PROFESSIONAL ETHICS

INTRODUCTION
A self imposed code of ethics is essential for the success of the profession of accountancy and to command respect and confidence of general public. The preamble of the Chartered Accountants Act, 1949 (The Act) sets the purpose of the act as “An Act to make provision for the regulation of the profession of the Chartered Accountants.” The Institute of Chartered Accountants of India was constituted under the Act whose affairs are managed by the Council. The Council of the Institute has been empowered to discharge the function assigned to it under Act. The Chartered Accountants (Amendment) Act, 2006 has, inter alias, introduced provision for a new Disciplinary Mechanism within its framework which would ensure well considered and expeditious disposal of complaints against members on professional or other misconduct. The provision provided for appointment of a Director (Discipline), to investigate complaints, constitution of a Board of Discipline and Disciplinary Committee to deal with cases and providing for an Appellate Authority, to deal with appeals arising out of decision of the Board of Discipline and the Disciplinary Committee(s), as the case may be.

OBJECTIVES:

An objective of the accountancy profession is as follows:

  • To work to the highest standards of professionalism
  • To attain the highest levels of performance
  • To meet public interest requirements.

FUNDAMENTAL PRINCIPLES:

  • Integrity: A professional accountants should be straightforward and honest in performing professional services.
  • Objectivity: A professional accountants should be fair and should not allow prejudice or bias, conflict of interest or influence of others to override objectivity.
  • Professional Competence: A professional accountant should perform professional services with due care, competence and diligence and has a continuing duty to maintain professional knowledge and skills.
  • Due Professional Care: It does not require ultimate expert but does extend to every aspect of the audit including the evaluation of audit risk, formulation of audit objective.
  • Confidentiality: A professional accountant should respect the confidentiality of information acquired during the course of performing professional services and should not use or disclose any such information without proper and specific authority or unless there is a legal or professional right or duty to disclose.
  • Professional Behaviour: A Professional accountant should act in a manner consistent with the good reputation of the professional and refrain from any conduct which might bring discredit to the profession requires.
  • Technical Standards: A Professional accountant should carry out professional services in accordance with the relevant technical and professional standards.

SCHEDULES TO THE ACT:
1.THE FIRST SCHEDULE: the first schedule has four parts. Where the director (Discipline) is of the opinion that member is guilty of any professional or other misconduct mentioned in first schedule, he shall place the matter before Board of Discipline.

PART I – PROFESSIONAL MISCONDUCT IN RELATION TO CHARETERED ACCOUNTANTS IN PARCTICE:

Clause – 1: Allows any person to practice in his name as a chartered accountant unless such person is also a chartered accountant in practice and is in partnership with or employed by him.

Objective: To prevent unqualified persons from acting as qualified accountants.

Exceptions: Employee working directly under the supervision and control for the employer.

Clause – 2 : Pays or allows or agrees to pay or allow, directly or indirectly, any share, commission or brokerage in the fees or profits of his professional business, to any person other than member of the Institute or a partner or 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.

Objective: To restrain a member from sharing his fees, whether directly or indirectly, with non-members and / or other non-prescribed persons.
Exceptions:
1. Legal representative or widow of the deceased partner can receive share of profits of the firm for some specified period only if the partnership agreement so provides;
2. Widow of the proprietor can receive payment for goodwill of the concern even in instalments, provided that there is no linkage between such payment and the participation in the earnings of the firm.

Clause – 3: Accepts or agrees to accept any part of the profits of the professional work of a person who is not a member of the Institute:

Clause – 4: A Chartered Accountant in practice can enter into partnership with a chartered accountant in practice or a member of any other professional body having prescribed qualifications.

Clause – 5: Secures, either through the services of a person who is not an employee of such chartered accountant or who is not his partner or by means which are not open to a chartered accountant, any professional business.

Objective: A chartered accountant can secure professional business only through his employee or a person who is qualified to be his partner or through any other means open to chartered accountant.

Clause – 6: Solicits clients or professional work either directly or indirectly by circular, advertisement, personal communication or interview or by any other means.

Objective: Professional work should be attained through building confidence, providing quality services to the clients and the satisfaction of the clients towards the services performed.

Exceptions: If work or professional work occurs within the fraternity or if professional work is secured from responding to tenders, or enquiries issued by various users if professional services or organisation.

Prohibited ways of solicitation: The council of ICAI has prohibited the following ways of soliciting work:

1.Advertisement and notes in the press,
2. Application for empanelment for allotment of audit or other professional work
3. Issuing hand bills is prohibited
4. Publication of books or articles, if it indicates his association with a firm of chartered accountants is prohibited.
5. Roving enquires are prohibited,
6. Representation u/s 225(3) of the Companies Act, 1956,
7. Giving public interviews which are intended to secure publicity, rather than highlighting professional achievements are prohibited.

Clause – 7: “Advertises his professional attainments or services, or uses any designation or expressions other than the Chartered Accountant on professional documents, visiting cards, letter heads or sign boards unless it be a degree of a University established by law in India or recognized by the Central Government or a title indicating membership of the Institute of Chartered Accountants or of any other institution that has been recognized by the Central Government or may be recognized by the Council

Provided that a member in practice may advertise through a write up, setting out the service provided by him or his firm and particulars of his firm subject to such guidelines as may be issued by the Council.

Exception:

(a) Advertisements for recruiting staff in the members’ own office.
(b) Advertisements inserted on behalf of clients requiring staff or wishing to acquire or dispose of business or property.
(c) Advertisement for the sale of a business or property by a member acting in a professional capacity as trustee, liquidator or receiver.

Clause – 8: If he accepts a position as auditor, which was previously held by another chartered accountant or restricted state auditor without communicating with him in writing.
Objective:

a) To safeguarded own interest, as he will get an opportunity to know reasons for such change.
b) To safeguard interest of public as it will ensure that theres is no injustified removal of existing auditor
c) To safeguard independence of existing accountant.
d) Matter of professional courtesy.

The professional reasons for not accepting an audit could be:

(i) Non-compliance of the provisions of Sections 224 and 225 of the Companies Act as mentioned in clause (9);
(ii) Non-payment of undisputed audit fees by auditees other than in case of sick units for carrying out the statutory audit under the Companies Act, 1956 or various other statutes; and
(iii) Under-cutting of fees;
(iv) Issuance of a qualified report.

Exception: Auditor is appointed u/s 233A of the Companies Act, 1956 for conducting special audit.

Clause – 9: Accepts an appointment as auditor of a company without first ascertaining from it whether the requirements of Section 225 of the Companies Act, 1956, in respect of such appointment have been duly complied with”.

Clause – 10: “Charges or offers to charge, accepts or offers to accept In respect of any professional employment fees which are based on a percentage of profits or which are contingent upon the findings or results of such employment, except as permitted under any regulations made under this Act.”
Exceptions:

1. A receiver or a Liquidator can receive fees based on percentage of realisation or disbursement of the assets.
2. Auditor of co-operative society can receive fees based in paid up capital or working capital or gross or net income or profits.
3. A valuer for direct taxes and duties can change fees based on percentage of the value of property valued.

Clause – 11: Engages in any business or occupation other than the profession of chartered accountant unless permitted by the Council so to engage;
Provided that nothing contained herein shall disentitle a chartered accountant from being a director of a company (Not being managing director or a whole time director) unless he or any of his partners is Interested in such company as an auditor.”

Permission granted generally:

1. Employment under Chartered Accountants in practice or firms of such chartered
accountants.
2. Private tutorship
3. Authorship of books and articles.
4. Holding of Life Insurance Agency License for the limited purpose of getting renewal commission.
5. Attending classes and appearing for any examination.
6. Holding of public elective offices such as M.P., M.L.A. and M.L.C.
7. Honorary office leadership of charitable-educational or other non-commercial organisations.
8. Acting as Notary Public, Justice of the Peace, Special Executive Magistrate and the like.
9. Part-time tutorship under the coaching organisation of the Institute,
10. Valuation of papers, acting us paper-setter, head-examiner or a moderator for any examination.
11. Editorship of professional journals.
12. Acting as Surveyor and Loss Assessor under the Insurance Act, 1938 provided they are otherwise eligible.
13. Owning agricultural land and carrying out agricultural activity (w.e.f. August 9th, 2008)

Permission to be granted specifically:

1. Full-time or part-time employment in business concerns provided that the member and/or his relatives do not hold “substantial interest” in such concerns”.
2. Full-time or part-time employment in non-business cc concern.
3. Office of managing director or a whole-time director o a body corporate within the meaning of the Companies Act, 1956.
4. Interest in family business concerns (including such interest devolving on the members as a result of in inheritance/succession / partition of the family business) or concerns in which interests has been acquired as a result of relationships and in the management of which no active part is taken.
5. Interest in agricultural and allied activities carried on with the help, if required, of hired labour.
6. Interest in an educational institution.
7. Part-time or full-time lectureship for courses other than those relating to the Institute’s examinations conducted under the auspices of the Institute or the Regional councils or their branches.
8. Part-time or full-time tutorship under any educational institution other than the coaching organization of the Institute.
9. Editorship of journals other than professional journals.
10. Any other business or occupation for which the Executive Committee considers that permission may be granted.

Clause – 12: “Allows a person not being a member of the institute in practice or a member not being his partner to sign on his behalf or on behalf of his firm, any balance sheet, profit and loss account, report or financial statements”.

PART II – Professional misconduct in relation to members of the Institute in service
A member of the Institute (other than a member in practice) shall be deemed to be guilty of professional misconduct, if he being an employee of any company, firm or person

Clause – 1: Pays or allows or agrees to pay directly or indirectly to any person any share in the emoluments of the employment undertaken by him;

Clause – 2: Accepts or agrees to accept any part of fees, profits or gains from a lawyer, a chartered accountant or broker engaged by such company, firm or person or agent or customer of such company, firm or person by way of commission or gratification.

PART III – Professional misconduct in relation to members of the Institute generally
A member of the Institute, whether in practice or not, shall be deemed to be guilty of professional misconduct, if he

Clause – 1: Not being a fellow of the Institute, acts as a fellow of the institute;

Clause – 2: 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;

Clause – 3: while inviting professional work from another chartered accountant or while responding to tenders or enquiries or while advertising through a write up, or anything as provided for in items (6) and (7) of Part I of this Schedule, gives information knowing it to be false.

PART IV- Other misconduct in relation to members of the Institute generally
A member of the Institute, whether in practice or not, shall be deemed to be guilty of other misconduct, if he

(1) is held guilty by any civil or criminal court for an offence which is punishable with imprisonment for a term not exceeding six months;
(2) 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.

2. THE SECOND SCHEDULE – Where the Director (Discipline) is of the opinion that a member is guilty of any professional or other misconduct mentioned in the second schedule or in both the Schedule, he shall place the matter before the Disciplinary Committee.

Part I – Professional misconduct in relation to chartered Accountant in practice

A Chartered Accountant in practice shall be deemed to be guilty of professional misconduct, if he

Clause – 1: Discloses information acquired in the course of his professional engagement to any person other than his client so engaging him without the consent of his client or otherwise than as required by any law for the time being in force.

Clause – 2: 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.

Clause – 3: Permits his name or the name of his firm to be used in connection with an estimate of earnings contingent upon future transactions in manner which may lead to the belief that he vouches for the accuracy of the forecast.

Clause – 4: Expresses his opinion on financial statements of any business or enterprise in which he, his firm, or a partner in his firm has a substantial interest;

Clause – 5: fails to disclose a material fact known to him which is not disclosed in a financial statement, but disclosure of which is necessary in making such financial statement not misleading where he is concerned with that financial statement in a professional capacity;

Clause – 6: Fails to report a material misstatement known to him to appear in a financial statement with which he is concerned in a professional capacity.

Clause – 7: Does not exercise due diligence, or is grossly negligent in the conduct of his professional duties;

Clause – 8: Fails to obtain sufficient information which is necessary for expression of an opinion or its exceptions are sufficiently material to negate the expression of an opinion.

Clause – 9: Fails to invite attention to any material departure from the generally accepted procedure of audit applicable to the circumstances.

Clause – 10: Fails to keep moneys of his client other than fees or remuneration or money meant to be expended in a separate banking account or to use such moneys for purposes for which they are intended within a reasonable time.

PART II – Professional misconduct in relation to members of the Institute generally
A member of the Institute, whether in practice or not, shall be deemed to be guilty of professional misconduct, if he

Clause – 1: Contravenes any of the provisions of this Act or the regulations made there under or any guidelines issued by the Council;

The Regulations under which cases of contravention have generally come to the notice of the Council are the following:

Regulation 43 Engagement of Articled Assistant
Regulation 46 Registration of Articled Assistant
Regulation 47 Premium from Articled Assistant
Regulation 48 Stipend to Articled Assistant
Regulation 56 Termination or assignment of Articles
Regulation 65 Articled Assistant not to engage in any other occupation
Regulation 67 Complaint against the employer (from Articled Assistant)
Regulation 68 to 80 Audit Assistant
Regulation 190 Register of offices and firms
Regulation 190-A Chartered Accountants not to engage in any other business or occupation
Regulation 191 Part time employment’s a Chartered Accountant may accept
Regulation 192 Restriction on fees

Clause – 2: Being an employee of any company, firm or person, discloses confidential information acquired in the course of his employment except as and when required by any law for the time being in force or except as permitted by the employer;

Clause – 3: Includes in any information, statement, return or form to be submitted to the Institute, Council or any of its Committees, Director (Discipline), Board of Discipline. Disciplinary Committee, Quality Review Board or the Appellate Authority any particulars knowing them to be false;

Clause – 4: Defalcates or embezzles money received in his professional capacity.

Part III – Other misconduct in relation to members of the Institute generally
A member of the Institute, whether in practice or not, shall be deemed to be guilty of other mis-conduct, if he is held guilty by any civil or criminal court for an offence which is punishable with imprisonment for a term exceeding six months.

Be Sociable, Share!

Leave a Reply

Your email address will not be published. Required fields are marked *