Professional Ethics and Liabilities for Chartered Accountants – NOCLAR | ICAI Council Guidelines | Principles

What are the Ethics and Liabilities for Chartered Accountants (CAs)?
Ethics for Chartered Accountants
1. Professional Competence and Due Care - CAs have a continuing duty to maintain professional knowledge and skill at a level required to ensure that a client or employer receives competent professional service. They must act diligently and in accordance with applicable technical and professional standards.
2. Confidentiality - CAs should respect the confidentiality of information acquired as a result of professional and business relationships and should not disclose any such information to third parties without proper and specific authority or unless there is a legal or professional right or duty to disclose.

Liabilities for Chartered Accountants
1. Legal Liability - This can arise from breaches of contract, negligence, or non-compliance with statutory requirements. CAs can face lawsuits for damages caused by incorrect advice or failure to maintain the standards expected of a competent accountant.
2. Criminal Liability - If a CA is involved in fraudulent activities or other criminal offenses in the course of professional duties, they can face criminal charges.
3. Regulatory and Disciplinary Actions - Regulatory bodies such as the Institute of Chartered Accountants can take disciplinary actions against members who violate professional codes of conduct. This can range from fines to suspension or even revocation of membership.

Table of Contents

1. Fundamental Principles
2. Threats, Circumstances Creating Threats and Related Safeguards
3. Non-compliance with Laws and Regulations (NOCLAR)
4. Membership of the Institute
5. Chartered Accountants in Practice
6. First Schedule: Part I – Professional Misconduct for a Member in Practice
7. First Schedule: Part II – Professional Misconduct for a Member in Service
8. First Schedule: Part III – Professional Misconduct for a Member Generally
9. First Schedule: Part IV – Other Misconduct for a Member Generally
10. Second Schedule: Part I – Professional Misconduct for a Member in Practice
11. Second Schedule: Part II – Professional Misconduct for a Member Generally
12. Second Schedule: Part III – Other Misconduct for a Member Generally
13. Council General Guidelines, 2008
14. Council Guidelines for Advertisement, 2008
15. Self-Regulatory Measures
16. Recent Decisions of Ethical Standard Board

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1. Fundamental Principles

1.1 Integrity

• Be straightforward & honest in all professional relationships.

1.2 Objectivity

• Judgments not be compromised due to bias, conflict of interest or undue influence.

1.3 Professional Competence & Due Care (PCDC

• Continuing duty to attain and maintain professional knowledge and skill required to ensure that client receives competent professional service;
• Act diligently and in accordance with applicable technical and professional standards.

1.4 Confidentiality

• Respect the confidentiality of information acquired as result of professional relationships.

1.5 Professional Behaviour

• Comply with relevant laws & regulations;
• Avoid any conduct that might discredit the profession.

2. Threats, Circumstances Creating Threats and Related Safeguards

2.1 Threats

Self Interest Threats

Threat that a financial or other interest will inappropriately influence a professional accountant’s judgment or behaviour.

Examples:

• Having a direct financial interest in a client
• Quoting a low fee to obtain a new engagement and it might be difficult to perform services as per technical and professional standards for that price
• Having a close business relationship with a client
• Access to confidential information that might be used for personal gain.

Self Review Threats

Threat that a professional accountant will not appropriately evaluate results of a previous judgment made; or an activity performed by the accountant.

Examples:

• Issuing an assurance report on effectiveness of financial systems after implementing the systems
• Having prepared the original data used to generate records that are the subject matter of the assurance engagement

Advocacy Threats

Threat that a professional accountant will promote a client to the point that the accountant’s objectivity is compromised.

Examples:

• Promoting shares of a client
• Acting as an advocate on behalf of a client in litigation or disputes
• Lobbying in favor of legislation on behalf of a client

Familiarity Threats

Threat that due to a long or close relationship with a client, a professional accountant will be too sympathetic to their interests.

Examples:

• Having a close or immediate family member – director or officer of the client
• Director or officer of the client – in a position to exert significant influence over the subject matter of the engagement
• Audit team member having a long association with the audit client

Intimidation Threats

Threat that a professional accountant will be deterred from acting objectively because of actual or perceived pressures.

Examples:

• Threatened with dismissal from engagement
• Feeling pressured to agree with the judgment of a client
• Being informed that a planned promotion will not occur
• Being threatened that acceptance of any gift in past will be made public

2.2 Evaluation of Threats

When professional accountant identifies a threat to compliance with the fundamental principles, the accountant shall evaluate whether such a threat is at an acceptable level.

2.3 Addressing Threats

If identified threats are not at an acceptable level, accountant shall address threats by eliminating them or reducing them to an acceptable level by:

• Eliminating circumstances, including interests or relationships, that are creating the threats;
• Applying safeguards to reduce the threats to an acceptable level; or
• Declining or ending the specific professional activity.

2.4 Safeguards

Actions that professional accountant takes to effectively reduce threats to an acceptable level.

Examples:

• Assigning additional time and qualified personnel to required tasks – might address a self- interest threat.
• Having an appropriate reviewer – might address a self-review threat.
• Using different partners and ETs with separate reporting lines for non-assurance services – might address self-review, advocacy or familiarity threats.
• Involving another firm to perform part of the engagement – might address self-interest, self-review, advocacy, familiarity or intimidation threats.
• Separating teams when dealing with matters of a confidential nature – might address a self-interest threat.

3. Non-compliance with Laws and Regulations (NOCLAR)

3.1 Meaning

Acts of omission or commission, which are contrary to laws or regulations committed by:

• a client/professional accountant’s employing organisation;
• TCWG/Management of a client or employing organisation;
• other individuals working for or under the direction of a client/employing organisation.

3.2 Applicability

• Audits assignment of entities listed in India having NW > 250 Cr.
• Senior Professional Accountants (KMP), being employees of listed entities.

3.3 Responsibility of Senior Professional Accountant

• Obtaining an Understanding of the Matter;
• Addressing the Matter;
• Determining whether further action is needed;
• Seeking Advice; and
• Determining Whether to Disclose the Matter to an Appropriate Authority.

3.4 NOCLAR vs. SA 250

4. Membership of the Institute

4.1 Disabilities – Section 8

A person shall not be entitled to have his name entered in or borne on the Register if he-

1. has not attained the age of 21 Years; or
2. is of unsound mind; or
3. is an undischarged insolvent; or
4. being a discharged insolvent, has not obtained from the Court prescribed certificate; or
5. has been convicted by a competent Court, of an offence involving moral turpitude; or
6. has been removed from membership – found guilty of professional or other misconduct.

5. Chartered Accountants in Practice

5.1 Section 6

• No member shall be entitled to practice unless he has obtained a COP.
• Once a person becomes a member, he is bound by provisions of CA Act and its regulations.
• If he appears before Income Tax Tribunal as an Income tax representative after becoming a member he could appear so only in his capacity as a CA and a member of ICAI.
• A member not in practice cannot accept any engagement for services prescribed for a practicing CA. Therefore, if a CA has surrendered his COP due to misconduct, he cannot in any other capacity take up any practice separable from his capacity to practice as a member of the institute.

5.2 Section 2(2)(iv)

A member shall be deemed “to be in practice” if he in consideration of remuneration renders Management Consultancy and other Services as may be rendered by a CA in practice, which shall, among others, include the following:

• Personnel recruitment and selection.
• Acting as Registered Valuer under the Companies Act, 2013.
• Acting as advisor or consultant to an issue.
  Explanation – Activities of broking, underwriting & portfolio management are not permitted.
• Acting as Insolvency Professional.

5.3 Section 7

• Every member in practice shall use the designation of a chartered accountant.
• No member using such designation shall use any other description.

5.4 Section 27

Name Board

Name board can be put in place of residence of member provided it is a name board of individual member and not of firm.

Requirement of Separate Incharge

If a Practicing CA has more than one office, every such offices shall have a separate charge – Member, either partner/employee; actively associated with such office.

5.5 KYC Norms

Keeping in mind highest standards of CA Profession in India, Council of ICAI recommended KYC norms to be observed by the members of the profession who are in practice.

6. First Schedule: Part I – Professional Misconduct for a Member in Practice

A CA in Practice is deemed to be guilty of professional Misconduct if he:

7. First Schedule: Part II – Professional Misconduct for a Member in Service

A Member in Service, shall be deemed to be guilty of professional misconduct if he:

8. First Schedule: Part III – Professional Misconduct for a Member Generally

A member, whether in practice or not, shall be deemed to be guilty of other misconduct, if he:

9. First Schedule: Part IV – Other Misconduct for a Member Generally

A member of the Institute, whether in practice or not, shall be deemed to be guilty of other misconduct, if he:

10. Second Schedule: Part I – Professional Misconduct for a Member in Practice

A CA in Practice is deemed to be guilty of professional Misconduct if he:

11. Second Schedule: Part II – Professional Misconduct for a Member Generally

A member, whether in practice or not, shall be deemed to be guilty of other misconduct, if he:

12. Second Schedule: Part III – Other Misconduct for a Member Generally

A member of the Institute, whether in practice or not, shall be deemed to be guilty of other misconduct, if he:

13. Council General Guidelines, 2008

14. Council Guidelines for Advertisement, 2008

14.1 Online Third-Party Platforms

Advisory services on taxation and other areas may be provided through websites of others, provided Contact address of CA is not provided nor such Website will contain any material which advertises professional achievements of such CA.

14.2 Publication of Name in Telephone Directories

CAs and CA Firms may have entries made in a Telephone Directory either by making a special request or by means of an additional payment, subject to following restrictions:

1. Entry should not appear in any other section/category except that of’CAs.
2. Member/firm should belong to town/city in respect of which directory is being published.
3. Order of the entries should not be in any manner other than alphabetical.
4. Entry should not be made in a differential or prominent manner.
5. Entries should be open to all the CAs/firms of CAs in particular city/town.

14.3 App-Based Service Provider

It is not permissible for members to list themselves with online Application based service provider Aggregators, wherein other categories like businessmen, technicians, maintenance workers, event organisers etc. are also listed.

14.4 Exemptions

Publication of name and address of a member, with description CAs, in an advertisement appearing in press in allowed in following circumstances:

• Advt. for recruiting staff in member’s own office;
• Advt. on behalf of clients requiring staff or to acquire or dispose of business or property.
• Advt. for sale of a business or property acting in a professional capacity as trustee, liquidator or receiver.

15. Self-Regulatory Measures

15.1 Branch Audits

• Branch audits of a company should not be conducted by its statutory auditors consisting of > 10 members, but should be conducted by local firms consisting of < 10 members.
• This restriction may not apply in the following cases:

1. 1. where accounting records of branches are maintained at the H.O., and
   2. where significant operations are carried out at branch office.

15.2 Joint Audit

In case of large companies, practice of associating a practicing firm with < 5 members as Joint auditors should be encouraged.

15.3 Ratio – Qualified & Unqualified Staff

At least 1 member for every 5 non-qualified members of the staff, excluding articled and audit assistants, typists, peons and other persons not engaged directly in such professional work.

15.4 Disclosure of Fees to ICAI

• For Non-Public Interest Entities: Disclosure is required where for 2 consecutive years, gross annual professional fees from an audit client represents > 40% of the total fees of the firm.
• For Public Interest Entities (PIE*): Disclosure is required where for 2 consecutive years, gross annual professional fees from an audit client represents > 20% of the total fees of the firm.

*Listed Entities, Banks and Insurance companies.

Exemptions from Disclosure:

• lf total Fees received by Firm <_ 120 lakh.
• Audit of Govt Companies, public undertakings, nationalised banks, PFI or regulators.
• Appointments of auditors made by Govt.

16. Recent Decisions of Ethical Standard Board

1. It is not permissible for a member to use Messaging Applications to send messages to make people aware about his practice, and mention the services provided therein.
2. A Practicing CA being Director Simplicitor in a company cannot sign ROC Forms of Company.
3. If a Practicing CA is a non-executive director in a company, he or his Firm, should not accept appointment as a statutory auditor of a Company which is a joint venture of original Company, as it would impact independence.
4. A Practicing CA may be an equity research adviser, but he cannot publish retail report.
5. A CA can hold credit card of a bank when he is also the auditor, provided outstanding balance on the said card does not exceed 1 1,00,000 beyond the prescribed credit period limit on credit card.
6. A Practicing CA is not permitted to accept audit assignment of a bank in case he has taken loan against a Fixed Deposit held by him in that bank.
7. Statutory auditor/tax auditor cannot be the valuer of unquoted equity shares of the same entity, if prohibited under statute.
8. A Practicing CA cannot become Financial Advisors and receive fees/commission from Financial Institutions such as Mutual Funds, Insurance Companies, NBFCs etc.
9. A CA cannot exercise lien over the client documents/records for non-payment of his fees.
10. It is not permissible for CA Firm to print its vision and values behind the visiting cards, as it would result in solicitation and therefore would be violative of Clause (6), Part I of First Schedule.
11. A CA in service may appear as tax representative before tax authorities on behalf of his employer, but not on behalf of other employees of the employer.
12. A CA who is statutory auditor of a bank cannot for same financial year accept stock audit of the same branch of the bank or any of the branches of the same bank or sister concern of the bank, for the same financial year.
13. Concurrent auditor of bank ‘X’ cannot be appointed as statutory auditor of bank ‘Y’, which is sponsored by ‘X’.
14. Resident Director u/s 149(3) of the Companies Act, 2013 would be within scope of Director Simplicitor, if he is non—executive director, required in the Board Meetings only, and not paid any remuneration except for attending such Board Meetings.