilities of Membership (Section 8)

→ Not attained age of 21 years.
→ Unsound mind as adjudged by competent court.
→ Undischarged Insolvent.
→ Being discharged insolvent, has not obtained certificate from court, stating that insolvency was caused
by misfortune without any misconduct on his part.
→ Convicted by court whether in/outside India, of offence involving moral turpitude & punishable with
imprisonment or offence committed by him in his professional capacity unless, he has either been
granted pardon or CG has removed disability.
→ Removed from membership of institute due to guilty of misconduct

➢ Removal of Name from the Register (Section 20)

→ Who is dead.
→ From whom request received for removal.
→ Not paid prescribed fee.
→ Who is found to have any disabilities mentioned in Section 8.

➢ Restoration of Membership
If member is removed from Register for non-payment of fee, then on receipt of application & fee, he may
be entered again in Register.
Effective date of Restoration
• Application for restoration is made within same year of removal. From the date on which it was removed.
• Removal of name under order of Board of Discipline or
Restoration in accordance with such order.
Disciplinary Committee or Appellate Authority or High Court.

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 • In Other cases, From the date of Application receipt.

➢ Penalty for falsely claiming to be a member

Any person who-

Not being a member of ICAI: Being member of ICAI, but not having
• represents that he is member of ICAI COP, represents that he is in practice
• uses designation CA
shall be punishable on first conviction with fine upto Rs. 1000 & on subsequent conviction with imprisonment
upto 6 months or with fine upto Rs. 5,000 or with both
Failure to pay fine - rigorous imprisonment for 3 months.

Chartered Accountant in Practice

A practicing CA is a person who is a member of Institute & is holding COP and include such members of
Institute who are deemed to be in practice.
➢ Significance of Certificate of Practice (COP)
A member not in practice is precluded from accepting engagement to provide services prescribed for CA,
even though, it does not require special qualifications.

Council of the institute is of view that: (Imp)

Once the person become member of Institute, he is bound by provisions of CA act and its regulations. If he
appears before Income-Tax Tribunal as an Income-Tax representative after becoming a member of Institute,
he could so appear only in his capacity as a CA. If he suspended from practice then he is not entitled to
practice in some other capacity.
(E.g. A suspended CA designated himself as a Data Privacy Consultant appear before various authorities in other capacity
other than CAiP: Not Guilty)
A member of Institute can have no other capacity in which he can take up such practice, separable from
his capacity to practice as a CA.

➢ Cancellation and Restoration of COP

COP shall be liable for cancellation, if:
• Name of COP holder is removed from Register or

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 • COP was issued on basis of incorrect, misleading information or by mistake
• Member has ceased to practice
• Member has not paid annual fee for COP till 30th September
Council may restore COP with effect from the date on which it was cancelled, to a member whose certificate
has been cancelled due to non-payment of annual fee and whose application, together with the fee, is
received by Secretary before the expiry of the relevant year.

➢ Members- deemed to be in Practice (Section 2(2))

A Member of Institute shall be deemed “to be in practice” if he: (VACO)
→ offer or perform service involving preparation or auditing or Verification of financial transactions,
books, accounts records or hold himself out to the public as an accountant.
→ engage in practice of Accountancy
→ render professional service or assistance (Consultancy) of matter relating to accounting procedure or
recording, presentation or certificate of financial fact or data.
→ renders such Other services as, in the opinion of council, are rendered by CaiP.
(A member of Institute who is salaried employee of CA in Practice shall be deemed to be practice for limited purpose
of training of Article assistants)
Also, Service with armed forces also consider as deemed practice.
Pursuant to 2(2)(iv), the Council has passed a resolution permitting a Chartered Accountant in
practice to render entire range of “Management Consultancy and other Services”.
• Business Policy, Corporate planning, Organization development, growth & diversification. Big Work
• Financial management planning and financial policy determination Work related to
• Capital structure planning and advice regarding raising finance. Planning,
• Working capital management. Management,
• Inventory management, material handling and storage. Accounting &
• Price-fixation and other management decision making. Costing
• Management accounting systems, cost control and value analysis.
• Control methods and management information and reporting.
• Preparing project reports and feasibility studies
Preparing
• Preparing cash budget, cash flow statements, profitability statements, statements of Report, Budget,
sources and application of funds etc. statements
• Budgeting including capital budgets and revenue budgets.
•

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 • Personnel recruitment and selection (including development of human resources including
design and conduct of training programmes) Recruitment
and Incentives
• Setting up executive incentive plans, wage incentive plans etc.
• Management and operational audits Various Audits
(Apart from Stat./
• Quality Audit, Environment Audit, Energy Audit Internal and tax)
• Market research and demand studies
• Acting as Registered Valuer: Valuation of shares & business (Valuation of P&M not allowed)
• Acting as advisor or consultant to an issue of securities (including drafting of prospectus &
memorandum, filing documents to SEBI, advice regarding selection of broker & underwriters, etc).
CAiP not permitted to undertake Portfolio Management service, Underwriting, Broking (PUB) Consultant,
• Insurance Financial Advisory Services (including insurance brokerage) under IRDA Act, 1999. Advisor,
• Investment counselling in respect of securities. Insolvency
Professional,
• Acting as registrar to an issue and for transfer of shares/other securities. Registrar, Valuer
• Acting as Recovery Consultant in the Banking Sector.
• Acting as Insolvency Professional in terms of Insolvency and Bankruptcy Code, 2016.
• Systems analysis and design, and computer related services in all areas of services.
• Administrative services involve assisting clients with their routine or mechanical tasks
within normal course of operations (clerical in nature). Eg: function of GST Practitioner

→ Regulation 191 of CA regulation 1988, a member shall be deemed to be in practice if he, in professional
capacity act as a liquidator, trustee, executor, administrator, arbitrator or receiver, representative of tax/
finance matter, takes up appointment by government, act as a secretary.
→ Sec 25: No company shall practice as a CA (exception Chapter XVII of Council Guidelines).
If LLP has company as a partner, then it can’t engage in practice.

➢ Member in practice prohibited from using designation other than CA

A member in practice cannot use designation other than CA but a member who is not in practice and does
not use the designation CA may use any other description (Guilty under Clause 7/ P1/ S1)

➢Maintenance of Branch Offices

→ If CAiP or Firm has more than 1 office in India, each office should be in separate charge of a member of
Institute (charge of office considers when he attends office>=182days)

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 → Failure on part of member/firm would constitute professional misconduct.
→ CA in-charge of branch of another firm should be associated with him/firm either as partner or as
paid assistant (must be whole-time employment)
Exemption is given to member practicing in hill areas subject to condition:
• Allowed to open temporary offices in plains area for not exceeding 3 months in year.
• Regular office need not be closed during this period.
• Name board of firm at temporary office should not be displayed other than above permitted period.
• Temporary office should not be mentioned in letterheads, visiting cards or docs as place of business.
• Before commencement of every winter, it shall be obligatory to inform ICAI about opening & closing
of temporary office by registered post.

Exemption may be granted to a member or a firm to have a second office without such second office
being under the separate charge
• Second office is located in the same premises, in which the first office is located or,
• Second office is located in the same city, in which the first office is located or,
• Second office is located within a distance of 50 km from the municipal limits of a city, in which first
office is located
→ There will be no bar to putting up of a name- board in the place of residence of a member with designation
of CA, provided it is a name-plate or a name-board of an individual member and not of the firm.
→ A member having two offices referred above shall have to declare, which of two office is his main office which
constitutes his professional address.

➢ KYC Norms in CA Practice

The Council of ICAI approved the following KYC Norms which are mandatory in nature and shall apply in
all assignments pertaining to attestation functions:
General Information (For all) Additional Regulatory Information (only Company)
Name and Address of Individual/ Partner/ Entity Company Identification No.
Copy of PAN No. Company PAN No.
Business Description Directors’ Names & Addresses
Copy of Last Audited Financial Statements Directors’ Identification Number
Name of Parent Company in case of subsidiary -
Engagement Information: Types of Engagement

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