Professional Ethics & Liabilities of Auditors

Chapter
19
Professional Ethics & Liabilities of Auditors

Unique Total
Topics
Qs Qs
19.1 - Introduction (The IESBA Co de) 7 8
19.2 - Important Provisions of Chartered Accountant,1949
Section-2(2) -Members Deemed to be in Practice 6 6
Section-6 - Certificate of Practice 1 1
Section-27 - Maintenance of Branch Offices 4 4
19.3- Schedules to the CA Act, 1949 (Professional & Other Misconduct)
Schedule – 1, Part – 1, Clause – 1 2 2
Schedule – 1, Part – 1, Clause – 2 8 8
Schedule – 1, Part – 1, Clause – 3 2 2
Schedule – 1, Part – 1, Clause – 4 2 2
Schedule – 1, Part – 1, Clause – 6 19 22
Council Guidelines for Advertisement, 2008: Website 6 6
Schedule – 1, Part – 1, Clause – 7 11 12
Schedule – 1, Part – 1, Clause – 8 7 7
Schedule – 1, Part – 1, Clause – 9 4 6
Schedule – 1, Part – 1, Clause – 10 5 7
Schedule – 1, Part – 1, Clause – 11 21 23
Schedule – 1, Part – 1, Clause – 12 6 6
First Schedule, Part II–Professional Misconduct in relation to Members in Service
2 2
Schedule – 1, Part – 2, Clause – 2
First Schedule, Part III – Professional Misconduct in Relation to Members Generally
5 5
Schedule – 1, Part – 3, Clause – 2
First Schedule, Part IV - Other Misconduct in relation to Members Generally
11 12
Schedule – 1, Part – 4, Clause – 1 & 2
Second Schedule, Part I “Professional Misconduct in relation to Members in Practice
Schedule – 2, Part – 1, Clause – 1 6 7
Schedule – 2, Part – 1, Clause – 3 2 3
Schedule – 2, Part – 1, Clause – 4 8 10
Schedule – 2, Part – 1, Clause – 5 4 5
Schedule – 2, Part – 1, Clause – 6 2 2
Schedule – 2, Part – 1, Clause – 7 12 15
Schedule – 2, Part – 1, Clause – 8 1 1
Schedule – 2, Part – 1, Clause – 9 2 2
Schedule – 2, Part – 1, Clause – 10 3 3
Second Schedule, Part II “Professional Misconduct in relation to the Members of the
Institute Generally”
Schedule– 2, Part – 2, Clause- 1 7 9
Schedule – 2, Part – 2, Clause- 3 2 3
19.4 - KYC-Norms 2 2
19.5 - Council General Guidelines, 2008 19 20

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Professional Ethics & Liabilities of Auditors

19.1 - Introduction (The IESBA Code)

1. Self- Interest Threat & Self–Review Threat
Distinguish: Self- interest threat from self – review threat in an assurance engagement. (May-2018)
OR
What is self-review threat? List the circumstances that may create self-review threats.
Ans. Self Interest Threat: Self-interest threat may occur as a result of the financial or other interests of a
professional accountant or of a relative. Various circumstances in which self-interest threats may arise are:
(i) A financial interest in a client or jointly holding a financial interest with a client.
(ii) Undue dependence on total fees from a client.
(iii) Having a close business relationship with a client.
(iv) Concern about the possibility of losing a client.
(v) Potential employment with a client
(f) Contingent fees relating to an assurance engagement.
Self-review Threats: As per Section 100 of Code of Ethics, self-review threats occur when a previous
judgment needs to be re-evaluated by the professional accountant responsible for that judgment.
Circumstances that may create self-review threats are:
1. The discovery of a significant error during a re-evaluation of the work of the professional
accountant in public practice.
2. Reporting on the operation of financial systems after being involved in their design or
implementation.
3. Having prepared the original data used to generate records that are the subject matter of the
engagement.
4. A member of the assurance team being, or having recently been, a director or officer
5. Performing a service for a client that directly affects the subject matter of the assurance engagement.
2. Engagement Specific Safeguards
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, is 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-2019)
Ans. Engagement-specific safeguards in the work environment may include:
(i) Involving an additional professional accountant to review the work done or otherwise advise as
necessary.
(ii) Consulting an independent third party, such as a committee of independent directors, a
professional regulatory body or another professional accountant.
(iii) Discussing ethical issues with those charged with governance of the client.
(iv) Disclosing to TCWG of the client the nature of services provided and extent of fees charged.
(v) Involving another firm to perform or re-perform part of the engagement.
(vi) Rotating senior assurance team personnel.
3. Subsection 113 of Revised Code of Ethics
CA Gosh, newly qualified Chartered Accountant, joins a reputed CA firm as a partner. He is full of confidence
about his qualification and feels he possesses complete knowledge of his profession for the future
assignments. The senior partner of the firm calls a meeting to brief the new partner and other newly
appointed audit assistants in his firm regarding the ethics that need to be kept in mind while carrying out
assurance and non-assurance services. One of the areas he touches upon is the professional competence and
due care that a Chartered Accountant needs to possess all the time.
Enumerate the matters envisaged in subsection 113 of Revised Code of Ethics that needs to be complied
with by a professional accountant with respect to Professional Competence and Due Care. (Nov-2024)

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Professional Ethics & Liabilities of Auditors

Ans. Professional Competence and Due Care – Subsection 113

1. 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.
2. Serving clients and employing organizations with professional competence requires the exercise of
sound judgment in applying professional knowledge and skill when undertaking professional activities.
3. Maintaining professional competence requires a continuing awareness and an understanding of
relevant technical, professional and business developments.
4. Continuing professional development enables a professional accountant to develop and maintain the
capabilities to perform competently within the professional environment.
5. Diligence encompasses the responsibility to act in accordance with the requirements of an assignment,
carefully, thoroughly and on a timely basis.
6. In complying with the principle of professional competence and due care, a professional accountant
shall take reasonable steps to ensure that those working in a professional capacity under the
accountant’s authority have appropriate training and supervision.
Where appropriate, a professional accountant shall make clients, the employing organization, or other users
of the accountant’s professional services or activities, aware of the limitations inherent in the services or
activities.
4. Confidentiality
In terms of subsection 114 of Revised code of Ethics, a professional accountant shall comply with the
principle of confidentiality, which requires an accountant to respect the confidentiality of information
acquired as result of professional and employment relationships. Confidentiality serves the public interest
because it facilitates the free flow of information from the professional accountant's client or employing
organization to the accountant in knowledge that the information will not be disclosed to a third party. In
this context, enumerate the circumstances where professional accountants are or might be required to
disclose confidential information or when such disclosure might be appropriate. In deciding whether to
disclose confidential information what are the points that should be kept in the mind of professional
accountants? (May-2022, SM)
Ans. Principle of Confidentiality: In terms of subsection 114 of Revised Code of Ethics, 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.
Confidentiality serves the public interest because it facilitates the free flow of information from the
professional accountant’s client or employing organization to the accountant in the knowledge that the
information will not be disclosed to a third party. Nevertheless, the following are circumstances where
professional accountants are or might be required to disclose confidential information or when such
disclosure might be appropriate:
(1) Disclosure is required by law,
(2) Disclosure is permitted by law and is authorized by the client or the employing organisation;
(3) There is a professional duty or right to disclose, when not prohibited by law:
(i) To comply with the requirements of Peer Review or Quality Review of the Institute;
(ii) To respond to an inquiry or investigation by a professional or regulatory body;
(iii) To protect the professional interests of a professional accountant in legal proceedings; or
(iv) To comply with technical and professional standards, including ethics requirements.

In deciding whether to disclose confidential information, professional accountants should

consider the following points:

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Professional Ethics & Liabilities of Auditors
(1) Whether the interests of any party, including third parties whose interests might be affected,
could be harmed if the client or employing organization consents to the disclosure of information
by the professional accountant;
(2) Whether all the relevant information is known and substantiated, to the extent it is practicable;
and
(3) The proposed type of communication, and to whom it is addressed;
(4) Whether the parties to whom the communication is addressed are appropriate recipients.
5. NOCLAR Vs SA 250
TP Limited is a listed company engaged in the business of manufacturing of kids garments under the brand
name of MM. M/s. R & Associates, firm of chartered accountants, are appointed as a Statutory Auditor of the
Company for the year 2023-24. CA R is looking after the audit of the Company. During audit, CA R observed
that there are number of notices received from GST Department and Income Tax Department for various
issues. Further during plant visit, CA R observed that few child labourers are engaged in some of the activity.
In response to the observation made, CA R followed the procedure as envisaged in SA 250, "Consideration of
Laws and Regulations in an Audit of Financial Statements". According to CA R, the provisions of SA 250 and
the provisions of NOCLAR (Non- Compliance with Laws and Regulations) under Revised Code of Ethics are
one and the same. Do you agree? If not, give your comments. (May-2024, SM)
Ans. (1) In the given situation:
• CA R is looking after the audit of the TP Limited, a listed company.
• During audit, CA R observed that there are number of notices received from GST Department and
Income-tax Department for various issues.
• Further during plant visit, CA R observed that few child labourers are engaged in some of the
activity.
• In response to the observation made, CA R followed the procedure as envisaged in SA 250,
"Consideration of Laws and Regulations in an Audit of Financial Statements". assuming the
provisions of SA 250 and the provisions of NOCLAR (Non-Compliance with Laws and Regulations)
under Revised Code of Ethics are one and the same.
(2) However, following points indicates that the provisions of SA 250 and NOCLAR (Non-Compliance
with Laws and Regulations) under the Revised Code of Ethics are not one and same:
(i) SA 250 is applicable only on Audit, and not on other Assurance engagements. However,
NOCLAR is applicable on professional accountants in service, and in practice.
(ii) SA 250 talks of auditor’s responsibilities for laws having direct effect on the determination
of material amounts and disclosures in the financial statements (such as tax and labour laws);
and other laws and regulations that do not have a direct effect on the determination of the
amounts and disclosures in the financial statements, but compliance with which may be
fundamental to the operating aspects of the business. NOCLAR, while being alike to SA 250 till
this point, is further ahead of it in that it takes into account non-compliance that causes
substantial harm resulting in serious consequences in financial or non- financial terms.
(iii) SA 250 does not define stakeholders. NOCLAR is related to affect of non-compliance on
investors, creditors, employees as also the general public.
(iv) As per NOCLAR, in exceptional circumstances, the professional accountant might become
aware of an imminent breach of a law or regulation that would cause substantial harm to
investors, creditors, employees or the general public. Having first considered whether it would
be appropriate to discuss the matter with management or those charged with governance of the
company, the accountant shall exercise professional judgment and determine whether to
disclose the matter immediately to an appropriate authority in order to prevent or mitigate
the consequences of such imminent breach. If disclosure is made, that disclosure is permitted.
This provision is not existent in SA 250.

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Professional Ethics & Liabilities of Auditors

6. NOCLAR
Shri Limited, a listed Company, having its registered office at Mumbai is engaged in manufacturing of
various types of yarns to be supplied to the textile mills. The Company has installed pollution control
equipment for processing the pollutants so that before discharge of effluents outside the factory, the level of
pollution is kept at a level below the prescribed standard. The company managed to get the pollution
clearance certificate by unfair means, while still there continues to be breach of pollution control laws in
matters of discharge of polluting effluents. The amount of ` 18.75 Lacs had been incurred for arranging
clearance certificate and the amount incurred unlawfully had been booked as pollution recycling
expenditure. The matter had not reached those in governance, and the Director-Finance, who is a Chartered
Accountant, came to know of these matters on review of major expenditure incurred during the period.
Comment the action/responses expected of Director - Finance (CA Gopal) referring to any applicable
requirements of Responses for NOCLAR under Code of Ethics. (MTP-Nov-2024, SM)
Ans. (i) In the given situation:
• Shri Limited, a listed company, has installed pollution control equipment for processing the
pollutants to keep the level of pollution below the prescribed standard.
• The company managed to get pollution certificate by unfair means whereas breach of pollution
control laws still continues.
• For arranging clearance certificate amount of ₹ 18.75 lacs had been incurred unlawfully.
• CA Gopal, Director Finance, came to know about these matters on review of the same during the
period.
(ii) Provision:
• NOCLAR, under Code of Ethics, is applicable on professional accountants in service, and in
practice.
• Among those in practice, it applies to Auditors, as well as professional services other than
Audit.
• It is applicable to Senior Professional Accountants in service, being employees of listed
entities. Senior professional accountants in service (“senior professional accountants”) includes
directors.
• NOCLAR takes into account non-compliance that causes substantial harm resulting in serious
consequences in financial or non-financial terms.
• As per NOCLAR, in exceptional circumstances, the professional accountant might become
aware of an imminent breach of a law or regulation that would cause substantial harm to
investors, creditors, employees or the general public.
• Having first considered whether it would be appropriate to discuss the matter with management
or those charged with governance of the company, the accountant shall exercise professional
judgment and determine whether to disclose the matter immediately to an appropriate
authority in order to prevent or mitigate the consequences of such imminent breach. If disclosure
is made, that disclosure is permitted.
(iii) Conclusion:
CA Gopal, Director-Finance is expected of taking the following action/responses:
• Obtaining an understanding of the Matter.
• Addressing the matter.
• Seeking advice.
• Determining whether further action is needed.
• Determining whether to disclose the matter to an Appropriate Authority.
• Imminent breach.
• Documentation.

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7. NOCLAR
Veda Ltd., a listed company having headquarter in Delhi, is engaged in the production and supply of unique
chemicals to various industries. To comply with environmental regulations, the company installed pollution
control equipment to process and treat waste before its discharge. However, despite regulatory
requirements, the company continued to violate pollution control laws regarding the disposal of industrial
waste.
To obtain the necessary environmental clearance certificate, the company resorted to unethical means. An
amount of ` 43.85 lakhs was unlawfully spent to secure the clearance, which was then misrepresented in the
financial records as an environmental compliance expense. This matter had not been brought to the attention
of those charged with governance. However, during a periodic financial review, the Director of Finance, CA
Rohan, discovered the irregularities.
What actions should CA Rohan take in response to this situation, considering the applicable provisions of
responses for NOCLAR (Non-Compliance with Laws and Regulations) under the Code of Ethics?
(MTP-May-2025)
Ans. In the given situation, Veda Ltd., a listed company, has installed pollution control equipment to process
industrial waste and ensure compliance with environmental regulations. However, despite these measures,
the company continues to violate pollution control laws regarding the disposal of industrial waste. To obtain
an environmental clearance certificate, the company resorted to unethical means, unlawfully incurring ₹
43.85 lakhs, which was misrepresented in the financial records as an environmental compliance expense.
CA Rohan, Director Finance, came to know about these matters on review of the same during the period.

NOCLAR, under Code of Ethics, is applicable on professional accountants in service, and in practice. Among
those in practice, it applies to Auditors, as well as professional services other than Audit.

It is applicable to Senior Professional Accountants in service, being employees of listed entities. Senior
professional accountants in service (“senior professional accountants”) includes directors.
NOCLAR takes into account non-compliance that causes substantial harm resulting in serious consequences
in financial or non-financial terms.

As per NOCLAR, in exceptional circumstances, the professional accountant might become aware of an
imminent breach of a law or regulation that would cause substantial harm to investors, creditors, employees
or the general public. Having first considered whether it would be appropriate to discuss the matter with
management or those charged with governance of the company, the accountant shall exercise professional
judgment and determine whether to disclose the matter immediately to an appropriate authority in order to
prevent or mitigate the consequences of such imminent breach. If disclosure is made, that disclosure is
permitted.

CA Rohan, Director-Finance is expected of taking the following action/responses:

• Obtaining an understanding of the Matter.
• Addressing the matter.
• Seeking advice.
• Determining whether further action is needed.
• Determining whether to disclose the matter to an Appropriate Authority.
• Imminent breach.
• Documentation.
By following these steps, CA Rohan can ensure ethical compliance while upholding professional integrity
under the NOCLAR framework.

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Professional Ethics & Liabilities of Auditors

19.2 - Important Provisions of Chartered Accountant,1949

Section-2(2) -Members Deemed to be in Practice
8. Management Consultancy and Other Services
Mr. A, a practicing Chartered Accountant agreed to select and recruit personnel, conduct training
programmes for and on behalf of a client. Is this a professional misconduct? (SM)
Ans. Providing Management Consultancy and Other Services:
(i) Provision:- As per Section 2(2)(iv) of the Chartered Accountants Act, 1949, a member of the
Institute shall be deemed “to be in practice”:
• When individually or in partnership with Chartered Accountants in practice,
• He, in consideration of remuneration received or to be received
• Renders such other services as, in the opinion of the Council, are or may be rendered by a
Chartered Accountant in practice.
• Pursuant to Section 2(2)(iv) above, the Council has passed a resolution permitting a
Chartered Accountant in practice to render entire range of “Management Consultancy and
other Services”.
(ii) Definition- Management Consultancy and other Services:- The definition of the expression
“Management Consultancy and other Services” includes Personnel recruitment and selection.
Personnel Recruitment and selection includes, development of human resources including
designing and conduct of training programmes, work study, job description, job evaluation and
evaluations of workloads.
(iii) Conclusion:- There is no misconduct on part of Mr. A, as personnel recruitment and selection is
covered under management consultancy and other services.
9. Advising on Portfolio Management Services
P, a Chartered Accountant in practice provides management consultancy and other services to his clients.
During 2024, 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)
Ans. (i) Provision:- 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.
(ii) A clause of the aforesaid resolution passed by council 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.
(iii) In the given case:- Mr. P has started advising his clients on portfolio management along with
other management consultancy services related to an issue.
(iv) Conclusion:- Therefore, Mr. P would be guilty of misconduct under the Chartered Accountants
Act, 1949 as a chartered accountant in practice is not permitted to manage portfolios of his
clients.
10. Assignment as Advisor and Consultant
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

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Professional Ethics & Liabilities of Auditors
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-2019)
Ans. (i) As per Council guidelines:-
• 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.
(ii) 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 under wrote 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.
(iii) Conclusion:- In view of the above, CA. Natraj would be guilty of misconduct under the Chartered
Accountants Act, 1949.
11. Registered Valuer
CA. Gyan is a Chartered Accountant in practice and also an engineer by qualification. He wants to pursue a
registered valuer course and work as a registered valuer for plant and machinery under the Companies Act,
2013. Comment on above with reference to provisions of the Chartered Accountants Act, 1949.
(MTP-May-2024, SM)
Ans. (i) Provision & Interpretation:
(a) As per section 2(2)(iv) of the Chartered Accountants Act, 1949,
• a member of the Institute shall be deemed “to be in practice”
• when individually or in partnership
• with the Chartered Accountants in practice or in partnership with members of such other
recognised professions as may be prescribed, he, in consideration of remuneration received or
to be received
• renders such other services as, in the opinion of the Council, are or may be rendered by a
Chartered Accountant in practice.
(b) Pursuant to section 2(2) (iv) above, the Council has passed a resolution permitting a
Chartered Accountant in practice to render entire range of “Management Consultancy and other
Services” which, inter alia, includes rendering services of valuation of shares and business
and advice regarding amalgamation, merger and acquisition, acting as Registered Valuer
under the Companies Act, 2013 read with the Companies (Registered Valuers and Valuation) Rules,
2017.
In this regard, such rules qualify Chartered Accountants for valuation of the securities or the
financial Assets only and not for the Plant and Machinery. Therefore, valuation of plant and
machinery does not form part of Management Consultancy and other services permitted by the
council.
(c) Further, in accordance with resolution passed under Regulation 190A of the Chartered
Accountant Regulations, 1988, members in practice are generally permitted for attending
classes and appearing for any examination. There is no need to take prior permission of ICAI
in this regard.

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Professional Ethics & Liabilities of Auditors
Therefore, it is generally permitted for a member in practice to attend classes and appear for
any examination, and accordingly, doing the Registered valuer course would be deemed as
permissible.
(ii) Conclusion: Hence, keeping in view above and in terms of the provisions of the Chartered Accountants
Act, 1949 and Code of Ethics, it is not permissible for a Chartered Accountant in practice to work as
an Engineer/ valuer in plant & machinery simultaneously.
12. Secretary
CA Raj, a practicing chartered accountant, is offered to take up an appointment as a "Secretary" in his
professional capacity by the Central Government for a Metro Project for a term of 2 years not on a salary-
cum-full-time basis. After giving deep thought to the offer, CA Raj accepted the appointment. Comment in
terms of the Chartered Accountant Act, 1949 and Schedules thereto. (May-2024, SM)
Ans. (i) Provision:
(a) As per Section 2(2)(iv) of the Chartered Accountant Act, 1949 as amended from time to time,
• a member of the Institute shall be deemed ‘to be in practice’
• when individually or in partnership
• with Chartered Accountants in practice, or in partnership with members of such other
recognized professional as may be prescribed,
• he, in consideration of remuneration received or to be received,
• renders such other services as, in the opinion of the Council, are or may be rendered by a
Chartered Accountant in practice.
(b) 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 of the Institute is empowered to permit chartered accountants in practice
to engage in any other business or occupation considered fit and proper.
(c) Accordingly, the Council formulated Regulations 191 to the Chartered Accountants Regulations,
1988 specifying the activities with which a member in practice can associate himself with or
without the permission of the Council. As per Regulation 191 a Chartered Accountant in practice
may take up an appointment that may be made by the Central Government or a State
Government or a court of law or any other legal authority or may act as a secretary in his
professional capacity, provided his employment is not on a salary-cum-full-time basis”.
(ii) In the instant case, CA Raj, a practicing chartered accountant has been appointed as a “Secretary” in his
professional capacity by the Central Government for a metro project for a term of 2 years not on a
salary-cum- full-time basis.
(iii) Conclusion: In view of above, in the given scenario, CA Raj will not be held liable for misconduct for
acceptance of appointment as Secretary in terms of compliance of Regulations 191 read with Clause
(11) of Part I of First Schedule of Chartered Accountants Act, 1949.
13. Representative for taxation matters
CA Ram, a practicing chartered accountant, is well known for his expertise in handling Goods and Services
Tax (GST) cases at the GST Tribunal and he does not provide any assurance services. Given his long-
standing reputation in the field, CA Ram is approached by DEF Limited to file an appeal in the Tribunal
against a GST demand of ₹ 6 crore, which was imposed by the Commissioner (Appeals), and to represent
DEF Limited in the matter. CA Ram offers to accept a fee of ₹ 3,50,000 for filing the appeal and pleading at
the GST Tribunal.
Comment on the act of CA Ram in terms of the Chartered Accountant Act, 1949 and Schedules thereon.
(MTP-Nov-2024)

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Professional Ethics & Liabilities of Auditors
Ans. (i) Provision:
(a) Under Section 2(2)(iv) of the Chartered Accountants Act, 1949,
• a member of the Institute shall be deemed “to be in practice”
• when individually or in partnership
• with Chartered Accountants in practice,
• he, in consideration of remuneration received or to be received
• renders such other services as, in the opinion of the Council, are or may be rendered by a
Chartered Accountant in practice.
(b) Pursuant to Section 2(2)(iv) of the Chartered Accountants Act, 1949, read with Regulation
191 of Chartered Accountants Regulations, 1988
• a member shall be deemed to be in practice
• if he, in his professional capacity and neither in his personal capacity nor in his capacity as an
employee,
• acts as representative for taxation matters.
(ii) In the given situation: CA Ram, a practicing Chartered Accountant, provides non-assurance services.
He is approached by DEF Limited, a non-audit client, to file an appeal in GST Tribunal against GST
Demand of ₹ 6 crore, which was imposed by the Commissioner (Appeals) and to plead on behalf of DEF
Limited in the matter. CA Ram offers to accept the case and agrees to charge fees of ` 3,50,000
(iii) Conclusion: Therefore, CA Ram is not guilty of professional misconduct.
Section-6 - Certificate of Practice
14. Undertaking Tax Representation Work
A Chartered Accountant in practice has been suspended from practice for a period of 6 months. During the
said period, though he did not undertake the audit assignment since he had surrendered certificate of
practice, he had appeared before Income Tax authorities in his capacity as a Chartered Accountant. (SM)
Ans. (i) Provision:- Section 6 of CA Act, 1949, requires that no member of the Institute shall be entitled to
practice unless he has obtained from the Council a certificate of practice.
(ii) In the present case:- A chartered accountant not holding certificate of practice cannot take up any
other work because it would amount to violation of the relevant provisions of the Chartered
Accountants Act, 1949.
• In case a member is suspended and is not holding Certificate of Practice, he cannot in any
other capacity take up any practice separable from his capacity to practices as a member of
the Institute.
• This is because once a member becomes a member of the Institute; he is bound by the
provisions of the Chartered Accountants Act, 1949 and its Regulations. If he appears before
the income tax authorities, he is only doing so in his capacity as a chartered accountant and
a member of the Institute.
(iii) Conclusion:- Thus in the instant case, a chartered accountant would not be allowed to represent
before the income tax authorities for the period he remains suspended.
Section-27 - Maintenance of Branch Offices
15. Putting Name Board of the Firm at Residence
XY & Co., a firm of Chartered Accountant having 2 partners X & Y, one in charge of Head Office and another
in charge of Branch at a distance of 80 kms, puts up a name -board of the firm in both premises and also in
their respective residences. (SM, MTP-Dec-2021)
Ans. (i) Provision:- 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.
2nd office Exemption:- There is however an exemption for the above

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Professional Ethics & Liabilities of Auditors
• 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.
(iii) As per Council General Guidelines: -
• The council of the Institute has decided that with regard to the use of the name -board,
• There will be no bar to the putting up of a name-board in the place of residence of a member
with the designation of chartered accountant,
• Provided, it is a name-plate or board of an individual member and not of the firm.
(iv) In the given case:- Partners of XY & Co., put up a name board of the firm in both offices and also in
their respective residences.
(v) Conclusion:- Thus, the chartered accountants are guilty of misconduct. Distance given in the
question is not relevant for deciding.
16. Maintenance of Branch Office in Same City
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 his existing office. For running the new office he employs three retired Income-tax
Officers. Is Mr. G guilty of professional misconduct? (SM)
Ans. (i) Provision:- 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.
(ii) 2nd office Exemption:- 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.
(iii) Conclusion:- Since the second office is situated beyond 50 kms of municipal limits of Mumbai
city. Thus, he would be liable for committing a professional mis-conduct. (Answer given
assuming distance >50 KM from municipal limits of Mumbai city as well)
17. Maintenance of Separate Office
M & Co., a sole proprietary Chartered Accountant firm in practice with an office in a busy belt of a city, had
great difficulty in regularly attending to the consultancy needs of his clients who are mostly located in an
industrial cluster in a nearby outskirt which is situated at a distance of 26 kms from the office of the firm. To
mitigate the difficulty and to have ease of business, a facilitation centre was opened in the industrial cluster.
The proprietor managed, both the office and the facilitation centre, by himself. No intimation was made to
the Institute of Chartered Accountants of India. Examine whether there, is any professional misconduct in
this respect. (May-2018, MTP-May-2025)
Ans. (i) Provision:- 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.
(ii) 2nd office Exemption:- 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.
• Further a member having two offices of the type referred to above shall have to declare which
of the two offices is his main office, which would constitute his professional address.

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Professional Ethics & Liabilities of Auditors
(iii) Regulation 189 of CA Regulations, 1988 requires that -
A CA in practice or a firm of such CAs shall inform the Council within one month of the opening or
closing of a branch office.
(iv) In the given case:- A CA in practice has opened a new office with 26 Kms from the existing office and
managing both offices by himself. However, no intimation was made to the ICAI.
(v) Conclusion:- Though there is no problem in managing both the offices, but misconduct arises
due to non-intimation to Council of ICAI.
18. Maintenance of Branch Office
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-May-2021)
Ans. (i) Provision: -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.
(ii) 2nd office Exemption:- 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.
(iii) Hill area Exemption: - 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.
(iv) 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.
(v) Conclusion: -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.

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Professional Ethics & Liabilities of Auditors

19.3 - Schedules to the CA Act, 1949 (Professional & Other Misconduct)

First Schedule Part I – Professional Misconduct in Relation to Members in Practice
Schedule – 1, Part – 1, Clause – 1
19. Allowing Others to use Firm’s Name
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 independent to the client of the firm
and also filed few 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 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.
(MTP-May-2022, MTP-May-2023, May-2019)
Ans. (i) As per Clause:- 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.
(ii) Purpose of Clause:-
• 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.
(iii) 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.
(iv) Conclusion:- 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.
20. Allowing to Practice in a Chartered Accountant’s name
Mr. C, Chartered Accountant, in practice allowed his brother-in-law Mr. P who is not a Chartered
Accountant, to practice in the name of CA. C. He also allowed CA. T who is employee in his firm to practice in
the name. Whether Mr. C is correct in allowing his brother-in-law Mr. P and CA. T employee of his firm to
practice in his name. (SM) (SM)
Ans. (i) Provision:
• As per Clause (1) of Part I to the First Schedule to Chartered Accountants’ Act, 1949,
• a Chartered Accountant in practice is 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.
(ii) In the given situation
CA.C, Chartered Accountant who is in practice allowed a non-Chartered Accountant his brother-in-law

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Professional Ethics & Liabilities of Auditors
Mr. P to practice in the name of CA. C is not correct in view of Clause 1 of Part I to the First Schedule.
However, he can allow CA. T who is employee in his firm to practice in his name.
(iii) Conclusion: Thus, CA. C will be held guilty of professional misconduct for allowing Mr. P who is not
a Chartered Accountant to practice in his name as a chartered accountant as per Clause (1) of Part I
to the First Schedule. (If employee is considered to be a CAiP than it is permitted)
Schedule – 1, Part – 1, Clause – 2
21. Sharing of Audit Fees with Non-Member
K, a practicing Chartered Accountant gave 50% of the audit fees received by him to L, who was not a
Chartered Accountant, under the nomenclature of office allowance and such an arrangement continued for a
number of years. (SM)
Ans. (i) As per Clause:- 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.
(ii) In the given case:- Mr. K, a practicing Chartered Accountant gave 50% of the audit fees received by
him to Mr. L, who was not a Chartered Accountant, under the nomenclature of office allowance and
such an arrangement continued for a number of years .
(iii) Fact of case:- 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.
(iv) Conclusion:- 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.
22. Sharing Fees with an Articled Clerk
Mr. Ankit, who passed his CA Examination of ICAI on 18 th July 2022, had started his practice from 15th
August 2022. On 16th August 2022 one candidate approached him for Articleship. Mr. Ankit decided to give
her 1% profits of his CA Firm in addition to monthly stipend. She agreed to take both 1% of Profits and
prescribed stipend. The ICAI had sent a letter to Mr. Ankit objecting the payment of 1% Profits.
Mr. Ankit replied stating that sharing 1% Profits is over and above the Stipend, to help the Articled Clerk to
overcome her Financial crisis. Is Mr. Ankit liable for professional misconduct? (SM, May-2016)
Ans. (i) As per Clause:- 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.

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Professional Ethics & Liabilities of Auditors
(ii) Analysis of case:- 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.
(iii) Conclusion:- 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.
23. Sale of Goodwill/Sale of Practice by Widow of Deceased Member
Mr. Q a Chartered Accountant in practice as a proprietor died in a road accident. His widow sold the practice
of her husband to another Chartered Accountant in practice for `5 lakhs. The price also included right to use
the firm name of Mr. Q. Can widow of Qureshi sell the practice and can Mr. Pardeshi continue to practice in
that name as a proprietor? (SM)
Ans. (i) As per clause:- 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 had an occasion to consider
whether the goodwill of a proprietary concern of chartered accountant can be sold to another
member who is otherwise eligible, after the death of the proprietor.
• It lay down that the sale is permitted subject to certain conditions.
• It further 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.
(ii) Conclusion:- Thus, in a given case and on the facts, the widow of Mr. Q, who has sold the practice for `
5 lakhs is nothing but sale of goodwill. Thus the act of Mrs. Q is permissible.
24. Sharing Professional Receipts with Others
A CA obtained a loan from a finance company for purchase of office building agreeing to pay interest at 6%
p.a. and 10% of his gross professional receipts till the loan is repaid.
Ans. (i) As per Clause:- 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.
(ii) In the given case:- In substance the CA has agreed to share his receipt with a finance company from
whom he has taken a loan, which is not permitted.
(iii) Conclusion:- Mr. K will be deemed to be guilty of professional misconduct under Clause 2 of Part I
of First Schedule.
25. Sharing of Profits with Widow of Deceased Partner
Comment on the following with reference to the Chartered Accountants Act, 1949 and Schedules thereto: A
CA Firm pays share of profits to widow of deceased partner.
Ans. (i) As per Clause:- 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

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Professional Ethics & Liabilities of Auditors
• 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.
(ii) As per Council Guidelines:- However, it is further decided by the Council of the ICAI that widow or
legal representative of a deceased partner can continue to receive a share of profit where the
partnership agreement provides the same.
(iii) Conclusion:- If the agreement so provides, there would not be any professional misconduct on part
of the firm, otherwise, it amounts to professional misconduct.
26. Sale of Goodwill to Another Member
A Chartered Accountant who was in practice since last 18 years died in a road accident. His widow sold the
practice to another Chartered Accountant in practice for ` 30 lakhs. The price also included the right to use
the firm name. (Nov-2017)
Ans. (i) As per clause:- 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 had an occasion to consider
whether the goodwill of a proprietary concern of chartered accountant can be sold to another
member who is otherwise eligible, after the death of the proprietor.
(ii) As per Council General Guidelines:-
• The Council resolved that the sale/transfer of goodwill in the case of a proprietary firm of
chartered accountant to another eligible member of the Institute shall be permitted.
• It further laid down that in cases where the death of proprietor occurs after 30.08.1998, the
goodwill of the deceased member’s practice can be sold to another member and
• Permission of the Institute has to be obtained within a year of the death of the proprietor
concerned.
• It is even laid down that in such cases the name of the proprietary firm concerned would not
be removed up to a period of one year from the death of the proprietor.
(iii) In the instant case:- When the widow of the chartered accountant sold the practice to another
member, it is nothing but goodwill sold to another member. The sale of the practice and the right to
use the name is also allowed in terms of the above decision of the Council.
(iv) Conclusion:- Therefore, the above act of the widow of the Chartered Accountant is permissible.
27. Sale of Goodwill to Another Member
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-2022)
Ans. (1) Provision
(a) 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 concern of chartered accountant can be sold to another member who is
otherwise eligible, after the death of the proprietor.
(b) 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.

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Professional Ethics & Liabilities of Auditors
(c) 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.
(d) 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.
(2) 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.
(3) Conclusion: From the discussion given above it can be concluded that:
(i) Mrs. Roohi cannot sell the practice to 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.
28. Sharing of fees
CA A, the proprietor of A & Collegues, Chartered Accountants, is developing his practice and recently
secured a major audit assignment for B state Cooperative Society. The engagement fee for this audit is ` 1
Cr.
In view of his vision of growth to expand the development of his business, CA A has entered into an
agreement with an unregistered financial consultant, Mr. X, who is an MBA from a local university. Mr. X
introduced CA A to his business clients and in return, CA A agrees to pay him a 2.5% commission (` 2.5
lakhs) on the audit fee as a referral bonus.
Additionally, as per the State Cooperative Registrar's Circular, 5% of the audit fee (` 5,00,000) has to be
deposited into the State Treasury to cover administrative expenses. CA A complies with this requirement.
Comment with reference to the Chartered Accountants Act, 1949 and schedules thereto. (May-2025)
Ans. Scan QR for Answer.
Schedule – 1, Part – 1, Clause – 3
29. Sharing Fees of Professional Work of Others
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 2021-22 from Mr. A. Is CA. P guilty of misconduct under the Chartered
Accountants’ Act, 1949? (Nov-2019)
Ans. (i) As per Clause:- Clause 3 of Part I of the First Schedule to the Chartered Accountant Act, 1949, A CA
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
(ii) Exception:-
• However, such a restriction does not apply in respect of member of any other professional
bodies or with such other persons having prescribed qualifications.
• Regulation 53A and 53B of CA Regulations 1988 prescribes the qualifications of persons with
whom profits can be shared.
(iii) In the given case:- CA. P a practicing Chartered Accountant 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 2021-22
from Mr. A.

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Professional Ethics & Liabilities of Auditors
(iv) Conclusion:- Mr. P will be deemed to be guilty of professional misconduct by virtue of Clause 3,
Part I of First Schedule as he accepts professional fees from a person who is not a member of ICAI.
Further, registered valuers are not recognised for profit sharing purpose under Regulation 53A and 53B.
30. Sharing Profits of Professional Work
Mr. X is a practising Chartered Accountant. Mr. Y is a practicing 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 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-2022)
Ans. (1) Provision:
(a) 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.
(b) 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.
(c) 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.

(2) Analysis of case: 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.

(3) Conclusion: 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.
Schedule – 1, Part – 1, Clause – 4
31. Partnership with CPA & ICAEW Members
A Chartered Accountant practicing in India enters into partnership with
(a) A Certified Public Accountant in New York .
(b) A Chartered Accountant from the Institute of Chartered Accountants in England and Wales in London,
and in each case, the members concerned take the profits earned in their own country.
Will it make any difference, if an Indian Chartered Accountant is practicing outside India and becomes a
partner with the aforesaid accountants?

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Professional Ethics & Liabilities of Auditors

Ans. (a) Partnership with a CPA in New York:

(i) As per Clause:- Clause (4) of Part I to the First Schedule to the Chartered Accountants Act,
1949 specifies that a chartered accountant in practice shall be deemed to be guilty of
professional misconduct if he enters into partnership:-
• in or outside India, with any person other than a 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 or
• whose qualifications are recognised by the Central Government or
• the Council for the purpose of permitting such partnerships;
(ii) Conclusion:- Thus, chartered accountant would be guilty of professional misconduct since
certified public accountants (CPA) are not eligible to become members of the Institute.
(b) Partnership with a chartered accountant from ICAEW:
(i) As per Clause:- it is important that partnership with a member of the foreign professional
body is permissible provided inter alia such bodies are eligible for the membership of the
Institute. Earlier, the Council had passed a resolution permitting chartered accountants
from ICAEW to become members of the Institute as also fulfillment of certain conditions in
respect of persons not permanently residing in India.
(ii) Council General Meeting:- However, the Council of the Institute at its meeting held in
December, 1995 decided to withdraw the resolution w.e.f. December 8, 1995.
(iii) Analysis of the case:- In view of this, persons qualified from any of the four Institutes in the
United Kingdom including England and Wales are not entitled to have their names entered in
the Register of Members maintained by the Institute effective from December 8, 1995. Based on
this development, partnership between members of the Institute and members of above foreign
professional bodies will not be permissible from the above date. Even a chartered accountant
from ICAEW who was eligible to become member of the Institute, the profit sharing
arrangement stated in the question goes against the provisions of Clause (4).
(iv) Conclusion:- Hence, it would constitute professional misconduct.
Chartered Accountants practicing outside India:
(i) Provision:- A member of the Institute of Chartered Accountants of India is governed by the Code of
Ethics whether practicing in India or outside India. Accordingly, the question of professional
misconduct would arise if an Indian chartered accountant practicing outside India becomes a
partner with aforesaid accountants and enters into partnership in that country with a member
of the Institute of that country.
(ii) Conclusion:- There would be professional misconduct within the provisions of the Institute of
Chartered Accountants Act, 1949 as the applicability of such provisions extend to members
practicing outside India.
32. Partnership with an Advocate
Mr. Pramod, a Chartered Accountant in practice entered into a partnership with Mr. Lucky, an advocate for
sharing of fees for work sent by one to the other. However, due to some disputes, the partnership was
dissolved after 1 month without any fees having been received. (May-2019, Nov-2018)
Ans. (i) As per Clause:- Clause (4) of Part I to the First Schedule to the Chartered Accountants Act, 1949
specifies that a chartered accountant in practice shall be deemed to be guilty of professional
misconduct if he enters into partnership:-
• in or outside India, with any person other than a 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 or

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Professional Ethics & Liabilities of Auditors
• whose qualifications are recognised by the Central Government or
• the Council for the purpose of permitting such partnerships;
(ii) As per Regulation:- Regulation 53B of the Chartered Accountants Regulations, 1988 permits a
Chartered Accountant in practice to enter into partnership with other prescribed Professionals
which includes an Advocate, a member of Bar Council of India.
(iii) In the instant case:- Mr. Pramod, a chartered accountant, has entered into partnership with Mr.
Lucky, an advocate.
(iv) Conclusion: -ICAI has recently amended Form-18 to facilitate chartered accountants to enter into
partnership with other professional members as specified in Regulation-53B. However, the
partnership can be entered into provided similar permission is also provided by the other
professional body. Currently, Bar Council has not permitted lawyers to enter into such partnership
with chartered accountants, hence the CA will be guilty. (Amendment in Form-18 made on 08-
July-21, relevant from May-21 exams)
Schedule – 1, Part – 1, Clause – 6
33. Publishing an Advertisement Containing Photograph
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. (SM)
Ans. (i) 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
(ii) 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.
(iii) Analysis of the case:- 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.
(iv) Conclusion:- Mr. X would be therefore held guilty under Clause (6) of Part I of the First Schedule to
the Chartered Accountants Act, 1949.
34. Soliciting Professional Work
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)
Ans. (i) 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
(ii) In the 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.
(iii) Case study:- 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. The writing of continuous letter to ascertain the reasons for not getting the
work is quite alright but in case such either amount to request for allowing the work then Mr. X will be
liable for professional misconduct.
(iv) Conclusion:- Mr. X would therefore be held guilty under Clause (6) of Part I of the First Schedule
to the Chartered Accountants Act, 1949.

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Professional Ethics & Liabilities of Auditors

35. Soliciting Work Directly or Indirectly

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.
Ans. (i) 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
(ii) 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.
(iii) 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 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.
(iv) Conclusion:- Hence, Mr. M was guilty of professional misconduct as per Clause (6) of Part I of First
Schedule of the Chartered Accountants Act, 1949.
36. Responding to Tender
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-2020, May-2017)
OR
M/s ABC & Co., a firm of Chartered Accountants responded to a 5 tender from a State Government for
appointment of Tax Auditor wherein no minimum fee was prescribed. For this purpose, the firm also paid
50,000 as earnest deposit as part of the terms of the tender. Comment on the above with reference to the
Chartered Accountants Act, 1949, Code of Ethics and Schedules to the Act. (Nov-2020)
Ans. (i) As per Clause:- Clause (6) of Part I of the First Schedule to the Chartered Accountants Act, 1949 a
CA is permitted to respond to tenders. Further chapter XIII to Council General Guidelines, 2008 lays
down guidelines for responding g to tenders, etc.
(ii) As per Council General Guidelines:- (Chapter XII of Council General Guidelines, 2008)
A member of the Institute in practice shall not respond to any tender issued by a organization or
user of professional services in areas of services which are exclusively reserved for chartered
accounts 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 Accounts.
(iii) In the instant case:- M/s 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.
(iv) Conclusion:- Therefore, M/s OPAQ & Associates shall be held guilty of professional conduct for
responding to such tender in view of abovementioned guideline.
37. Responding to Tenders
PK Foundation decided to review its historical financial statements. For this, it proposed a tender
exclusively for Chartered Accountants to obtain assurance, primarily by performing inquiry and analytical
procedures, about whether the financial statements as a whole are free from material misstatement.

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Professional Ethics & Liabilities of Auditors
However, the foundation did not prescribe the minimum fee in the tender document. M/s Sodhi & Co., a
Chartered Accountant firm, responded to such tender. (Nov-2017)
OR
Sapna Foundation decided to review its historical financial statements. For this, it proposed a tender
exclusively for Chartered Accountants to obtain assurance, primarily by performing inquiry, and analytical
procedures about whether the financial statements as a whole are free from material misstatement.
However, the foundation did not prescribe the minimum fee in the tender document. M/s Joshi & Sons, a
Chartered Accountant firm, responded to such tender
Ans. (i) 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
(ii) As per guidelines:- The relevant guidelines in the context of the tender are:
1. A member of the Institute in practice shall not respond to any tender in areas of services which are
exclusively reserved for Chartered Accountants by statute viz. Audit and Attestation Services
such as Audit under Companies Act 2013, Income Tax Act 1961, etc.;
2. However, a member may respond to tenders as mentioned above wherever the minimum fee of the
assignment is prescribed in the tender document itself.
(iii) In the instant case:- M/s Sodhi & Co., responded to a tender relating to review of historical
financial statements of PK Foundation which is exclusively reserved for Chartered Accountants
even where no minimum fee was prescribed in the tender document.
(iv) Conclusion:- Therefore, M/s Sodhi & Co. shall be held guilty of professional misconduct for
responding to such tender in view of above mentioned guideline.
SJ Note -Answer given assuming that such review is statutorily required to be done by CA only and not just that
the client intends to conduct it from a CA
38. Responding to Quotations
M/s. SR & Associates is one of the three firms shortlisted by ARG Cooperative Bank for assignment of
Statutory Audit for the F.Y 2021-2022. 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. (MTP-Nov-2023, July-2021)
Ans. (i) 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
Provided that nothing herein contained shall be construed as preventing or prohibiting –
a) Any Chartered Accountant from applying or requesting for or inviting or securing professional
work from another chartered accountant in practice; or
b) 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.
(ii) As per Council Guideline
• 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.

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Professional Ethics & Liabilities of Auditors
• However, such restriction shall not be applicable:
(a) where minimum fee of the assignment is prescribed in the tender document itself or
(b) where the areas are open to other professionals along with the Chartered Accountants.
(iii) 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.
(iv) Conclusion: -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.
39. Responding to Tenders
M/s LMN, a firm of Chartered Accountants responded to a tender from a State Government for
computerization of land revenue records. For this purpose, the firm also paid ` 50,000 as earnest deposit as
part of the terms of the tender. (SM, MTP-Nov-2018)
OR
M/s PQR, a firm of Chartered Accountants responded to a tender from a State Government for Government
for computerization of land revenue records. For this purpose, the firm also paid ` 50,000 as earnest deposit
as part of the terms of the tender. Comment with reference to the Chartered Accountants Act, 1949, code of
Ethics and schedules to the Act. (Jan-2021)
Ans. (i) As per Clause:- Clause (6) of Part I of the First Schedule to the Chartered Accountants Act, 1949 a
CA is permitted to respond to tenders. Further chapter XIII to Council General Guidelines, 2008 lays
down guidelines for responding g to tenders, etc.
(ii) As per the guidelines
A member of the institute is 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
accounts 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.
(iii) Conclusion:- Since computerization of land revenue records does not fall within exclusive areas
for chartered accountants, M/s LMN can respond to tender as well as deposit ` 50,000 as
earnest deposit and shall not have committed any professional misconduct.
40. Prohibition on Solicitation of Work
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)
Ans. (i) 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 since it shall constitute professional misconduct.
(ii) In the present case:-The 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.
(iii) Conclusion:- 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. [Clause 7 may be additionally
referred]

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Professional Ethics & Liabilities of Auditors
41. Solicitation of Professional Work Through Letters
Z, a Chartered Accountant wrote several letters to Government Department, pointing out seniority of his
firm, sending his life sketch and stating that he had a glorious record of service to the country as well as to
the organization of accountancy profession with a view to get the audit work.
Ans. (i) 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
(ii) As per Council Guidelines:- Advertisement for the members in practice, a member is not permitted
to claim any superiority over any other Member(s)/Firm(s) or to include the names of the clients
in any write up
(iii) In the given case:- ‘Z’ a chartered accountant, wrote several letters to Government Department
pointing out the seniority of his firm and sending his life sketch and stating that he had rendered
glorious service to the country and to the accountancy profession with a view to getting the audit
work.
(iv) Conclusion:- Since these letters were clearly in the nature of advertising professional attainments,
“Z” was guilty of professional misconduct under Clause (6) of Part I of First Schedule to the
Chartered Accountants Act, 1949.
42. Use of Right to Representation u/s 140
Mr. Sodhi, a Chartered Accountant in practice, who is proposed to be removed as the auditor of a company
makes unsubstantiated and derogatory remarks against the management of the company in his
representation u/s 140 of the Companies Act, 2013.
Ans. (i) 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
(ii) Provision:- Using unsubstantiated and derogatory remarks against the Management of the Company
in his representation u/s 140 of the Companies Act, 2013 tantamount to securing professional
work by undignified means.
(iii) As per Council of the Institute:- It has clarified that the right to make a representation u/s 140
of the Companies Act, 2013 does not mean that an auditor has any prescriptive right on a lien to
an audit. The wording of this representation should be such that, apart from the opportunity not
being abused to secure needless publicity, it does not tantamount directly or indirectly to
canvassing or soliciting for his continuance as an auditor.
• The letter should merely set out in a dignified manner how he has been acting
independently and conscientiously through the terms of office and may, in addition, indicate
if he so chooses, his willingness to continue as an auditor if reappointed by the shareholder.
(ii) Conclusion:- In the present case, Mr. Sodhi is guilty of professional misconduct.
43. Representation Rights
A special notice has been issued for a resolution at 4th annual general meeting of TRIM Ltd., providing
expressly that CA. Lucky shall not be re-appointed as an auditor of the· company. Consequently, CA. Lucky
submitted a representation in writing to the company with a request to circulate to the members. In the
detailed representation, CA. Lucky 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. Comment with reference to the
Chartered Accountants Act, 1949 and schedules thereto. (MTP-May-2024, SM)

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Professional Ethics & Liabilities of Auditors

Ans. Soliciting Clients:

(i) Provision:
(a) 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.
(b) 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.

(ii) Interpretation :
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 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.

(iii) Conclusion:
Therefore, CA. Anoop will be held guilty of professional misconduct under Clause (6) of Part I of
First Schedule to the Chartered Accountants Act, 1949.
44. Soliciting the Professional Work from Another CA
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 practice 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-2020)
Ans. (i) 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
(ii) Exception:- 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.
(iii) 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,
(iv) Conclusion:- 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.

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Professional Ethics & Liabilities of Auditors
45. Securing Professional Work
Mr. Honest, a Chartered Accountant in practice, wrote two letters to M/s XY Chartered Accountants a firm of
CAs; requesting them to allot him some professional work . As he did not have a significant practice or
clients he also wrote a letter to M/s ABC, a firm of Chartered Accountants for securing professional work.
Mr. Clever, an CA, informed ICAI regarding Mr. Honest’s approach to secure the professional work. Is Mr.
Honest wrong in soliciting professional work? (SM, MTP-May-2023)
Ans. (i) 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
(ii) Exception:-
• Provided that 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 accountant in practice.
• 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.
(iii) In the given case:- Mr. Honest wrote letters only to other Chartered Accountants, M/s XY and M/s
ABC requesting them to allot some professional work to him, which is not prohibited under Clause (6)
as explained above.
(iv) Conclusion:- Mr. Honest is not wrong in soliciting professional work from another CA, hence there
is no professional misconduct.
46. Acceptance of Original Professional Work - Client Introduced to Him by Another Member
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 earlier to have 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-2018)
Ans. (i) 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
(ii) As per Council Guidelines:-
• 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.
(iii) 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 days 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.
(iv) Conclusion:- 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.

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Professional Ethics & Liabilities of Auditors

47. Printing of Designation “Chartered Accountant” on Marriage Invitations

Mr. Swapnil, a renowned practicing Chartered Accountant, decided to tie his knot with Ms. Anjani. While giving
order for marriage invitation cards, Mr. Swapnil instructed to add his designation “Chartered Accountant” with
his name. Later, the cards were distributed to all his relatives, close friends and clients. (Nov-2017)
Ans. (i) 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
(ii) As per guidelines:-
• 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.
(iii) 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.
(iv) Conclusion:- Therefore, Mr. Swapnil would not be held guilty of professional misconduct under
Clause (6) of Part I of the First Schedule to the Chartered Accountants Act, 1949.
48. Printing of Designation “Chartered Accountant” on Religious Ceremony Invitation Cards
CA. Shrishti and CA. Mishti are two partners of the CA firm ‘Shrishti 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. (RTP-Nov-2020)
OR
CA. Suresh and CA. Mahesh are two partners of the CA firm ‘SM & Co. Being very pious, CA. Suresh organised
a religious ceremony at his home for which he instructed his printing agent to add his designation
“Chartered Accountant” with his name in the invitation cards. Later on, the invitations were distributed to
all the relatives, close friends and clients of both the partners.
Ans. (i) 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
(ii) As per guidelines:-
• 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.
(iii) In the given case:- CA. Shrishti is adding the designation Chartered Accountant with her name on
invitation cards and these cards were distributed to her and her partner’s relatives, close
friends and clients.
(iv) Conclusion:- CA. Shrishti shall be deemed to be guilty of professional misconduct for sending the
invitation cards using designation chartered accountant to partner’s relatives, close friends and
clients.
49. Soliciting Professional Work
Mr. S, a Chartered Accountant published a book and gave his personal details as the author. These details also
mentioned his professional experience. (SM)

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Ans. Soliciting Professional Work:
Clause (6) of Part I of the First Schedule to the Chartered Accountants Act, 1949 refers to professional
misconduct of a member in practice if he solicits client or professional work either directly or indirectly, by
circular, advertisement, personal communication or interview or by any other means. Therefore, members
should not adopt any indirect methods to advertise their professional practice with a view to gain publicity
and thereby solicit clients or professional work. Such a restraint must be practiced so that members may
maintain their independence of judgement and may be able to command the respect of their prospective
clients. While elaborating forms of soliciting work, the Council has specified that a member is not permitted
to indicate in a book or an article, published by him, his association with any firm of chartered accountants.
In this case, Mr. S, a Chartered Accountant published the book and mentioned his professional experience in
detail in the same.
Conclusion:
Mr. S being a chartered accountant in practice has committed the professional misconduct by mentioning
his professional experience.
50. Solicitation of Professional Work and Advertisement
X & Co., CAs informed selected multinational organizations, who are not their clients that Mr. Y, the former
Partner – in – charge of taxation of one of the largest accounting firms of the world, had joined them as a
partner. Is this action liable for professional misconduct?
Ans. (i) As per Clause:- 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.
(ii) As per provision:- 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.
(iii) Conclusion:- Issuing circular to persons who are not clients but may likely requires services of a CA
would tantamount to advertisements since it is solicitation of professional work by making roving
enquiries. Usage of the words “one of the largest accounting firms of the world” and the
specification of specialization in Taxation would amount to advertisement and thus, constitute
professional misconduct.
Council Guidelines for Advertisement, 2008: Website
51. Soliciting Clients
Mr. Avi, 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 the other retail trade business. One
of his friends Mr. Ravi gave him an idea to start online services and give stock certifications to traders with
Cash Credit Limits in Banks. Mr. Avi started a website with colorful catchy designs and 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”. Besides, Mr. Avi entered in an agreement with a Digital
Marketer to give him 5% commission on each service procured through him. Discuss if the actions of Mr. Avi
are valid in the light of the Professional Ethics and various pronouncements and guidelines issued by ICAI.
(MTP-Nov-2023, RTP-May-2022, SM)
Ans. (i) 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

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Professional Ethics & Liabilities of Auditors
(ii) As per Council Guidelines:- Mr. Avi 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.
(iii) In the given situation:- Mr. Avi 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. Further sharing of fees with Digital marketer would
also be in voiolation of Clause 2, Part 1, Schedule 1 to the CA Act, 1949.
(iv) Conclusion:- This is in complete contravention of the guidelines on website issued by the ICAI.
Thus, CA, Avi would be held guilty of professional misconduct under clause 6 of Part 1 of First
Schedule of the Chartered Accountants Act, 1949.
52. Hosting Details on Website
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 color. 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-2020)
Ans. 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, the guidelines approved by the Council of the Institute of Chartered Accountants of India
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
53. Hosting Details on Website
M/s XYZ, a firm of Chartered Accountants created a website “www.xyzindia.com”. The website besides
containing details of the firm and bio -data of the partners also contains the photographs of all the partners
of the firm. (SM)
Ans. (i) As per guidelines of the ICAI:-
• As per detailed guidelines of the ICAI laid down in Clause (6) of Part I of the First Schedule to
the Chartered Accountants Act, 1949, a chartered accountant of the firm can create its own
website using any format subject to guidelines.
• However, the website should be so designed that it does not solicit clients or professional
work and should not amount to direct or indirect advertisement.

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• The guidelines of the ICAI to allow a firm to put up:- The details of the firm, bio -data of
partners and display of a passport size photograph.
(ii) Conclusion:- In the case of M/s XYZ, all the guidelines seem to have been complied and there
appears to be no violation of the Chartered Accountants Act, 1949 and its Regulations.
54. Developing Website
XYZ & Associates, a firm with 5 partners developed a website www.xyzassociates.com. The website also
contained a link to “All India Chartered Accountants Association”, a voluntary association where X, a partner
of the firm is currently the Vice -president.
Ans. (i) As per the guidelines:- laid down under Clause (6) of Part I of the First Schedule to the Chartered
Accountants Act, 1949 in respect of websites by chartered accountants in practice, it is permitted
that
• Website may provide a link to the website of ICAI,
• Its Regional Councils, Branches and Government Departments and
• Other professional Bodies like AICPA, ICAEW, and CICA.
(ii) In the given case:- , M/s XYZ Associates provided a link to “All India Chartered Accountants
Association” which is not permitted.
(iii) Conclusion:-Hence the firm would be liable for misconduct under Clause (6) of Part I of the First
Schedule to the Chartered Accountants Act, 1949.
55. Posting Photograph on Website
CA. Intelligent, a Chartered Accountant in practice, provides part -time tutorship under the coaching
organization of the Institute. On 30th June, 2022, he was awarded ‘Best Faculty of the year’ as gratitude from
the Institute. Later on, CA. Intelligent posted his framed photograph on his website wherein he was
receiving the said award from the Institute.
Ans. (i) 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
(ii) In the given case:- CA. Intelligent shared his framed photograph on website wherein he was
receiving ‘Best Faculty of the year’ award from the Institute.
(iii) As per guidelines:- In this context, it may be noted that according to the guidelines approved by the
Council of the Institute of Chartered Accountants of India,
• No photographs of any sort are permitted.
• Only display of passport size photograph is permitted.
(iv) Conclusion:- Therefore, CA. Intelligent is guilty of professional misconduct under Clause (6) of
Part I of the First Schedule to the Chartered Accountants Act, 1949.
56. Posting of Particulars on Website
M/s XYZ a firm of Chartered Accountants in practice develops a website “XYZ.com”. The color chosen for the
website was a very bright green and the website was to run on a “push” technology where the name of the
partners of the firm and the major clients were to be displayed on the website without any disclosure
obligation from any regulator. Is this website in compliance with guidelines issued by ICAI in this regard?
(SM, RTP-May-2020)
Ans. (i) 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

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Professional Ethics & Liabilities of Auditors
(ii) As per guidelines:-
The relevant guidelines in the context of the website hosted by M/s ABZ & Co. are:
1. No restriction on the colors used in the website;
2. The websites are run on a “pull” technology and not a “push” technology
3. 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.
(iii) In the given case:-
M/s XYZ a firm of Chartered Accountants in practice develops a website “XYZ.com”. The color
chosen for the website was a very bright green and the website was to run on a “push” technology
where the name of the partners of the firm and the major clients were to be displayed on the
website without any disclosure obligation from any regulator. Is this website in compliance with
guidelines issued by ICAI in this regard?
(iv) Conclusion:- The firm would be liable for professional misconduct due to running website on Push
Technology and displaying name of clients on website without any requirement of regulator.
Schedule – 1, Part – 1, Clause – 7
57. Advertisement of Professional Attainment
B, a Chartered Accountant in practice is a partner in 3 firms. While printing his personal letter heads, B gave
the names of all the firms in which he is a partner. (SM)
OR
Mr. Adnan, a Chartered Accountant in practice, is a partner of 4 firms. While printing his personal letter
heads, Mr. Adnan gave the names of all the firms in which he is a partner. Comment. (Nov-2015)
Ans. (i) As per Clause:- clause (7) of Part I of First Schedule of the Chartered Accountant 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
(iii) 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.
(ii) In the instant case:- Mr. Adnan, a Chartered Accountant in practice, is a partner of 4 firms and while
printing his personal letter heads, he gave the names of all the firms in which he is partner.
(iii) Conclusion:- Mr. Adnan is not guilty of any professional misconduct in the above case.
58. Use of Designation other than Chartered Accountant
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. (May-2015)
Ans. (i) As per Clause:- clause (7) of Part I of First Schedule of the Chartered Accountant Act, 1949,
A CA in practice is deemed to be guilty of professional misconduct if he
(i) advertises his professional attainments or services or

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(ii) uses any designation or expressions other than ‘Chartered Accountant” on professional
documents, visiting cards, letter heads or sign boards
(iii) 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.
(ii) As per Guidelines:-
• 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.
(iii) 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.
(iv) Conclusion:- 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.
59. Using Designation of CA and Advocate Simultaneously
Mr. B, a practicing Chartered Accountant as well as a qualified lawyer, was permitted by the bar council to
practice as a lawyer also. He printed his visiting card where he mentioned his designation as Chartered
Accountant and Advocate.
Ans. (i) As per Clause:- clause (7) of Part I of First Schedule of the Chartered Accountant 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
(iii) 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.
(ii) Interpretation of clause:-
• This clause 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.
(iii) Designation other than CA:-
• Members of the Institute in practice who are otherwise eligible may practice as advocates
subject to the permission of the Bar Council but in such case, they should not use
designation ‘chartered accountant in respect of the matters involving the practice as an
advocate.

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Professional Ethics & Liabilities of Auditors
• In respect of other matters they should use the designation ‘chartered accountant’ but they
should not use the designation ‘chartered accountant’ and ‘advocate’ simultaneously.
(iv) In the present case:-Mr. B has printed his visiting card where he mentioned his designation as
Chartered Accountant and Advocate which is prohibited under the above clause
(v) Conclusion:- Mr. B is guilty of professional misconduct.
60. Visiting Card
A practising Chartered Accountant uses a visiting card in which he designates himself, besides as Chartered
Accountant, Cost Accountant. Is this a misconduct?
Ans. Cost Accountant:
(i) Provision:
• As stated 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”.
(ii) In the given case: A Chartered Accountant in practice has designated himself as Cost Accountant,
and not as Chartered Accountant in visiting card.
(iii) Conclusion:
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".
61. Using Designation of CA and other Designation Simultaneously
T, a practicing CA uses the designation, ‘Municipal Councilor’ apart from the expression ‘FCA’ on his visiting
card. Comment.
Ans. (i) As per Clause:- clause (7) of Part I of First Schedule of the Chartered Accountant 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
(iii) 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.
(ii) Designation other than CA:-
• It also restrains a member from using any designation or expression other than that of a CA
in documents through which the professional attainments of the member would come to the
notice of the public.
(iii) Conclusion:- A member is not permitted to use the designation such as ‘Member of Parliament’,
Municipal Councilor’ or any other functionary in addition to that of CA. Therefore under this
clause T is guilty of professional misconduct.

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62. Mentioning 'Insolvency Professional' on Visiting Cards
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 neighbor-hood
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.
(SM, MTP-May-2022, May-2019, Nov-2018)
Ans. (i) As per Clause:- Clause (7) of Part I of First Schedule of the Chartered Accountant Act, 1949,
A CA in practice is deemed to be guilty of professional misconduct if he
• advertises his professional attainments or services or
• uses any designation or expressions other than ‘Chartered Accountant” on professional
documents, visiting cards, letter heads or sign boards
• Unless it be a degree of a university
➢ established by law in India or
➢ 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.
(ii) In the present case:- 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.
(iii) Conclusion:- Thus, complaint of neighbor is not enforceable/valid.
63. Printing of Visiting Cards and using QR Code
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. (May-2017, MTP-Nov-2018, RTP-May-2019)
Ans. (i) As per Clause:- Clause (7) of Part I of First Schedule of the Chartered Accountant Act, 1949,
A CA in practice is deemed to be guilty of professional misconduct if he
• advertises his professional attainments or services or
• uses any designation or expressions other than ‘Chartered Accountant” on professional
documents, visiting cards, letter heads or sign boards
• Unless it be a degree of a university
➢ established by law in India or
➢ 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.
(ii) As per guidelines:- Issued under Clause 7, printing photograph on the visiting cards is not
permissible. However Quick Response Code may be printed on visiting card provided that the Code
does not contain information that is not otherwise permissible to be printed in their visiting card.
(iii) In the present case:- 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.

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Professional Ethics & Liabilities of Auditors
(iv) Conclusion:- No misconduct arises on part of Mr. M as information printed on visiting card and
information contained in QR Code are permissible.
64. Using Designation Other Than a CA and Providing Details of Services Offered
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.
(SM, MTP-May-2021, MTP-Nov-2019)
Ans. (i) 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
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.
(ii) As per Provision:-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.
(iii) As per Guidelines:- Issued under clauses 6 & 7 permits a practicing member to give lectures at
forums and may give their names and describe themselves as Chartered Accountants, but no
reference should be made, to the name and address or services of his firm.
(iv) In the present case:- Mr. Nigal uses the designation of "Management Expert" and also made
reference to the services provided by his firm of Chartered Accountants at reasonable rates and
distribute business cards to audience.
(v) Conclusion:- Mr. Nigal will be held guilty of professional misconduct under clauses 6 & 7 of Part I
of First Schedule to the CA Act 1949 due to solicitation of professional work and advertisement of
services rendered by his firm.
65. Solicitation of Professional Work and Advertisement
A CA Ramesh Mehta in practice appearing on television on budget proposals was introduced to the viewers,
on the basis of the bio- data furnished by him, as the Senior most partner of M/S Mehta & Verma a leading
firm of CA’s established in Indore in 1998. See whether there is any professional misconduct in this case.
Ans. (i) As per Clause:- 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.
(ii) As per provision:- 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.

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Professional Ethics & Liabilities of Auditors
(iii) As per Guidelines:- Issued under clause 6 & 7 permits a practicing member to give lectures at
forums and may give their names and describe themselves as Chartered Accountants, but no
reference should be made, to the name and address or services of his firm.
(iv) In the given case – Following things happen
(a) Reference to name of the firm, may be given if relevant
(b) Use of adjective expressions such as “a leading firm of CA’s and Senior Most Partner”, and
(c) Reference to the date of establishment of firm, violate of the code of conduct.
(v) Conclusion:- CA Ramesh Mehta will be guilty of professional misconduct.
66. Professional Attainments in Offer Document
The offer document of a listed company in which Mr. D, a practicing Chartered Accountant is a director
mentions the name of Mr. D as a director along with his various professional attainments and spheres of
specialization (SM)
Ans. (i) As per ICAI Council :-
• The Council of the ICAI has in a communication to members stated that if a public company,
in which a chartered accountant in practice is a director, issues a prospectus or gives any
announcement that gives descriptions about the Chartered Accountant’s expertise,
specialisation and knowledge in any particular field, it shall constitute a violation of Clauses
(6) and (7) of Part I of the First Schedule to the Chartered Accountants Act, 1949.
• The Council has further stated that in such cases the member concerned has to take necessary
steps to ensure that such prospectus or public announcements or public communications do
not advertise his professional attainments and
• Also that such prospectus or public announcements or public communications do not directly
or indirectly amount to solicitation of clients for professional work by the members.
(ii) Conclusion:- Thus in the instant case, Mr. D would be held to be guilty of professional misconduct
and liable for disciplinary action.
67. Appointment of CAiP as Independent Director
A company has appointed a practicing Chartered Accountant as an independent director on its board. The
said company publishes description about the Chartered Accountant's expertise, specialization and
knowledge in any particular field or add appellations or adjectives to his name in the prospectus or public
announcements issued by this company. Whether the said publication will be covered under Code of Ethics?
What should be the role of the Chartered Accountant in this regard? (July-2021)
Ans. (i) Guidelines with respect to Appointment of CAiP as a Independent Director
• The Council of the ICAI has in a communication to members stated that if the prospectus or
public announcements issued by these Companies often publish descriptions about the
Chartered Accountant’s expertise, specialisation and knowledge in any particular field or
add appellations or adjectives to their names. it shall constitute a misconduct under Clause (6)
and (7) of Part I of the First Schedule to the Chartered Accountants Act.
• The Council has further stated that in such cases the member concerned has to take necessary
steps to ensure that such prospectus or public announcements or public communications do not
advertise his professional attainments and also that such prospectus or public announcements
or public communications do not directly or indirectly amount to solicitation of clients for
professional work by the members.
• It is advisable for a member that as soon as he is appointed as a director on the Board of a
Company, he should specifically invite the attention of the management of the Company to the
aforesaid provisions and should request that before any such prospectus or public
announcements or public communication mentioning the name of the member concerned, is
issued, the material pertaining to the member concerned should, as far as practicable be got
approved by him.

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(ii) In the given situation: - A company has appointed a practicing chartered accountant as independent
director on its board. The said company published description about the Chartered Accountant’s
expertise, specialisation and knowledge in any particular field or add appellations or adjectives to
his names in the prospectus or public announcements issued by this Company.
(iii) Conclusion: - Thus in the instant case, Chartered Accountant would be held to be guilty of
professional misconduct under Clauses (6) and (7) of Part I of the First Schedule to the Chartered
Accountants Act, 1949 and liable for disciplinary action.
Schedule – 1, Part – 1, Clause – 8
68. Communication with the Previous Auditor
XYZ Ltd. appoints you as the auditor of the company. You observe that previous auditors A & Co., resigned.
Also Balance Sheet as at 31 -03-2022 shows an audit fee payable of ` 25,000. What precautions you will take
before commencing the audit work?
Ans. (i) As per Clause:-
• 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.
• 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 (139 and) 140 of the
Companies Act, 2013, in respect of such appointment have been duly complied with.
(ii) 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 -
• 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).
• 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.
• 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.
• The auditor must ascertain whether there existed any circumstances on account of which he
should not accept the appointment.
• 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).
• He should also satisfy himself that the notice provided for under Sections 139 and 140 has been
effectively served on the outgoing auditor.
69. Conditional Acceptance of Appointment
(a) PN and Associates are appointed as the Statutory Auditors of The Iron Company Ltd. The Central
Government holds 65% of the paid-up share capital in this company. The appointment letter of the
company gave a very limited time to PN and Associates for accepting the audit. CA N, the engagement
partner communicated with the previous auditor but due to lack of time he had to give acceptance for

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Professional Ethics & Liabilities of Auditors
the audit assignment before receiving reply from the previous auditor, Hence CA N gave a conditional
acceptance of the appointment and commenced the audit. Discuss with reference to the Chartered
Accountants Act, 1949 and the schedules thereunder, whether CA N has complied with the same.
(Nov-2024, RTP-May-2025)
(b) If CA Yash is guilty of misconduct in the above situation given in part (a), then before which authority,
the matters of CA Yash would have been placed and what punishment could have been imposed on him
by the said authority in accordance with the Chartered Accountants Act, 1949? (RTP-May-2025)
Ans. (a) 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.
Although the mandatory requirement of communication with previous auditor being Chartered
Accountant applies, in uniform manner, to audits of both government and Non-Government entities, yet
in the case of audit of government Companies/ banks or their branches, if the appointment is made well
in time to enable the obligation cast under this clause to be fulfilled, such obligation must be complied
with before accepting the audit. However, in case the time schedule given for the assignment is such that
there is no time to wait for the reply from the outgoing auditor, the incoming auditor may give a
conditional acceptance of the appointment and commence the work which needs to be attended to
immediately after he has sent the communication to the previous auditor in accordance with this clause.
In his acceptance letter, he should make clear to the client that his acceptance of appointment is subject
to professional objections, if any, from the previous auditors and that he will decide about his final
acceptance after taking into account the information received from the previous auditor.
In the given case, PN and Associates are appointed as the Statutory Auditors of The Iron Company Ltd.
which is a government company as Central Government holds 65% of the paid-up share capital of the
company and CA N has given a conditional acceptance of the appointment and commenced the audit. In
view of above, it can be concluded that CA N has complied with the provisions of the Chartered
Accountants Act, 1949 and the Schedules thereunder.
(b) If CA Yash would have been found guilty of professional misconduct under Clause 8 of Part I of the
First Schedule of the Chartered Accountants Act, 1949: The matter would have been placed before the
Board of Discipline. The punishment that the Board of Discipline could have imposed would be:
(i) Reprimand the member.
(ii) Remove the name of the member upto a period of 3 months.
(iii) Impose fine upto rupees ₹ 1,00,000/-
70. Communication with the Previous Auditor
Mr. X, a Chartered Accountant accepted his appointment as tax auditor of a firm under Section 44AB, of the
Income-tax Act, and commenced the tax audit within two days of his appointment since the client was in a
hurry to file Return of Income before the due date. After commencing the audit, Mr. X realised his mistake of
accepting this tax audit without sending any communication to the previous tax auditor. In order to rectify
his mistake, before signing the tax audit report, he sent a registered post to the previous auditor and
obtained the postal acknowledgement. Will Mr. X be held guilty under the Chartered Accountants Act? (SM)
Ans. (i) As per Clause:- Clause 8 of Part I of First Schedule to the CA 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
• Without first communicating with him in writing.
(ii) Interpretation of Clause:-
• The object of the incoming auditor communicating in writing with the retiring auditor is to
ascertain whether there are any circumstances which warrant him not to accept the
appointment,

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Professional Ethics & Liabilities of Auditors
• For example:- Whether the previous auditor has been changed on account of having
qualified the report or he had expressed a wish not to continue on account of something
inherently wrong with the administration of the business.
• The retiring auditor may even give out information regarding the condition of the accounts of
the client or the reason that impelled him to qualify his report.
• Under all circumstances, it would be essential for the incoming auditor to carefully consider
the facts before deciding whether or not he should accept the audit.
• As a matter of professional courtesy and professional obligation it is necessary for the new
auditor appointed to communicate with such earlier auditor.
• This requirement would apply to all types of audit i.e. statutory audit, tax audit, internal
audit, concurrent audit, etc.
• It is further provided that if time schedule given for the assignment is such that there is no time
to wait for the reply from the retiring auditor, the incoming auditor may give conditional
acceptance of the appointment and can commence the work immediately after he has sent
the communication to the retiring auditor.
(iii) In the given case:- Mr. X has commenced his work and thereafter he sent the letter to the
predecessor auditor.
(iv) Conclusion:-Mr. X is guilty of professional misconduct by virtue of clause 8 of Part I of First
Schedule.
71. Failure to Communicate with the Previous Auditor
Can a practicing Chartered Accountant be held guilty of professional misconduct under the following
circumstance: W, a chartered Accountant has sent letters under certificate of posting to the previous auditor
informing him his appointment as an auditor before the commencement of audit by him. (SM)
Ans. (i) As per Clause:- Clause 8 of Part I of First Schedule to the CA 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 Certificates Rules 1932
• Without first communicating with him in writing.
(ii) Applicability of clause:-
• This requirement would apply to all types of audit i.e. statutory audit, tax audit, internal audit,
concurrent audit, etc.
• It is further provided that incoming auditor is required to send his communication by
Registered post acknowledgement due or by hand against an acknowledgement in writing.
Mere posting of a letter under certificate of posting is not sufficient to establish communication.
(iii) Conclusion:- Mr. W will be Guilty of professional misconduct by virtue of clause 8 of Part I of
first schedule in accordance with which communication need to be sent “Registered Post
Acknowledgement Due” or by “hand against a written acknowledgement”.
72. Communication with the Previous Auditor
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-2021)
Ans. (i) As per Clause:- Clause 8 of Part I of First Schedule to the CA 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.

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Professional Ethics & Liabilities of Auditors
(ii) Interpretation of Clause
• This clause is applicable in situation of replacing of one auditor by another auditor. Internal auditor
and statutory auditor 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.
(iii) 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.
(iv) Conclusion: -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.
73. Communication with the Previous Auditor
Vineet & Associates have been offered Statutory Audit of TLP Ltd. As a part of ethical requirements of the
Institute of Chartered Accountants, CA V, partner of the firm, communicated with the previous auditor
enquiring as to whether any professional reason exists for which he should not accept the audit assignment.
Previous auditor informed that he issued a qualified report, so management is changing the auditor. Comment
with reference to the provisions of the Chartered Accountants Act, 1949 and schedules thereto as to whether
Vineet & Associates can accept the audit. (July-2021)
Ans. (i) As per Clause:- Clause 8 of Part I of First Schedule to the CA 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 Certificates Rules 1932
• Without first communicating with him in writing.
(ii) The professional reasons for not accepting an audit would be:
a. Non-compliance of the provisions of Sections 139 and 140 of the Companies Act, 2013 as
mentioned in Clause (9) of the Part - I of First Schedule to The Chartered Accountants Act, 1949; and
b. 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, 2013 or various other statutes; and
c. Issuance of a qualified report.
There is no rule, written or unwritten, which would prevent an auditor from accepting the
appointment offered to him under the circumstance of Issuance of qualified report. However, before
accepting the audit, he should ascertain the full facts of the case. For nothing will bring the profession
to disrepute so much as the knowledge amongst the public that if an auditor is found to be
“inconvenient” by the client, he could readily be replaced by another who would not displease the
client and this point cannot be too over-emphasised.
(iii) Conclusion
• From the above it can be concluded that Vineet & Associates may accept the audit of TLP Ltd if CA
V is satisfied that the attitude of the retiring auditor was not proper and justified.
• If, on the other hand, CA V feels that the retiring auditor had qualified the report for good and valid
reasons, he should refuse to accept the audit of TLP Ltd.
74. Professional Ethics
Comment on the following scenario with reference to the Chartered Accountants (Amendment) Act,
2006 and Schedules thereto.
Statutory Audit of Arihant Limited for the year 2021-22 was done by CA Acharya. Arihant Limited was in
existence since 2010. The relevant extract from books of account of Arihant Limited are as below:

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Professional Ethics & Liabilities of Auditors

Particulars As at 31.03.2023 As at 31.03.2022

(` in lakh) (Unaudited) (` in lakh) (Audited)
Equity Share Capital 5.00 5.00
Reserve and Surplus (10.00) (8.00)
Provision for Audit Fees For FY 2021-22- 1.00 1.00
For FY 2022-23- 1.00
(Figures in bracket indicates negative values)
CA. Nemi accepted the Statutory Audit of Arihant Limited for the year 2022-23 in spite of the fact that as on
date of acceptance by CA Nemi, the audit fees of CA Acharya was unpaid.
Ans. (i) Provision: As per Chapter VII of Central Council Guidelines 2008, a member of the Institute in
practice shall not accept the appointment as auditor of an entity in case the undisputed audit fee of
another Chartered Accountant for carrying out the statutory audit under the Companies Act, 2013 or
various other statutes has not been paid:
Provided that in the case of sick unit, the above prohibition of acceptance shall not apply where a sick
unit is defined to mean “where the net worth is negative as at the end of any financial year accumulated
losses equal to or exceeding its entire net worth.
(ii) Analysis: As per Explanation 1 of the Chapter VII of Central Council Guidelines 2008, for the
purpose, the provision for audit fee in accounts signed by both — the auditee and the auditor along with
other expenses, if any, incurred by the auditor in connection with the audit, shall be considered as
“undisputed audit fees”.
(iii) Conclusion: In the instant case, though the undisputed fees are unpaid, CA Nemi would still not be guilty
of professional misconduct since the Arihant Limited is a sick unit having negative net worth for
the year 2022-23.
Schedule – 1, Part – 1, Clause – 9
75. Compliance of Statutory Requirements Before Accepting Appointment
M/s. AWE & Co, Chartered Accountants were appointed as Auditors of WOW Ltd. for the F.Y. 2021-22. 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-2021)
OR
CA Raja was appointed as the Auditor of Castle Ltd. for the year 2023-24. Since he declined to accept the
appointment, the Board of Directors appointed CA Rani as the auditor in the place of CA Raja, which was
also accepted by CA Rani. (SM, May-2015)
OR
CA X was appointed as the Auditor of ABC Ltd. for 2021-22. Since he declined to accept the appointment, the
Board of Directors appointed CA Y as the auditor in the place of CA X, which was also accepted by CA Y.
Ans. (i) As per Clause:- Clause (9) of Part I of the First Schedule to Chartered Accountants Act, 1949
A chartered accountant in practice is 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.
(ii) Interpretation of Clause:
• 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.

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Professional Ethics & Liabilities of Auditors
• 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.
(iii) 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.
(iv) Conclusion: -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.
76. Non-observance of Compliance of Section 139 & 140 of Companies Act 2013
X & Co. Chartered Accountants were informed by True & Co. Ltd. that they have been appointed as auditor of
the company in place of ABC & Co. who have been removed, subject however to the approval of the
shareholders in the ensuing AGM. X & Co. accepted the appointment and commenced the work without their
appointment being approved by the shareholders of the company.
Ans. (i) As per Clause:- Clause (9) 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 an appointment as auditor of a company
• Without first ascertaining from it whether the requirements of Section 139 and 140 read
with Section 141 of the Companies Act, 2013,
• In respect of such appointment have been duly complied with.
(ii) In the present case:- X & Co. Chartered Accountants were informed by True & Co. Ltd. that they
have been appointed as auditor of the company in place of ABC & Co. who have been removed,
subject however to the approval of the shareholders in the ensuing AGM. X & Co. accepted the
appointment and commenced the work without their appointment being approved by the
shareholders of the company. Commencing the work without being appointed as auditor in the
AGM is clearly a non-compliance of Sec. 139.
(iii) Conclusion:- X & Co. will be held to be guilty of professional misconduct under clause 9 of Part I
of First Schedule to the Chartered Accountants act, 1956
77. Non-observance of Compliance of Section 139 & 140 of Companies Act 2013
CA Mehta was appointed as the Auditor of CS Ltd. for the year 2021-22 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. (Dec-2021)
Ans. (i) As per Clause:- Clause (9) 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 an appointment as auditor of a company
• Without first ascertaining from it whether the requirements of Section 139 and 140 read
with Section 141 of the Companies Act, 2013,
• In respect of such appointment have been duly complied with.

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Professional Ethics & Liabilities of Auditors
(ii) Interpretation of Clause:
• 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 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.
(iii) 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.
(iv) Conclusion:
• 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.
78. Appointment in Case of Resignation
Mr. Sunil was appointed statutory Auditor of M. Autotech Limited after Mr. Ram resigned from the position of
auditor on 31-07-2022 for the financial year 22-23. Mr. Sunil received the appointment letter duly signed by
the Board of Directors and a resolution of the Audit Committee recommending the name of Mr. Sunil to the
Board. Mr. Sunil received the letter of appointment on 31 -07-2022, which he accepted on 01-08-2022. On 15-
08-2022, Mr. Sunil fixed a meeting with Mr. Ram to understand the reasons for his resignation and any
concerns he should be aware of about the company. Prior to this, Mr. Sunil had not communicated with Mr.
Ram. The Board of M Autotech Limited filed ADT-1 with the registrar on 31-08-2022.
Mr. Sunil, after performing the audit, issued his audit report on 31 -05-2023. The registrar, after issuance of the
audit report, suo moto initiated an inquiry regarding the appointment of Mr. Sunil as the auditor of the
company. After the inquiry, Registrar issued a report to ICAI wherein it was mentioned that Mr Sunil should be
held guilty of professional misconduct. You are required to guide Mr. Sunil with respect to the
recommendation of the registrar for him being guilty of professional misconduct (MTP-Nov-2023)
Ans. (i) Provision:
(a) A member in practice shall be held guilty of professional misconduct as per clause 9 of Part I of
the First Schedule where he accepts an appointment as auditor of a company without first
ascertaining from it whether the requirements of Section 225 of the Companies Act, 1956 (1 of
1956), in respect of such appointment have been duly complied with (corresponding to section 139
and 140 of Companies Act, 2013).

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(b) 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 for 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.
(c) As per section 139(8) of the Companies Act, 2013, any casual vacancy in the office of an auditor
shall in the case of a company other than a company whose accounts are subject to audit by an
auditor appointed by the Comptroller and Auditor-General of India, be filled by the Board of
Directors within thirty days, but if such casual vacancy is as a result of the resignation of an
auditor, such appointment shall also be approved by the company at a general meeting convened
within three months of the recommendation of the Board and he shall hold the office till the
conclusion of the next annual general meeting.
(d) Also, before such appointment is made, the written consent of the auditor to such appointment and
a certificate from him or it that the appointment, if made, shall be in accordance with the conditions
as may be prescribed shall be obtained from the auditor.
Provided also that the certificate shall also indicate whether the auditor satisfies the criteria
provided in section 141.
Also, that the company shall inform the auditor concerned of his appointment and also file a
notice of such appointment with the Registrar within fifteen days of the meeting in which the
auditor is appointed.
(e) Also, a member in practice shall be held guilty of professional misconduct as per clause 8 of Part I
of the First Schedule where he accepts a position as auditor previously held by another Chartered
Accountant without first communicating with him in writing.

(ii) In the current case:

• Mr. Sunil was appointed statutory Auditor of M. Autotech Limited after Mr. Ram resigned from the
position of auditor on 31-07-2022 for the financial year 2022-23.
• Mr. Sunil received the appointment letter duly signed by the Board of Directors.
• Mr. Sunil received the letter of appointment on 31-07-2022, which he accepted on 01-08-2022.
• On 15-08-2022, Mr. Sunil fixed a meeting with Mr. Ram to understand the reasons for his resignation
and any concerns he should be aware of about the company.
• Prior to this, no communication happened between Mr. Sunil and Mr. Ram.
• The Board of M. Autotech Limited filed ADT-1 with the registrar on 31-08-2022.
• Hence, Mr. Sunil did not verify whether the requirement of section 139 of the Companies Act,
2013 has been complied with or not, as in the current case, there was no approval by the company
at a general meeting convened within three months of the recommendation of the Board.
• Under Section 139(8), approval by a company at general meeting as discussed above is mandatory
requirement.
• Therefore, he has not ascertained from company whether requirements of section 139 and 140
of Companies Act, 2013 have been complied with.
• Moreover, Mr. Sunil did not communicate with a retiring auditor in such a manner as to retain in
their hands positive evidence of the delivery of the communication to the outgoing/previous auditor.

(iii) Coclusion:
Therefore, Mr. Sunil is guilty of professional misconduct both under clause 8 and 9 of First Schedule
to Chartered Accountants Act, 1949.

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Schedule – 1, Part – 1, Clause – 10

79. Chartered Accountant in Practice Acting as Liquidator
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-2020)
Ans. (i) As per Clause:- 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.
(ii) As per Regulation 192:- 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.
(iii) In the given case:- Mr. P, a practicing Chartered Accountant, has acted as liquidator of AB & Co. and
charged his professional fees on percentage of the realisation of assets.
(iv) Conclusion:- Mr. P 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.
80. Charging of Fees based on Percentage
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. (RTP-May-2020)
OR
PQR Pvt. Ltd. approached CA. Whai, a Chartered Accountant in Practice, for debt recovery services. CA Whai
accepted the work and insisted for fees to be based on 2% of the debt recovered. (May-2017)
OR
Ajanta Pvt. Ltd. approached CA. Jasmeet, a practicing Chartered Accountant since 1996, for recovery of debts
amounting ` 40 crores. CA Jasmeet accepted the work and requested to charge fees @ 2.5% of the debt
recovered. Later on, she raised a bill for debts recovered and charged ` 90 lacs for recovering 90% of the
debts
Ans. (i) As per Clause:- 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.
(ii) Exemption:- 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.
(iii) 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).
(iv) Conclusion:- Hence, CA. Prem will not be held guilty for professional misconduct.
81. Charging of Fees based on Percentage
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 2021-22. Comment on
action of Mr. Joe with reference to the Chartered Accountants Act, 1949 and Schedules thereto. (Dec-2021)

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Ans. (i) As per Clause:- 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.
(ii) As per Regulations:
• 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.
(iii) 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.
(iv) Conclusion:- 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.
82. Restriction on fees based on a Percentage
Comment on the following with reference to the provisions of the Chartered Accountant Act 1949:
CA. Pankaj accepted professional work of acting as valuer under direct taxes. He charges fees on a
percentage of the property valued. (RTP-May-2024, SM)
Ans. (i) Provision:-
(a) 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.
(b) However, Regulation 192 exempts Chartered Accountants in practice to charge fees based on a
percentage of profits or contingent upon findings or results for professional work for certain
professional services.
(c) Regulation 192 specifically states that in the case of a valuer for the purposes of direct taxes and
duties, the fees may be based on a percentage of the value of the property valued.
(ii) Conclusion: Consequently, CA. Pankaj shall not be deemed to be guilty of professional
misconduct, as he is within the permissible scope of charging fees based on a percentage of the
property valued.
83. Contingent Fees
CA Kumar, a practicing-chartered accountant, is well known in the field of pleading of Income Tax cases at
Income Tax Tribunal and does not provide any assurance services. Considering the long standing in the
field, CA Kumar is approached by XYZ Limited to file an appeal in the Tribunal against the Income Tax

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Professional Ethics & Liabilities of Auditors
Demand of ` 10 crore which was added by the CIT(A) and to plead on behalf of XYZ Limited in the matter.
CA Kumar offers to accept the case with the following fee structure:
The fees for filing an appeal and to plead at Income Tax Tribunal will be higher of the following (a) or (b):
(i) ` 5,00,000/-
(ii) 10% of Tax Demand Reduced.
Comment on the act of CA Kumar in terms of the Chartered Accountant Act, 1949 and Schedules thereon.
(May-2024, SM)
Ans. Restriction on Fees based on a Percentage:
(i) Provision:
(a) 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.
(b) However, Regulation 192 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 a non-assurance services to
non-audit clients, and the fees may be based on a percentage of Tax Demand Reduced.
(ii) In the given case:
• CA Kumar, a practicing Chartered Accountant, provides non-assurance services.
• He is approached by XYZ Limited, a non-audit client, to file an appeal in Tribunal against Income-
tax Demand of `10 crore which was added by the CIT(A) and to plead on behalf of XYZ Limited in
the matter.
• CA Kumar offers to accept the case and agrees to charge fees either ` 5,00,000 or 10% of Tax
Demand reduced whichever is higher.
(iii) Conclusion: Therefore, Mr. Kumar will not be held guilty of professional misconduct since he is
not providing any assurance services to non-audit client pursuant to Regulation 192 read with
Clause 10 of Part I of First Schedule.
Schedule – 1, Part – 1, Clause – 11
84. Partnership with a Relative and Entering into Business
A chartered accountant holding certificate of practice and having four articled clerks registered under him
accepts appointment as a full -time lecturer in a college. Also he becomes a partner with his brother in a
business. Examine his conduct in the light of Chartered Accountants Act, 1949 and the regulations
thereunder. (SM)
Ans. (i) As per Clause:- Clause (11) of Part I of the First Schedule to the Chartered Accountants Act, 1949
• Prohibits a member in practice to engage in any business or occupation
• Other than the profession of chartered accountants
• Unless permitted by the Council so to engage.
(ii) As per Clause:- Clause (4) of Part I to the First Schedule to the Chartered Accountants Act, 1949
specifies that a chartered accountant in practice shall be deemed to be guilty of professional
misconduct if he enters into partnership:-
• In or outside India, with any person other than a chartered accountant in practice or

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Professional Ethics & Liabilities of Auditors
• 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 or
• Whose qualifications are recognised by the Central Government or
• The Council for the purpose of permitting such partnerships; (This clause reference is only
recommendatory)
(iii) As per Regulation:- Regulations 190A and 191 to the Chartered Accountants Regulations, 1988
• Provide a basis for considering applications of chartered accountants seeking permission to
engage in other business or occupation.
• A member can accept full - time lecturer-ship in a college only after obtaining the specific and
prior approval of the Council.
(iii) In the present case:- A CA in practice entered into partnership with his brother in a business. And
accepts appointment as a full time lecturer in a college which requires prior approval from the
Council of the ICAI.
(iv) Conclusion:- A CA in practice cannot engage in any business or occupation other than the profession
of Chartered Accountant unless permitted by the council so to engage. Hence the CA will be guilty
as per regulations and under clause 4 & 11.
85. Other Occupation
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).
(MTP-May-2024, MTP-May-2023, RTP-May-2023)
Ans. 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.
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.

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Professional Ethics & Liabilities of Auditors
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.
86. Independence of Auditor
M, a Chartered Accountant in practice, is the Statutory Auditor of S Ltd. for the year ended 31st March 2022.
In January 2022, he was appointed as a Director in H Ltd., which is the holding Company of S Ltd.
Ans. (i) As per Clause:- Clause (11) of Part I of the First Schedule to the CA Act, 1949
• A CA in practice cannot engage in any business or occupation
• Other than the profession of chartered accountants
• Unless permitted by the Council so to engage.
• But he can be a director of a company wherein he or any of his partners is not interested in
such company as auditor.
(ii) In the given case:- Mr. M is statutory auditor of S Ltd. whereas he is appointed as director in H Ltd.
which is holding of S Ltd. Such an appointment is not restricted under Clause 11 of Part I of First
Schedule.
• However, public conscience is expected to be ahead of law and the requirement of
independence should be interpreted much more strictly.
• Members should thus not place themselves in position which would either compromise or
jeopardise their independence.
• Accordingly ESB has classified that director in the holding company will not be qualified to act as
auditor of its subsidiary
(iii) Conclusion:-In view of the above, an auditor of a subsidiary cannot be a director of a holding
company as it will affect his independence.
87. Director and Auditor
Ring Limited is a subsidiary of Pearl Limited. For the financial year 2024-25 M/s Vani & Co., Chartered
Accountants were appointed as the statutory auditors of Ring Limited. The CEO of Pearl Limited was
impressed with the professional competence of CA Devi, one of the partners of the firm and hence, he
offered CA Devi to take up the position of Director (not MD/whole time director) of Pearl Limited. CA Devi is
in a dilemma whether to accept the offer. She approaches you and seeks your advice on the same. Advise
what CA Devi can do with the offer with reference to the Chartered Accountants Act, 1949 and schedules
thereto. (May-2025)
Ans. Scan QR for Answer.

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Professional Ethics & Liabilities of Auditors
88. Permission for Providing Private Tutorship
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. (Nov-2018)
Ans. (i) As per Clause:- Clause (11) of Part I of the First Schedule to the CA Act, 1949
• A CA in practice cannot engage in any business or occupation
• Other than the profession of chartered accountants
• Unless permitted by the Council so to engage.
(ii) As per 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.
(iii) 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.
(iv) Conclusion:- 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.
89. Appointment of a Chartered Accountant in Practice as MD of a Public Limited Company
A chartered accountant in practice takes up the appointment as managing director of a public limited
company.
Ans. (i) As per Clause:- Clause (11) of Part I of the First Schedule to the CA Act, 1949
• A CA in practice cannot engage in any business or occupation
• Other than the profession of chartered accountants
• Unless permitted by the Council so to engage.
(ii) It does not prohibit a CA from being a director of a company, except MD 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. To accept the position of MD in a company, member is required to obtain prior
permission from Council of ICAI.
(iii) In the given case:- a CA in practice has taken up the appointment as managing director of a public
limited company
(iv) Conclusion:- Appointment requires prior and specific approval from Council. In absence of such
approval, member will be held to be guilty of professional misconduct (by virtue of clause 11 of
Part I of First Schedule and Regulation 190A), otherwise not.
90. Specific Permission to be Obtained from Council
Mr. A, a practicing CA, took over as the executive Chairman of a Software Company on 01.04.2024. On
10.04.2024 he applied to the Council for permission. (RTP-May-2018, SM)
OR
CA. Suman, a practicing Chartered Accountant, took over as the executive chairman of Singaar IT Ltd. on
01.04.2022. However, realizing about obtaining prior approval from the Council of the ICAI for engaging
into other business, he applied to Council for permission within 10 days.
Ans. (i) As per Clause:- Clause (11) of Part I of the First Schedule to the CA Act, 1949
• A CA in practice cannot engage in any business or occupation
• Other than the profession of chartered accountants
• Unless permitted by the Council so to engage.

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Professional Ethics & Liabilities of Auditors
(ii) In the given case:- Mr. A took over as the executive chairman on 01.04.2015 and applied for
permission on 10.04.2015. On the basis of these facts, he was engaged in other occupation between
the period 01.04.2015 and 10.04.2015, without the permission of the Council
(iii) Conclusion:- Mr. A is guilty of professional misconduct in terms of Clause (11) of Part I of First
Schedule to the Chartered Accountants Act, 1949.
91. Auditor & Director
Mr. B is a practicing Chartered Accountant holding a valid certificate of practice. He accepted the
appointment as Director of the Green World Co. Ltd. Mr. C, a partner of Mr. B is statutory auditor of the said
company.
Ans. (i) As per Clause:- Clause (11) of Part I of the First Schedule to the CA Act, 1949
• A CA in practice cannot 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 CA from being a director of a company, except MD 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.
(ii) 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
(iii) As per Clause 4 of Part I of the Second Schedule to the CA Act, 1949
Expressing an opinion on F.S. of any entity in which the auditor, his firm or a partner of his firm
has a substantial interest would constitute misconduct.
(iv) As per Council Guidelines:- 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.
(v) As per Companies Act, 2013:
• Section 141(3)(c) :- Disqualifies a person to be appointed as an auditor if he is a partner of an
officer of the company.
And
•Section 141(4):- Requires the appointed auditor to vacate his office if he incurs any of the
disqualifications mentioned under sub -section (3).
(vi) Conclusion:
• Mr. B will be held for Professional Misconduct under Clause 11 of Part 1 of First Schedule to
the Chartered Accountants Act, 1949.
• Mr. C, a partner of Mr. B, should vacate the office as per requirement of Sec. 141(4) of
Companies act, 2013, being disqualified u/s 141(3)(c).
92. Engaging into a Business
CA. Moksh, a leading income tax practitioner based in Mumbai with exceptional writing skills, also serves
as the editor of a non-chartered accountancy-related journal. He devotes approximately 50% of his
time to managing the journal’s editorial responsibilities of the journal. Is CA. Moksh liable for
professional misconduct? (SM)
Ans. (i) As per Clause:- Clause (11) of Part I of the First Schedule to the CA Act, 1949
• A CA in practice cannot engage in any business or occupation
• Other than the profession of chartered accountants
• Unless permitted by the Council so to engage.
(ii) Council General Guidelines:-
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.

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(iii) In the present case:- CA. Moksh is engaged in the occupation of trading in commodity derivatives
which is not covered under the general permission.
(iv) Conclusion:- Hence, specific permission of the Institute has to be obtained otherwise he will be
deemed to be guilty of professional misconduct under Clause (11) of Part I of First Schedule of
Chartered Accountants Act, 1949. [Derivative trading ”in equities” has been generally permitted from
March 2021.)
93. Failure to take Permission before Accepting Employment
Mr. J started his practice as Chartered Accountant in 2021. During 2022, he got an offer for the post of Chief
Accountant of a Software Development Company, as a fulltime employee, for a salary of ` 60,000 per month.
On accepting this offer, Mr. J converted his practice into a partnership firm by taking a fresh Chartered
Accountant as his partner. Mr. J neither intimated the Institute nor obtained permission from the Institute
about his employment. Will Mr. J be held guilty under the Chartered Accountants Act?
Ans. (i) As per Clause:- Clause (11) of Part I of the First Schedule to the CA Act, 1949
• A CA in practice cannot 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 CA from being a director of a company, except MD 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.
(ii) As per Regulation 190A:-Member of the Institute in practice to engage in full -time or part-time
employment after obtaining the specific and prior approval of the Council
(iii) In the present case:- Mr. J has accepted the full-time employment of a software company which
requires prior approval from the council of ICAI.
(iv) Conclusion:- Mr. J will be held guilty of professional misconduct by virtue of Clause 11 of Part I of
First schedule, as he has accepted the employment in addition to the practice without obtaining
permission of the Institute.
94. Engaging into Business/Profession Other Than the Profession of CA
Mr. Kartik Aryan, a Chartered Accountant in practice has been appointed editor of a monthly journal which
analyses performance of the Stock Market and Mutual Fund Schemes.
Ans. (i) As per Clause:- Clause (11) of Part I of the First Schedule to the CA Act, 1949
• A CA in practice cannot engage in any business or occupation
• Other than the profession of chartered accountants
• Unless permitted by the Council so to engage.
(ii) Council General Guidelines:- General permission is granted under Regulation 190A for being
appointed as editor of professional journal.
(iii) In the given case:- Mr. Kartik Aryan has accepted the appointment as editor of a monthly journal
which analyses the stock performance.
(iv) Conclusion:- Clause 11 permits editorship of professional journals, but in the instant case journal
related to performance analysis of stock market and mutual fund schemes cannot be treated as
professional journal hence, Mr. Kartik Aryan would be held guilty of professional misconduct
by virtue of Clause 11 of Part I of First Schedule.
95. Engaging into Business/Profession Other Than the Profession of CA
CA. Sonu has been practising since 2008, specialising in Corporate audits and Company Law matters. Due to
his good practical knowledge, he was offered editorship of a 'Company Audit' Journal, which he accepted.
However, he did not take any permission from the Council regarding such editorship.
Discuss the act of CA. Sonu with reference to the Chartered Accountants Act, 1949 and the Rules made
thereunder. (Nov-2023)

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Professional Ethics & Liabilities of Auditors
OR
CA. Moni is practicing since 2021 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. (RTP-Nov-2020, MTP-May-2021)
Ans. Editorship of Professional Journal:
(i) Provision:
(a) 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.
(b) 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. Editorship of professional journals is covered under General Permission.
(ii) In this case:
➢ CA. Sonu, is a practicing chartered accountant having expertise in corporate audits and Company
Law matters.
➢ He is being offered editorship of ‘Company Audit’ Journal, which he accepted without taking
permission from the Council.
➢ The Company Audit journal is a professional journal and editorship of professional journals is
covered under the general permission.
(iii) Conclusion: In view of above, in the given scenario, CA. Sonu will not be held liable for misconduct
acceptance of editorship of professional journal ‘ Company Audit’ under Clause (11) of Part I of First
Schedule of Chartered Accountants Act, 1949.
96. Engaging into Business/Profession Other Than the Profession of CA
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-2021)
Ans. (i) As per Clause:- Clause (11) of Part I of the First Schedule to the CA Act, 1949
• A CA in practice cannot engage in any business or occupation
• Other than the profession of chartered accountants
• Unless permitted by the Council so to engage.
(ii) Council General Guidelines:- It does not prohibit a CA from being a director of a company, except
MD or a whole-time director. To accept the position of MD in a company, member is required to
obtain prior permission from Council of ICAI. Furthermore he can’t take part in his family
business even as a sleeping partner without taking prior approval.
(iii) In the given case:- CA. AB, a practicing chartered accountant, is a promoter director of ABG Pvt. Ltd.
and he is also a sleeping partner in his family business of garments manufacturing firm.
(iv) Conclusion:- In the above case, no specific permission taken from the Institute for whole time
directorship & family business, hence he will be deemed to be guilty of professional
misconduct under Clause (11) of Part I of First Schedule of the Act. However, if he is a NED no
permission is required for directorship.
97. Engaging into Business/Profession Other Than the Profession of CA
CA. Mansi 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.
Ans. (i) As per Clause:- Clause (11) of Part I of the First Schedule to the CA Act, 1949
• A CA in practice cannot engage in any business or occupation

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• Other than the profession of chartered accountants
• Unless permitted by the Council so to engage.
(ii) Council General Guidelines:- General permission is granted under Regulation 190A for authorship
of any book or article..
(iii) In the given case:- CA. Mansi has authored a cookery book for which no specific permission is
required.
(iv) Conclusion:- Clause 11 permits authorship of any book, hence no misconduct arises on part of
CA. Mansi.
98. MCS
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-2021)
Ans. Business or occupation other than the profession
(i) Clause (11) of Part I of First Schedule:
• 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.
(ii) Council Guidelines & Decision:
• 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.
(iii) Conclusion: - Thus, the action of CA R is valid.
[Ans. Assumed that HKC Ltd. In registered with ICAI]
99. Derivative Trading
CA. Z, in practice, is desirous of filling Multi-purpose Empanelment form (MEF) for inclusion of his name in
panel for allotment of statutory audit of bank branches web hosted by Professional Development Committee
(PDC) of ICAI for financial year 2023-24. The form requires applicants to upload XML files of their personal
income tax returns 16 along with computation of income. During relevant year for which information is
being sought for by PDC, CA. Z has transacted in futures and options derivatives (equity) and has reflected
income from such transactions in his return of income as “Business Income”. Analyse the above situation
with reference to the provisions of the Chartered Accountants Act, 1949.
Would it make any difference if CA. Z had earned income from transacting in currency derivatives and
commodity derivatives? (MTP-May-2024, MTP-Nov-2024, SM)

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Ans. (i) Provision: Analysis

(a) Clause 11 of Part I of 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 engages in any business or occupation
• other than the profession of Chartered Accountants unless permitted by the Council so to
engage.
(b) Provided that nothing contained herein shall disentitle a Chartered accountant from being
a director of a Company, (not being a managing director or a whole time director), unless he or
any of his partners is interested in such company as an auditor.
(c) Ethical Standards Board of ICAI has announced that it is permissible for a member in
practice to engage in derivative transactions in his personal capacity but not in
professional capacity i.e. for clients. Such engagements in derivatives are not violative of
provisions of Clause of Part I of First Schedule to the Chartered Accountants Act, 1949.
Further, members are allowed to transact in equity and currency derivatives.
(d) There is no requirement to take permission of Council in this matter.
(e) Therefore, there is no difference if CA. Z had earned income from currency derivatives.
However, in accordance with announcement of Ethical Standards Board of ICAI, it is not
permissible for members in practice to transact in commodity derivative transactions.
(ii) Conclusion: In such a case, CA. Z would be held guilty of professional misconduct for engaging in
business other than profession of Chartered Accountancy.
100. Independence of Auditor & Acting as a Recovery Consultant
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. 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 about what he can do with the offers with reference to the Chartered
Accountants Act, 1949 and Schedules thereto. (MTP-May-2021)
Ans. (i) As per Clause: - Clause (11) of Part I of the First Schedule to the CA Act, 1949
• A CA in practice cannot engage in any business or occupation
• Other than the profession of chartered accountants
• Unless permitted by the Council so to engage.
Exception: -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.
(ii) ESB clarification: - 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.
(iii) Council General Guidelines: - 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.
(iv) 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

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Professional Ethics & Liabilities of Auditors
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.
(v) Conclusion: - 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
101. Engaging into a Agriculture Activities
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-May-2022)
Ans. (i) Clause (11) of Part I of First Schedule:
• 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.
• 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

(ii) Fact of the case :

• 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.
(iii) Conclusion:
➢ 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.
102. Selling of Domain
Comment on the following scenario with reference to the Chartered Accountants (Amendment) Act,
2006 and Schedules thereto.
CA Sumati is a practicing chartered accountant having office in Mumbai. CA Sumati is owner of domain cap.net.
In order to generate additional revenue CA Sumati sold this domain name to XYZ Limited for earning royalty of
` 2,25,000. One of the directors of XYZ Limited contended that CA Sumati has violated the Code of Conduct. CA
Sumati responded that there is no violation of Code of Conduct as selling of domain name is not related to any
professional assignment which requires approval of the Institute.
Ans. (i) Provision:
(a) As per Clause (11) of Part I of Schedule I to the Chartered Accountants Act, 1949,
• a member in practice is deemed to be guilty if he engages in any business or occupation
• other than the profession of chartered accountant
• unless permitted by the Council so to engage.
(b) Provided that nothing contained herein shall disentitle a chartered accountant from being a
director of a company (not being a managing director or a whole-time director) unless he or any of
his partners is interested in such company as an auditor.
(c) As per Regulation 190A, a chartered accountant in practice not to 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.

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(ii) In the given case,
➢ CA Sumati is a practicing chartered accountant having office in Mumbai.
➢ CA Sumati is owner of domain cap.net.
➢ In order to generate additional revenue, CA Sumati sold this domain name for earning royalty of `
2,50,000 to XYZ Limited.
➢ One of the directors of XYZ Limited contended that CA Sumati has violated the Code of Conduct.
➢ CA Sumati responded that there is no violation of Code of Conduct as selling of domain name is
not related to any professional assignment which requires approval of the Institute.
➢ As per Regulation 190A, the activity of selling domain name for earning Royalty would amount to
“other business/occupation” without approval is prohibited.
(iii) Hence, CA Sumati is guilty of professional misconduct under Clause 11 of Part I of Schedule I to the
Chartered Accountants Act, 1949 for selling domain name for a royalty.
103. Managing Director
CA Shubh, a Chartered Accountant in practice specializing in the field of Information Systems Audit. He is
considered to be one of the experts in this field because of his command over the subject. ZX Limited, a
company engaged in rendering management consultancy offered him to appoint as its managing director. CA
Shubh accepted the position of managing director without obtaining prior permission from the Institute. One
of his friends, CA Varun informed him that now he cannot retain full time certificate of practice, thus cannot do
attestation function and train articled assistants. Comment with reference to the provisions of the Chartered
Accountants Act, 1949 and Schedules thereto. (MTP-Nov-2024, SM)
Ans. (i) Provision:
(a) 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 the Chartered Accountant unless permitted by the Council so to engage.
(b) As per the Guidelines for Corporate Form of Practice, the Council has allowed the 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 a Company has to be registered with the Institute.
(c) The members can retain a full-time Certificate of Practice besides being the Managing Director,
Whole-time Director or Manager of such management consultancy company.
(d) 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 a company.
(e) 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.
(ii) In the given case,
➢ CA Shubh, a Chartered Accountant specializing in Information Systems Audit and considered an
expert in the field, was offered the position of Managing Director by ZX Limited, a management
consultancy firm.
➢ He accepted the role without obtaining prior permission from the Institute of Chartered
Accountants of India.
(iii) Conclusion: From the above provisions, it can be concluded that the action of CA Shubh is valid.

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104. Promoter Director & Sleeping Partner
CA Yug, a practicing chartered accountant, is a promoter director of CDS Pvt. Ltd. and is also a sleeping partner
in his family’s garments manufacturing business. Is CA Yug liable for professional misconduct as per the
Chartered Accountant Act, 1949? (MTP-May-2025)
Ans. 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.
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 includes areas which fall within the scope of the profession
of Chartered Accountants. Therefore, members are not required to obtain specific permission from the Council
in such cases.
Further, members of the Institute in practice may engage 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 Yug is a promoter director of CDS 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 Yug:
• As Promoter Director- Not guilty of professional misconduct under the Chartered Accountants Act, 1949.
• As Sleeping Partner- Guilty of professional misconduct under the Chartered Accountants Act, 1949 as he
did not obtain prior approval of the Council.
Schedule – 1, Part – 1, Clause – 12
105. Allowing a Member not being a Partner to Sign Certificate
CA. Smart, a practicing Chartered Accountant was on Europe tour between 15-9-24 and 25-9-24. On 18-9-24 a
message was received from one of his clients requesting a stock certificate to be produced to the bank on or
before 20-9-24. Due to urgency, CA. Smart directed his assistant, who is also a Chartered Accountant, to sign
and issue the stock certificate after due verification, on his behalf. (MTP-Dec-2021, MTP-May-2025, SM)
Ans. (i) As per Clause:- Clause (12) 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 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”.
(ii) In the given case:- CA. Smart allowed his assistant who is not a partner but a member of the
Institute of Chartered Accountants of India to sign stock certificate on his behalf
(iii) Conclusion:- CA. Smart is guilty of professional misconduct under Clause (12) of Part I of First
Schedule to the Chartered Accountants Act, 1949.
106. Delegation of Authority to the Employee
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 was raised during the course of audit.
(ii) He issued production certificate to a client under Central Excise Act, 1944.
(iii) He attended the Income Tax proceedings for a client as authorized representative before Income
Tax Authorities.
Please comment on eligibility of Mr. 'Y' for conducting such jobs in name of M/s A & Co. and liability of Mr.
'A' under the Chartered Accountants Act, 1949. (SM, MTP-May-2018, RTP-Nov-2019)

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Professional Ethics & Liabilities of Auditors

Ans. (i) As per Clause:- Clause (12) 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 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”.
(ii) In the given 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.
(iii) As per Council General Guidelines:- 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 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.
• In the ries 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.
• Further, issuance of production certificate to a client under Central Excise Act, 1944 by Mr. “Y”
being an employee of M/s A & Co. (an audit firm), is not a routine work and it 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.
• In this instance, Mr. “Y”, CA employee of the 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, the 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.
107. Delegation of Authority to the Employee
Mr. ‘K’, a practicing Chartered Accountant is the proprietor of M/s K & Co. since 1995. He went abroad in the
month of December 2021. 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 under
mentioned jobs in the name of M/s K & Co.
(a) He issued Net worth certificate to a client for furnishing to a Bank.
(b) 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-2019)
Ans. (i) As per Clause:- Clause (12) 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 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”.
(ii) In the given 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 routine matters of his office.
(iii) As per Council General Guidelines:- 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 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.

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(iv) Conclusion:-
(a) Issuance of Net worth Certificate to a client for furnishing to Bank by Mr. “Y” 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.
(b) Attending GST proceedings for a client as authorized representative before GST Authorities
falls under routine work, hence Mr. Y, the employee of M/s K & Co. can attend to routine matter in
tax practice. Therefore, there is no misconduct in this case.
108. Delegation of Authority to the Articles & Staff
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 Prof. Ethics & ICAI’s guidelines & pronouncements?
(SM, MTP-Dec-2021, RTP-May-2024)
Ans. (i) As per Clause:- Clause (12) 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 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”.
(ii) As per Council General Guidelines:- 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:-
• Issue of audit queries during the course of audit.
• Asking for information or issue of questionnaire.
• Letter forwarding draft observations/financial statements.
• Initiating and stamping of vouchers and of schedules prepared for the purpose of audit.
• Acknowledging and carrying on routine correspondence with clients.
• Issue of memorandum of cash verification and other physical verification or recording the
results thereof in the books of the clients.
• Issuing acknowledgements for records produced. Raising of bills and issuing
acknowledgements for money receipts.
• Attending to routine matters in tax practice, subject to provisions of Section 288 of Income Tax
Act.
• Any other matter incidental to the office administration and routine work involved in practice
of accountancy.
(iii) In the given 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.

(iv) Analysis of the case:- 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.

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Professional Ethics & Liabilities of Auditors
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.
(v) Conclusion:- In view of this, S would be guilty of professional misconduct for allowing the person
signing the 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.
109. Power of Signing Reports and Financial Statements
S, a practicing chartered accountant gives power of attorney to an employee chartered accountant to sign
reports and financial statements, on his behalf. (SM)
Ans. (i) As per Clause:- Clause (12) 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 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”.
(ii) As per Provision:- Section 26 of the Chartered Accountants Act, 1949 stipulates that no person
other than the member of the institute shall sign any document on behalf of a Chartered
Accountant in practice or a firm of Chartered Accountants in his or its professional capacity.
• The term ‘Financial Statement’ for this purpose would cover an examination of the accounts
or financial statements given under a statutory enactment or otherwise.
(iii) Conclusion:-S is guilty of professional misconduct under Clause (12) of Part I of First Schedule
and also under Clause (1) of Part II of Second Schedule for contravening Section 26.
110. Delegation of Authority to the Employee
Mr. Jay is a practicing Chartered Accountant working as proprietor of M/s Adhya & Co. He went abroad for 4
months. He delegated the authority to Mr. Vijay a Chartered Accountant his employee for taking care of
routine matters of his office. During his absence, Mr. Vijay has conducted the under mentioned jobs in the
name of M/s Adhya & Co.
(i) Asking for information or issue of questionnaire.
(ii) Initiating and stamping of vouchers and of schedules prepared for the purpose of audit.
(iii) Acknowledging and carrying on routine correspondence with clients.
Comment on eligibility of Mr. Vijay for conducting such jobs in name of M/s Adhya & Co. and liability of Mr.
Jay under the Chartered Accountants Act, 1949. (MTP-Nov-2024)
Ans. (i) Provision: 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”.
(ii) In this case:
➢ CA Jay proprietor of M/s Adhya & Co., went to abroad and delegated the authority to another
Chartered Accountant Mr. Vijay, 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 of India.
(iii) Council Clarification: 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.
(iv) In the given case:
➢ Mr. Vijay, a Chartered Accountant being employee of M/s Adhya & Co. has asked for information
or issued questionnaire.

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➢He has also proceeded for initiating and stamping of vouchers and of schedules prepared for
the purpose of audit.
➢ Apart from the same, he acknowledged and carried out routine correspondence with clients.
(v) Conclusion: Here Vijay is right in doing the same, 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.
First Schedule, Part II–Professional Misconduct in relation to Members in Service
Schedule – 1, Part – 2, Clause – 2
111. Referral Fee from Lawyer
Mr. 'C', a Chartered Accountant holds a certificate of practice while in employment also, recommends a
particular lawyer to his employer in respect of a case. The lawyer, out of the professional fee received from
employer paid a particular sum as referral fee to Mr. 'C'. (SM)
Ans. (i) As per Clause:- 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.
(ii) In the present case:- Mr. C who beside holding a certificate of practice, is also an employee and by
referring a lawyer to the company in respect o f a case, he receives a particular sum as referral fee
from the lawyer out of his professional fee.
(iii) Conclusion:- Mr. C is guilty of professional misconduct by virtue of Clause (2) of Part II of First
schedule.
112. CA F is the Chief Financial Officer of ABC General Insurance Limited. Being in insurance business, the company
gets majority of its clients through their agency contracts. CA F has the practice of releasing the commission
payments on the condition that he gets 20% of the commission amount from the agent, Comment with
reference to the Chartered Accountants 1949 and schedules thereto. (Nov-2024)
Ans. 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.
The objective is that when a member is in employment, he must maintain high level of ethics and should not
accept any other amount from anyone for which he is not entitled from employer under contractual
agreement of service.
In the present case, CA F is the Chief Financial Officer of ABC General Insurance Limited. He releases the
commission payments on the condition that he gets 20% of the commission amount from agent as majority
of the clients are through their agency only.
Therefore, CA F is guilty of professional misconduct by virtue of Clause (2) of Part II of First Schedule of the
Chartered Accountant Act, 1949.
First Schedule, Part III – Professional Misconduct in Relation to Members Generally
Schedule – 1, Part – 3, Clause – 2
113. Disclosure of Information
Mr. 'G', while applying for a certificate of practice, did not fill in the columns which solicit information about
his engagement in other occupation or business, while he was indeed engaged in a business. (SM)

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Ans. (i) As per Clause:- Clause (2) of Part III of First Schedule to the Chartered Accountants Act, 1949
• A member shall be held guilty if a Chartered Accountant, in practice or not,
• 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;
(ii) In the given case:- Mr. “G”, a Chartered Accountant while applying for a certificate of practice, did
not fill in the columns which solicit information about his engagement in other occupation or
business, while he was indeed engaged in a business. Details of engagement in business need to be
disclosed while applying for the certificate of practice as it was the information called for in the
application, by the Institute.
(iii) Conclusion:- Mr. G will be held guilty for professional misconduct under the Clause (2) of Part III
of First Schedule of the Chartered Accountants Act, 1949.
114. Failed to Supply Information
Mr. X, a Chartered Accountant, employed as a paid Assistant with a Chartered Accountant firm, leaves the
services of the firm on 31st December, 2024 he. Despite many reminders from ICAI he fails to reply
regarding the date of leaving the services of the firm. (MTP-May-2022, SM)
Ans. (i) As per Clause:- Clause (2) of Part III of First Schedule to the Chartered Accountants Act, 1949
• A member shall be held guilty if a Chartered Accountant, in practice or not,
• 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;
(ii) In the given case:- Mr. X has failed to reply to the letters of the Institute asking him to confirm the
date of leaving the service as a paid assistant.
(iii) Conclusion:- He is held guilty of professional misconduct as per Clause (2) of Part III of the First
Schedule to the Chartered Accountants Act, 1949.
115. Failed to Supply Information
XYZ Associates, a Chartered Accountants Firm is having a relationship with a multi- national 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-2018)
Ans. Failed to Supply Information Called For:
(i) As per Clause:- Clause (2) of Part III of First Schedule to the Chartered Accountants Act, 1949
• A member shall be held guilty if a Chartered Accountant, in practice or not,
• 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;
(ii) 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.
(iii) Conclusion:- 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.

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Professional Ethics & Liabilities of Auditors
116. Failed to Supply Information Called For
Comment on the following with reference to the provisions of the Chartered Accountant Act 1949:
CA. Anita joined as an audit executive in a CA firm on April 1, 2023. Despite receiving multiple reminders
from ICAI, she has failed to respond with her appointment date and submit her membership certificate.
(RTP-May-2024, SM)
Ans. (i) Provision:
➢ In accordance with Clause (2) of Part III of the First Schedule to the Chartered Accountants
Act, 1949,
➢ a member, whether in practice or not,
➢ is considered to be engaged in professional misconduct
➢ if he fails to provide the information requested
➢ or does not comply with the requirements set forth
➢ by the Institute, Council, or any of its Committees, including the Director (Discipline), Board of
Discipline, Disciplinary Committee, Quality Review Board, or the Appellate Authority.
(ii) Conclusion: Therefore, in the given scenario, CA. Anita has neglected to respond to the Institute's
letters seeking confirmation of her appointment date and has not submitted her membership
certificate. Consequently, she is deemed to be guilty of professional misconduct as given in
Clause (2) of Part III of the First Schedule to the Chartered Accountants Act, 1949.
117. Misrepresentation
Hitesh, a Chartered Accountant, applied for obtaining a Certificate of Practice. However, while filling out the
application form, he intentionally did not fill the section requiring disclosure of any engagement in other
occupations or businesses. Hitesh was actively involved in a business, making this non- disclosure a case of
withholding crucial information that was explicitly sought by the Institute.
Analyse whether Hitesh’s actions amount to professional misconduct as per the provision of the Chartered
Accountants Act, 1949. (MTP-May-2025)
Ans. Disclosure of Information: As per Clause (2) of Part III of First Schedule to the Chartered Accountants Act,
1949 a member shall be held guilty if a Chartered Accountant, in practice or not, 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;
In the given case, Hitesh, a Chartered Accountant while applying for a certificate of practice, did not fill in
the columns which solicit information about his engagement in other occupation or business, while he was
indeed engaged in a business. Details of engagement in business need to be disclosed while applying for the
certificate of practice as was the information called for in the application, by the Institute.
Thus, Hitesh will be held guilty of professional misconduct under Clause (2) of Part III of First Schedule of
the Chartered Accountants Act, 1949.
First Schedule, Part IV - Other Misconduct in relation to Members Generally
Schedule – 1, Part – 4, Clause – 1 & 2
118. Other Misconduct
Write a short note on Other Misconduct. (SM)
Ans. (i) A member is liable to disciplinary action under Section 21 of the Chartered Accountant Act if he is
found guilty of any professional or ‘other misconduct’.
(ii) Other misconduct has been defined in Part IV of First Schedule and Part III of Second Schedule in
the CA (Amendment Act) 2006.
(iii) As per Part IV of First Schedule of the CA Act, 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.

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Professional Ethics & Liabilities of Auditors
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.
(iv) As per Part III of Second Schedule to the CA Act, a member of the Institute whether in practice or not
shall be deemed to be guilty of other misconduct 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.
(v) This provision empowers the Council to enquire any misconduct of a member even if it does not
arise of professional misconduct.
(vi) Some illustrative examples, where a member may be found guilty of “Other Misconduct”, under
the aforesaid provisions rendering, himself unfit to be member are :
(i) Where a chartered accountant retains the books of account and documents of the client
and fails to return these to the client on request without a reasonable cause.
(ii) Where a chartered accountant makes a material misrepresentation.
(iii) Where a chartered accountant uses the services of his articled or audit clerk for purposes
other than professional practice.
(iv) Conviction by a competent court of law for any offence under Section 8(v) of the Chartered
Accountants Act 1949.
(v) Misappropriation by office-bearer of a Regional Council of the Institute, of a large amount
and utilisation thereof for his personal use.
(vi) Non-replying within a reasonable time and without a good cause to the letter of the public
authorities.
(vii) Where certain assessment records of income tax department belonging to the client of
Chartered Accountant were found in the almirah of the bed -room of the chartered
accountant
(viii) Where a chartered accountant had adopted coercive methods on a bank for having a loan
sanctioned to him.
119. Engaging Articled Assistance for Personal Work
CA Kumar who is contesting Central 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. (RTP-May-2022, RTP-Nov-2018, Nov-2019)
Ans. (i) As per Part:- Part IV of the First Schedule to the Chartered Accountants Act,
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.
• 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.
• A member may be found guilty of “Other Misconduct”, as per clause 2, if he uses the
services of articles for personal work.
(ii) In the given case:- CA Kumar has engaged his Articled Assistant for his own election campaigning for
the central Council elections of ICAI.
(iii) Conclusion:-CA. Kumar would be guilty of Other Misconduct under Part IV of First Schedule and
liable to disciplinary action under Section 21.
120. Non-return of Client’s Books
Bahadur was an auditor of a firm M/s Manmeet Corporation. He retained the books of account and voucher
files and failed to hand over them to the firm regardless of their repeated requests. Is he guilty of
professional misconduct.

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Ans. (i) As per Clause:- Clause (2) Part IV of the First Schedule to the Chartered Accountants Act,
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.
A member may be found guilty of “Other Misconduct”, as per clause 2, 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.
(ii) In the given case:- Mr. Bahadur failed to return the books of accounts and other documents of his
client without any reasonable cause.
(iii) Conclusion:- Mr. Bahadur would be guilty of Other Misconduct under Part IV of First Schedule
and liable to disciplinary action under Section 21.
121. Bringing Disrepute to Profession
YKS & Co., a proprietary firm of Chartered Accountants was appointed as concurrent auditor of a bank. YKS
used his influence for getting some cheques purchased and thereafter failed to repay the loan/overdraft.
(SM, MTP-May-2019)
Ans. (i) As per Clause:- Clause (2)of Part IV of 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.
• Here the Chartered Accountant is expected to maintain the highest standards and integrity
even in his personal affairs and any deviation from these standards calls for disciplinary
action.
(ii) In the present case:- YKS & Co, being a concurrent auditor used his position to obtain the funds
and failed to repay the same to the bank. This brings disrepute to the profession of a Chartered
Accountant. This act of YKS & Co is not pardonable.
(iii) Conclusion:- YKS & Co will be held guilty of other misconduct under Clause (2) of Part IV of First
Schedule to the Chartered Accountants Act, 1949.
122. Bringing Disrepute to the Profession
Mr. R, a Chartered Accountant in practice approached Manager of a Nationalised Bank for a loan of `25
lakhs. He has also informed the Manager that if the loan is sanctioned, the Income Tax return of the Manager
and staff will be filed without charging any fees, as quid Pro quo for the loan sanctioned.
Ans. (i) As per Clause:- Clause (2)of Part IV of 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.
• Here the Chartered Accountant is expected to maintain the highest standards and integrity even
in his personal affairs and any deviation from these standards calls for disciplinary action.
(ii) In the present case:- The action of Mr. R, a Chartered Accountant in practice offering free service in
return to sanction of loan brings disrepute to the profession of a Chartered Accountant.
(iii) Conclusion:- Mr. R will be held guilty of other misconduct under Clause (2) of Part IV of the First
Schedule to the Chartered Accountants Act, 1949.

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Professional Ethics & Liabilities of Auditors

123. Bringing Disrepute to the Profession

X, a Chartered Accountant availed a loan against his shares held as investments from a nationalized bank. He
issued 2 cheques towards repayment of the said loan. Both the cheques were returned back by the bank
with the remarks "Refer to Drawer; insufficient funds;" (Nov-2017)
Ans. (i) As per Clause:- Clause (2)of Part IV of 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.
• Here the Chartered Accountant is expected to maintain the highest standards and integrity
even in his personal affairs and any deviation from these standards calls for disciplinary
action.
(ii) As per Provision:- 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”.
(iii) In the present case:- Two cheques were dishonoured and returned back with the remarks
“Insufficient Funds”. Issuing cheques without having sufficient balance in the account is punishable
offence under the Negotiable Instruments Act, 1881.
(iv) Conclusion:- As the cheques were dishonoured due to insufficiency of funds, the drawer will be
held guilty of offence under Negotiable Instruments act, 1881 and consequently he would be held
guilty of “Other Misconduct”.
124. Disrepute to the Profession
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? (RTP-Nov-2020)
Ans. (i) As per Clause:- Clause (2)of Part IV of 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.
• Here the Chartered Accountant is expected to maintain the highest standards and integrity
even in his personal affairs and any deviation from these standards calls for disciplinary
action.
(ii) 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.
(iii) Conclusion : -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.
125. Grossly Negligent and Bringing Disrepute to the Institute
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
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Professional Ethics & Liabilities of Auditors
prepared accordingly without examining the accounts. Comment with reference to the Chartered
Accountants Act, 1949, and Schedules thereto. (MTP-May-2020, MTP-May-2023)
OR
Mr. Brainy, a Chartered Accountant in practice, is the auditor of Fair 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. Brainy, thereafter, gave clean reports on the balance sheet
prepared accordingly without examining the accounts.
Ans. (i) As per Clause:- 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.
(ii) As per Clause:- Clause (2)of Part IV of 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.
(iii) In the given case:- Mr. Brainy, 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.
(iv) Conclusion:- Mr. Brainy will be held guilty for professional and other misconduct under
abovementioned Clauses to the Chartered Accountants Act, 1949.
126. Bringing Disrepute to Profession
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-2021)
Ans. (i) As per Clause:- Clause (2)of Part IV of 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.
• Here the Chartered Accountant is expected to maintain the highest standards and integrity
even in his personal affairs and any deviation from these standards calls for disciplinary
action.
(ii) “Other Misconduct”Includes Non-replying within a reasonable time and without a good cause to
the letter of the public authorities.
(iii) In the present case:- 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.
(iv) Conclusion:- Mr. P will be held guilty of other misconduct under Clause (2) of Part IV of First
Schedule to the Chartered Accountants Act, 1949.
127. Bringing Disrepute to Profession
P, a Chartered Accountant availed a loan against his securities held as investments from a nationalised bank.
He issued 2 cheques towards repayment of the said loan. Both she 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-2021)

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Professional Ethics & Liabilities of Auditors

Ans. (i) As per Clause:- Clause (2) of Part IV of 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.
• Here the Chartered Accountant is expected to maintain the highest standards and integrity
even in his personal affairs and any deviation from these standards calls for disciplinary
action.
(ii) As per Provision:- 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”.
(iii) In the present case- The cheque was dishonoured with the remark “refer to drawer”. However,
such dishonour need not necessarily be only due to insufficiency of funds.
(iv) Conclusion:- If it is proved that the cheques were dishonoured due to insufficiency of funds, the
CA P would be held guilty of “other misconduct”.
128. Other Misconduct
Mr. Chetan, a practicing Chartered Accountant, was involved in a family dispute over ancestral property. To
gain an undue advantage, he allegedly forged the will of his late uncle, presenting it as a genuine document
during legal proceedings. The forgery was later uncovered, and legal action was initiated against him.
Although the act was committed in his personal capacity and not in the course of his professional duties, a
complaint was filed with the disciplinary committee of the Institute of Chartered Accountants of India
(ICAI).
Analyse whether Mr. Chetan would be held liable for misconduct as per the provisions of the Chartered
Accountants Act, 1949. (MTP-May-2025)
Ans. Disrepute to the Profession: As per Clause (2) of Part IV of 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. Here the Chartered Accountant is expected to
maintain the highest standards of integrity even in his personal affairs and any deviation from these
standards calls for disciplinary action.
In the present case, Mr. Chetan allegedly forged the will of his late uncle, presenting it as a genuine
document during legal proceedings, to gain an undue advantage. This brings disrepute to the profession of a
Chartered Accountant.
Therefore, CA Chetan will be held guilty of other misconduct under Clause (2) of Part IV of First Schedule to
the Chartered Accountants Act, 1949.
Second Schedule, Part I “Professional Misconduct in relation to Members in Practice
Schedule – 2, Part – 1, Clause – 1
129. Disclosure of Client’s Information
Mr. Parekh, a Chartered Accountant was invited by the Chamber of Commerce to present a paper in a
symposium on the issues facing Indian Leather Industry. During the course of his presentation he shared
some of the vital information of his client’s business under the impression that it will help the Nation to
compete with other countries at international level. (SM)
Ans. (i) As per Clause:- Clause (1) of Part I of the Second Schedule to the Chartered Accountants Act, 1949
deals with the professional misconduct relating to:
• The disclosure of information by a chartered accountant in practice
• Relating to the business of his clients to any person other than his client
• Without the consent of his client or

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• Otherwise than as required by any law for the time being in force would amount to breach of
confidence.
• The Code of Ethics further clarifies that such a duty continues even after completion of the
assignment.
• The Chartered Accountant may however, disclose the information in case it is required as a
part of performance of his professional duties.
(ii) In the given case:- Mr. Parekh has disclosed vital information of his client’s business without the
consent of the client under the impression that it will help the nation to compete with other countries
at International level.
(iii) Conclusion:- It is a professional misconduct covered by Clause (1) of Part I of Second Schedule to
the Chartered Accountants Act, 1949.
130. Disclosure of Client’s Information
Mr. Johny, a chartered accountant, was invited to a seminar on bank audits to give a presentation on the
process of conducting such audits. During his presentation, he provided examples from his clients’
experiences and shared the significant information about clients with the intention of aid in understanding
of audience on the topic. Does above situation have implications in relation to the professional ethics?
(RTP-May-2024, SM)
Ans. (i) Provision:
(a) Confidentiality is one of fundamental principles governing professional ethics.
(b) Clause (1) of Part I of the Second Schedule to the Chartered Accountants Act, 1949,
addresses professional misconduct related to the disclosure of information by a chartered
accountant in practice concerning the business of their clients.
(c) Such disclosure to any person other than the client, without the client's consent or unless
mandated by prevailing law, is considered a breach of conduct.
(d) The Code of Ethics emphasizes that this duty continues even after the completion of the
assignment, except when disclosure is necessary for the performance of professional duties.
(ii) In the provided case: CA. Johny disclosed significant information about his client's business without
obtaining the client's consent, believing that it would enhance the audience's understanding of the
topic.
(iii) Conclusion: Therefore, this action of CA. Johny constitutes professional misconduct under Clause (1)
of Part I of the Second Schedule to the Chartered Accountants Act, 1949.
131. Disclosure of Client’s Information included in Working Papers
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)
OR
Tiger Ltd. has applied to a bank for loan facilities. The bank on studying the financial statements of the
company notices some discrepancies in the books of the company. Upon discussion with the auditor of the
company, the bank manager requested for detailed information regarding a few items in the financial
statements. The information is available in the working paper file of the auditor. What should be the
response of the auditor in this regard? (Nov-2020)
Ans. (i) As per Clause:- Clause (1) of Part I of the Second Schedule to the Chartered Accountants Act, 1949
deals with the professional misconduct relating to:
• The disclosure of information by a chartered accountant in practice
• Relating to the business of his clients to any person other than his client
• Without the consent of his client or

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• Otherwise than as required by any law for the time being in force would amount to breach of
confidence.
• The Code of Ethics further clarifies that such a duty continues even after completion of the
assignment.
• The Chartered Accountant may however, disclose the information in case it is required as a
part of performance of his professional duties.
(ii) As per SA:- 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".
(iii) In the present 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.
(iv) As per SA-230 Audit Documentation:- 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".
(v) Conclusion:- 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.
132. Disclosure of Confidential Information to Tax Authorities
A CA in practice was engaged by a businessman to represent him before the tax authorities on current
matters and in the course of such employment he came across certain documents pointing of tax frauds in
the preceding years for which the client was not represented by him. Is the member liable to disclose the
existence and contents of the documents to tax authorities?
Ans. (i) As per Clause:- Clause (1) of Part I of the Second Schedule to the Chartered Accountants Act, 1949
deals with the professional misconduct relating to:
• The disclosure of information by a chartered accountant in practice
• Relating to the business of his clients to any person other than his client
• Without the consent of his client or
• Otherwise than as required by any law for the time being in force would amount to breach of
confidence.
(ii) Code of Conduct:- In respect of taxation matters, the code of conduct recommends that “If the
fraud discovered by the member, relates to the accounts or tax matters of the client for past year(s)
for which the client was not represented by the member the client should be advised to make a
disclosure. The member may however, continue to act for the client in respect of current matter,
but is under no obligation so to continue.
(iii) Conclusion:- Member is not liable to disclose the existence and contents of the documents to
tax authorities.
133. Disclosure of Confidential Information to RoC
Give your comments with reference to Chartered Accountants Act, 1949 and schedules thereto: Mr. C, a
practicing Chartered Accountant, in the course of the audit of a listed company discovered serious violations
of the provisions of the Companies Act, 2013, informed the registrar of companies out of public interest.
Ans. (i) As per Clause:- Clause (1) of Part I of the Second Schedule to the Chartered Accountants Act, 1949
deals with the professional misconduct relating to:
• The disclosure of information by a chartered accountant in practice
• Relating to the business of his clients to any person other than his client
• Without the consent of his client or

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• Otherwise than as required by any law for the time being in force would amount to breach of
confidence.
(ii) Provision of Company Law:- Section 143(12) of Companies Act 2013 requires that if an auditor
of a company, in the course of the performance of his duties as auditor, has reason to believe that an
offence involving fraud is being or has been committed against the company by officers or
employees of the company, he shall immediately report the matter to the Central Government
within 60 days of his knowledge and after following the prescribed procedure.
(iii) In the given case:- Mr. C has disclosed serious violations of the provisions of the Companies Act,
2013 to Registrar of Companies without the consent of the client under the impression that it
would be in public interest. It is not clear from the questions whether the violations of provisions
involve fraud being committed by officers or employees of the company.
(iv) Conclusion:- Mr. C will be guilty of professional misconduct covered by clause 1 of Part I of
Second Schedule to the Chartered Accountants Act, 1949.
134. Confidentiality
DND and Associates are the statutory auditor of XYZ Ltd. Audit of the company is pending for F.Y. 2022-23
and 2023-24 due to a dispute between auditor and company with respect to certain proposed remarks by
the auditor in the audit report for F.Y. 2022-23. The company removed the auditor on 06.05.2024 in
shareholders meeting complying with all legal formalities. DND and Associates after coming to know about
the removal, intimated the Registrar of Companies (ROC) through letter highlighting the points of dispute
including non-existence of fixed assets, bogus creditors etc. XYZ Ltd. complained to ICAI against DND and
Associates for their above letter to ROC. Comment with reference to the Chartered Accountants Act, 1949
and Schedules thereto. (MTP-May-2025)
Ans. 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 so engaging him,
without the consent of his client or otherwise than as required by any law for the time being in force.
An accountant, in public practice, has access to a great deal of information of his client which is of a highly
confidential character. It is important for the work of an accountant and for maintaining the dignity and
status of the profession that he should treat such information as having been provided to him, only to
facilitate the performance of his professional duties for which his services have been engaged. The Code of
Ethics further clarifies that such a duty continues even after completion of the assignment.
In the given situation, DND & Associates complained to the Registrar of Companies (ROC) through letter
highlighting the points of dispute including non- existence of fixed assets, bogus creditors, etc. after coming
to know about the removal. DND & Associates made voluntary disclosure of the information acquired during
the professional engagement without the consent of the client and without there being any requirement in
law to disclose the same.
Thus, DND & Associates will be held guilty of professional misconduct under Clause (1) of Part I of the
Second Schedule to the Chartered Accountants Act, 1949.
Schedule – 2, Part – 1, Clause – 3
135. Certification of Financial Forecast
Mr. 'E', a practicing Chartered Accountant, was requested by one of his client to prepare a projection for next
five years and also a report on the same. Mr. 'E' after h prepared the same stated in his report ‘The sources
of information, the basis of forecasts and also the major assumptions made in arriving at the forecasts. He
also stated that he does not vouch for the accuracy of the forecasts.
OR
CA. Kalpana, a practicing Chartered Accountant, certifies a financial forecast of Surya Ltd. one of her clients,
which was forwarded to the company's bank based on which the bank sanctioned a loan amounting ` 3.5
crore to the company. CA. Kalpana, however, mentioned in the report that her responsibility is to examine
the evidence supporting the assumptions and other information in the Prospective financial information,
her responsibility does not include verification of the accuracy of the projections, therefore, she does not
vouch for the accuracy of the same.

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Professional Ethics & Liabilities of Auditors

Ans. (i) As per Clause: Clause (3) 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 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.
(ii) As per Standards:- 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.
(iii) In the instant case:- Mr. E after having prepared the projections for next five years stated in his
report, “the sources of information, the basis of forecasts and also the major assumptions made in
arriving at the forecasts.” He also stated that he does not vouch for the accuracy of the forecasts
(iv) Conclusion:- There is no violation of the Chartered Accountants Act, 1949 and its Regulations.
136. Certification of Projected Financial Forecast
L, a chartered accountant prepares and certifies projected financial statements of his client Abacus Ltd.
Abacus Ltd. forwarded the same to their banks to secure some loans and bank, on that basis sanctioned a
loan. Comment with reference to the Chartered Accountants Act, 1949 and schedules thereto. (May-2017)
Ans. (i) As per Clause: Clause (3) 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 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.
(ii) As per Standards:- 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.
(iii) Auditor’s Responsibility:-
• 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.
(iv) In the instant case:- Mr. L, a chartered accountant, has prepared and certified a projected
financial forecast of his client Abacus Ltd. which was forwarded to the client’s bank to secure
some loans and based on which the bank sanctioned a loan to the client is not in order.
(v) Conclusion: - Thus, Mr. L will be held guilty of misconduct in view of above.
Schedule – 2, Part – 1, Clause – 4
137. Evaluation of Cost of Products
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. (Nov-2020)
OR

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AP & Co., a firm of Chartered Accountants, was appointed by D Ltd., to evaluate the cost of a new product
manufactured by it for their information system and fixation of fair market price. Partner 'P' of the CA firm
is a non-executive director of the Company. Comment with reference to Chartered Accountants Act, 1949
and Regulations there to. (May-2018)
Ans. (i) As per Clause: 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.
(ii) As per Council General Guidelines
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, should not express any opinion on its financial statements.
(iii) 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.
(v) Conclusion: - 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 independent manner and express opinion on financial statements.
138. Relative of Auditor Holding Position of Director with Substantial Interest
Mr. Shah, a Chartered Accountant certified the financial statements of a company in which his wife is a
Director holding substantial interest.
Ans. (i) As per Clause: 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.
(ii) As per Council General Guidelines:-
A member of the Institute shall not express his opinion on financial statements of any business or
enterprise in which one or more persons, who are his “relatives” within the meaning of AS 18
have, either by themselves or in conjunction with such member, a substantial interest in the said
business or enterprise. (Reference to AS-18 may not be given and directly definition of relative
may be mentioned in the answer)
(iii) As per Standards: - As per AS 18, the term ‘Relative’ includes husband and wife.
(iii) As per Law:- Section 141(3)(f) of the Companies Act, 2013, which requires that a person shall not
be eligible for appointment as an auditor of a company whose relative is a director or is in the
employment of the company as a director or key managerial personnel.
(iv) In the given case: - Mr. Shah, Chartered Accountant, has certified the financial statements of a
company in which his wife is a director with substantial interest.
(v) Conclusion:- Professional misconduct which attracts Clause (4) of Part I of Second Schedule to
the Chartered Accountants Act, 1949 and Mr. Shah shall have to vacate the office accordingly.
139. Accepting Appointment as an Auditor where Relative Holding Substantial Interest
P, a Chartered Accountant in practice, accepts appointment as statutory auditor for LMN Pvt. Ltd. Q, brother
of P has substantial interest in LMN Pvt. Ltd.
OR
Raja was appointed statutory auditor in Kingdom Ltd. On inquiry Raja found that his wife had acquired
before a few years, 100 shares in the said company. She was holding the shares with the name of Raja as
joint holder. Can Raja accept the appointment?

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Ans. (i) As per Clause: 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.
(ii) As per Council General Guidelines:-
As per Council General Guidelines, 2008, the above restriction is also made applicable for relatives of
the members.
(iii) As per Law:
• Section 141(3)(f) of the Companies Act, 2013, which requires that a person shall not be
eligible for appointment as an auditor of a company whose relative is a director or is in the
employment of the company as a director or key managerial personnel.
• Note: -Reference to Section 141(3)(f) not required. Rather reference of Section 141(3)(d)
should be given for second part of question of Kingdom Ltd. as CA has securities in his own
name being a joint holder
(iv) In the instant case:- Since Q, a relative has a substantial interest in LMN Pvt. Ltd., P cannot
conduct the audit and needs to vacate the office.
(v) Conclusion:- P will be guilty of professional misconduct in terms of above clause.
140. Appointment of Auditor in case of Relative Holding Substantial Interest
Mr. A has been appointed statutory auditor of a private limited company where his spouse’s sister's
husband is having 75% ownership.
Ans. (i) As per Clause: 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.
(ii) As per Council General Guidelines:-
A member of the Institute shall not express his opinion on financial statements of any business or
enterprise in which one or more persons, who are his “relatives”
Definition: - The expression “relative”, in relation to a member, means the husband, wife, brother or
sister or any lineal ascendant or descendant of that member;
(iii) As per Standards:- Spouses’ sisters’ husband is not covered in the definition of the term
relative.
(iv) In the given case:- Mr. A, has been appointed as statutory auditor of a private limited company where
his spouses’ sisters’ husband is having 75 % ownership i.e. substantial interest.
(v) Conclusion:- Appointment of Mr. A as statutory auditor in such company would not amount to
professional misconduct as per Clause (4) of Part I of Second Schedule to the Chartered
Accountants Act, 1949.
141. Appointment of Auditor in case of Director Simplicitor
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, MTP-May-2021)
Ans. (i) As per Clause: 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.

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(ii) As per Companies Act 2013:-
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.
(iii) Council’s view:- 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.
(iv) In the given 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.
(v) Conclusion:- In view of above provisions Mr. D cannot accept the Directorship of the company until
the 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.
142. 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-2021)
Ans. (i) As per Clause: 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.
(ii) As per Companies Act 2013:-
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.
(iii) Council’s view:- 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.
(iv) In the given 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.
(v) Conclusion:- In view of above provisions Mr. D cannot accept the Directorship of the company until
the 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.
143. Violation of Provision & Punishment
The Director (Discipline) of the ICAI received information of alleged misconduct against Mr. Jayprakash, the
proprietor of JP & Associates, as follows:-
(i) Audit of a college was accepted by JP & Associates in which Mr. Jayprakash is working as a part-time
lecturer and also, he had not taken permission of the ICAI for working as a part-time lecturer in the
college.

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(ii) An event relating to Corporate Social Responsibility was sponsored by JP & Associates, whereby in the
sponsorship banner, name of Mr. Jayprakash as ‘CA Jayprakash, Proprietor, JP & Associates’ was
mentioned.
On the basis of above information and along with certain evidence against Mr. Jayprakash, he was found
guilty and so he was reprimanded and a fine of ` 1 lakh was imposed by an order passed against him dated
12th July, 2020. Against the said order, Mr. Jayprakash preferred an appeal with the Appellate Authority on
17th August, 2020 by submitting a statement of appeal along with the application form of appeal. During
such appellate proceedings, it was discovered that the said statement of appeal contained some facts which
were false to which Mr. Jayprakash admitted it to be false and apologized for it.
(a) Mr. Jayprakash has violated which of the provisions of the Chartered Accountants Act, 1949?
(b) Before which authority, the matter of Mr. Jayprakash would have been placed and what maximum
punishment could have been imposed on him by the said authority in accordance with the Chartered
Accountant Act, 1949? (RTP-Dec-2021)
Ans. Professional misconducts in various cases
(a) Mr. Jayprakash has violated following provisions of the Chartered Accountants Act, 1949:
(i) Clause: - As per Clause (4) of Part I of the Second Schedule to the Chartered Accountants Act,
1949, a Chartered Accountant in practice shall be 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.
Council guidelines : -In this connection, as per the decision of the Council of the ICAI, a
Chartered Accountant should not by himself or in his firm name accept the audit of a college,
if he is working as a part-time lecturer in the college.
Conclusion: -Thus, by accepting audit of a college in which he is working as a part-time
lecturer, Mr. Jayprakash has violated the restriction imposed under Clause (4) of Part I of the
Second Schedule to the Chartered Accountants Act, 1949.
(ii) Clause: - 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.
Council guidelines : -Members of the Institute in practice may engage in a part-time or full-
time tutorship under any educational institution other than the coaching organization of the
Institute, after obtaining the specific and prior approval of the Council in each case.
Conclusion: -Mr. Jayprakash had not taken permission of the ICAI for working as a part-time
lecturer in the college and so has violated the restriction imposed under Clause (11) of Part I of
the First Schedule to the Chartered Accountants Act, 1949.
(iii) Clause: - 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.
In this connection, members sponsoring activities relating to Corporate Social Responsibility
may mention their individual name with the prefix “CA”. However, mentioning a firm’s name
or CA Logo is not permitted.
In the given case: -An event relating to Corporate Social Responsibility was sponsored by JP
& Associates, whereby in the sponsorship banner, name of Mr. Jayprakash as ‘CA Jayprakash,
Proprietor, JP & Associates’ was mentioned.
Conclusion: -Thus, firm’s name was mentioned which is not allowed and thus, Mr. Jayprakash
has violated the restriction imposed under Clause (6) of Part I of the First Schedule to the
Chartered Accountants Act, 1949.

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(iv) Clause: -As per Clause (3) of Part II of the Second Schedule to the Chartered Accountants Act,
1949, a member of the ICAI 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.
Conclusion: -Mr. Jayprakash in the statement of appeal submitted with the Appellate Authority
mentioned some facts knowing them to be false and thus, he has violated the restriction
imposed under Clause (3) of Part II of the Second Schedule to the Chartered Accountants Act,
1949.
(b) As Mr. Jayprakash has been alleged of misconduct falling in First as well as Second Schedule, so
the matter would be placed before the Disciplinary Committee.
The maximum punishment which could have been imposed on him by the said authority would be:-
(i) Reprimanding the member.
(ii) Removing name of the member permanently or for any duration, it thinks fit.
(iii) Imposing fine upto ` 5,00,000.
144. Professional Misconduct
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. Comment (RTP-Nov-2022)
Ans. ➢ Clause: - As per Clause (4) of Part I of the Second Schedule to the Chartered Accountants Act, 1949,
a Chartered Accountant in practice shall be 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.
➢ 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.
➢ Conclusion: -Brother is very well covered in the definition of relative mentioned in Accounting
Standard (AS)-18. Hence, CA Dev is guilty of professional misconduct.
Schedule – 2, Part – 1, Clause – 5
145. Disclosure of Material Facts
The superannuation-cum-pension fund for the employees of a company was under a separate ‘trust’. Both
the company and the trust were under the same management. The auditor, who was auditing the accounts
of the company as well as the trust noted some irregularities in the operation of the trust and commented
upon these irregularities in the confidential report given to the trustees, but did not mention about these
irregularities in his report on the Annual accounts of the Trust.
Ans. (i) As per Clause:- Clause (5) of Part I of the Second Schedule
A Chartered Accountant in practice is deemed to be guilty of professional 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 to make the financial statement not misleading
(ii) In the given case:-
• The Chartered Accountant was aware of the contraventions and irregularities committed
by the trust as these were referred to in the confidential report given by the Chartered
Accountant to the trustees of the company.
• However, he had issued the annual accounts without any qualification.

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(iii) Case study:- It was held by the Supreme Court in Kishorilal Dutta vs. P. K. Mukherjee that it was
the duty of the Chartered Accountant to have disclosed the irregularities and contravention to the
beneficiaries of the fund in the statement of accounts signed by him.
(v) Conclusion:- Chartered Accountant is guilty of professional misconduct if the amount of
irregularities is proved material.
146. Failure to Disclose Material Facts
Mr. Joe, a Chartered Accountant during the course of audit of M/s XYZ Ltd. came to know that the company
has taken a loan of ` 10 lakhs from Employees Provident Fund. The said loan was not reflected in the books
of account. However, the auditor ignored this information in his report. (MTP-Dec-2021, SM)
Ans. (i) As per Clause: Clause (5) of Part I of the Second Schedule
A Chartered Accountant in practice is deemed to be guilty of professional 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 to make the financial statement not misleading
(ii) In the given case:- Mr. Joe has come across information that a loan of ` 10 lakhs has been taken by
the company from Employees Provident Fund. This is contravention of Rules and the said loan has not
been reflected in the books of accounts. Further, this material fact has also to be disclosed in the
financial statements.
(iii) Conclusion:- The very fact that Mr. Joe has failed to disclose this fact in his report, he is attracted by
the provisions of professional misconduct under Clause (5) of Part I of Second Schedule to the
Chartered Accountants Act, 1949.
147. Failed to Report Material Misstatement
Mr. A was appointed by H ltd. to audit the PF trust maintained by the company. While conducting the audit
he noticed that large number of loans have been given out of the trust to the employer company in
contravention of the rules of the PF Trust. He disclosed the irregularities to the trustees and to the company
but not to the individual subscribers of the PF. When queried on his omission to disclose, he explained that
he owed no duty to the individual members.
OR
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.
Ans. (i) As per Clause:- Clause (5) of Part I of the Second Schedule
A Chartered Accountant in practice is deemed to be guilty of professional 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 to make the financial statement not misleading
(ii) In the given case:- It is the duty of Mr. M to disclose material facts known to him so that the
financial statement does not become misleading. Auditor should disclose such facts to
beneficiaries of a fund just like he gives his report to the shareholders of a company.
(iii) Conclusion:- Mr. M is found guilty of professional misconduct.
148. IT Representative
CA. P has been representing M/s VS and Associates before Income-tax Appellate Tribunal for a case of
income escaping assessment for F.Y. 2016-17. There were unidentified credits in the books of accounts. CA.
P was the statutory auditor of the company that time and did not mention any thing about such credit in his
audit report. Later, it was found that he had sufficient evidences to believe that these credits were liable to
be taxed. In order to make his case stronger, he produces false documents and made witness present false
statements.
What do you think are provisions against CA. P under CA Act? (Nov-2023)

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Professional Ethics & Liabilities of Auditors
Ans. Applicable provisions as per the Chartered Accountants Act, 1949:
(i) Provision:
(a) As per Clause (5) of Part I of Second Schedule to the Chartered Accountant Act, 1949,
• a Chartered Accountant in practice is deemed to be guilty of professional 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 to make the financial statement not misleading,
• where he is concerned with that financial statement in a professional capacity.
(b) Further, as per Clause (6) of Part I of Second Schedule,
• a Chartered Accountant in practice is deemed to be guilty of professional misconduct
• 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.
(ii) In the instant case:
➢ CA. P, a chartered accountant was appointed as representative by M/s VS Associates to appear
before Income-tax Appellate Tribunal in the matter of its Income-tax proceedings of income
escaping assessment for the year 2016-17.
➢ As per given facts of the case, it is very much clear that there were unidentified credits in its
books of accounts, but CA. P did not mention about that in his audit report whereas he was
having sufficient evidence that those credits were liable to be taxed.
➢ Also, he wilfully made or causes to be made any entry or statement which is false in any
books of account or other document relevant to or useful in any proceedings against the M/s VS
Associates,
➢ Under this Act, CA. P shall be punishable with rigorous imprisonment for a term which shall
not be less than three months but which may extend to three years and with fine.
(iii) Conclusion: In view of the above, CA. P would be liable under section 277A of the Income-tax Act,
1961 and will be held liable for professional misconduct under clause 5 and clause 6 of Part I of
Second Schedule of the Chartered Accountants Act, 1949.
Schedule – 2, Part – 1, Clause – 6
149. Submitting Information as Authorised Representative
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. (SM)
Ans. (i) As per Clause: Clause (5) of Part I of the Second Schedule
A Chartered Accountant in practice is deemed to be guilty of professional 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 to make the financial statement not misleading
(ii) As per Clause: Clause (6) of Part I of Second Schedule
A Chartered Accountant in practice is deemed to be guilty of professional misconduct 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
(iii) In the 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.

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(iv) Conclusion:- Hence the Chartered Accountant would not be held liable for professional
misconduct. [Assumed he had no responsibility to verify or vouch the information before submission]
150. Disclosure of Material Facts
Mr. X partner of X & co. Chartered Accountants, has compiled and signed the balance sheet of False Limited.,
for submission to the bankers of the said company. Mr. X has also compiled and signed at the request of the
company another balance Sheet inflating the value of assets by 20%, for submission to a term lending
institution. Both the Balance Sheets were not in conformity with the books of accounts maintained by the
company as they were not up-to-date. Comment on Mr. X liability.
Ans. (i) As per Clause:- Clause (5) of Part I of the Second Schedule
A Chartered Accountant in practice is deemed to be guilty of professional 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 to make the financial statement not misleading
• Where he is concerned with that financial statement in a professional capacity.
(ii) As per Clause:- Clause (6) of Part I of Second Schedule
A Chartered Accountant in practice is deemed to be guilty of professional misconduct 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
(iii) In the given case
Mr. X partner of X & co. Chartered Accountants, has compiled and signed the balance sheet of False
Limited., for submission to the bankers of the said company. Mr. X has also compiled and signed at
the request of the company another balance Sheet inflating the value of assets by 20%, for
submission to a term lending institution. Both the Balance Sheets were not in conformity with the
books of accounts maintained by the company as they were not up-to-date.
(v) Conclusion:- Mr. X would be held guilty under clauses 5 and 6 of Part I of Second Schedule to the
CA Act, 1949 as Mr. X had compiled the two different balance sheets for the same date without
reference to the actual books of accounts, but on instructions of the client. As per clause 5 he has
failed to disclose material fact known to him and further, as per clause 6 he has also failed to report a
material misstatement known to him.
Schedule – 2, Part – 1, Clause – 7
151. Not Exercising Due Diligence
Mr. Dhruv, 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. Comment with reference to the Chartered Accountants Act, 1949, and
Schedules thereto. (SM, MTP-Nov-2020, RTP Nov-2018, Nov-2019)
Ans. (i) As per Clause:- 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.
(ii) Facts of the case:- Mr. Dhruv 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, it can be said that the work is carried out with gross negligence.
(iii) Conclusion:- The auditor is guilty of professional misconduct under Clause (7) of Part I of the
Second Schedule to the Chartered Accountants Act, 1949.
152. Failure to Exercise Reasonable Care and Skill
The Cashier of a company committed a fraud and absconded with the proceeds thereof. This happened
during the course of the accounting year. The Chief Accountant of the company also did not know about
fraud. In the course of the audit, at the end of the year, the auditor failed to discover the fraud. After the

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audit was completed, however, the fraud was discovered by the Chief Accountant. Investigation made at that
time indicates that the auditor did not exercise proper skill and care and performed his work in a desultory
and haphazard manner. With this background, the Directors of the company intend to file disciplinary
proceedings against the auditor. Discuss the position of the auditor with regard to the disciplinary
proceedings. (Dec-2021)
OR
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. During the audit, auditor failed
to discover the fraud. However, fraud was discovered by the Chief Accountant after the audit was
completed. 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. (MTP-May-2025)
Ans. (i) As per Clause:- 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.
(ii) In the present case:-
• Auditor did not exercise proper skill and care and that he performed his work in a desultory
and haphazard manner.
• Cash is a very significant item in any situation and the fact that the cashier had left during
the year without notice should have placed the auditor on alert as regards the cash book.
• In fact, the very fact that the cashier was absconding, i.e., left without any notice constituted
sufficient circumstances to excite suspicion of the auditor to probe to the bottom.
(iii) 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.
(iv) Conclusion:- Such instances require reference to Disciplinary Committee of the Council of the
Institute.
153. Certification without Examining Books of Account
CA Chiranjiv who conducted ABC audit of a Haryana daily ‘New Era’ certified the circulation figures based on
Management Information System Report (M.I.S Report) without examining the books of Account. (SM)
Ans. (i) As per Clause:- 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.
(ii) In the instant case:- CA. Chiranjiv did not exercise due diligence and is grossly negligent in the
conduct of his professional duties since he certified the circulation figures without examining the
books of accounts.
(iii) Responsibility of Auditor:
• To ascertain the number of paid copies verification of remittances from the agents, credit
allowed to the agents for unsold copies returned, examination of books of account is essential.
• Further certification of circulation figures based on statistical information without cross
verification with financial records amounts to gross negligence and failure to exercise due
diligence.

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Professional Ethics & Liabilities of Auditors
(iv) Conclusion:- Hence, CA. Chiranjiv is guilty of professional misconduct as per Clause (7) of Part I of
Second Schedule of Chartered Accountants Act, 1949.
SJ Note: Clause 2, Part I, 2nd schedule may be referred, if assumed that CA made no examination of facts
154. Failure to Exercise Reasonable Care and Skill
You were the statutory auditor of Speed Ltd., a PSU, for the year 2021-22. In the course of your audit, you
did not observe any fraud having been committed during that year. However, the C&AG audit staffs during
their routine inspection found that chief cashier of the Company has committed a fraud in Debtor's ledger
and absconded with the amount. Investigation made in the fraud revealed that the Auditor did not exercise
proper skill and care and performed his work in an Improper way.
Director of the Company, intends to file disciplinary proceedings against the Auditor with the ICAI. Discuss
the position of the auditor with regard to the disciplinary proceedings under Chartered Accountants Act,
1949 and Regulations there to. (May-2018)
Ans. (i) As per Clause:- 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.
(ii) In the present case:-
• Auditor did not exercise proper skill and care and that he performed his work in a desultory
and haphazard manner.
• Cash is a very significant item in any situation and the fact that the cashier had left during
the year without notice should have placed the auditor on alert as regards the cash book.
• In fact, the very fact that the cashier was absconding, i.e., left without any notice constituted
sufficient circumstances to excite suspicion of the auditor to probe to the bottom.
(iii) 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.
(iv) Conclusion:- Such instances require reference to Disciplinary Committee of the Council of the
Institute.
155. Auditor’s Negligence in Performance of Duties
A search under section 132 of Income Tax Act in the premises of a leading merchant led to the discovery of
two sets of account books – one set to record all the income correctly and second to record only limited
income. A CA has issued audit report on the basis of second set of books. What would be your answer if the
first set of account books carried evidence of checking by the CA?
Ans. (i) As per Clause:- 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.
(ii) In the present case:- It has been found that client has maintained two sets of account books –
one set to record all the income correctly and second to record only limited income. CA has issued
audit report on the basis of second set of books. In this case, there will not be any misconduct on part
of CA if the auditor is not aware of the first set of books. However, if there exist evidences that
auditor is aware of first set of books also, then he will be deemed to be guilty of professional
misconduct being grossly negligent in performance of his duties.
(iii) Conclusion:- In the first case, he would not be deemed to be guilty of misconduct. But in the
second case, he would be deemed to be guilty of misconduct.

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156. Grossly Negligent in Conduct of Duties

Mr. A, a Chartered Accountant, was the auditor of 'A Limited'. During the financial year 2023-24, the
investment appeared in the Balance Sheet of the company of ` 12 lakhs and was the same amount as in the
last year. Later on, it was found that the company's investments were only ` 25,000, but the value of
investments was inflated for the purpose of obtaining higher amount of Bank loan (SM, MTP-May-2018)
OR
Mr. Aniket, a Chartered Accountant was the auditor of 'Alpha Limited' for the year 2020-21 and 2021-22.
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 2020-21. 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-Nov-2020)
OR
Mr. Mayank, a Chartered Accountant was the auditor of 'Chew Limited' for the year 2021-22 and 2022-23.
During the financial year, the investment appeared in the Balance Sheet of the company amounting ₹ 7.5 lac
and was the same amount as in the last year 2021-22. Later it was found that the company's investments
were only for ₹ 56,000, 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-May-2024)
Ans. (i) As per Clause: Clause (2) 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 CA in practice or
(ii) As per Clause 7 of Part I of Second Schedule to the Chartered Accountants Act, 1949
A CA in practice shall be guilty of professional misconduct
• If does not exercise due diligence, or
• Is grossly negligent in the conduct of his professional duties. or
As per Clause 8 of Part I of Second Schedule to the Chartered Accountants Act, 1949
A CA in practice shall be guilty of professional misconduct
• If he 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
(iii) Auditor’s responsibility:-
• 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.
(iv) 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.
(v) Conclusion:- Mr. A, 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.
157. Failure to Exercise Due Diligence & Obtain Necessary Information
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 carrying the date and time printed on them.
Comment with reference to the Chartered Accountants Act, 1949 and its schedules thereto. (Jan-2021)

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Ans. (i) As per Clause: Clause (2) 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 CA in practice or
(ii) As per Clause 7 of Part I of Second Schedule to the Chartered Accountants Act, 1949
A CA in practice shall be guilty of professional misconduct
• If does not exercise due diligence, or
• Is grossly negligent in the conduct of his professional duties. or
As per Clause 8 of Part I of Second Schedule to the Chartered Accountants Act, 1949
A CA in practice shall be guilty of professional misconduct
• If he 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
(iii) As per Clause:- Clause (8) 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:
• 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
• This indicates a Chartered Accountant must determine the extent of information, which, should
be obtained by him before he expresses an opinion on the financial statements.
(iv) Facts of the case:- 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.
(v) Conclusion:- As per the provision & facts given above Nam & Co, will be held guilty of Professional
Misconduct under Clause (2), (7) & (8) of Part I of Second Schedule to the Chartered Accountants
Act, 1949.
158. Failure to Disclose Material Facts [Question of Clause 5 of Part I of Schedule II]
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, 2022 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-2020)
Ans. (i) As per Clause: 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.
(ii) Analysis of the Clause & Materiality as per SA-320:
• 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.

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• 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.
(iii) In the present 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.
(iv) Conclusion:- 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.
159. Professional Misconduct
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. Comment (RTP-Nov-2022)
Ans. (i) As per Clause:- 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.
(ii) Facts of the 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.
(iii) Conclusion: - 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. 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.
160. Grossly Negligent
Pitch Private Limited requested CA Angad, a practicing Chartered Accountant, to digitally sign the form
related to resignation of Mr. Ravi, one of the Director of Pitch Private Limited, along with the copy of
resignation letter to be uploaded on the website of Registrar of Companies. The signature of Mr. Ravi was
simply copied and pasted by another Director of Pitch Private Limited. CA Angad, 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. Comment with reference to the provisions of the Chartered Accountants
Act, 1949 and Schedules thereto. (MTP-Nov-2024, SM)
Ans. (i) Provision: 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.

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(ii) In the given case:

(a) Pitch Private Limited requested CA Angad, a practicing Chartered Accountant, to digitally sign
the form related to resignation of Mr. Ravi, one of the Director of Pitch Private Limited, along
with the copy of Resignation Letter to be uploaded on the website of Registrar of Companies.
(b) The signature of Mr. Ravi was simply copied and pasted by another Director of Pitch Private
Limited.
(c) CA Angad, 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.
(d) Due to forged resignation letter, the resignation of Mr. Ravi from directorship of the Pitch Private
Limited had been occurred.
(e) It was noted that CA Angad had not taken any step to verify forged signature on resignation
letter which anyone would have taken in normal circumstances.
(iii) Hence, CA Angad would be held liable for professional misconduct as per Clause (7) of Part I of
Second Schedule to the Chartered Accountants Act, 1949.
161. Grossly Negligent
DIGI & Associates. conducted Stock Audit of PQR Ltd. as per instructions issued by ASG 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 PQR Ltd.
The photographs were also carrying the date and time printed on them.
Comment with reference to the Chartered Accountants Act, 1949 and Schedules thereon. (MTP-Nov-2024)
Ans. (i) Provision:
(a) 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”.
(b) 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.
(c) The expression negligence covers a wide field and extends from the frontiers of fraud to collateral
minor negligence.
(ii) In the instant case:
(a) DIGI & Associate 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 PQR Ltd, which is incorrect.
(b) 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.
(c) Further submitting stock audit report without physically verifying the stock amounts to gross
negligence.
(iii) From the above, it can be concluded that DIGI & Associate is guilty of professional misconduct
under Clause (7) of Part I of Second Schedule to the Chartered Accountants Act, 1949.
162. Negligence
CA. T, the statutory auditor of Race Limited, a PSU, for the year 2023-24. During the audit, CA. T did not
detect any fraud having been committed during that year. However, the C & AG audit staffs, during their
routine inspection, found that chief cashier of the company committed fraud in debtor's ledger and

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absconded with the amount. The investigation made in the fraud revealed that the auditor did not exercise
proper skill and care and performed his work improperly.
Comment with reference to the provisions of the Chartered Accountants Act, 1949. (Model Test Paper)
Ans. Failure to Exercise Reasonable Care and Skill: Clause (7) of Part I of 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.
In the given case, CA. T did not detect any fraud. However, the C & AG audit staff, during their routine
inspection, found that the chief cashier of the company committed fraud in debtor's ledger and absconded
with the amount.
Apparently, it appears that the auditor did not exercise proper skill and care and that he performed his work
in an improper manner. In this matter, the test for auditor’s liability lies in whether he has applied
reasonable care, skill and caution called for in the circumstances of the case and whether he reasonably used
all the information that he came across during the audit.
The auditor should have been highly concerned about the cashbook’s state due to the unexpected
disappearance of the head cashier. This unexplained absence is a major red flag and demands a thorough
investigation by the auditor.
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 that 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.
As it appears from the facts of the case, CA. T has been grossly negligent in performing his duties which
constitutes professional misconduct. Thus, such instances require reference to Disciplinary Committee of the
Council of the Institute.
Schedule – 2, Part – 1, Clause – 8
163. Failure to Obtain Information
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. (MTP-May-2023, SM)
Ans. (i) As per Clause:- Clause(8) 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:
• 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
(ii) In the present 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.

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

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Schedule – 2, Part – 1, Clause – 9

164. No Compliance with generally accepted audit procedure
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.
Ans. (i) Provision:
(a) 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.
(b) 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.
(c) 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.
(d) 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.
(ii) 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. C
(iii) Conclusion: A 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.
Alternative Solution
(i) Provision:
(a) 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.
(b) 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.
(c) 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.

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(d) 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.
(e) 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.

(ii) 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.

(iii) 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.
165. Peer Review
M/s GSTR & Associates, Chartered Accountants, is an audit firm consisting of three partners. The
partnership firm was formed in the year 2019. M/s GSTR & Associates, specialised in internal audits and tax
consultancy services, admitted CA Y as partner in the year 2024, CA Y had vast experience in audit of listed
companies as he was the senior audit manager of a leading audit firm before he joins M/s GSTR &
Associates. Ruby Limited, a listed entity, appointed M/s GSTR & Associates, Chartered Accountants as
statutory auditors for the year ended 31 st March 2025. CA Y, the engagement partner signed the balance
sheet of Ruby Limited for the year ended 31st March 2025 on 21st May 2025. M/s GSTR & Associates,
Chartered Accountants never subjected themselves to the Peer Review process of the Institute. Comment
with reference to the Chartered Accountants Act, 1949. (May-2025)
Ans. Scan QR for Answer.
Schedule – 2, Part – 1, Clause – 10
166. Failure to Keep Money in Separate Bank Account
Mr. Z, a practicing Chartered Accountant, received a sum of ` 1 lac on 1.9.2021 from a Client who intends to
leave abroad for a period of a year, with a request that his advance tax liabilities to be paid over the three
installments. On 15th September, 2021, 15th December, 2021 and 15th March, 2022. After remitting the 1st
installment of advance tax on 15.9.2021, Z did not keep the Balance Money in a separate Bank account and
he is of the opinion he will remit the money within reasonable time as per payment schedule of Advance tax.
Ans. (i) As per Clause:- Clause (10) 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:
• Fails to keep moneys of his clients in a separate bank account other than the fees or
remuneration or
• Fails to use such moneys for purposes for which they are intended within a reasonable time
• The term reasonable time would depend upon the circumstances of the case. Moneys which
are intended to be spent within a reasonably short time need not be put in a separate bank
account.
(ii) In the present case:- Mr. Z should have kept the balance money after remitting the first installment
of advance tax into a separate bank account.

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(iii) Conclusion:- He is guilty of professional misconduct as per Clause (10) of Part I of Second
Schedule to the Chartered Accountants Act, 1949.
167. Failure to Use Moneys for Purpose Intended
M/s. ABC, a firm of Chartered Accountants received ` 2 lakhs in March, 2022 from a client to pay the
Advance Tax. However, the firm has used that money for its own purpose and later on adjusted the same
with the outstanding fee payable. Comment.
Ans. (i) As per Clause:- Clause (10) 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:
• Fails to keep moneys of his clients in a separate bank account other than the fees or
remuneration or
• Fails to use such moneys for purposes for which they are intended within a reasonable time

(ii) In the present case:- M/s. ABC received the money in March, 2015 for payment of the advance tax;
hence it should be deposited in a separate bank account.

(iii) Conclusion:- Since in this case M/s. ABC have failed to keep the sum of ` 2 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.
168. Failure to Keep Money in Separate Bank Account
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-2021)
Ans. (i) As per Clause:- Clause (10) 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:
• Fails to keep moneys of his clients in a separate bank account other than the fees or remuneration or
• Fails to use such moneys for purposes for which they are intended within a reasonable time
(ii) Interpretation of Clause :
• 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.
(iii) Council Guidlines :
• 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”
(iv) 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.
(v) Conclusion:- 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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Second Schedule, Part II “Professional Misconduct in relation to the Members of the Institute
Generally”
Schedule– 2, Part – 2, Clause- 1
169. Contravening Provisions of the Act
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.
Ans. (i) As per Clause:- Clause (1) 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 contravenes any of the provisions of this Act or
• The regulations made there under or
• Any guidelines issued by the Council.
(ii) 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.
(iii) Conclusion:- 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.
170. Sharing Fees with an Articled Clerk
Mr. X who passed his CA examination of ICAI on 18th July, 2024 and started his practice from August 15,
2024. On 16th August 2024, 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?
Ans. (i) Provision: 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.
(ii) 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.

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(iii) Conclusion: 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.
171. Loan from a Company whose MD’s Son is Article in Firm
M/s. ABC, a firm of Chartered Accountants has taken a loan for acquiring computers, from a company whose
Managing Directors’ son is an Articled Trainee with A, a partner of M/s ABC.
Ans. (i) As per Clause:- Clause (1) 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 contravenes any of the provisions of this Act or
• The regulations made there under or
• Any guidelines issued by the Council.
(ii) As per Regulation: Regulation 47 of the Chartered Accountant’s Regulations, 1988
• Prohibits a member from accepting any premiums or loans or any deposit in connection
with his engagement as an articled clerk.
• In any form from an articled clerk directly or indirectly.
(iii) In the present case:- M/s ABC has taken loan from a company whose Managing Director happens to
be father of articled clerk with Mr. A, a partner of M/s ABC. However, the articled trainee has no
direct interest in that company and the loan was not related to his engagement.
(iv) Conclusion:- There will no professional misconduct on part of M/s XYZ as articles trainee had no
interest in the company and the loan was not related to engagement.
172. Failure to Observe the Regulations
A Chartered Accountant in practice had confirmed in the application made by his articled clerk to the
Council for permission to study that the normal working hours of his office were 11 a.m. to 6 p.m. and the
hours during which the articled clerk was required to attend college classes were 7 a.m. to 9.30 a.m. On
inquiry from Principal of College, it was ascertained that the articled clerk used to attend classes from 10
a.m. to 1.55 p.m. The Chartered Accountant pleaded ignorance about the articled clerk attending the college
classes during office hours. Will the Chartered Accountant be held guilty of professional misconduct?
Ans. (i) As per Clause:- Clause (1) 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 contravenes any of the provisions of this Act or
• The regulations made there under or
• Any guidelines issued by the Council.
And
(ii) As per Clause (3) of Part II of Second Schedule to the CA Act, 1949,
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.
(iii) As per regulation:-The chartered accountant, as per Regulations also, is expected to impart proper
practical training.

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(iv) In the present case:- The articled clerk must have not been attending office on a regular basis and
the explanation of the Chartered Accountant cannot be accepted particularly in view of the fact that
the chartered accountant did not obtain certificate from the Principal to confirm the timings. It is also
quite likely that the articled clerk would be availing leave quite often and coming late to the office.
(v) Conclusion:- He will be deemed to be guilty of professional misconduct under Clause 1 of Part II
of Second Schedule for contravention of regulations of the Institute and under Clause 3 of Part II of
Second Schedule for submission of false information to the ICAI.
173. Issuing Certificate without having Certificate of Practice
The manager of Miskin (P) Ltd. approached CA. Rahul in need of a certificate in respect of a consumption
statement of raw material. Without having certificate of practice (CoP), CA. Rahul 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. (MTP-May-2024, SM)
OR
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. (May-2018)
Ans. (i) As per Clause:- Clause (1) 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 contravenes any of the provisions of this Act or
• The regulations made there under or
• Any guidelines issued by the Council.
(ii) Provision of CA act:- Section 6 of Chartered Accountants Act, 1949 provides that no member of
the Institute shall be entitled to practice (whether in India or elsewhere) unless he has obtained
from the Council a certificate of practice.
(iii) 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.
(iv) Conclusion:- 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.
174. Contravening Provisions of the Act
CA. X is a chartered accountant in practice. He has an articled trainee H. X has informed H that since his
practice and receipt of fees is seasonal, the stipend would not be paid in the months of April to December,
but would be paid from January to March and the shortfall for the earlier 9 months will be made good in
these 3 months along with interest @ 5% p.a. Comment with reference to the Chartered Accountant Act,
1949. (Nov-2017)
Ans. (i) As per Clause:- Clause (1) 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 contravenes any of the provisions of this Act or
• The regulations made there under or
• Any guidelines issued by the Council.

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(ii) In the given case:- In the given case, CA. X 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 seasonal is not acceptable.
(iii) Conclusion:- Therefore, Mr. X 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.
175. Accepting Appointment as an Auditor
Mr. C accepted the statutory audit of M/s PSU Ltd., whose net worth is negative for the year 2020-21. The
audit was to be conducted for the year 2021-22. The audited accounts for the year 2021-22 showed liability
for payment of tax audit fees of `15,000 in favour of Mr. E, the previous auditor. (SM)
OR
Mr. Z accepted the statutory audit of a sick unit – NCT Limited for the year ending 31.03.2022. During course
of audit it was noticed by the statutory auditor that company’s net worth was negative for year ended
31.03.2021 and there was also a liability of tax audit fees of `35,000 in favour of the previous auditors.
Comment. (Nov-2016)
Ans. (i) As per Clause:- Clause 1 of Part II of Second Schedule, a member of the Institute will be held guilty
of professional misconduct if he Contravenes any of the provisions of this act or the regulations
made there under or any guidelines issued by the council.
(ii) As per Council General Guidelines:-
A member of the Institute of Chartered Accountants of India in practice shall be deemed to be guilty of
professional misconduct if he accepts appointment as auditor of an entity in case the undisputed
audit fee of another chartered accountant for carrying out the statutory audit under Companies Act
or various other statutes has not been paid.
Exception:- As per the proviso, such prohibition shall not apply in case of a sick unit where a sick
unit is defined to mean unit registered for > 5 years and at end of any FY its accumulated losses
exceeds its entire net worth.
(iii) In the given case:- Mr. Z accepted the audit of M/s PSU Ltd., though the undisputed fees of previous
auditor remain unpaid.
(iv) Conclusion:- Mr. C would still not be guilty of professional misconduct since the M/s PSU Ltd. is
a sick unit having negative net worth for the year 2020-21.
SJ Note:- Answer may be given alternatively referring Clause 8 of Part 1, Schedule 1
Schedule – 2, Part – 2, Clause- 3
176. Submitting Wrong Information to the Institute
Mr. P and Mr. Q are running a firm of Chartered Accountants in the name of M/s PQ & Co. On 23.05.2022,
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 Public Sector Bank branches to the
Institute. However, they added Mr. R as a partner to their firm offering a share of 25% of the profits, on
25.05.2022. (RTP-May-2020, May-2016)
OR
AB & Co., a firm of Chartered Accountants, included the name of P as a partner while filing an application for
empanelment as auditor for Public Sector bank branches. It was subsequently noticed that on the date of
application, P was not a partner with AB & Co.
Ans. (i) As per Clause:- As per Clause (3) of Part II of Second Schedule to the CA Act, 1949,
A member is deemed to be guilty of professional misconduct:
• If he includes in any information, statement, return or form

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• 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.
(ii) In the instant case:- Mr. P and Mr. Q, partners of M/s 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.
(iii) Conclusion: - 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.
177. The Director (Discipline) of The Institute of Chartered Accountants of India had received the matters in
respect of cases of alleged misconduct against CA H, the proprietor of M/s HA & Co, Chartered Accountants
and was found guilty of professional misconduct under Clause (4) of Part I of the Second Schedule of the
Chartered Accountants Act, 1949 and Clause (11) of Part I of the First Schedule of the Chartered Accountants
Act, and penalty was imposed by an order passed against him dated 15 th June, 2024.
Against the said order, CA H preferred an appeal with the Appellate Authority on 5th August, 2024 by
submitting the statement of appeal along with application form of appeal. During such appellate proceedings,
it was discovered that the said statement of appeal contained some facts which were false to which CA H
admitted it to be false and apologized for it.
Based on the above stated scenario of the matters placed before The Director (Discipline) of ICAI against CA
H, you are required to answer the following :
(i) Comment on violation of provisions of the Chartered Accountants Act, 1949 and its schedules thereto by
CA H.
(ii) Before which authority, the matters of CA H would have been placed and what maximum punishment
could have been imposed on him by the said authority in accordance with the Chartered Accountants
Act, 1949?
(iii) Has CA H filed an appeal With the Appellate authority against the order within the time limit. prescribed
under the said Act? (Nov-2024)
Ans. (i) 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, CA H preferred an appeal with the Appellate Authority on 05th August,2024 by
submitting the statement of appeal along with application form for the same. However, it was
discovered that the said statement of appeal contained some facts which were false, and CA H admitted
it to be false.
Therefore, CA H would be held guilty of professional misconduct under Clause (3) of Part II of the
Second Schedule to the Chartered Accountants Act, 1949.
(ii) In case where CA H was found guilty of professional misconduct under Clause (4) of Part I of the
Second Schedule and Clause 11 of Part I of the First Schedule of the Chartered Accountants Act,
1949: the matter would have been placed before Disciplinary Committee as it’s allied to both the
Schedule because as per the Chartered Accountant Act, 1949 if the matter is allied to the Second
Schedule or Both it is referred to the Disciplinary Committee. The maximum punishment that the
Disciplinary Committee could have imposed would be:
(i) Reprimand the member
(ii) Remove the name of the member from the Register permanently or for such period as it may think
fit.
(iii) Impose such a fine which may extend to rupees five lakhs.

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(iii) Timeline for Filing an Appeal: Any member aggrieved by an order of the Board of Discipline or the
Disciplinary Committee can prefer an appeal within 90 days. In the given case, CA. H has preferred an
appeal with the appellate authority on 5th August, 2024 against the order passed on 15th June 2024.
From 15th June to 5th August, 90 days’ timeline has not been lapsed. Thus, it can be said that CA H has
filed an appeal within the time limit prescribed under the said Act.
19.4 - KYC-Norms
178. KYC Norms for CA in Practice
Mr. F, a Chartered Accountant, gave advisory services to PQR Pvt. Ltd. Further, he gave them GST
consultancy, compilation engagement for historical financial information 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)
Ans. (i) Council Guidelines:- 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.
(ii) In the given situation:- CA. F, gave GST consultancy, compilation engagement for historical financial
information 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.
(iii) Conclusion:- In the given case of PQR Pvt. Ltd., a Corporate Entity, Mr. F should have kept following
information:
A. General Information
• Name and Address of the Entity
• Business Description Name of the Parent Company in case of Subsidiary
• Copy of last Audited Financial Statement
B. Engagement Information
• Type of Engagement
C. Regulatory Information
• Company PAN No.
• Company Identification No.
• Directors’ Names & Addresses
• Directors’ Identification No.
179. KYC Norms – Importance
Write a short note on Importance of KYC requirements for a Chartered Accountant's practice.
Ans. Importance of KYC Requirements for a Chartered Accountant’s Practice:
• 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 I
CAI recommended such norms to be observed by the members of the profession who are in
practice.
• These Know Your Client (KYC) Norms are also important in order to ensure a healthy growth of the
profession and an equitable flow of professional work among the members.
• The self-regulatory measures are recommendatory.
• Considering the spirit underlying these measures, it is expected that every Chartered Accountant
carrying out attest function is encouraged to follow them and
• Implementation of these measures would go a long way in ensuring equitable flow of work among
the members and would also further enhance the prestige of the profession in the society.

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19.5 - Council General Guidelines, 2008
180. Minimum Audit Fee
M/s PQR, a firm of Chartered Accountants with 5 partners has accepted the audit of ABC Pvt. Ltd. for 2021-
22 at an audit fee of ` 2,500. ABC Pvt. Ltd. was incorporated in April, 2019, but had commenced operations
in January, 2022.
Ans. (i) As per Council General Guidelines:- Council of ICAI has prescribed minimum audit fees for the
practicing members. However, prescribed minimum audit fee is recommendatory, not yet
mandatory in nature.
(ii) In the present case:- Acceptance of audit assignment by M/s PQR, a firm of Chartered Accountants
having 5 partners, of ABC Pvt. Ltd. for audit fees of ` 2,500 is not violation of any provisions.
(iii) Conclusion:- Therefore M/s PQR will not be held liable for guilty of misconduct.
181. Maintenance of Books of Account
L, a chartered accountant did not maintain books of account for his professional earnings on the ground that
his income is less than the limits prescribed u/s 44AA of the Income Tax Act, 1961. (SM)
Ans. (i) As per Council General Guidelines (Chapter V):
The Council General Guidelines 2008, under Chapter 5-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.
(ii) Conclusion:- Hence, Mr. L is guilty of professional misconduct.
182. Maintenance of Books of Account by a CA in Practice
CA. Evan has been in practice for two years and runs his proprietorship firm in the name of “Evan & Co.” He
maintains notes in his mobile where he records the fees received from various clients. Using these records,
he prepares and files his income tax return. Comment with respect to the provisions of the Chartered
Accountant Act, 1949. (MTP-May-2024, SM)
Ans. (1) Provision: Chapter V of the Council General Guidelines, 2008 specifies that a member of the
Institute in practice or the firm of Chartered Accountants of which he is a partner, shall maintain and
keep in respect of his professional practice, proper books of accounts including the following-
(i) a Cash Book
(ii) a Ledger
Thus, a Chartered Accountant in practice is required to maintain proper books of accounts.
(2) In the instant case: CA. Evan does not maintain proper books of accounts and writes the fees
received from various clients in notes on his mobile. Notes maintained by him in mobile cannot be
treated as books of accounts.
(iii) Conclusion: Hence, CA. Evan, being a practicing Chartered Accountant will be held guilty of
misconduct for violation of Council General Guidelines, 2008.
183. Appointment as a Statutory Auditor Listed Company
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)
Ans. (i) As per Clause:- Clause (1) 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 contravenes any of the provisions of this Act or

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• The regulations made there under or

• Any guidelines issued by the Council.
(ii) As per the Council General Guidelines 2008 (Chapter 9):- 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.
(iii) 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.
SJ’s Note:- Applicability of Chapter IX of Council General Guidelines, 2008 seems to be redundant in case of
companies, because as per Section 144 of the Companies Act 2013, auditor of a company cannot render
management services to the company, its holding company or subsidiary company, directly or indirectly.
184. Entire Audit Fees Received in Advance
D, who conducts the tax audit u/s 44AB of the Income Tax Act, 1961 of M/s ABC, a partnership firm, has
received the audit fees of ` 2,50,000 on progressive basis in respect of the tax audit for the year ended
31.3.2022. The audit report was, however, signed on 25.5.2022. What is your answer if fees is recovered on
progressive basis? (SM)
Ans. (i) As per Clause:- Clause (1) 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 contravenes any of the provisions of this Act or
• The regulations made there under or
• Any guidelines issued by the Council.
(ii) As per Council General Guidelines, 2008 (Chapter X)
A member of the Institute in practice or a partner of a firm in practice or a firm shall not accept
appointment as auditor of a concern while indebted to the concern or given any guarantee or
provided any security in connection with the indebtedness of any third person to the concern, for
limits fixed in the statute and in other cases for amount exceeding ` 1,00,000/-.
(iii) Provision of Income tax Act:-
• As per explanation to Section 288 to Income Tax Act, 1961, an individual who, or his relative
or partner is indebted to the assessee cannot conduct tax audit
• Provided that the relative may be indebted to the assessee for an amount not exceeding `
1,00,000.
(iv) The Research Committee of the ICAI:- Has expressed the opinion that where in accordance with the
terms of engagement of auditor by a client, the auditor recovers his fees on a progressive basis as
and when a part of the work is done without waiting for the completion of the whole job, he cannot
be said to be indebted to the company at any stage.
(v) In the instant case:- Mr. D is appointed to conduct a tax audit u/s 44AB of the Income Tax Act, 1961.
He has received the audit fees of ` 2,50,000 in respect of the tax audit for the year ended 31.3.2020
which is on progressive basis.
(vi) Conclusion:- Therefore, Mr. D will not be held guilty for misconduct.
185. Audit Fees in Advance
Mr. R has been appointed as the statutory auditor of Famous Ltd. which is a listed company. As per the terms
of acceptance of audit, the whole audit fee shall be payable in four installments of ` 3 lakh each, and shall be
paid after every limited review done on quarterly basis and conclusion of audit committee meeting of every
quarter. Full and final payment shall be done after the yearly financial statements and Audit Reports are
released. The firm received first two payments on time while third payment which was supposed to be

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Professional Ethics & Liabilities of Auditors
received in the month of January was received on March 25th, 2023 along with the remaining part of the
Audit Fee.
Discuss the validity of above fee structure and terms of payment in the light of applicable provisions given
by ICAI. (Nov-2023)
Ans. (i) Provision:
(a) Audit Fees: As per Chapter X of Council General Guidelines, 2008 a member of the Institute
in practice or a partner of a firm in practice or a firm shall not accept appointment as
auditor of a concern while indebted to the concern or given any guarantee or provided any
security in connection with the indebtedness of any third person to the concern, for limits fixed
in the statute and in other cases for amount exceeding ` 1,00,000/-.
(b) Under section 141(3) of the Companies Act, 2013 along with Rule 10 of the Companies
(Audit and Auditors) Rules, 2014, a person shall be disqualified to be appointed as auditor
if he or his relative or his partner is indebted in excess of rupees five lakh to the company
or its subsidiary or its holding company or its associate company or a subsidiary of such
holding company.
(c) However, the Research Committee of the ICAI has expressed the opinion that where in
accordance with the terms of engagement of auditor by a client, the auditor recovers his fees on
a progressive basis as and when a part of the work is done without waiting for the completion
of the whole job, he cannot be said to be indebted to the company at any stage.
(ii) In the instant case:
➢ Mr. R is appointed to conduct statutory audit of Famous Ltd., a listed entity and it was decided in
the terms of acceptance of audit, that the whole audit fee shall be payable in four installments of
rupees 3 lakh each and shall be paid after every limited review done on quarterly basis and
conclusion of audit committee meeting every quarter.
➢ He has received the audit fees of ` 3,00,000 in respect of two quarters, but for third and
fourth quarter the payment of fees was received on March 25th, 2023, for the year ended
31.3.2023 which is on progressive basis.
(iii) Conclusion: Therefore, Mr. R will not be held guilty for misconduct.
186. Maintenance of Books of Account
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-2022)
Ans. (i) Provision: 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 44ADA of the Income Tax Act, 1961 applies or not.
(ii) Conclusion: Hence, Mr. P is guilty of professional misconduct.
187. Contravening Provisions of the Act/Regulations/Guidelines
Mr. Kushal, a practicing Chartered Accountant has signed the Tax Audit Reports u/s 44AB of the Income tax
Act, 1961 for the financial year 2021-22 that are filed online using Digital Signature and without 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-2020, MTP-Dec-2021)
Ans. (i) As per Clause:- Clause (1) 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 contravenes any of the provisions of this Act or

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Professional Ethics & Liabilities of Auditors
• The regulations made there under or
• Any guidelines issued by the Council.
(ii) As per Council Guidelines (Chapter XV) :- In exercise of the powers conferred on it Part- II of the
Second Schedule to the Chartered Accountants Act, 1949, the Council of the Institute of Chartered
Accountants of India made it mandatory for the members of the Institute in practice to generate
Unique Document Identification Number (UDIN) for all Tax Audit Reports w.e.f. 1st April, 2019.
(iii) In the instant case:- Mr. Kushal, a practicing Chartered Accountant has signed the 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 generating UDIN on the ground that there is no field for
mentioning UDIN on digitally signed online reports.
(iv) Conclusion:- Contention of Mr. Kushal is not valid as non-generating of UDIN amounts to
professional misconduct under Clause 1, Part II of Second Schedule.
SJ Note: - Alternatively CA. may be held guilty under Clause 9 Part 1, Schedule 2
188. Record of Audit Assignments
J, a practicing Chartered Accountant has not maintained the record of audit assignments of the companies
on the ground that he is conducting lesser number of audits prescribed under Section 141 (3) (g) of the
Companies Act, 2013. (Nov-2018)
Ans. (i) As per Council General Guidelines 2008 (Chapter VII):-
A member of the Institute in practice shall be deemed to be guilty of professional misconduct,
• If he holds at any time appointment of more than the specified number of audit
assignments of the companies under Section 141(3)(g) and 143 of the Companies Act, 2013.
(ii) Requirement:-
A Chartered Accountants in practice as well as a firm in practice shall maintain a record of the audit
assignments accepted as laid out in guidelines issued by the Council of the ICAI under Part II of
Second Schedule to the Chartered Accountants Act, 1949 in respect of ceiling on audits containing
following particulars:
S. Name of the Registration Date of Date of Date on which Prescribed Form
No. Company Number appointment Acceptance filed with Registrar of Companies
(iii) In the instant case:- Mr. J, a practicing Chartered Accountant has not maintained the record of
audit assignment of the Companies on the ground that he is conducting lesser number of audits
prescribed under section 141 (3)(g) of the Companies Act, 2013 is not in accordance with Chapter VIII
of Central Council Guidelines 2008.
(iv) Conclusion:- Hence, Mr. J is guilty of professional misconduct under Part II of 2nd schedule of
Chartered Accountants Act 1949 as he has contravened the guidelines issued by the council.
189. Record of Audit Assignments
Write a short note on Record of Audit Assignments (as required by ICAI regulations).
Ans. (i) As per Council General Guidelines 2008(Chapter V):-
A member of the Institute in practice shall be deemed to be guilty of professional misconduct,
• If he holds at any time appointment of more than the specified number of audit
assignments of the companies under Section 141(3)(g) and 143 of the Companies Act, 2013.
(ii) Requirement:-
A Chartered Accountants in practice as well as a firm in practice shall maintain a record of the audit
assignments accepted as laid out in guidelines issued by the Council of the ICAI under Part II of
Second Schedule to the Chartered Accountants Act, 1949 in respect of ceiling on audits containing
following particulars:
(i) Name of Company Audit/ Assignment.
(ii) Registration No.
(iii) Date of appointment with Registrar of Companies.
(iv) Date of acceptance.
(v) Date on which - Form ADT-1filed with ROC

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Professional Ethics & Liabilities of Auditors

190. Undercutting of Fees

Mr. Rahul, a locally based Chartered Accountant, accepted an audit assignment at a fee lower than that
charged by the previous auditor, who was stationed in another town and had to spend a lot of money on
travel for which he did not charge separately.
Ans. (i) As per Council General Guidelines:-
• Council of ICAI has prescribed minimum audit fees for the practicing members. However,
prescribed minimum audit fee is recommendatory, not mandatory in nature.
• Fees in any professional assignment depend upon the mutual agreement and understanding
between the member and the client.
(ii) In the given case:- Mr. Rahul is a locally based Chartered Accountant, accepted an audit assignment
at a fee lower than that charged by the previous auditor, who was outstation based Chartered
Accountant and had to spend a lot of money on travel which was included in his audit fee and was
not charged by him separately.
(iii) Interpretation of guidelines with case:-
Since the previous auditor was stationed in another town and therefore, had to incur higher cost
on account of conveyance, and the previously the fee was decided on a composite basis inclusive
of travelling expenses of the auditor, it cannot be said that Mr. Rahul has accepted an audit
assignment based on under cutting of fees.
(iv) Conclusion:- Mr. Rahul will not be held guilty for misconduct.
191. Limits for tax audit
M/s JAZZ & Co. is a partnership firm consisting of two partners CA J and CA Z.
CA J is exclusively associated with the firm and is not doing practice in individual capacity, whereas CA Z is
doing practice in his individual capacity also.
For the financial year 2023-24, the firm has already undertaken audits and signed audit reports under
section 44AB/44AD of the Income Tax Act, 1961 as under:
Under section 44AB for Under section 44AB for Under section
corporate clients non-corporate clients 44AD/44ADA
CA J 30 60 20
CA Z 5 10 12
For the financial year 2023-24, CA Z has undertaken audits in individual capacity and signed audit reports
under section 44AB/44AD of the Income Tax Act, 1961 as under:
Under section 44AB for Under section 44AB for Under section
corporate clients non-corporate clients 44AD/44ADA
CA Z 4 9 8
For the financial year 2023-24, the firm is approached further to take up the following assignments:
3 tax audit assignments under section 44AB for corporate clients
4 tax audit assignments under section 44AD.
Advise whether the firm should accept the further tax audit assignments for the financial year 2023-24 as
above in the light of professional code of conduct. (May-2025)
Ans. Scan QR for Answer.
192. Signing of Tax Audit Report
A member of the institute shall not accept in a year more than the specified number of tax audits under
section 44AB of the Income Tax Act. Mr. Gaurav is a partner in M/s XYZ & Co., a firm of Chartered
Accountants with 6 partners. During the assessment year 2023-24, Mr. Gaurav alone had signed 290 tax
audit reports consisting of both corporate and non-corporate assesses. (SM)
Ans. (i) As per Chapter VI of Council General Guidelines 2008:- A member of the Institute in practice
shall not accept, in a financial year, more than the “specified number of tax audit assignments”
u/s 44AB of the Income-tax Act, 1961.

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Professional Ethics & Liabilities of Auditors
(ii) In the case of a firm of CAs in practice:-
• The “specified number of tax audit assignments” shall be construed as the specified number
of tax audit assignments for every partner of the firm.
• The specified number of tax audit assignments in the case of firm of CAs in practice, 60 tax
audit assignments per partner in the firm, in a financial year, whether in respect of corporate
or non-corporate assesses.
• It is further clarified by the Council of ICAI that tax audit report accepted by the firm of
Chartered Accountants can be signed by any partner on the behalf of the firm.
(iii) In the present case:- There are six partners in the firm and hence the firm can accept 360 tax
audit assignment and any partner can sign the tax audit report on the behalf of the firm.
(iv) Conclusion:- Mr. Gaurav can sign the 290 tax audit reports on behalf of the firm.
193. Signing of Tax Audit Report
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, 2022, the
partners have undertaken audits and signed audit reports under section 44AB/ 44AD of the Income Tax Act,
1961 as under:
Under Section 44AB Under Section 44AD
P 10 15
Q 60 5
R 100 5
Discuss whether there is any professional misconduct by the firm in regard to the aforesaid audits. (Nov-2019)
Ans. (i) As per Chapter VI of Council General Guidelines 2008:- A member of the Institute in practice
shall not accept, in a financial year, more than the “specified number of tax audit assignments”
u/s 44AB of the Income-tax Act, 1961.
(ii) In the case of a firm of CAs in practice:-
• The “specified number of tax audit assignments” shall be construed as the specified number of
tax audit assignments for every partner of the firm.
• The specified number of tax audit assignments in the case of firm of CAs in practice, 60 tax audit
assignments per partner in the firm, in a financial year, whether in respect of corporate or non-
corporate assesses.
• It is further clarified by the Council of ICAI that tax audit report accepted by the firm of Chartered
Accountants can be signed by any partner on the behalf of the firm.
• The audits conducted under Section 44AD, 44AE, 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”.
(iii) In the present case:- There are three partners in the firm and hence the firm can accept 180 tax
audit assignment and any partner can sign the tax audit report on the behalf of the firm. Firm has
accepted 170 tax audit assignments other than the audit under section 44AD.
(iv) Conclusion: - No Misconduct arises on part of Firm or partners.
194. Charging Excess Fees for a Professional Assignment
MNC Pvt. Ltd. appointed CA. Posh for some professional assignments like company’s ROC work, preparation of
minutes, statutory register etc. For this, CA. Posh 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. Posh to the Institute of
Chartered Accountants of India (ICAI) that he has charged excessive fees for the assignments comparative to
the scale of fees recommended by the Committee as well as duly considered by the Council of ICAI.
OR
M/s ABC, a partnership firm carrying on business has complained to the Institute of Chartered Accountants
of India (ICAI) that Mr. M, a Chartered Accountant has charged the firm excessive fees for a professional
assignment.
Ans. (i) The prescribed scale of fees for the professional assignments done by the chartered accountants is
recommendatory in nature.
(ii) 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

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Professional Ethics & Liabilities of Auditors
(iii) In the given case:- CA. Posh has charged excess fees comparative to the scale of fees recommended
by the Committee 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.
(iv) Conclusion:- From the above facts and provisions, it may be concluded that CA. Posh is not liable for
any misconduct under the Chartered Accountants Act, 1949. Therefore, the contention of MNC Pvt.
Ltd. is not tenable.
195. Guidelines for Networking
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 2021-22. Comment as per Chartered Accountant Act, 1949 - Guidelines for
Networking. (Dec-2021)
Ans. (i) 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.
(ii) 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 Ltd., retires AJ &
Associates and appoints PK & Co. as auditor for the year 2021-22. 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.
(iii) Conclusion: -In view of above Guidelines for Networking PK & Co., is disqualified for appointment
as an auditor of B Ltd.
196. ESB: GeM
GeM (e-market place) is a public procurement portal which provides opportunities to start-ups,
entrepreneurs etc. to showcase their innovative products and services to government buyers and engage in
public procurement. The Government e Marketplace Special Purpose Vehicle (GeM SPV), a 100%
government owned and section 8 (Non-Profit) company under the Ministry of Commerce, Government of
India has been incorporated under the Companies Act, 2013 to develop, manage and maintain GeM platform.
Whether a firm of Chartered Accountants can register on GeM portal for rendering professional services to
government departments? (MTP-May-2024, SM)
Ans. (i) Provision:
(a) As per provisions of Council Guidelines for Advertisement, 2008, it is not permissible for
members to list themselves with online application based service provider Aggregators,
wherein other categories like businessmen, technicians, maintenance workers, event organizers
etc. are also listed.
(b) Further, as per explanation to Clause (6) of Part I of First Schedule to the Chartered
Accountants Act, 1949,
• the government departments, government Companies/ corporations, courts, cooperative
societies and banks and other similar institutions prepare panels of Chartered Accountants
for allotment of audit and other professional work.
• Where the existence of such a panel is within the knowledge of a 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 Chartered Accountant to make roving enquiries
by applying to any such organization for having his name included in any such panel.
(c) It is permissible to quote fees on enquiries being received or respond to tenders from the
organizations requiring professional services, which maintain such panel.
(d) Getting registered on GeM portal by members does not appear to amount either to
empanelment or listing on Aggregator.

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Professional Ethics & Liabilities of Auditors
(e) In Aggregator, it is the third party which is operating, and not the client itself. GeM is operated by
the client itself.
(f) It is a pre-requirement of rendering professional services to the Government departments, as
stipulated by them, and be considered as ancillary requirement to providing services to the
Government departments.
(g) Firms of Chartered Accountants are permitted to register on GeM Portal for rendering
professional services as there is no violation of the ethical norms of the Institute in
registering on the GeM portal and such registration on the Portal is a pre-requirement for
providing services to the Government departments/ organisations.
(h) However, firms should ensure compliance with the tender guidelines issued by the Institute
while participating in tender or bid floated through GeM Portal. The ICAI has made an
announcement in relation to the above.
197. Council General Guidelines 2008 - Chapter IX
(a) CA Vaayu is the auditor of Viva Limited having a turnover of more than ` 200 Crores. The audit fee for
the year is fixed at ` 80 Lakhs. During the year, the company offers CA Vaayu an assignment of
representation before Income Tax Appellate Tribunal for certain matter for remuneration of ` 1.75
crores. CA Vaayu accepted the assignment. Discuss action of CA Vaayu with reference to the provisions
of the Chartered Accountants (Amendment) Act, 2006 and Schedules thereto. (SM)
(b) Sanjeev & Associates, a firm of Chartered Accountants responded to a tender from a PF Office, Chembur
for filing quarterly e-TDS returns. The terms of tender are as follows:
(i) Earnest Money Deposit of ` 7,500/-
(ii) It is open for all categories
(iii) Maximum fees of ` 7,500/- per quarter
Discuss whether Sanjeev and Associates can respond to the said tender with reference to provisions of the
Chartered Accountants (Amendment) Act, 2006 and Schedules thereto. (RTP-Nov-2024, SM)
Ans. (a)
(i) Provision:
As per the 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.
(ii) In the given case: Company offers CA Vaayu, the statutory auditor, an assignment of
representation before Income Tax Appellate Tribunal for remuneration of ` 1.75 Crores.
(iii) Conclusion: In view of the above provision, it would not be misconduct on Vaayu’s part if he
accepts the assignment of representation before Income Tax Appellate Tribunal for remuneration
of ` 1.75 crore.
(b)
(i) Provision:
(a) As per Clause 6 of Part I of the First Schedule to the Chartered Accountants Act, 1949,
• a Chartered Accountant in practice shall 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.

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(b) 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 organisations from time to time and securing professional work as a consequence.
(c) However, as per the Guidelines 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 organisation or user of professional services in areas of services which are
exclusively reserved for chartered accountants, such as audit and attestation services.
(d) However, such a 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.
(ii) In the given case: Sanjeev & Associates responded to a tender from a PF Office, Chembur for filing
quarterly e-TDS returns.
(iii) Conclusion: Sanjeev & Associates can respond to the said tender as the tender is open for all the
categories i.e. it is open to other professionals along with the Chartered Accountants.
198. Tax representation services by auditor
CA Dhanush is the auditor of Jivi Limited having a turnover of more than ` 300 Crores. The audit fee for the
year is fixed at ` 2.25 crore. During the year, the company offers CA Dhanush an assignment of
representation before Income- tax Appellate Tribunal for certain matter for remuneration of ` 2.85 crores.
CA Dhanush accepted the assignment. Discuss action of CA Dhanush with reference to the provisions of the
Chartered Accountants (Amendment) Act, 2006 and Schedules thereto. (MTP-May-2025)
Ans. As per the 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.
In the given case, the company offers CA Dhanush, the statutory auditor, an assignment of representation
before Income Tax Appellate Tribunal for remuneration of ` 2.85 Crores which exceed the fees payable for
audit.
Conclusion: In view of the above provision, it would not be misconduct on Dhanush’s part if he accepts the
assignment of representation before Income Tax Appellate Tribunal for remuneration of ` 2.85 crore since it
is covered under exception.

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