CHAPTER 19: PROFESSIONAL

ETHICS & LIABILITIES OF

AUDITORS
CHAPTER OVERVIEW

This chapter covers the professional ethics, guidelines, and expected standards of conduct for
Chartered Accountants. It is divided into sections for systematic learning.

OVERVIEW OF THE CODE OF ETHICS

The Code of Ethics sets ethical guidelines for Chartered Accountants, ensuring they uphold
professional integrity.

THE CHARTERED ACCOUNTANTS ACT, 1949

This Act regulates the Chartered Accountancy profession in India, setting rules for
professional conduct.

COUNCIL GUIDELINES

The Council of ICAI issues guidelines to help members adhere to ethical and professional
standards.

RECOMMENDED SELF-REGULATORY MEASURES

Chartered Accountants should voluntarily follow ethical guidelines to maintain professional

integrity.

MEMBERSHIP OF THE INSTITUTE

A person becomes a member of ICAI after completing the prescribed qualifications and
training. Members must follow the ethical code of conduct.

TYPES OF MISCONDUCT & DISCIPLINARY PROCEDURES

Misconduct refers to any violation of ethical guidelines. ICAI has a structured disciplinary
process to handle such cases.

SCHEDULES TO THE ACT

The Act contains two schedules listing different types of misconduct and related disciplinary
actions.

CHARTERED ACCOUNTANTS IN PRACTICE

CAs who provide audit, taxation, and advisory services must follow professional ethics
strictly.

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CHARTERED ACCOUNTANTS IN SERVICE & OTHERWISE
OCCUPIED

CAs working in companies or other roles must also adhere to ethical guidelines, ensuring
fairness and integrity.

PROFESSIONAL & OTHER MISCONDUCT

Misconduct can be professional (violating ICAI regulations) or other misconduct (any act
harming the profession’s reputation).

FIRST SCHEDULE

Lists less serious offenses like professional negligence, improper advertising, or sharing fees
improperly.

SECOND SCHEDULE

Lists serious offenses like fraud, dishonesty, and gross professional misconduct.

INTRODUCTION TO ETHICS

Ethics refers to moral principles guiding behavior. Professional ethics define the conduct
expected from professionals.

"Ethics is the moral principle that governs a person's behavior or how an activity is
conducted." – Oxford Dictionary

Professional ethics ensure that Chartered Accountants act responsibly towards the public,
shareholders, government, and other stakeholders.

WHY CODE OF ETHICS IS IMPORTANT?

The credibility of the CA profession is based on trust. Ethics ensure that members maintain
integrity and independence.

 Ethics have existed since ancient times as rules of acceptable behavior.

 The CA profession relies on credibility, which is built through ethical behavior.
 Independence is a key principle—auditors must remain unbiased.
 The Code of Ethics helps protect the reputation of Chartered Accountants.

ICAI’S MOTTO: ‘YA ESHA SUPTESHU JAGRATI’

The ICAI motto, taken from the Kathopanishad, means ‘eternal vigilance’—staying awake
when others are asleep.

PUBLIC INTEREST RESPONSIBILITY OF CHARTERED

ACCOUNTANTS

CAs must act in the public interest, ensuring transparency and trust in financial matters.

CODE OF ETHICS AS A PROTECTIVE SHIELD

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The Code of Ethics acts as a shield, safeguarding the integrity and reputation of Chartered
Accountants, ensuring they command respect.

OVERVIEW OF THE CODE OF ETHICS

REVISED CODE OF ETHICS – STRUCTURE

The revised Code of Ethics consists of different parts that outline ethical guidelines for
Chartered Accountants.

PART 1: COMPLYING WITH THE CODE, FUNDAMENTAL PRINCIPLES,

AND CONCEPTUAL FRAMEWORK

This part applies to all professional accountants and covers fundamental principles and a
framework for ethical decision-making.

PART 2: PROFESSIONAL ACCOUNTANTS IN SERVICE

This part applies to accountants working in organizations, whether in executive or non-

executive roles.

 Includes accountants working in commerce, industry, or service sectors.

 Covers accountants in public sector roles.
 Includes those in education, regulatory bodies, or non-profit organizations.
 Also applies to accountants working in public practice as employees of a firm.

PART 3: PROFESSIONAL ACCOUNTANTS IN PUBLIC PRACTICE

This part provides ethical guidelines for accountants offering professional services to clients.

INDEPENDENCE STANDARDS

Professional accountants must maintain independence while offering assurance services.

This is divided into two parts:

PART 4A: INDEPENDENCE FOR AUDIT AND REVIEW ENGAGEMENTS

Applies to auditors and accountants conducting audit and review engagements.

If a CA audits a company, they must not have any personal or financial connection with it.

PART 4B: INDEPENDENCE FOR ASSURANCE ENGAGEMENTS OTHER THAN

AUDIT AND REVIEW ENGAGEMENTS

Applies to accountants conducting assurance services that are not audit or review-related.

If a CA provides assurance on a company’s internal controls, they must be independent.

GLOSSARY

Contains definitions of key terms and abbreviations used in the Code of Ethics.

The term "audit engagement" is defined to cover both audit and review services.

STRUCTURE OF THE CODE OF ETHICS

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The Code is divided into sections that address specific ethical topics, each with a
structured format:

INTRODUCTION

Explains the subject matter, introduces key requirements, and provides definitions for clarity.

Before discussing "Independence," the introduction defines what independence means in

auditing.

REQUIREMENTS

Lists general and specific obligations that professional accountants must follow.

Auditors must not accept gifts from clients to maintain independence.

APPLICATION MATERIAL

Provides additional explanations, examples, and illustrations to help understand and apply the
Code.

If a CA is unsure whether a client relationship affects independence, the application material

provides guidance on evaluating risks.

COMPLIANCE WITH THE CODE

All professional accountants must follow the Code of Ethics. However, in cases where laws
or regulations conflict with the Code, the legal provisions take priority. The accountant must
still comply with all other parts of the Code.

If government regulations allow a specific business relationship that the Code restricts, the
CA follows the law but remains ethical in all other areas.

FUNDAMENTAL PRINCIPLES

Professional accountants must follow fundamental principles to maintain integrity, trust, and
professionalism in their work.

INTEGRITY – SUBSECTION 111

Integrity means being honest and straightforward in professional and business relationships.
Accountants must act with fairness and truthfulness.

 Accountants should not be associated with any information that:

 Contains false or misleading statements.
 Includes incorrect information due to negligence.
 Omits or hides important details that could mislead others.

If an accountant realizes they are associated with such information, they should either correct
it or disassociate themselves.

Example: If an auditor finds errors in a financial report, they should correct them or provide
a modified report instead of signing off on incorrect data.

OBJECTIVITY – SUBSECTION 112

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Objectivity means accountants must make unbiased decisions without being influenced by
personal relationships, conflicts of interest, or external pressure.

 Accountants must not let bias or pressure from others affect their judgment.
 If an accountant’s judgment is unduly influenced, they should avoid undertaking the
professional task.

Example: An auditor should not approve a company’s financial statements if they are
pressured by the management to overlook fraud.

PROFESSIONAL COMPETENCE AND DUE CARE – SUBSECTION 113

Accountants must continuously update their knowledge and skills to provide competent
services based on current laws and standards.

 Maintain and improve professional knowledge to provide competent services.

 Act diligently and follow professional standards.
 Use sound judgment when applying knowledge in professional tasks.
 Keep up with new developments in accounting and business.
 Continue professional development to stay competent.
 Ensure employees under their authority receive proper training and supervision.
 Inform clients or employers of any limitations in services provided.

Example: An accountant working on tax compliance must stay updated with the latest tax
laws to give correct advice to clients.

CONFIDENTIALITY – SUBSECTION 114

Accountants must keep client and employer information confidential unless legally required
to disclose it.

 Do not share confidential information, even in casual conversations.

 Keep sensitive information private within the firm or organization.
 Do not use confidential details for personal or third-party gain.
 Maintain confidentiality even after leaving the organization.
 Ensure employees and advisors also respect confidentiality.

However, disclosure is permitted or required in some cases:

 When required by law.

 If the client or employer allows it.
 To comply with Peer Review or Quality Review by ICAI.
 When responding to regulatory investigations.
 To protect professional interests in legal cases.
 To comply with technical and ethical standards.

Example: If a court orders an auditor to disclose financial details of a company under

investigation, they must comply with the law while ensuring minimal exposure of sensitive
data.

THREATS, EVALUATION OF THREATS, AND SAFEGUARDS

The conceptual framework provides a structured approach for professional accountants to

handle threats that could affect compliance with fundamental principles.

IDENTIFYING, EVALUATING, AND ADDRESSING THREATS

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Professional accountants should:

 Identify threats to compliance with fundamental principles.

 Evaluate the severity of the threats.
 Address the threats by eliminating them or reducing them to an acceptable level.

CATEGORIES OF THREATS

Threats to professional accountants fall into five main categories:

SELF-INTEREST THREAT

When a financial or other personal interest influences the accountant's judgment or behavior.

Example: An accountant holds shares in a company they are auditing, leading to a conflict
of interest.

SELF-REVIEW THREAT

When an accountant evaluates their own previous work, making it hard to remain objective.

Example: An accountant audits financial statements they originally prepared.

ADVOCACY THREAT

When an accountant supports a client’s position so strongly that objectivity is compromised.

Example: An accountant represents a client in a legal dispute, losing impartiality.

FAMILIARITY THREAT

When a close relationship with a client affects the accountant’s ability to act independently.

Example: An accountant has been auditing the same company for many years and becomes
too trusting.

INTIMIDATION THREAT

When an accountant is pressured to act in a certain way, impacting their objectivity.

Example: A manager threatens to fire an accountant unless they approve financial

statements.

EXAMPLES OF THREATS IN DIFFERENT SITUATIONS

SELF-INTEREST THREATS

 Holding shares in a client’s company.

 Quoting extremely low fees for a project, making it hard to meet standards.
 Having access to confidential information that could be used for personal gain.
 Discovering a major error in past work but hesitating to report it due to personal
reputation concerns.

SELF-REVIEW THREATS

 Auditing financial systems that the accountant helped design.

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 Reviewing financial records originally prepared by the same accountant.

ADVOCACY THREATS

 Promoting a client’s shares in public.

 Acting as a legal representative for a client in court.
 Lobbying for a client’s legislative interests.

FAMILIARITY THREATS

 An accountant’s family member is a senior officer in the client’s company.

 An audit team member has been auditing the same company for too long.

INTIMIDATION THREATS

 Threat of dismissal for not agreeing with a client’s accounting treatment.

 Pressure to accept incorrect financial reporting.
 A client using their expertise to manipulate an accountant’s decisions.

EVALUATION OF THREATS

Accountants must assess whether threats are at an acceptable level using the Reasonable and
Informed Third Party Test.

 Acceptable Level: When an objective person would agree that compliance with
fundamental principles is maintained.
 Reasonable and Informed Third Party Test: Determines whether another
knowledgeable, independent person would reach the same conclusion.

ADDRESSING THREATS

If a threat is not at an acceptable level, the accountant must take action:

 Eliminate the circumstances creating the threat.

 Apply safeguards to reduce the threat.
 Decline or end the professional activity if threats cannot be eliminated.

SAFEGUARDS AGAINST THREATS

Actions taken to reduce threats to an acceptable level. Examples include:

 Assigning extra personnel to manage workload and ensure compliance. (Self-Interest

Threat)
 Appointing an independent reviewer to check the work. (Self-Review Threat)
 Separating teams for assurance and non-assurance services. (Self-Review, Advocacy, or
Familiarity Threat)
 Involving an external firm for an independent review. (Multiple Threats)
 Keeping teams separate when handling confidential matters. (Self-Interest Threat)

NON-COMPLIANCE WITH LAWS AND REGULATIONS (NOCLAR)

DEFINITION OF NOCLAR

When a professional accountant provides a service or works for an employer, they might
come across cases of non-compliance with laws and regulations (NOCLAR). This could be
committed by the client, employer, management, or employees.
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WHAT IS CONSIDERED AS NOCLAR?

 Acts of omission or commission (intentional or unintentional) against prevailing laws or

regulations.
 Committed by a client, employer, management, or employees.
 Does not include personal misconduct unrelated to business activities.

A company falsifies financial statements to evade taxes—this is NOCLAR. However, if a

director commits personal fraud outside work, it is not NOCLAR.

EXAMPLES OF NOCLAR AS PER IESBA

 Fraud, corruption, and bribery

 Money laundering, terrorist financing, and proceeds of crime
 Securities markets and trading
 Banking and other financial products and services
 Data protection
 Environmental protection
 Public health and safety
 Tax and pension liabilities and payments

If a company disposes of hazardous waste improperly, it falls under NOCLAR

(Environmental Protection).

KEY FACTS ABOUT NOCLAR

 During Professional Service: NOCLAR applies if a professional accountant encounters

non-compliance while providing services. However, they are not responsible for
investigation or full compliance enforcement.
 Expertise Not Required: Accountants are expected to use professional judgment but are
not required to be legal experts.
 Matters Not Covered: Trivial issues and personal misconduct unrelated to business
activities.
 Disclosure Exceptions: If disclosing NOCLAR is against the law, it is not required.

An accountant notices financial fraud but is not required to act as a legal investigator.
However, they must assess whether to report it.

APPLICABILITY OF NOCLAR IN INDIA

FOR PROFESSIONAL ACCOUNTANTS IN SERVICE (SECTION 260)

Applies to senior professional accountants in listed companies who have decision-making

power over resources.

A CFO manipulating revenue figures in a listed company must be reported under NOCLAR.

FOR PROFESSIONAL ACCOUNTANTS IN PUBLIC PRACTICE (SECTION 360)

Applies to auditors of companies listed on recognized stock exchanges in India with a net
worth of ₹250 crores or more.

An auditor finds that a large listed company is concealing liabilities—this should be

addressed under NOCLAR.

COMPARISON: NOCLAR VS. SA 250

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SCOPE OF APPLICABILITY

 SA 250: Applies only to audits, not other assurance engagements.

 NOCLAR: Applies to professional accountants in both service and practice.

NATURE OF LAWS COVERED

 SA 250: Covers laws that affect financial statements (e.g., tax, labor laws).
 NOCLAR: Includes broader non-compliance that causes serious financial or non-
financial harm.

STAKEHOLDERS CONSIDERED

 SA 250: Does not define stakeholders.

 NOCLAR: Considers impact on investors, creditors, employees, and the public.

REPORTING OF IMMINENT BREACH

 SA 250: No provision for reporting imminent harm.

 NOCLAR: Requires accountants to assess whether to report an imminent law breach to
authorities.

If an accountant learns that a company is about to commit tax fraud, NOCLAR allows
immediate reporting to tax authorities.

PROCESS FOR RESPONDING TO NOCLAR

 Understand the issue and gather relevant information.

 Discuss with management or those charged with governance.
 Seek expert advice if necessary.
 Decide whether further action is needed, including reporting.
 Assess if disclosure is required to an authority.
 Consider urgent cases where immediate action is needed.

If an accountant finds that a company is involved in money laundering, they should consult
senior management and consider reporting it to regulatory bodies.

CONFIDENTIALITY IN NOCLAR

FOR PRACTICING CHARTERED ACCOUNTANTS

Under the Chartered Accountants Act, 1949, a CA in practice cannot disclose client
information without consent, unless required by law.

FOR EMPLOYED CHARTERED ACCOUNTANTS

Employees cannot disclose confidential company information unless required by law or

permitted by the employer.

An auditor cannot share sensitive client financial data unless legally mandated.

DOCUMENTATION REQUIREMENTS IN NOCLAR

 Record management’s response to the issue.

 Document actions considered, judgments made, and final decisions.
 Ensure compliance with the "reasonable and informed third-party test."
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 Maintain additional documentation under auditing standards.

An accountant must document discussions about NOCLAR issues with the company’s board
and legal team.

MEMBERSHIP OF THE INSTITUTE

When an applicant’s membership application is accepted by the Council, their name is

entered into the Register, and they receive a membership certificate.

PARTICULARS OF THE REGISTER (SECTION 19 OF CA ACT,

1949)

 Full name, date of birth, domicile, residential and professional address.

 Date of entry of name in the Register.
 Qualifications.
 Whether the member holds a Certificate of Practice (COP).
 Any other prescribed particulars.

DISABILITIES FOR THE PURPOSE OF MEMBERSHIP (SECTION

8)

Certain conditions prevent a person from being a member of the Institute. If any of these
apply, their name cannot be entered in the Register.

 Below 21 years of age at the time of application. (Example: A 19-year-old cannot

apply.)
 Declared of unsound mind by a competent court. (Example: A person with severe
mental illness under legal guardianship.)
 Undischarged insolvent. (Example: A person who has declared bankruptcy but hasn’t
settled debts yet.)
 Discharged insolvent without court certification of misfortune.
 Convicted of an offense involving moral turpitude or misconduct unless pardoned or
disability removed by the Central Government. (Example: Fraud conviction leading
to imprisonment.)
 Removed from membership due to professional or other misconduct.

If a person fails to disclose any of these disabilities, it is considered professional misconduct.

TYPES OF MEMBERS OF THE INSTITUTE (SECTION 5)

ASSOCIATE MEMBER

A person whose name is in the Register is an Associate and can use A.C.A. after their name.

FELLOW MEMBER

A Fellow Member (F.C.A.) is an experienced Associate who has either:

 Practiced in India continuously for 5 years.

 Been an Associate for at least 5 years and has qualifications prescribed by the Council.

REMOVAL OF NAME FROM THE REGISTER (SECTION 20)

The Council may remove a member’s name for the following reasons:
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 Death.
 Personal request for removal.
 Non-payment of prescribed fees.
 Found to have had a disability (as per Section 8) when their name was entered or later.

If an order under this Act removes a person from membership, their name is also removed
from the Register.

RESTORATION OF MEMBERSHIP (REGULATION 19 OF CA

REGULATIONS, 1988)

A removed member can apply for reinstatement if they meet eligibility conditions and
pay:

 Arrears of annual membership fees.

 Entrance fee.
 Additional fees as determined by the Council.

EFFECTIVE DATE OF RESTORATION

 If applied within the same year of removal, restoration is from the date of removal.
 If removed by order (Disciplinary Committee, Board, or Court), restoration follows the
order’s terms.
 In all other cases, restoration is from the date of application and fee payment.

PENALTY FOR FALSELY CLAIMING MEMBERSHIP (SECTION

24)

A person falsely claiming to be a Chartered Accountant is subject to penalties.

 Claiming to be a CA without membership.

 Using the Heading 1 “Chartered Accountant” without being a member.
 Practicing as a CA without a Certificate of Practice (COP).

PUNISHMENT

 First offense: Fine up to ₹1,000.

 Repeat offense: Fine up to ₹5,000 or imprisonment up to 6 months or both.

Example: In the case of Prem Batra (1989), the accused was found guilty under Section 24
for falsely claiming to be a CA and was fined. On failure to pay, he was sentenced to 3
months of rigorous imprisonment.

CHARTERED ACCOUNTANTS IN PRACTICE

A practicing Chartered Accountant (CA) is a member of the Institute who holds a Certificate
of Practice (COP). This also includes members who are deemed to be in practice as per the
Chartered Accountants Act, 1949.

SIGNIFICANCE OF THE CERTIFICATE OF PRACTICE

REQUIREMENT OF COP FOR PRACTICE

Section 6 of the Chartered Accountants Act, 1949 states that:

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 A member cannot practice in India or abroad without obtaining a Certificate of Practice
from the Council.
 This rule does not apply to registered accountants or restricted certificate holders who
were practicing before the Act commenced. They have one month after the first Council
meeting to comply.
 Every CA must pay an annual fee for the COP as determined by the Council. The fee is
due by April 1st every year.
 The Council can cancel a COP under prescribed circumstances.

A CA without a COP cannot accept engagements for services that a practicing CA provides,
even if those services do not require special qualifications.

Council’s View on Practice Without COP

 If a person becomes a member of ICAI, they must follow the Chartered Accountants
Act and its Regulations.
 Even if suspended from practice, a CA cannot represent clients before tax
authorities in any other capacity.
 A CA removed from membership due to misconduct cannot appear before tax
authorities or similar bodies during the removal period.

CANCELLATION AND RESTORATION OF CERTIFICATE OF

PRACTICE

CANCELLATION OF COP (REGULATION 10)

A COP can be canceled in the following cases:

 If the member’s name is removed from the Register.

 If the COP was issued based on false, misleading, or incorrect information, or by mistake.
 If the member has ceased to practice.
 If the member fails to pay the annual COP fee by September 30 of that year.

If a COP is canceled, the holder must return it to the ICAI Secretary.

RESTORATION OF COP (REGULATION 11)

The Council may restore a canceled COP if:

 The CA submits an application in the approved Form.

 The required fee is paid.
 The application and payment are received before the end of the relevant year.

Example: If a CA’s COP was canceled due to non-payment of the annual fee and they submit
the application with the fee within the same year, their COP can be restored.

DEEMED TO BE IN PRACTICE

DEFINITION AS PER THE ACT

A Chartered Accountant (CA) is considered to be in practice if they perform professional

services for remuneration, individually or in partnership with other CAs or recognized
professionals.

 Engages in Accountancy Practice – If a CA is involved in accounting work, they are

considered to be in practice.

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 Auditing & Verification – If a CA audits or verifies financial records, books of accounts,
or certifies financial statements, they are deemed to be in practice.
 Professional Services – If a CA provides professional assistance in accounting
procedures, financial data presentation, or certification, they qualify as being in practice.
 Other Recognized Services – If a CA performs any other services permitted by the ICAI
Council, they are considered to be in practice.

A CA is in practice even if they offer services without having actual clients. Example: A
CA who sets up a firm advertising tax filing services is in practice, even if they haven't served
any clients yet.

SALARIED EMPLOYEES IN CA FIRMS - SPECIAL CASE

A CA working as a salaried employee in a CA firm is not considered a practicing CA.

However, for training articled assistants, they are deemed to be in practice.

A CA employed in a CA firm cannot sign audit reports but can train articled assistants.

MANAGEMENT CONSULTANCY & OTHER SERVICES

A practicing CA can provide management consultancy but cannot perform statutory audits or
tax representations under this category.

 Financial Management & Planning – Advising businesses on financial policies, fund

allocation, and investment planning. Example: A CA helping a company plan its
budget for expansion.
 Capital Structure Planning – Advising on the best mix of equity and debt for
business financing. Example: A CA suggesting a startup to raise funds via venture
capital.
 Project Reports & Feasibility Studies – Preparing financial projections for new
business projects. Example: A CA analyzing the profitability of a new manufacturing
unit.
 Cost Control & Value Analysis – Helping businesses cut costs and improve
efficiency. Example: A CA advising a retail chain on reducing procurement costs.
 Business Policy & Corporate Planning – Developing long-term strategies for
business growth. Example: A CA helping a firm diversify into new markets.
 Personnel Recruitment & Training – Assisting companies in hiring skilled
professionals. Example: A CA setting up an incentive plan for sales employees.
 IT & System Analysis – Helping businesses develop financial software and
automation. Example: A CA advising a company on choosing accounting software.
 Valuation Services – Valuing shares and businesses, including acting as a Registered
Valuer. Example: A CA valuing a company before a merger.
 Restrictions on Management Consultancy

A CA practicing management consultancy cannot offer:

 Statutory or tax audit services.

 Tax representation or advice.
 Investment banking or brokering services.
 Services as a liquidator, trustee, executor, or arbitrator.

ADMINISTRATIVE SERVICES (LIMITED SCOPE)

CAs can assist clients in routine clerical work but cannot use professional judgment in these
tasks.

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 Filing forms for clients.
 Submitting statutory documents.
 Monitoring filing deadlines.

A CA reminding a company about its GST return filing date but not making financial
decisions for them.

OTHER PERMITTED SERVICES

CAs in practice can also provide:

 Quality, Environmental, and Energy Audits.

 Recovery Consultancy for banks.
 Insurance Financial Advisory Services under IRDA Act, 1999.
 Insolvency Professional services under IBC, 2016.

A CA acting as a resolution professional in an insolvency case.

AUDITOR'S RESTRICTIONS AS PER COMPANIES ACT, 2013 (SECTION

144)

Auditors cannot offer certain services to the company they audit, its holding company, or
subsidiary.

 Accounting & Bookkeeping – Example: A CA auditing a company cannot also maintain

its financial records.
 Internal Audit – Example: A CA cannot conduct an internal audit for a company they
audit.
 Designing Financial Systems – Example: A CA cannot create an accounting software
system for their audit client.
 Investment Advisory & Banking Services – Example: A CA cannot advise an audit
client on stock market investments.
 Outsourced Financial Services – Example: A CA cannot provide payroll processing for
their audit client.
 Management Services – Example: A CA cannot act as a business consultant for an audit
client.

Key Rule – A CA cannot audit a company while also offering other financial services to
them.

SPECIAL CASES WHERE CAS ARE STILL IN PRACTICE

A CA is considered in practice even if:

 They only offer services and haven’t acquired any clients. Example: A CA advertises
audit services but hasn’t secured a client yet.
 They are serving in the armed forces. Example: A CA working in the Indian Army
Finance Corps is still deemed to be in practice.
 They act as a liquidator, trustee, or receiver under government or legal
appointments. Example: A CA appointed as an official liquidator by a court.

COMPANIES NOT TO ENGAGE IN ACCOUNTANCY

RESTRICTIONS ON COMPANIES PRACTICING AS CHARTERED

ACCOUNTANTS

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Section 25 of the Chartered Accountants Act, 1949 states that no company, whether
incorporated in India or elsewhere, shall practice as a Chartered Accountant.

INCLUSION OF LLPS WITH A COMPANY AS A PARTNER

For this section, the term "company" also includes any Limited Liability Partnership (LLP)
that has a company as its partner.

PENALTIES FOR CONTRAVENTION

If a company violates this provision:

 On the first conviction, a fine up to ₹1,000 may be imposed.

 On subsequent convictions, a fine up to ₹5,000 may be imposed.

AUDITORS IN LLPS AND RESTRICTIONS

As per Section 141(2) of the Companies Act, 2013, if an LLP is appointed as an auditor, only
its Chartered Accountant partners can act and sign on behalf of the firm.

 LLPs can be appointed as auditors under the Companies Act, 2013.

 However, an LLP cannot engage in practice if it has a company as a partner (as per the
Chartered Accountants Act, 1949).

Example: If an LLP named "ABC LLP" has only individual CA partners, it can take audit
assignments. But if a company "XYZ Ltd." becomes a partner in "ABC LLP," then "ABC
LLP" cannot practice as a Chartered Accountant firm.

MEMBER IN PRACTICE PROHIBITED FROM USING OTHER

DESIGNATIONS

USE OF ‘CA’ PREFIX

Members of ICAI are allowed to use "CA" as a prefix before their name, whether in practice
or not.

RESTRICTION ON USING OTHER DESIGNATIONS

As per Section 7 of the Chartered Accountants Act, 1949, a practicing CA:

 Cannot use any designation other than "Chartered Accountant."

 Cannot add descriptions like "Financial Consultant" or "Tax Consultant."
 Can, however, use additional qualifications if recognized by ICAI (e.g., ACMA or FCMA
for Cost Accountants).

Example: A CA holding a Cost Accountant qualification can write "CA Ramesh, ACMA," but
not "Ramesh, Cost Accountant."

DESIGNATION FOR MERCHANT BANKERS & ADVISORS

Members can register as Category IV Merchant Bankers under SEBI rules and act as
advisors. However:

 They can be listed as "Advisors to an Issue" in offer documents, but the name should not
appear prominently.

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Example: If CA Rajesh’s firm advises a company issuing shares, his name can be mentioned
under "Advisor," but not in large, bold letters.

RESTRICTIONS FOR DIRECTORS, POLITICAL PARTY MEMBERS & CLUBS

 Chartered Accountants who are directors in companies cannot mention this in their CA-
related documents.
 Members active in political parties or clubs also cannot use these positions for
professional promotion.

Example: If CA Amit is a director at "ABC Ltd.," he cannot write "CA Amit, Director, ABC
Ltd." on his CA visiting card.

USING FOREIGN MEMBERSHIPS & ADDITIONAL QUALIFICATIONS

 If a CA is a member of a foreign Institute recognized by ICAI (via MoU or MRA), he can

mention it.
 Supreme Court clarified that “other qualifications” mean non-accountancy degrees (e.g.,
MBA, LLB).
 CAs cannot use “Income Tax Consultant,” “Cost Accountant,” “Management
Consultant,” or “Corporate Lawyer” in professional documents.

Example: A CA with an MBA can write "CA Rohit, MBA" but not "CA Rohit, Financial
Consultant."

USING CPA OR OTHER FOREIGN DESIGNATIONS

 CAs cannot use "CPA" (Certified Public Accountant) on visiting cards.

MAINTENANCE OF BRANCH OFFICES

As per Section 27 of the CA Act:

 If a CA firm has multiple offices, each office must have a separate member-in-charge.
 Failure to comply is considered professional misconduct.

EXEMPTIONS FOR HILL AREAS

CAs in hill areas are allowed to open temporary offices in cities for up to 3 months
annually, provided:

 The main office remains open.

 The temporary office is not displayed permanently.
 ICAI is notified before opening and closing the temporary office.

Example: If CA Meena practices in a hilly area but needs an office in Delhi for winter, she
can open it for 3 months but must notify ICAI.

BRANCH OFFICE RULES

 A CA in charge of a branch must be either a partner or a full-time paid assistant.

 A CA must be physically present for at least 182 days in the branch office per year.

Example: If CA Rahul runs a firm with branches, he must either be present 182 days at each
branch or appoint another CA.

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EXEMPTIONS FOR SECOND OFFICE

A CA firm can open a second office without a separate in-charge if:

 It is in the same premises as the first office.

 It is within the same city.
 It is within 50 km of the municipal limits of the first office.

Example: A firm with its head office in City X can have a branch 45 km away in City Y
without an in-charge.

KYC NORMS FOR CHARTERED ACCOUNTANTS IN PRACTICE

ICAI mandates KYC (Know Your Client) norms for attestation functions, including:

FOR INDIVIDUAL CLIENTS

 Name, PAN/Aadhar, Business Details.

 Last audited financial statements.

FOR CORPORATE CLIENTS

 Company name, address, and parent company (if applicable).

 PAN, CIN, Directors’ details.

FOR NON-CORPORATE ENTITIES

 Name, PAN, Business Description.

 Partner details (PAN/Aadhar/DIN).

Example: Before auditing "XYZ Ltd.," a CA must collect its PAN, directors’ details, and
financial reports.

CHARTERED ACCOUNTANTS IN SERVICE

A Chartered Accountant in Service refers to a professional accountant employed or

engaged in an executive or non-executive capacity in various sectors such as:

 Commerce, industry, and services

 Public sector
 Education sector
 Not-for-profit organizations
 Regulatory or professional bodies

These accountants can be full-time employees or work on a contractual basis.

EXAMPLE:

A CA working as a CFO in a company or as a consultant for an NGO falls under this

category.

DISCIPLINARY PROCEDURE

The disciplinary procedure for misconduct by Chartered Accountants is governed by

Sections 21, 21A, 21B, 21C, 22A, and 22G of the Chartered Accountants Act and follows
a structured process:
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PROCESS OVERVIEW

 A complaint against a CA is submitted to the Disciplinary Directorate.

 If the CA is found guilty under the First Schedule, they may face:
 Removal from the register
 A fine of ₹1,000,000
 If guilty under the Second Schedule, penalties may include:
 Removal for a longer period
 A fine of ₹6,000,000
 If found not guilty, the case is closed.
 If required, further investigations are conducted.
 Any member can appeal within 90 days against a decision.

EXAMPLE:

If a CA is accused of financial fraud, the ICAI investigates, and if guilty, he/she may be fined
or removed from the register.

TYPES OF MISCONDUCT: PROFESSIONAL OR OTHER

MISCONDUCT

"Professional or Other Misconduct" refers to any wrongful act or failure to act by a CA,
whether as an individual or as part of a firm.

 Professional Misconduct – Related to a CA's work.

 Other Misconduct – Related to personal conduct outside professional duties.

PROFESSIONAL MISCONDUCT

Defined in First Schedule (Parts I, II, III) and Second Schedule (Parts I, II) of the Act.

 A CA must follow the ethical and professional standards set in these schedules.
 If a CA commits any act listed in these schedules, they are guilty of professional
misconduct.

EXAMPLE:

If a CA manipulates a client’s financial records for tax evasion, it is professional misconduct.

OTHER MISCONDUCT

Defined in First Schedule (Part IV) and Second Schedule (Part III). Even misconduct outside
professional duties can lead to disciplinary action.

 The ICAI can take action against a CA for personal misbehavior.

 This ensures high ethical standards even in personal life.
 Includes legal convictions for moral crimes.

EXAMPLE:

If a CA is convicted of fraud or bribery, even outside their professional work, they can face
disciplinary action.

SCHEDULES TO THE CHARTERED ACCOUNTANTS ACT &

PROFESSIONAL MISCONDUCT

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OVERVIEW OF SCHEDULES TO THE ACT

The Chartered Accountants Act defines professional misconduct in Section 22, divided
into two schedules: First Schedule and Second Schedule.

FIRST SCHEDULE - FOUR PARTS

 Part I: Professional misconduct of Chartered Accountants in practice.

 Part II: Misconduct of members in service.
 Part III: Misconduct of members generally.
 Part IV: Other misconduct related to members of the Institute.

SECOND SCHEDULE - THREE PARTS

 Part I: Professional misconduct in relation to Chartered Accountants in practice.

 Part II: Misconduct of members generally.
 Part III: Other misconduct related to members of the Institute.

NUMBER OF CLAUSES IN EACH PART

FIRST SCHEDULE

 Part I: 12 clauses
 Part II: 2 clauses
 Part III: 3 clauses
 Part IV: 2 clauses

SECOND SCHEDULE

 Part I: 10 clauses
 Part II: 4 clauses
 Part III: 1 clause

DISCIPLINARY PROCESS FOR FIRST SCHEDULE MISCONDUCT

If the Director (Discipline) finds a member guilty of misconduct in the First Schedule, the
matter is placed before the Board of Discipline.

PART I - PROFESSIONAL MISCONDUCT IN PRACTICE

CLAUSE 1: ALLOWING AN UNQUALIFIED PERSON TO PRACTICE

A Chartered Accountant in Practice cannot allow any person to practice in his name
unless that person is:

 A Chartered Accountant in practice

 A partner in his firm
 An employee under his supervision

EXAMPLE:

If a CA allows his non-qualified friend to sign audit reports in his name, it is professional
misconduct.

CLAUSE 2: SHARING FEES OR PROFITS WITH UNAUTHORIZED PERSONS

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A practicing CA cannot share fees or profits with anyone except:

 Another member of ICAI

 A partner/retired partner
 A legal representative of a deceased partner
 A member of a recognized professional body (as per ICAI regulations)

ICAI allows fee sharing with members of specific professional bodies:

 The Institute of Company Secretaries of India (ICSI)

 The Institute of Cost Accountants of India (ICAI - Cost)
 The Bar Council of India
 The Indian Institute of Architects
 The Institute of Actuaries of India

ICAI also allows fee-sharing with individuals having specific qualifications in India:

 Company Secretary (ICSI)

 Cost Accountant (ICAI - Cost)
 Actuary (Institute of Actuaries of India)
 Bachelor in Engineering (B.E.)
 Bachelor in Technology ([Link].)
 Bachelor in Architecture ([Link].)
 Bachelor in Law (LLB)
 MBA from AICTE-recognized institutions

EXAMPLE:

A CA can share fees with a Cost Accountant but cannot share it with an unqualified
consultant.

GOVERNMENT REGULATIONS ON AUDIT FEES

Some State Co-operative Societies require auditors to deposit a percentage of audit fees with
the government for administrative costs.

 ICAI allows this practice as it does not violate the Code of Ethics.

EXAMPLE:

If a CA audits a co-operative bank and the state requires 10% of the audit fee to be deposited,
this is not misconduct.

TREATMENT OF GOODWILL IN CA FIRMS

Goodwill (firm reputation value) is treated differently in Partnership Firms and Proprietorship
Firms.

GOODWILL IN PARTNERSHIP FIRMS

 If a partner dies, the legal representative is enHeading 1d to goodwill as per the

partnership agreement.
 If all partners die, goodwill is handled as per ICAI rules.

EXAMPLE:

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If a partner in a CA firm dies, his family gets his share of goodwill, unless the agreement
states otherwise.

GOODWILL IN PROPRIETORSHIP FIRMS

 If the proprietor dies after 31st March 1988, legal representatives inherit goodwill.
 If the proprietor dies before 31st March 1988, goodwill depends on dispute settlements.

EXAMPLE:

If a sole proprietor CA dies today, his family inherits goodwill and can sell it with liabilities.

CLAUSE (3): SHARING PROFITS WITH NON-MEMBERS

A Chartered Accountant (CA) is not allowed to accept or share profits from the professional
work of a person who is not a member of ICAI.

EXCEPTIONS TO THE RULE

However, a CA can share fees or profits in certain cases, such as with:

 Members of other professional bodies recognized by the Council under Regulation 53A
of the Chartered Accountants Regulations, 1988.
 Other qualified professionals allowed by ICAI (as stated in Clause 2).

Example: A Chartered Accountant can share profits with a Company Secretary if the
partnership is in compliance with ICAI regulations. However, sharing profits with an
unqualified accountant is not allowed.

CLAUSE (4): PARTNERSHIPS WITH NON-CAS

A CA is generally not allowed to enter into a partnership with a non-CA. However,

partnerships are allowed with certain professionals who have specific qualifications
recognized by ICAI or the Central Government.

APPROVED PROFESSIONAL BODIES FOR PARTNERSHIPS

The following professionals are eligible for partnership with a CA, as per Regulation
53B:

 Company Secretaries (The Institute of Company Secretaries of India).

 Cost Accountants (The Institute of Cost and Works Accountants of India).
 Advocates (Members of the Bar Council of India).
 Engineers (Members of The Institution of Engineers or holders of an Engineering degree
from a recognized institution).
 Architects (Members of The Indian Institute of Architects).
 Actuaries (Members of The Institute of Actuaries of India).

Example: A CA firm can form a partnership with a Cost Accountant for consultancy
services. However, it cannot partner with an unqualified financial advisor.

CLAUSE (5): SECURING PROFESSIONAL BUSINESS UNETHICALLY

Chartered Accountants (CAs) should secure work based on their reputation, skills, and
integrity, not through unauthorized means like agents, non-employees, or unfair methods.

"A man must stand erect, and not to be kept erect by others." - Marcus Aurelius
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 CAs must not use third-party services or unapproved methods to obtain work.
 Agreements under Clause (2), (3), and (4) are allowed.

Example: A CA sent letters to army canteens detailing his qualifications and fee norms—
held guilty of professional misconduct.

CLAUSE (6): SOLICITING WORK UNETHICALLY

Soliciting clients or work directly or indirectly (through advertisements, personal

communication, circulars, interviews, or other means) is prohibited.

 Exceptions:
 • CAs can seek work from other CAs.
 • Responding to tenders is allowed except for reserved services like audits unless the
tender mentions a minimum fee.

INDIRECT SOLICITATION THROUGH COACHING ACTIVITIES

CAs involved in coaching/teaching must not advertise using posters, hoardings, or banners,
as it may be considered indirect solicitation.

 Allowed: A signboard outside the coaching center with the name, contact details, and
subjects taught.

Example: A CA who owns a coaching center places an ad in newspapers—violates Clause

(6).

ADVERTISING & PUBLICITY RESTRICTIONS

PROHIBITED ADVERTISING METHODS

 CAs must not:

 • Advertise in newspapers or circulate letters to potential clients.
 • Canvass for clients of their previous employer.
 Exceptions:
 • Announcements about firm changes (e.g., new partner, address change) are allowed if
factual.
 • Ads in ICAI newsletters for sharing work or job opportunities are allowed.

Example: A CA publishing an ad offering accounting services in a magazine—violates rules.

EMPANELMENT FOR GOVERNMENT WORK

CAs can apply for panels maintained by government institutions for professional assignments
but should not make unnecessary inquiries to be included in such panels.

 Allowed: Applying to a known panel for audit assignments.

 Not Allowed: Sending mass applications to unknown organizations.

Example: A CA directly contacting multiple banks for empanelment—violates the rule.

RESPONDING TO TENDERS

Allowed: CAs can respond to tenders unless reserved exclusively for CAs without a
minimum fee.

 A cost sheet must be maintained to justify the quoted fee.

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 Ethical Standards Board may review excessive security deposits (EMD).

Example: A CA responds to a tax consultancy tender but not an audit tender without a
minimum fee—compliant.

PUBLISHING BOOKS, ARTICLES, & PRESENTATIONS

 Allowed: Mentioning "Chartered Accountant" or firm name.

 Not Allowed: Highlighting personal achievements in publications.

Example: A CA writes a book on taxation and mentions his CA firm—allowed.

GREETING CARDS & INVITATIONS

 Allowed: Using "CA" or firm name in greeting cards for personal occasions like
weddings or office openings.
 Not Allowed: Cards promoting professional services.

Example: A CA sends a New Year card with "Best Auditing Services Available"—violates
rules.

SPONSORING EVENTS

 Not Allowed: Sponsoring events unless it is an ICAI-approved program.

 Allowed: Mentioning “CA” when sponsoring CSR events, but not firm name.

Example: A CA firm sponsoring a finance seminar—violates rules.

SHARING FIRM PROFILE

A CA firm’s profile can only be shared with a prospective client in response to their request.

 Not Allowed: Sending unsolicited firm profiles to potential clients.

Example: A CA emails his firm brochure to multiple businesses—violates ethics.

PUBLICITY IN MEDIA

 Not Allowed: TV or movie credits promoting a CA firm differently from others.

 Allowed: Listing a CA’s name in credits neutrally.

Example: A CA firm’s name appearing prominently in a movie’s financial sponsor list—

violates rules.

ROVING ENQUIRIES FOR WORK

CAs should not send direct letters or emails soliciting work from businesses or individuals.

 Allowed: Seeking work from professional colleagues in permitted ways.

 Not Allowed: Sending direct emails to businesses offering services.

Example: A CA cold-emailing startups about his services—violates rules.

REPRESENTATION IN COMPANY AUDITOR REMOVAL CASES

An outgoing auditor can explain his past work but must not canvass for reappointment.

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 Allowed: A dignified letter to shareholders about independence in work.
 Not Allowed: Asking for reappointment directly.

Example: A CA urges shareholders to retain him—violates rules.

ACCEPTING CLIENTS INTRODUCED BY OTHER CAS

A CA should not take direct work from a client introduced by another CA without informing
the first CA.

 Allowed: Asking the client to go through the original CA.

Example: A CA takes over a tax filing client from another CA without informing—violates
rules.

PUBLIC INTERVIEWS

 Allowed: Giving factual, non-promotional responses to media queries.

 Not Allowed: Highlighting personal achievements.

Example: A CA boasting about his high-profile clients in an interview—violates rules.

BOX NUMBER ADVERTISEMENTS

CAs cannot use anonymous box numbers in newspapers for professional ads.

EDUCATIONAL VIDEOS

 Allowed: Uploading educational videos without mentioning firm name or contact details.
 Not Allowed: Promoting personal services through videos.

Example: A CA posting a tax advice video with his firm’s website link—violates rules.

CLAUSE (7) – ADVERTISING PROFESSIONAL ATTAINMENTS & USE OF

DESIGNATIONS

RESTRICTION ON ADVERTISING BY CHARTERED ACCOUNTANTS

Chartered Accountants cannot advertise their professional attainments or services.

They cannot use any designation or expression other than "Chartered Accountant" on
professional documents, visiting cards, letterheads, or signboards unless it is:

 A degree from a university established by law in India or recognized by the Central

Government.
 A title indicating membership in ICAI or another institution recognized by the Central
Government or ICAI.

PERMISSIBLE ADVERTISEMENT THROUGH WRITE-UPS

Chartered Accountants in practice may advertise their services through a write-up under the
Guidelines of the Council. This allows them to inform the public about their services in a
restricted manner.

A CA can publish a brochure detailing their services, but it must comply with ICAI’s
advertising guidelines.

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USE OF OTHER DESIGNATIONS

A Chartered Accountant in practice should not state on professional documents that

they are:

 Income-tax Consultant
 Cost Accountant
 Company Secretary
 Cost Consultant
 Management Consultant

A CA working in taxation cannot write "Tax Consultant" on their business card but can
describe their taxation services in a write-up.

DESIGNATION AS "CORPORATE LAWYER"

Chartered Accountants cannot use the designation "Corporate Lawyer", even though they
may appear before authorities like the Company Law Board, ITAT, or Sales Tax Tribunal.

A CA handling company law cases cannot call themselves a "Corporate Lawyer" but can
provide services related to company law.

USING POLITICAL OR GOVERNMENT TITLES

A Chartered Accountant must not use designations such as:

 Member of Parliament (MP)

 Municipal Councillor
 Any other official title

A CA who is also an MP must not use "MP" along with "CA" on business cards.

MENTIONING FOREIGN QUALIFICATIONS

Members can mention membership titles from foreign institutes recognized by ICAI,
such as:

 South African Institute of Chartered Accountants (SAICA)

 Institute of Certified Public Accountants (CPA Ireland)
 Institute of Chartered Accountants in England and Wales (ICAEW)

A CA with CPA Ireland qualification can write "CA, CPA Ireland" on visiting cards.

MENTIONING DATE OF PRACTICE ESTABLISHMENT

CAs should not mention the date of starting their practice or firm establishment on
professional documents.

A CA firm must not print "Established in 2005" on letterheads.

PRACTICING AS ADVOCATE

CAs in practice who are also advocates must get permission from the Bar Council.
However, they:

 Cannot use "Chartered Accountant" when practicing as an advocate.

25 | P a g e
 Cannot use "Chartered Accountant" and "Advocate" together.

A CA who is also an advocate must use "Advocate" for legal cases and "CA" for accounting
work but not together.

PRACTICING AS COMPANY SECRETARY/COST ACCOUNTANT

CAs who are also Company Secretaries (CS) or Cost Accountants:

 Can practice both professions.

 Cannot use "CA" and "CS" or "CA" and "CMA" together.

A CA and CS must write "CA John Doe" for accounting work and "CS John Doe" for
secretarial work but not "CA & CS John Doe".

MENTIONING FIRM NAME OUTSIDE PROFESSIONAL DOCUMENTS

A CA firm can use the designation "Chartered Accountants" only on:

 Professional documents
 Visiting cards
 Letterheads
 Signboards

A CA firm cannot display its name on advertisements but can have a signboard outside its
office.

NEWSPAPER NOTICES FOR EXAM SUCCESS

Exam success notices must not:

 Advertise a CA’s firm.

 Contain unnecessary publicity.

"John Doe, a student of XYZ CA firm, passed CA Final" is acceptable, but "XYZ CA Firm
helps students become rank holders" is not.

REPORTS & CERTIFICATES

Reports & certificates must be issued on the firm’s letterhead and must not be exaggerated or
promotional.

"XYZ & Co. certifies financials as per ICAI standards" is allowed, but "XYZ & Co. is the best
audit firm" is not.

APPEARANCE ON ELECTRONIC MEDIA

CAs can appear on TV, films, the internet, and radio but must not:

 Promote themselves or their firm.

 Make exaggerated claims or comparisons.

A CA can discuss taxation in a news program but cannot say "We are the best tax advisors."

ORGANIZING TRAINING PROGRAMS

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CAs can organize training sessions for their staff and invite others, but must not promote their
firm excessively.

A CA firm can host a GST seminar for clients but must not advertise "Best GST consultants
available."

WRITING ARTICLES IN NEWSPAPERS

CAs can write articles in the press and must use the designation "Chartered Accountant".

A CA can write a newspaper article on taxation and mention "CA John Doe".

SIZE OF SIGNBOARDS

CAs must keep signboards simple and professional.

 Large glowing signboards are not allowed.

 A nameplate at home is permitted for individual members.

A CA can have a modest nameboard outside their office, but a huge LED board is not
allowed.

PUBLIC ANNOUNCEMENTS BY COMPANIES

If a CA is a director in a company, public announcements:

 Cannot highlight their professional skills.

 Can mention they are a "Chartered Accountant".

A company can say "John Doe, Director" but not "John Doe, expert tax consultant and
Chartered Accountant".

NETWORK FIRMS & LOGOS

Firms can form Networks but must follow ICAI's Advertisement Guidelines.

Logos are prohibited if unrelated to the firm’s name.

A CA firm can network with other firms but cannot use an unrelated fancy logo.

CLAUSE (8) – COMMUNICATION WITH PREVIOUS AUDITOR

REQUIREMENT TO COMMUNICATE WITH PREVIOUS AUDITOR

A chartered accountant cannot accept an audit position previously held by another chartered
accountant or a certified auditor (under the Restricted Certificate Rules, 1932) without first
communicating with them in writing.

PURPOSE OF COMMUNICATION

The main objective is not just professional courtesy but also:

 Allowing the incoming auditor to understand the reasons for the change.
 Safeguarding the incoming auditor’s interest.
 Protecting public interest and ensuring independence of the previous auditor.

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Example: If an auditor is removed due to unethical pressure from management, the incoming
auditor must be aware to protect his integrity.

RIGHT OF CLIENT TO CHANGE AUDITOR

Every client has the right to choose their accountant and can change auditors at any time,
subject to statutory compliance.

 Change may happen due to relocation, preference for a local accountant, or auditor’s
retirement or death.
 Differences in working styles or dissatisfaction can also lead to change.
 The outgoing auditor should accept the change professionally.

Example: If a company moves from Delhi to Mumbai, they may prefer hiring a Mumbai-
based auditor for convenience.

AUDIT FEE DISPUTES AND ACCEPTANCE OF APPOINTMENT

Disputes over fees are a common reason for auditor changes, but this alone is not a
professional reason to reject an audit.

However, if statutory audit fees under the Companies Act, 2013 remain unpaid (without
dispute), the new auditor should not accept the appointment.

 The incoming auditor should encourage the client to settle unpaid fees of the
previous auditor.

Example: If a company refuses to pay an auditor’s agreed-upon fee, the new auditor
should advise the client to clear pending dues.

PROFESSIONAL REASONS FOR NOT ACCEPTING AN AUDIT

A new auditor must decline an appointment if:

 Sections 139 and 140 of the Companies Act, 2013 are not followed.
 Any other professional or ethical concerns exist.

Example: If an auditor is removed without following legal procedures, the new auditor must
not accept the appointment.

CONDITIONAL ACCEPTANCE OF APPOINTMENT

If the outgoing auditor has not responded, the incoming auditor may give a conditional
acceptance, ensuring:

 Immediate work is attended to.

 The client is informed that final acceptance depends on the previous auditor’s response.

Example: If the previous auditor has not replied within a reasonable time, the new auditor
can begin urgent work while awaiting confirmation.

CLAUSE (9) - APPOINTMENT OF AUDITOR

OVERVIEW OF CLAUSE (9)

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Clause (9) states that an auditor must confirm compliance with relevant laws before accepting
an appointment. The Companies Act, 2013, governs the appointment process under Sections
139 and 140 (previously Section 225 of the Companies Act, 1956).

PURPOSE OF CLAUSE (9)

The purpose is to ensure that an auditor’s appointment is valid and cannot be challenged by
shareholders or the retiring auditor later.

AUDITOR'S RESPONSIBILITY BEFORE ACCEPTANCE

An incoming auditor must verify with the company that legal requirements for appointment
have been followed.

Example

Suppose Company A appoints a new auditor. If the previous auditor was removed, the
company must follow the correct legal steps. If the new auditor does not confirm compliance,
the appointment could be challenged later.

GUIDELINES FOR AUDITOR’S APPOINTMENT

The Council has issued guidelines specifying that an auditor must confirm compliance before
accepting an appointment.

DIFFERENT SITUATIONS OF APPOINTMENT

 First Auditor Appointment: When a company appoints an auditor for the first time.
 Replacing an Auditor: If a new auditor replaces a resigning, removed, or outgoing
auditor.
 Joint Auditor Scenario: If one or more joint auditors are not reappointed.
 New Auditor Appointment: When a new auditor is appointed who was not previously
holding the position.

Example

If a company appoints a new auditor after the previous one resigns, the new auditor must
check if the proper resignation process was followed before accepting.

SECTION 139 - APPOINTMENT OF AUDITOR

Section 139 of the Companies Act, 2013, explains the process for appointing auditors under
different circumstances.

SECTION 140 - REMOVAL/CHANGE OF AUDITOR

Section 140 details how an auditor can be removed or changed, including special notice
requirements.

STEPS FOR CHANGING OR REMOVING AN AUDITOR

 Special Notice Requirement: If a shareholder wants to remove or replace an auditor,

they must give a special notice under Section 140(4).
 Notice Before General Meeting: This notice should be given before the General Meeting
where the appointment is discussed.

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 Company’s Responsibility: Upon receiving the notice, the company must send a copy to
the retiring auditor immediately.
 Notification to Members: The company must send the special notice to all shareholders
at least 7 days before the meeting.
 Mode of Serving Notice: Notices can be sent via registered post, speed post, courier, or
electronically.

Example

If a shareholder wants to appoint a new auditor instead of the current one, they must send a
written special notice before the General Meeting. The company then informs the current
auditor and other shareholders.

COMPLIANCE WITH LEGAL PROCEDURES

Ensuring compliance with legal procedures prevents disputes over an auditor’s appointment
or removal.

"An auditor must verify compliance before accepting an appointment to avoid legal
challenges later."

Example

If a company removes an auditor but does not follow the correct process, the auditor may
legally challenge the decision. Proper procedures help avoid such issues.

CLAUSE (10) – FEES BASED ON PERCENTAGE OR CONTINGENT FEES

Chartered Accountants (CAs) cannot charge or accept fees based on a percentage of profits or
contingent on the outcome of work, except where permitted by regulations.

WHY THIS RESTRICTION EXISTS

A profession is different from a business. A CA’s main goal is not just profit but to maintain
professional ethics. If fees depend on results, CAs may exaggerate their service’s benefits or
use unethical means. This affects integrity and independence.

If an auditor’s fee is based on the tax savings they help a client achieve, they may manipulate
figures to increase savings, violating ethical standards.

WHAT IS CONSIDERED A CONTINGENT FEE?

Any fee arrangement where:

 Payment depends on the success of an appeal in revenue proceedings.

 The CA gets paid only if a specified result is obtained.

However, fees set by a court or public authority are not considered contingent.

EXCEPTIONS UNDER REGULATION 192

The Council allows percentage-based fees in certain cases:

 Receivers & Liquidators – Fees may be based on asset realization or disbursement.

 Co-operative Society Auditors – Fees can be based on paid-up capital, working capital,
income, or profits.
 Valuers for Direct Taxes & Duties – Fees can be a percentage of the property value.
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 Management Consultancy Services – Fees can be contingent as per Council’s decision.
 Fund Raising Services – Fees can be based on the funds raised.
 Debt Recovery Services – Fees can be a percentage of the recovered debt.
 Cost Optimization Services – Fees can be a percentage of cost savings.
 Other Services – The Council can allow similar percentage-based fees for specific
services.

A liquidator handling a company’s closure may charge 2% of the total assets sold instead of
a fixed fee.

CLAUSE (11) – ENGAGING IN BUSINESS OR OTHER OCCUPATIONS

A practicing CA cannot run a business or take up another occupation unless permitted by the
Council.

WHY THIS RESTRICTION EXISTS

The aim is to maintain the dignity of the profession. If CAs engage in businesses, they might
advertise their services unfairly, affecting professional ethics.

A CA cannot run a stock trading business while practicing, as it may lead to a conflict of
interest.

ALLOWED ACTIVITIES WITHOUT COUNCIL PERMISSION

The Council permits CAs to engage in certain activities without special approval:

 Employment under a CA firm.

 Private tutorship.
 Writing books and articles.
 Holding a life insurance agency for renewal commissions.
 Attending classes and appearing for exams.
 Holding public elective offices (e.g., MP, MLA).
 Being an honorary office-bearer in non-commercial organizations.
 Acting as a Notary Public or Justice of the Peace.
 Part-time teaching under ICAI coaching programs.
 Exam-related roles like paper setting or moderation.
 Editorship of professional journals.
 Surveyor and Loss Assessor under the Insurance Act.
 Recovery consultant in banking.
 Owning and managing agricultural land.

A CA can teach auditing to students in their free time but cannot run a full-time coaching
institute.

ACTIVITIES REQUIRING SPECIFIC COUNCIL PERMISSION

CAs can engage in the following only with prior approval:

 Full-time or part-time job in a business concern (without substantial interest).

 Employment in a non-business organization.
 Managing Director or Whole-time Director of a company (without substantial interest).
 Interest in family businesses (without active management).
 Running an educational institution.
 Teaching outside ICAI programs.
 Editing non-professional journals.
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 Any other occupation approved by the Executive Committee.

A CA can own shares in a family-run retail store but cannot manage daily operations.

MEANING OF “SUBSTANTIAL INTEREST”

A CA is considered to have substantial interest if:

 For Companies – If they own at least 20% voting shares.

 For Other Concerns – If they or their relatives are enHeading 2d to 20% of the profits.

If a CA owns 25% of shares in a business, they cannot work there while practicing as a CA.

BEING A DIRECTOR IN A COMPANY

CAs can be “Director Simplicitor” (ordinary director) without prior approval, provided they
or their partners are not the company’s auditors.

A CA can be a non-executive director in a friend's IT company but cannot be its auditor.

RESTRICTION ON AUDITORS OF SUBSIDIARIES & HOLDING COMPANIES

A CA who audits a subsidiary company cannot be a director in its holding company, as it

affects independence.

If a CA audits XYZ Pvt Ltd (a subsidiary), they cannot be a director in ABC Ltd (holding
company).

PROMOTERS & PROMOTER-DIRECTORS

A CA can be a promoter of a company and hold shares but cannot practice accountancy
through that company.

A CA can start a travel agency but cannot sign audit reports for it.

CAS IN HUF BUSINESSES

A CA can inherit a family business in an HUF setup but cannot actively manage it.

A CA’s family owns a textile shop. If they inherit shares, they must not be involved in daily
operations.

TEACHING RESTRICTIONS

CAs can teach part-time but must limit total teaching hours to 25 per week to maintain
professional focus.

A CA can lecture at a university on weekends but not take up full-time teaching.

CLAUSE (12) – SIGNING OF FINANCIAL STATEMENTS & REPORTS

RESTRICTION ON SIGNING BY OTHERS

Clause (12) prohibits a Chartered Accountant (CA) from allowing someone who is not his
partner to sign financial statements, reports, or balance sheets on his behalf.

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If CA A runs a firm but allows CA B (who is not his partner) to sign a client's financial
statements, it would be a violation.

REFERENCE TO SECTION 26 OF THE CA ACT, 1949

Section 26 states that only a member of the Institute can sign documents in a professional
capacity.

A non-CA working as an assistant in a CA firm cannot sign audit reports or financial

statements on behalf of the firm.

DEFINITION OF FINANCIAL STATEMENTS & REPORTS

- Financial statements include examination of accounts required by law or otherwise. -

Reports in this clause refer only to those arising from professional assignments and
expressing professional opinions.

A CA’s report on a company’s financial health submitted to a bank is covered, but an

internal office memo is not.

DELEGATION OF ROUTINE WORK ALLOWED

Routine work that does not involve professional opinion or authentication can be delegated.

 Issuing audit queries during an audit.

 Asking for information or sending questionnaires.
 Forwarding draft financial statements or observations.
 Stamping vouchers and schedules for audit purposes.
 Routine correspondence with clients.
 Issuing acknowledgments for records received.
 Raising bills and issuing receipts.
 Routine tax matters (as per Section 288 of Income-tax Act).
 Office administration and other incidental matters.

An audit assistant can issue a letter requesting missing invoices but cannot sign the final
audit report.

NO DEFENCE AGAINST PROFESSIONAL MISCONDUCT

If a CA or firm allows unauthorized signing, they cannot claim that they didn’t personally
sign the document as a defense in misconduct inquiries.

If a non-CA signs an audit report and issues it, the CA firm remains responsible for
misconduct.

DISCLOSURE OF NAME AND MEMBERSHIP NUMBER

- If a CA signs a report or financial statement, he must disclose his name if required by law. -
If no law mandates disclosure, he may sign in the firm's name. - SA 700 requires mentioning
Membership No. and Firm Registration No. - UDIN guidelines (2018) also apply.

When filing tax audit reports online, a CA must include their Membership No. and UDIN.

PART II - PROFESSIONAL MISCONDUCT FOR MEMBERS IN

SERVICE

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CLAUSE (1) - SHARING SALARY WITH OTHERS

A member in service is guilty of professional misconduct if he pays or agrees to pay any part
of his salary to someone else. However, sharing salary with relatives, dependents, or friends
is allowed if it is not linked to getting or keeping the job.

If an accountant shares part of his salary with a recruiter who helped him get the job, it is
misconduct. But if he shares his salary with his sibling for personal reasons, it is not
misconduct.

CLAUSE (2) - ACCEPTING COMMISSION FROM THIRD PARTIES

A member in service cannot accept commissions, profits, or gifts from lawyers, chartered
accountants, brokers, or customers of his company. This ensures ethical conduct and prevents
conflicts of interest.

If a company’s auditor gives a commission to the company’s accountant for sharing

confidential financial details, it is misconduct.

"A member will be guilty whether in full-time or part-time employment, even if holding a
Certificate of Practice."

PART III - PROFESSIONAL MISCONDUCT FOR ALL ICAI

MEMBERS

CLAUSE (1) - ACTING AS A FELLOW WITHOUT BEING ONE

A member who is not a Fellow of the Institute cannot claim to be one.

If a Chartered Accountant (CA) who is an Associate Member (not a Fellow) uses “FCA” in
his signature, it is misconduct.

CLAUSE (2) - NOT PROVIDING INFORMATION TO ICAI

A member is guilty if he does not provide information requested by ICAI or its committees.

If ICAI asks a CA to disclose his role in a company and he ignores the request, it is
misconduct.

"A CA running a non-CA firm while holding a Certificate of Practice and failing to inform
ICAI was held guilty."

CLAUSE (3) - PROVIDING FALSE INFORMATION FOR WORK

A member must not provide false information when applying for work, responding to
tenders, or advertising.

If a CA submits a fake work experience certificate in a tender application, it is misconduct.

PART IV - OTHER MISCONDUCT FOR ALL ICAI MEMBERS

CLAUSE (1) - CONVICTION FOR AN OFFENSE WITH IMPRISONMENT (≤6

MONTHS)

If a CA is convicted by a court and sentenced to up to 6 months in prison, it is misconduct.

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If a CA is jailed for 3 months for fraud, it is misconduct. If the sentence exceeds 6 months, it
is covered under the Second Schedule.

CLAUSE (2) - BRINGING DISREPUTE TO THE PROFESSION

A member is guilty if his actions harm the reputation of ICAI, even if unrelated to his
professional work.

If a CA is caught in a bribery scandal unrelated to his job, it is misconduct.

"If imprisonment exceeds 6 months, the case falls under Part III of the Second Schedule."

THE SECOND SCHEDULE

ROLE OF DIRECTOR (DISCIPLINE)

If the Director (Discipline) believes a member is guilty of professional or other misconduct

mentioned in the Second Schedule (or both Schedules), the case is referred to the
Disciplinary Committee.

PART I - PROFESSIONAL MISCONDUCT IN RELATION TO

CHARTERED ACCOUNTANTS IN PRACTICE

CLAUSE (1) – DISCLOSURE OF CONFIDENTIAL INFORMATION

A Chartered Accountant in practice is guilty of professional misconduct if he shares client

information without consent, except where required by law.

 Chartered Accountants handle highly confidential client information.

 Sharing such information without consent breaches professional ethics and may lead to
legal action by the client.
 The duty of confidentiality continues even after the assignment is completed.
 Disclosure is allowed when required for professional duties and the client consents to it.
 Consent should be obtained from authorized persons:
 Proprietorship: The proprietor or legally authorized person.
 Partnership: Any partner can give consent.
 Company: Consent is given by the Board of Directors or Managing Director if
authorized.
 An auditor does not have to share audit working papers with the client, other auditors, or
related entities (e.g., parent or subsidiary companies).
 The statutory auditor can rely on other auditors’ work but has no right to access their
working papers.
 In some cases, auditors may share parts of their working papers with clients.
 Disclosure of information is permitted when legally required, but expert legal advice
should be sought.

Example: If a Chartered Accountant finds out that a client is involved in tax evasion, he may
need to report it, but he must ensure legal compliance.

Special Rule for Fraud:

Under Section 143(12) of the Companies Act, 2013, if an auditor suspects fraud by a
company’s officers or employees, he must report it to the Central Government within 60
days.

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CLAUSE (2) – CERTIFYING OR SUBMITTING FINANCIAL
STATEMENTS

A Chartered Accountant must not certify or submit financial statements unless he or a

qualified team member has examined them.

 Ensures that the Chartered Accountant performs due diligence before signing reports.
 The examination can be conducted by:
 The Chartered Accountant himself.
 A partner or employee of his firm.
 Another practicing Chartered Accountant.
 This provision allows joint audits, where multiple auditors divide responsibilities.
 In joint audits:
 Work is divided based on specific areas (e.g., liabilities, expenses, or time periods).
 Each joint auditor is responsible for their assigned area.
 Joint auditors must communicate about important matters.
 Joint auditors are responsible for the entire report unless responsibility is clearly
divided.

Example: If two auditors conduct a joint audit, one may handle revenue while the other
examines expenses. They must communicate findings before signing the final report.

Reference: SA 299 - Joint Audit of Financial Statements

Each joint auditor can decide how to conduct their examination, including test checks and
sampling.

CLAUSE (3) – USE OF NAME IN PROFIT FORECASTS

A Chartered Accountant (CA) cannot allow his name or his firm's name to be associated with
earnings estimates based on future transactions in a way that suggests he guarantees their
accuracy.

CA’S ROLE IN FINANCIAL FORECASTS

The Council (ICAI) clarified in July 1982 that a CA can participate in preparing and
reviewing financial forecasts but must:

1. Clearly indicate the sources of information.

2. Specify the basis of forecasts.

3. Highlight key assumptions made.

However, he must not vouch for the accuracy of the forecast.

APPLICATION TO HYPOTHETICAL PROJECTIONS

The same rule applies to financial projections based on hypothetical assumptions. A CA can
prepare and review them but should not certify their accuracy.

GUIDANCE NOTE ON REPORTS IN COMPANY PROSPECTUSES

The "Guidance Note on Reports in Company Prospectuses (Revised 2019)" provides

rules for CAs on compliance with:

- Companies Act, 2013

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- SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018

Example: A CA issued 97 projection statements without verifying documents, based on

which banks gave loans. Later, it was found that the borrowers had no business or
repayment capacity. The CA was guilty of professional misconduct under Clauses (3), (7),
and (8) of Part I of the Second Schedule of the Chartered Accountants Act, 1949.

CLAUSE (4) – EXPRESSING OPINION ON FINANCIAL STATEMENTS

A CA cannot express an opinion on the financial statements of a business in which:

- He or his firm has a substantial interest.

- His partner has a substantial interest.

IMPORTANCE OF AUDITOR’S INDEPENDENCE

For the auditor's opinion to be trusted, he must be independent and free from any financial
interests that could influence his judgment.

DEFINITION OF “SUBSTANTIAL INTEREST”

Defined under Appendix (9) of the Chartered Accountants Regulations, 1988 (See Clause 11
of Part I of First Schedule).

 The term financial statements covers audit reports, financial certificates, and any attest
functions performed under statutory requirements.
 If a CA is employed by a company, he can prepare financial statements for internal
purposes only. However, these statements cannot be used for external authorities.
 CAs must follow stricter independence standards than the law requires and avoid any
conflicts of interest.

RESTRICTIONS ON AUDITING CERTAIN ENTITIES

 A CA in employment cannot certify financial statements of his own employer or its

related entities.
 A CA teaching part-time in a college cannot be its auditor.
 A CA whose partner is an employee or trustee of a trust cannot audit that trust.

CLAUSE (4) – APPLICABILITY TO ALL ATTEST FUNCTIONS

This clause applies to all types of audits, including:

- Tax Audit

- GST Audit

- Bank Concurrent Audits

- Stock Exchange Audits

- Brokers’ Audits

CONFLICT OF INTEREST SITUATIONS

 If a CA, his partner, or relative has a substantial interest in a business (except companies),
he cannot audit it.
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 If a CA is a Director, Officer, or Employee of a company, he cannot audit it.
 If a CA’s partner is an officer or employee of a company, the CA cannot audit it.
 If a CA, his partner, or relative holds securities in a company, they cannot audit it (as per
Section 141(3)(d)(i) of the Companies Act, 2013).

Example: A CA holds shares in a company. Since he has a financial interest, he cannot be its
auditor.

OTHER RESTRICTIONS

 A CA cannot audit a company if his relative is a director or Key Managerial Personnel

(KMP).
 A CA cannot audit a company where his relative holds securities worth over ₹1 lakh (per
Rule 10 of Companies (Audit and Auditors) Rules, 2014).
 A CA cannot certify financial documents for his relatives.
 A CA must be independent in all roles, including tax consultant or financial advisor.
 A statutory auditor cannot be an internal auditor of the same entity.
 An internal auditor cannot also be a tax auditor for the same entity.
 An internal auditor cannot also be a GST auditor for the same entity.

Example: A CA is the Internal Auditor of a company. He cannot also conduct the GST audit
for that company.

COOLING-OFF PERIOD FOR EX-DIRECTORS

 A CA cannot accept an audit assignment for 2 years after resigning as a director of a

company.

VERIFYING LEGITIMACY OF APPOINTMENT

 Before accepting an audit assignment, a CA must ensure that the appointment is valid as
per the applicable statute or trust deed.
 If the audit needs regulatory approval, the CA must confirm it is properly authorized.
 If a CA is auditing a partnership or sole proprietorship, he must get a formal letter of
appointment from the client.

TAX AUDIT DISQUALIFICATIONS

Section 288 of the Income-tax Act, 1961 lists disqualifications for tax auditors. A CA must
ensure he meets all eligibility criteria before accepting a tax audit.

CLAUSE (5) – FAILURE TO DISCLOSE A MATERIAL FACT

If an auditor does not disclose a significant fact that is necessary for understanding a financial
statement, they may be guilty of misconduct.

 Materiality is an important factor; before proving misconduct, it must be established.

 SA 320, “Materiality in Planning and Performing an Audit,” provides guidance on
determining materiality.
 An item may not be significant for the balance sheet but may be crucial for the profit and
loss account and vice versa.
 Financial statements cover reports and certificates given after examining accounts under
statutory laws or for tax purposes.

Example: If an auditor finds that a company omitted a large expense in its profit & loss
account but still reports the financials as fair, it may be misconduct.
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CLAUSE (6) – FAILURE TO REPORT A MATERIAL MISSTATEMENT

If an auditor identifies a significant misstatement in a financial statement but does not report
it, they may be guilty of misconduct.

 The concept of materiality from Clause (5) applies here as well.

 The auditor must highlight all known misstatements in their report.

Example: If a company incorrectly inflates revenue and the auditor is aware but does not
report it, they are guilty of misconduct.

CLAUSE (7) – LACK OF DUE DILIGENCE OR GROSS NEGLIGENCE

An auditor must exercise reasonable care, skill, and caution in their duties. If they act
negligently, they may be guilty of misconduct.

 Negligence can range from minor mistakes to serious lapses approaching fraud.
 Courts have ruled that an auditor is a "watchdog, not a bloodhound," meaning they must
be careful but are not expected to assume fraud unless there is suspicion.

"An auditor must apply reasonable skill, care, and caution, depending on the situation." –
Karnataka High Court Judgment, 1977

 Minor errors do not always count as misconduct, but serious negligence does.

Example: If an auditor approves financial statements without verifying key transactions, they
could be guilty under this clause.

CLAUSE (8) – FAILURE TO OBTAIN SUFFICIENT INFORMATION

An auditor must gather enough information before expressing an opinion on financial

statements.

 An opinion should not be given if important data is missing.

 If the auditor lacks enough data to express an opinion, they must state this clearly in their
report (as per SA 705).

Example: If an auditor issues a report without checking financial records, bank statements,
or supporting documents, they are guilty of misconduct.

CASE STUDY 1: LOAN NOT REPORTED IN FINANCIAL STATEMENTS

In the case of Shri Mukesh M. Kelawala vs. CA Sukhdev Manilal Soni (2013):

 The auditor failed to report a housing loan that should have been disclosed.
 The loan amount was significant, making this a material misstatement.
 The auditor was found guilty under Clauses (6), (7), and (8).

CASE STUDY 2: UNDISCLOSED BANK ACCOUNT

In the case of P. Arun vs. N. Raja Ganesh (2014):

 The auditor did not report a bank account opened by the client under a different name.
 The auditor did not collect sufficient documentation (like bank statements) to verify it.
 The auditor was found guilty under Clauses (7) and (8).

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CLAUSE (9) – FAILURE TO HIGHLIGHT MATERIAL DEPARTURE FROM
ACCEPTED AUDIT PROCEDURES

An auditor must follow the generally accepted audit procedures. If there is any deviation, the
auditor should clearly highlight it in the report.

WHAT ARE GENERALLY ACCEPTED AUDIT PROCEDURES?

These are standard auditing methods applicable to different cases. Guidance is

available from ICAI through:

 Engagement and Quality Control Standards

 Statements and General Clarifications
 Guidance Notes and Technical Guides
 Practice Manuals and Other Papers

SPECIAL RULES FOR LISTED COMPANIES

SEBI mandates that only Peer Reviewed auditors can conduct statutory audits of listed
companies. A Peer Review certificate from ICAI is necessary.

MANDATORY INFORMATION IN AUDIT REPORTS

Auditors must include:

 Firm Registration Number (FRN)

 Membership Number
 Unique Document Identification Number (UDIN) for all audit and assurance functions
since July 1, 2019

RESPONSIBILITIES OF AN AUDITOR

An auditor is appointed to fulfill statutory duties. Just stating qualifications in the report does
not excuse them from performing their responsibilities properly.

SPECIAL AUDIT PROCEDURES

Some audits require special procedures beyond standard auditing. Examples include:

1. CERTIFICATION OF NEWSPAPER CIRCULATION

Auditors verify circulation figures based on Audit Bureau of Circulations (ABC) guidelines.
Even minor lapses in following ABC rules must be reported.

2. BANK AUDITS

Bank audits follow different rules from Companies Act audits. Auditors must be aware of and
follow these special procedures.

CLAUSE (10) – FAILURE TO KEEP CLIENT’S MONEY SEPARATE

If an auditor receives money from a client (other than fees), they must:

 Keep it in a separate bank account

 Use it only for the intended purpose

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ICAI GUIDELINES ON HANDLING CLIENT FUNDS

The ICAI provides specific guidance on handling client money:

 Advance Fees: Money received as advance payment for services does not need to be kept
in a separate account.
 Short-Term Expenses: Money meant for short-term expenses like statutory fees or
stamp paper can be held without a separate account.
 Long-Term Expenses: If the money is not meant to be spent soon, it must be deposited
in a separate bank account.
 Special Roles: If an auditor acts as a trustee, executor, or liquidator, all client funds must
be kept in a separate account immediately.

Example: An auditor receives ₹50,000 from a client to pay government fees next month.
Since this is a short-term expense, they do not need a separate account. However, if the
amount is to be used after six months, it must be kept in a separate bank account.

PART II - PROFESSIONAL MISCONDUCT (APPLICABLE TO ALL

MEMBERS)

CLAUSE (1) - VIOLATION OF THE ACT, REGULATIONS, OR GUIDELINES

A Chartered Accountant (CA) must comply with the Chartered Accountants Act,
Regulations, and Guidelines issued by the Council. If a member violates any of these, it will
be considered misconduct.

COMMON REGULATIONS VIOLATED

 Regulation 43: Engagement of Articled Assistants

 Regulation 46: Registration of Articled Assistants
 Regulation 47: Taking premium from Articled Assistants (which is not allowed)
 Regulation 48: Paying stipend to Articled Assistants
 Regulation 56: Termination or transfer of Articleship
 Regulation 65: Articled Assistants cannot engage in any other occupation
 Regulation 67: Complaints from Articled Assistants against employers
 Regulation 68-80: Rules for Audit Assistants
 Regulation 190: Register of offices and firms
 Regulation 190-A: CAs cannot engage in another business or occupation
 Regulation 191: Part-time employment restrictions for CAs
 Regulation 192: Restrictions on fees charged by CAs

CLAUSE (2) - DISCLOSURE OF CONFIDENTIAL INFORMATION

A CA should not disclose any confidential information obtained during employment unless
required by law or permitted by the employer.

Example: If a CA working in a company leaks financial data to outsiders without

authorization, it is misconduct.

CLAUSE (3) - SUBMITTING FALSE INFORMATION TO THE INSTITUTE

If a CA knowingly provides false information in any document submitted to ICAI or its

bodies, it is professional misconduct.

CASE EXAMPLES

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 A CA falsely claimed to be a partner in a firm to become a Fellow Member – Misconduct
[J.R. Chatrath, 1952]
 A CA made false statements before the Disciplinary Committee – Misconduct [K.S.
Dugar, 1987]
 A CA ignored repeated reminders from ICAI regarding employment confirmation –
Misconduct [A. Umanath Rao, 1965]

CLAUSE (4) - DEFALCATION OR EMBEZZLEMENT OF MONEY

If a CA misappropriates or fraudulently uses money received in a professional capacity, it is

misconduct under SA-240 (Fraud).

Example: A CA receives funds from a client for tax payments but misuses the amount for
personal purposes – Misconduct.

PART III - OTHER MISCONDUCT (APPLICABLE TO ALL

MEMBERS)

IMPRISONMENT FOR MORE THAN SIX MONTHS

If a CA is convicted by a civil or criminal court and sentenced to imprisonment for more than
six months, it is considered major misconduct.

Example: A CA found guilty of financial fraud and sentenced to one year in jail – Other
Misconduct.

COUNCIL GUIDELINES (2008)

CHAPTER I: PRELIMINARY

SHORT HEADING 1 & APPLICABILITY

These guidelines are issued by ICAI under the Chartered Accountants Act, 1949 (amended in
2006).

They are called the ‘Council General Guidelines, 2008’.

Applicable to all ICAI members, whether in practice or not.

CHAPTER II: CONDUCT OF A MEMBER AS AN EMPLOYEE

A CA who is an employee must exercise due diligence and avoid gross negligence in his
professional duties.

CHAPTER III: APPOINTMENT OF A MEMBER AS COST

AUDITOR

This chapter is omitted.

CHAPTER IV: OPINION ON FINANCIAL STATEMENTS WHEN

THERE IS SUBSTANTIAL INTEREST

This chapter is omitted.

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CHAPTER V: MAINTENANCE OF BOOKS OF ACCOUNT

A practicing CA or a CA firm must maintain proper books of account, including:

1. Cash Book – Records daily cash transactions.

2. Ledger – Records all financial transactions in different accounts.

CHAPTER VI: TAX AUDIT ASSIGNMENTS UNDER SECTION

44AB OF THE INCOME TAX ACT, 1961

LIMIT ON TAX AUDIT ASSIGNMENTS

A CA in practice can accept only a limited number of tax audit assignments in a financial
year.

The limit is referred to as "specified number of tax audit assignments."

SPECIFIED NUMBER OF ASSIGNMENTS

For an individual CA or a proprietary CA firm – 60 tax audits per financial year.

For a CA firm – 60 tax audits per partner per financial year.

FIRM WITH MULTIPLE PARTNERS

If a CA is a partner in multiple firms, the total tax audit limit across all firms cannot exceed
60 per partner.

If a CA accepts tax audits individually, those also count towards the 60-assignment limit.

SPECIAL CASES (NOT COUNTED IN THE LIMIT)

Tax audits under Sections 44AD, 44ADA, and 44AE are not included in the limit.

Audits of head office & branch offices of the same entity count as one tax audit.

PART-TIME PARTNERS

A part-time practicing partner of a CA firm does not contribute to the firm's tax audit limit.

RECORD-KEEPING OF TAX AUDITS

A practicing CA must maintain a record of all tax audits accepted each year in a format
prescribed by ICAI.

DISTRIBUTION OF AUDIT ASSIGNMENTS IN A FIRM

A CA firm can distribute tax audit assignments among partners in any manner, but must
comply with Standard on Quality Control (SQC) 1.

CHAPTER VII: APPOINTMENT OF AN AUDITOR IN CASE OF

NON-PAYMENT OF FEES

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A Chartered Accountant (CA) cannot accept an audit assignment if the undisputed fees of the
previous auditor remain unpaid.

 Exception: If the entity is a "sick unit" (a company with accumulated losses equal to or
exceeding its entire net worth over five years), this restriction does not apply.

 Undisputed audit fees include amounts recorded in signed financial statements and any
additional expenses related to the audit.

CHAPTER VIII: SPECIFIED NUMBER OF AUDIT ASSIGNMENTS

A CA cannot take more than a specified number of audit assignments under Section 141 of
the Companies Act, 2013.

 Individual CA/Firm: Can hold up to 30 audit assignments (excluding One-Person

Companies and Dormant Companies).
 CA Firm Partners: Each partner is allowed 30 audit assignments individually.
 Multiple Firm Partners: If a partner is in multiple firms, the total audits across all firms
must not exceed the specified number.
 Branch Audits: Audits for a company’s head office and branches are counted as one
audit assignment.
 Part-Time CA Partners: Not counted when determining the firm’s audit limits.

CHAPTER IX: APPOINTMENT AS A STATUTORY AUDITOR WITH

ADDITIONAL WORK

A CA cannot accept the statutory audit of PSUs, Government Companies, Listed Companies,
or Public Companies (turnover ₹50 crore or more) if the total fees from other work exceed
the statutory audit fee.

 "Other work" includes management consultancy and professional services, but

excludes:
 (a) Audit under another statute
 (b) Certification work required by law
 (c) Representation before authorities
 Associate Firms' Fees: Fees earned by the CA’s associate firms are also included in the
total.

CHAPTER X: APPOINTMENT OF AN AUDITOR WHEN INDEBTED

TO A CONCERN

A CA or their firm cannot accept an audit if they, their firm, or their relatives:

 Owe money to the entity above ₹1,00,000

 Have given a guarantee or provided security for someone else’s debt to the entity

CHAPTER XI: UNJUSTIFIED REMOVAL OF AN AUDITOR

If a CA is unjustly removed, the incoming auditor must follow the Council’s direction before
accepting the appointment.

CHAPTER XIII: GUIDELINES ON TENDERS

A CA cannot respond to tenders for services that are exclusively reserved for Chartered
Accountants, such as audit and attestation services.
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 Exception: If the minimum fee is mentioned in the tender, CAs can respond.
 If the tender is open to other professionals (not just CAs), this restriction does not apply.

CHAPTER XIV: UNIQUE DOCUMENT IDENTIFICATION NUMBER

(UDIN) GUIDELINES

The ICAI introduced UDIN to prevent fake certifications and unauthorized attestations.
CAs must generate UDIN for:

 All Certificates – From 1st February 2019

 GST & Tax Audit Reports – From 1st April 2019
 Other Audit, Assurance & Attestation Functions – From 1st July 2019

CHAPTER XV: GUIDELINES FOR NETWORKING

ENHANCING PROFESSIONAL SERVICES THROUGH NETWORKS

Firms often form larger structures to enhance their ability to provide professional services.
Whether these structures create a "network" depends on specific conditions.

DEFINITION OF A NETWORK

A "network" exists when firms cooperate in a structured manner. This does not depend on
their legal separation.

KEY FACTORS TO DETERMINE A NETWORK

 Referral of Work: If a structure only facilitates work referrals, it is not considered a

network. Example: A firm referring a client to another firm without shared resources.
 Cooperation: If firms share a brand name, quality control system, or professional
resources, they form a network. Example: Multiple firms using the same audit
methodology and training system.
 Reasonable Third-Party Perspective: If an informed outsider would reasonably
conclude that firms are associated, it is a network. Example: If two firms advertise under
a single brand name, they might be perceived as a network.

CONDITIONS FOR A NETWORK

PROFIT OR COST SHARING

If firms share profits or costs significantly, they are a network. However, minor cost-sharing
(e.g., joint training costs) does not create a network.

OWNERSHIP, CONTROL, OR MANAGEMENT

If firms share ownership or management, they form a network. Example: A common

board managing multiple firms.

QUALITY CONTROL POLICIES AND PROCEDURES

If firms follow a shared system of quality control, they are a network. Example: Firms
using the same audit quality standards across all branches.

COMMON BUSINESS STRATEGY

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If firms agree to a common strategy, they are a network. Example: Firms collaborating to
enter a new market together.

COMMON BRAND NAME

Firms using a common name, initials, or logo are a network. Example: Firms operating
under "XYZ & Affiliates."

SHARED PROFESSIONAL RESOURCES

 Common Information Systems: Shared client data, billing, or record-keeping software.

 Shared Staff or Partners: If firms share employees across engagements.
 Technical Consultation Teams: A joint team advising all firms.
 Audit Methodologies: A standard audit process across firms.
 Training Courses & Facilities: If firms jointly conduct employee training.

If firms only share audit methodologies or training, they are not necessarily a network.
However, if they share people or client data, they are a network.

FORMS OF A NETWORK

 Mutual Entity: A facilitator without engaging in professional practice.

 Partnership Firm: Limited to 20 partners.
 Limited Liability Partnership (LLP): Must comply with CA Act and laws.
 Company Form: Requires ICAI guidelines for corporate practice.
 Sole Practitioner or Proprietor: Can be part of a network.
 Firm Can Join Only One Network: Firms with common partners must also join only
one network.

APPROVAL OF NETWORK NAME

 Approval by ICAI Required. Example: "XYZ & Affiliates" is acceptable; "XYZ &
Co." is not.
 Regulation 190 of CA Regulations, 1988 Applies.
 ICAI Can Reject Undesirable Names.
 Approval Does Not Grant Practice Rights.

REGISTRATION OF NETWORKS IN INDIA

 Name Reservation: Once approved, the name is reserved for 3 months.

 Mandatory Registration with ICAI.
 Networks Linked to a Multinational Firm Will Be Considered a Network.

LISTING OF NETWORKS OUTSIDE INDIA

 Indian Firms Partnering with Foreign Entities Must Declare in Form ‘D’ within 30 Days.
 Only One Network Allowed per Firm, Even for International Networks.

CHANGES IN A REGISTERED NETWORK

 Any Change in Network Constitution Must Be Reported in Form ‘C’ Within 30 Days.

ETHICAL COMPLIANCE FOR NETWORKS

 Internal Audit Restriction: If one firm in the network is the statutory auditor, no
associated firm can do the internal audit or bookkeeping for the same client.
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 Non-Audit Fee Ceiling: If a network firm is the statutory auditor, the other network
firms cannot earn more than 3 times the statutory audit fee from the same client.
 Firm Rotation Rule: If regulations require firm rotation, no other firm in the network
can be appointed as a replacement auditor.
 Limited Advertising: The network may advertise within ICAI guidelines, and firms may
mention "Network Firms" on stationery.
 All Network Firms Must Follow ICAI Ethical Standards.

CLIENT CONSENT AND PUBLIC NOTICE

Once a network is registered with ICAI, it is considered public information, and client
consent is assumed.

FRAMEWORK FOR INTERNAL BYE-LAWS OF A NETWORK

Networks must create internal rules for efficient operation. These should cover:

 Managing Committee Appointment: Defines leadership among partners.

 Network Administration.
 Membership Fees Contribution.
 Engagement Partner Role: Assigns responsibilities for assignments.
 Dispute Resolution Through Arbitration.
 Training Material Development.
 Newsletters for Staff and Clients.
 Common Software for Assignments.
 Shared Database for Assignments.
 Library and Resource Sharing.
 Technical Director for Guidance.
 Method for Sharing Resources Across Firms.
 Compensation Plan for Resource Sharing.
 Peer Review Process for Network Firms.

CHAPTER XVI: LOGO GUIDELINES

GUIDELINES FOR USING THE NEW CA INDIA LOGO (2023)

The Institute issued new guidelines in 2023 for CA members on using the CA India logo.
The logo consists of:

 The letters ‘CA’ in blue color.

 A tri-color upside-down tick mark on a white background.

The blue color is chosen because it represents qualities such as creativity, innovation,
knowledge, integrity, trust, truth, stability, and depth.

The upside-down tick mark is a symbol commonly used by Chartered Accountants,

representing wisdom and professional value.

INCLUSION OF ‘INDIA’ IN THE LOGO

The word ‘India’ is included in the logo to emphasize the Institute’s commitment to serving
the Indian economy and its "India First" approach.

RULES FOR LOGO USAGE

 No alterations in font, including color, bold/unbold, size, spacing, or dimensions.

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 Maintain the exact design, colors, and white background.
 Do not rotate or tilt the logo in any direction.
 The logo must not be resized in a way that distorts its original proportions.

APPROVED COLOR PALETTE

 Color 1: Orange (Hex: #F37920, CMYK: C0 M62 Y91 K0)

 Color 2: Blue (Hex: #145886, CMYK: C93 M61 Y24 K9)
 Color 3: Green (Hex: #55B848, CMYK: C67 M0 Y88 K0)

Example: A CA member printing letterheads should use the approved CA India logo without
any modifications to maintain brand integrity.

TRANSITION PERIOD

Members are encouraged to use the new logo on official documents (letterheads, visiting
cards, websites, etc.). A transition period of one year is provided for replacing old stationery
and signage.

CHAPTER XVII: GUIDELINES FOR CORPORATE FORM OF

PRACTICE

PERMISSION FOR CORPORATE ROLES

The Council allows CA members in practice to hold positions such as Managing

Director (MD), Whole-time Director, or Manager in a company, subject to these
conditions:

 The company must be engaged only in Management Consultancy and Other Services as
per Section 2(2)(iv) of the Chartered Accountants Act, 1949.
 The company must comply with ICAI’s guidelines and conditions.

RETAINING FULL-TIME PRACTICE

A CA member can hold a full-time Certificate of Practice while also being an MD, Whole-
time Director, or Manager in a Management Consultancy Company.

 There is no restriction on the CA member’s equity holding in such a company.

 The member can still perform audit functions in their individual capacity or within a
Proprietorship/Partnership firm.
 The member can continue training articled/audit assistants.

Example: A practicing CA can own 100% shares in a Management Consultancy Company

and still sign audits under their proprietary CA firm.

NAME AND REGISTRATION REQUIREMENTS

 The Management Consultancy Company’s name must be approved by ICAI.

 The company must be registered with ICAI.
 ICAI has issued guidelines, application forms, and compliance requirements for
registration.

These rules took effect from October 1, 2006.

PROHIBITION ON AUDIT IN CORPORATE FORM

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A Management Consultancy Company cannot conduct audit services. Only consultancy
services are allowed in the corporate form.

Example: A CA firm can offer audit services, but if the same CA opens a Management
Consultancy Company, that company cannot perform audits.

ETHICAL COMPLIANCE FOR MANAGEMENT CONSULTANCY

COMPANIES

RESTRICTIONS ON ASSIGNMENTS

 If a CA or CA firm is the statutory auditor of an entity, their Management Consultancy

Company cannot take internal audit, bookkeeping, or other assignments prohibited for
statutory auditors.
 ICAI’s Notification No. 1-CA(7)/60/2002 (dated March 8, 2002) on ceiling of non-audit
fees applies to Management Consultancy Companies.

COMPLIANCE WITH ICAI RULES

 Management Consultancy Companies must follow clauses (6) & (7) of Part-I of the First
Schedule to the Chartered Accountants Act, 1949.
 Any new ICAI directives related to ethical compliance must also be followed.

The company must submit an undertaking to ICAI confirming compliance with these ethical
guidelines.

SCOPE OF MANAGEMENT CONSULTANCY COMPANIES

Management Consultancy Companies can only engage in Management Consultancy & Other
Services.

 The company must provide an undertaking to ICAI that it will only offer these services.
 The allowed services are prescribed by ICAI under Section 2(2)(iv) of the Chartered
Accountants Act, 1949.

Example: A Management Consultancy Company can provide advisory services on financial

restructuring, but it cannot perform tax audits.

REFERENCE FOR MORE DETAILS

Students should refer to Appendix D of the Code of Ethics for more details on guidelines.

COUNCIL GUIDELINES FOR ADVERTISEMENT, 2008

WRITE-UP FOR ADVERTISEMENT

Members may advertise through a write-up about their particulars, firm details, and services.
However, the advertisement must maintain the dignity and reputation of the profession.

 The content must be truthful and accurate.

 Exaggerated claims about services, qualifications, or experience are not allowed.
Example: A CA cannot say, "We guarantee 100% tax savings."
 No negative references or unfair comparisons to other professionals. Example: A CA
cannot say, "We are better than XYZ CA firm."

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 Testimonials or client endorsements are not allowed. Example: A CA cannot use a
client's statement like, "This firm helped me save lakhs in taxes!"
 Achievements or awards can only be mentioned if given by the Central/State Government
or Regulatory bodies.
 The use of monograms or catchy slogans is not allowed.
 The Membership No. or Firm Registration Number (FRN) must be mentioned.
 The font size of the write-up must not exceed 14.
 The content must comply with the Chartered Accountants Act, Regulations, and Code of
Ethics.

The ICAI may issue a directive to remove or modify the write-up if it violates any rules.

ADVERTISEMENT THROUGH WRITE-UP

FOR MEMBERS

 Name of the CA
 Membership No.
 Age, Date of ACA & FCA membership
 Date of COP (Certificate of Practice)
 Recognized qualifications
 Languages known
 Contact details (Phone, Email, Website)
 Professional Address
 CA Logo
 Passport-style photograph
 Details of employees (CAs, Other professionals, Articles, Other staff)
 Services provided (e.g., Audit, Taxation, Consulting)
 Positions held as Director or MD in an ICAI-registered Management Consultancy
Company

FOR FIRMS

 Name of the Firm

 Firm Registration No.
 Year of establishment
 Registered Professional Address (Head Office & Branches)
 Working hours
 Contact details (Phone, Fax, Email)
 Number of partners
 Proprietor/Partner details (same as individual CA details)
 CA Logo
 Employee details (CAs, Other professionals, Articles, Other staff)
 Services provided (e.g., Audit, Taxation, Consulting)
 Affiliation with an ICAI-registered Network

The write-up may include the signature, name of the signing member/partner, place, and date.

GUIDELINES FOR WEBSITES OF CA FIRMS

 CAs and CA Firms can create their own websites.

 No prescribed format, but it must comply with ICAI rules.
 The website should operate on a “pull” model, meaning visitors must actively search
for the information. Example: The firm cannot send emails with links to its website to
attract clients.
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 The website must not circulate its content via email or other means without a "pull"
request.
 The website link can be mentioned on professional stationery and emails, but not in
advertisements.

INFORMATION ALLOWED ON CA WEBSITES

 Name of the CA/Firm

 Year of establishment
 Office address, phone numbers, email
 Services offered (only visible on a "pull" request)
 Partners’ details (Name, Qualification, Experience, Contact info)
 Employee details (Name, Designation, Experience)
 Job vacancies, including articled assistants
 Assignments handled (without client names or fees)

Disclosure of client names/fees is only allowed if a regulator requires it. Example: If SEBI
mandates disclosure for audit firms, it must state: "This disclosure is required by SEBI as per
Regulation XYZ."

 Passport-style photograph of members is allowed.

 Articles, professional updates, and educational videos can be included.
 Chatrooms may be available for CA members and clients, ensuring confidentiality.
 Document management systems can be provided for clients with login access.
 Links to the firm’s social media page are allowed, but solicitation (asking people to
like/follow) is prohibited.
 Online advice can be provided to clients upon request (free or paid).
 Content must not solicit clients or professional work.
 The website must ensure confidentiality of client data.
 Advertisements (such as banners) are not allowed on CA websites.
 The website should uphold the dignity of the CA profession.
 Allowed links: ICAI, Regional Councils, Government bodies.
 The website name should closely match the CA/Firm name without misleading claims.

If a website violates ethical rules, ICAI will take action under its disciplinary framework.

ONLINE THIRD PARTY PLATFORMS

Some websites (owned by non-CAs, banks, finance companies, or newspapers) provide

advisory services in areas where CAs work. These websites may ask CAs or CA firms to give
advice through their platform.

 CAs can provide only consultancy and advice through such websites.
 CAs must not share their contact details on these websites.
 Websites should not advertise the CA’s professional achievements or status.
 The firm’s name with the suffix “Chartered Accountants” is not allowed on such
websites.

Example: A tax consultancy website asks a CA to provide tax advice. The CA can answer
queries but cannot advertise achievements or share contact details on that website.

PUBLICATION OF NAME OR FIRM NAME IN TELEPHONE OR

OTHER DIRECTORIES

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CAs and CA firms can be listed in telephone directories (printed or electronic) by request or
payment, but with restrictions.

 The entry must be in the “Chartered Accountants” section only.

 The CA/firm must belong to the same city/town where the directory is published.
 The listing must be alphabetical (no special positioning).
 The entry must not look promotional or highlighted.
 Listing should be open to all CAs in that city/town.
 CAs can be listed in trade/social directories too.

Example: A CA in Mumbai can list their name in the "Mumbai Chartered Accountants"
section of a telephone directory, but not in the “Financial Experts” category.

APPLICATION-BASED SERVICE PROVIDER AGGREGATORS

CAs cannot register on online platforms that list various service providers like technicians,
event organizers, or maintenance workers.

Example: A CA cannot list themselves on an app that offers services like plumbing, electrical
work, and financial consultancy together.

SPECIALISED DIRECTORIES FOR LIMITED CIRCULATION

CAs can be listed in professional directories where members are listed alphabetically.
However, they should be careful in "Who’s Who" publications.

 CAs can mention their name, description, and address.

 They can include directorships held and reasonable personal details.
 Clients' names must not be mentioned.

Example: A CA can appear in a “Top CAs of Bangalore” list with their name and firm
details but cannot mention their clients.

EXEMPTIONS FOR ADVERTISEMENTS

CAs can publish their name and address in advertisements under special conditions. The
advertisement must not be displayed more prominently than usual. The CA’s name should be
in a font not bolder than the ad’s content.

ALLOWED ADVERTISEMENTS

 Recruitment Ads: CAs can advertise for hiring staff in their office.
 Client’s Ads: CAs can publish ads on behalf of clients looking for staff or selling a
business/property.
 Professional Capacity Ads: CAs acting as trustees, liquidators, or receivers can advertise
the sale of business/property.

RESTRICTIONS IN ADVERTISEMENTS

 Ads must not use promotional terms like “well-known firm”.

 Ads for articled assistants should not contain any promotional elements.
 Ads must not suggest that the CA’s services are superior to others.

Example: A CA can post an ad for hiring an assistant but cannot say, “Join the most reputed
CA firm in India.”

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RECOMMENDED SELF-REGULATORY MEASURES

The ICAI Council has introduced self-regulatory measures to ensure fair distribution of
professional work among Chartered Accountants (CAs) and to maintain the profession’s
reputation. These measures are voluntary but highly encouraged.

BRANCH AUDITS

Large audit firms with 10 or more members should not conduct branch audits of a company.
Instead, smaller local firms (with fewer than 10 members) should be engaged. However, this
does not restrict statutory auditors from accessing branch accounts under the Companies Act,
2013.

 Exceptions to this rule:

 If a company maintains branch accounts at its head office.
 If significant operations take place at the branch itself.

JOINT AUDIT

Large companies are encouraged to appoint smaller firms (with fewer than 5 members) as
joint auditors. Senior firms should not oppose such appointments if a client wants to include a
smaller firm.

RATIO BETWEEN QUALIFIED AND UNQUALIFIED STAFF

A CA firm engaged in audit work should have at least one qualified member for every five
unqualified staff members.

 This excludes articled assistants, audit assistants, typists, and peons.

DISCLOSURE OF INTEREST BY AUDITORS IN OTHER FIRMS

Auditors should disclose any payments they receive through other firms where they are a
partner or proprietor. This ensures transparency and avoids conflicts of interest.

RECOMMENDED MINIMUM SCALE OF FEES

ICAI has issued revised guidelines on the minimum scale of fees for professional
assignments. The recommended fees vary based on the classification of cities (Class A, B,
and C).

FEES - RELATIVE SIZE

Different disclosure requirements apply for Public Interest Entities (PIEs) and Non-
Public Interest Entities (non-PIEs):

 For non-PIEs: Disclosure is required if, for two consecutive years, fees from an audit
client exceed 40% of the total revenue of the audit firm.
 For PIEs: Disclosure is required if, for two consecutive years, fees from an audit client
exceed 20% of the total revenue of the audit firm.

EXEMPTIONS FROM DISCLOSURE RULES

 If the total fees received by the firm do not exceed ₹20 lakhs.

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 If the audit is for government companies, public sector undertakings, nationalized banks,
public financial institutions, or regulators.

Example: If an audit firm earns ₹50 lakh in total revenue and receives ₹25 lakh (50%) from
a single audit client for two years, they must disclose this under PIE rules. However, if the
firm’s total revenue is only ₹18 lakh, the disclosure rule does not apply.

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