Code of conduct & ethical Issues – Recent Trends

Presented by CA P.R. Suresh, Bangalore

•Code of conduct &

•ethical Issues –

•Recent Trends


• Objective of the session :

• To understand the code governing the members

• Compliance as a means of avoiding troubles

• To identify the potential risks and issues involved

• The domacles sword

• Lessons from the Satyam Episode

• The mechanism

• Safeguards

• Judicial views

• Solution

• UNDERSTANDING THE CODE GOVERNING THE MEMBERS :

• Fundamental Principles of code of conduct :

• Integrity – straight forward & honest

• Objectivity – No bias, conflict of interest or undue influence

• Professional Competence and due care – CPE, technical & professional Standards

• Confidentiality – Secrecy – working papers

• Professional Behaviour – compliance with relevant laws and regulations and avoid actions which discredit the profession.


• COMPLIANCE AS A MEANS OF AVOIDING TROUBLES :

• How to avoid being caught by the long arm of the law

• Understanding

• Compliance

• Safeguards


• IDENTIFY THE POTENTIAL RISKS AND ISSUES INVOLVED

• Client acceptance – communication with previous auditors – Bank branch audit – C & A G Audit, Souharda Audit, Co-operative audit etc.,

• Undesirable client – such as involved in illegal activities etc.,

• Advertisement – marketing of services

• Acceptance of Gifts and hospitality

• Custody of clients assets

• Loans and guarantees



• DOMACLES SWORD :

• Council Guidelines :

• Advertisement - permitted with certain restrictions

• Council guidelines applicable to both members in practice as well as in service

• CA’s in practice Cannot be appointed as a cost auditor or as a Company Secretary

• Shall maintain proper books of accounts – Cash Book / Ledger

• Tax Audit Assignments – 45 nos – in a firm of 4 parnters ?

• Partner in more than one firm?

• Practicing as an individual as well as partner?

• Whether Section 44 AD, AE & AF are also to be considered?


• Specified number of audit assignments of companies

• Acceptance of Statutory audit where the fees from other services is more than the audit fees?

• Indebtedness beyond Rs.10000/-?

• Minimum Audit fees chargeable for audit work

- 5 partners Rs.6000 in cities with 30 lakhs population / Rs.3500/-

- 10 Partners Rs.12000 per annum / Rs.8000 per annum.

Exceptions : Charitable institutions, clubs, PF funds, appointment which are honorary.

Statutory audit of RRB, newly formed concerns for 2 years, certification or audit under IT Act or other attestation work carried out by the statutory auditor, Sales Tax Audit / VAT audit.


• SOME OF THE FREQUENTLY ASKED QUESTIONS?

• Communication with previous auditor -?

• A major portion of the complaint cases received at the ICAI relate to disputes between members relating to this area

• Is it compulsory for bank branch audit?

• Is it compulsory for concurrent audit?

• Is it compulsory for tax audit?

• Is it compulsory for revenue or any other audit?

• How should the communication be?

• Can it be over the phone?r – in writing

• Can audit be accepted with ascertaining compliance of provisions of section 225 of the Companies Act?

• Can accept audit in an interested concern without notice of interest?


• Whether a CA can use expressions such as Income Tax consultant, Cost Accountant, Company Secretary or Management Consultant?r

• Can a CA also practice as an Advocate?yes

• Can a CA use designation as corporate lawyer?no

• Can a CA accept an audit where the fees of the previous auditor remains unpaid?

• Is the letter of communication of certificate of posting sufficient?

• Can a CA charge fees on percentage basis? Or on profit sharing basis?

• Whether a CA can engage in business or occupation other than CA?


• If a CA is a partner in more than one firm, can he print his names of all the firms on his visiting cards?y

• Whether a CA can use a logo in his stationery?r

• Can a CA obtain IS certification?

• Can a firm have a networking done?

• Can a firm network with other than Cas

• Can a firm network without intimation to ICAI

• Can a firm share fees out of network with non members?

• What is to be done for unjustified removal of auditors?

• Can a CA study any other course during his practice?


• Can accept as statutory / internal auditors wherein book keeping services are rendered?

• Can a CA be engaged in part time / full time business activity?

• Can a CA manage the funds of an NRI?

• Can a CA provide Portfolio Management Servies to his clients?

• Can a CA practice without COP

• Can a CA with part time practice undertake attest functions?

• Whether a member can respond to announcement for empanelment for allotment of audit and other professional work?p

• Can a member respond to tenders?r

• Can a member quote in the case of tender?

• Can a CA seek work from his professional colleague?p


• Can concurrent audit and quarterly review of the same entity can be conducted by a CA?

• Can a CA be engaged in buying and selling of shares?r

• Can a CA post particulars of himself/firm in a website?p – subject to certain guidelines

• Can a member put his photograph on a website?p

• Can a CA give public interviews?p

• Can a CA agree to select, recruit and / or train personnel on behalf of his client?p

• Can a member act as an insurance agent?r – only for the limited purposes of receiving commission.

• Whether Code of Ethics is applicable outside India?p


• Whether a CA can appear on TV / radio or give lectures at forums?p

• Can a CA advertise his professional attainments or services?

• Is there any restriction or guidelines thereto?


• Professional or other misconduct:

• Section 22 of the CA Act, 1949:

• For the purpose of this Act, the expression “ Professional or other misconduct” shall be deemed to include any act or omission provided in any of the Schedules, but nothing in this section shall be construed to limit or abridge in any way the power conferred or duty case on the Director (Discipline) under Sub-Section (1) of Section 21 to inquire into the conduct of any member of the Institute under any other circumstances”.

• First Schedule, Second Schedule & Other misconduct


• Clause 1 : Allows any person to practice in his name

• Clause 2 : Pays or agrees to pay or allow directly or indirectly any share, commission or brokerage in the fees or profits of profession to any person other than a member of the institute or a partner or a retired partner or the legal representative of a deceased partner, or a member of any other professional body or with such other persons.

• Clause 3 : accepts any part of the profits of the professional work with non members.

• Clause 4 : enters into partnership in or outside india with non members.

• Clause 5 : secures any professional business by means which are not open to a CA


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

• Exception – from members and through tenders or enquiries

• Clause 7 : Advertises professional attainments or services

• Clause 8 : Accepts a position as auditor previous held by another CA without first communicating with him in writing.

• Clause 9 : Accepts an appointment as auditor of a company without first ascertaining whether provisions of section 225 are complied with

• Clause 10 : Charges or accepts fees which are based on a percentage of profits or which are contingent upon findings or results?

• Clause 11: engages in business or occupation – (ex director of a co)

• Clause 12 : Allows a person not being a member of the Institute or partner to sign on his behalf or on behalf of firm any financial stats.


• Part III :

• Clause 1 : Not being a fellow acts as a fellow.

• Clause 2 : does not supply information called for or does not comply with the requirements asked for, by the Institute, Council or any of its committees, Director (Discipline), Board of Discipline, Disciplinary Committee, Quality Review Board or the Appellate Authority.

• Clause 3 : furnishes information knowing it to be false while seeking work.

• Second schedule

• Part 1 :

• Clause 1 : discloses information obtained in audit without consent of client

• Clause 2 : certifies or submits in his name or firm, a report of financial statements without examining.

• Clause 3 : attests estimate of earning contingent upon future transactions, vouching for accuracy of the forecast.

• Clause 4 : audits firm in which substantial interest is there

• Clause 5 : fails to disclose material fact known to him which is necessary in preparation of financial statements.


• Clause 6 : Fails to report material mis-statements in financial statement.

• Clause 7 : does not exercise due diligence or is grossly negligent in conduct of professional duties

• Clause 8 : fails to obtain sufficient information necessary for expressing opinion.

• Clause 9 : fails to invite attention to material departure from generally accepted procedure of audit applicable .

• Clause 10 : fails to keeps moneys of clients separately in bank account.

• Part 11 :

• Clause 1 : contravenes any of the provisions of the act or regulations.


• Part III :

• A member of the institute shall be deemed to be guilty of other

Misconduct, if he is held guilty by any civil or criminal court for an offence which is punishable with imprisonment for a term exceeding six months.

Other Misconduct :

Sine qua non “Chartered Accountant expected to maintain the highest standards and integrity even in his / her personal affairs and any deviation from these standards would expose him / her to disciplinary action.


• Cases of other misconducts :

• Forging of will of a relative

• Issuing a certificate to a person that he has worked with him knowing it to be false

• Retaining of books of accounts of clients regardless of repeated requests

• Exercising undue influence and coercion in securing payment of fee and letter of appointment for next year.

• Omissions and commissions in the minutes book of a company

• Misrepresenting to an employer that he has worked for x number of years.

• Using services of articled assistant for personal or other activities


• Issue of consumption certificate without verification or found not to be correct

• Possession of confidential or classified documents not expected to be in the possession of a CA s.k. bhaumik, 1990

• Use of objectionable, derogatory and abusive language, irrelevant, incoherent, irresponsible and insane statements, expressions in correspondences by a respondent to a complaint.

• Submission of excess / bogus bills in carrrying out audit of bank branches

• Issuing fake certificates / letter heads / seals etc

• Acceptances of statutory audit while being in employment

• Authoring of a book “Tax planning for secret income” pc parekh


• Filing of two separate return of income of the same person one as an individual as a CA and other for other heads. Mohanlal giriya

• Fabrication and filing of challans of certain clients

• Issue of false certificates to Banks, ESI, PF, Service Tax, Customs, Excise, etc.,

• Failure to appear before the Tax Authorities inspite of repeated posting having been fully paid for the services.

• Issuing wrong certificates


• Lessons from Satyam Episode

• How could it have happended

• Bigger the client bigger the issues / risks

• Clients do not come to the aid when required

• Friend in need is a friend indeed

• No one to rescue

• Risk assessment and protection

• Unity in profession

• Opening of pandora’s box

• Recent MCA guidelines

• Professional Indemnity Insurance


• To be aware of the threat of exposure such as the Satyam issue

• The media and the adverse publicity

• The role and responsibility

• Need for togetherness

• Loss of face and shame

• Distrust on the profession

• Role of member

• Global standards, Enron, Xerox, Paramalat, worldcom etc.,

• CA – Yayesu Suktesu Jagruti


• The mechanism

• Section 21 of the Chartered Accountants Act, rws 22

• Regulations 12 to 17

• Complaint should be in appropriate form – Form 1

• Must state the acts and omission which, if proved, would render the person complained against guilty of professional or other misconduct

• Oral and documentary evidence relied in support of allegations

• Payment of fee (other than government)

• Complaint sent to the respondent

• Respondents reply sent to the complainant

• Complainant ‘s rejoinder if any is obtained


• Complaint, Respondents reply and Complainants rejoinder is placed before the Director (Discipline) to arrive at the Prima facie opinion

• If the complaint is found defective or wrong it is filed.

• Otherwise, in the case of first schedule items a hearing U/s 21 A is held wherein both the complainant and the respondent are given an opportunity of being heard, before the Board of Discipline.

• In the case of second schedule and / or other misconduct / or where first and second schedule / other misconduct is involved then the matter is posted for hearing U/s 21 B to the Disciplinary Committee.

• All matters wherein the receipt of information / complaint was made on or before 17.11.2006 are dealt with U/s 21D – transitional provisions by the Discipinary Committee.


• Time limit for entertaining the complaint – 7 years

• Procedure for enquiry before the Disciplinary Committee –

• Procedure of Investigations of Professional and Other Misconduct and Conduct of cases) Rules 2007

• Quasi judicial function

• Quasi Criminal in nature

• Powers of a court to summon

• Attendance

• Swearing on oath

• Furnishing of evidence

• Cross examination when permitted

• Principles of natural justice


• Furnishing of a copy of the report.

• If negative, powers to appeal to the Appellate Tribunal U/s 22 G as against the order of the Board of Discipline or the Disciplinary Committee Under sub section (3) of Section 21 A & 21 B.

• Further Appeal to the High Court


• Safe guards :

• Risk Assessment & risk mitigation policies

• Documentation & evidentiary support

• Alternative Dispute resolution mechanism

• Facts versus Law

• Sound Counsel

• Judicial Views :

• Institute’s

• An analysis

• L.K. Rathna

• Oryx Fisheries


• Kishorilal DattaVs. P.K. Mukherjee

• Partha Ghosh Vs. ICAI

• Ganesh Vs. Joscelyne

• Narayanan Nambudiri Vs. ICAI

• V.K. Verma Vs. ICAI

• ICAI Vs. Pricewaterhouse – Supreme Court

• ICAI Vs. Somnath Basu, Calcutta High Court

• An Advocate Vs. Bar Council of India

• Role of Chartered Accountants in relation to unlawful acts by their Clients – code of ethics page 232.


• SOLUTION

• AVOID

• ACT PROACTIVELY

• ADVISE

• ACQUIT YOURSELF

• ALL THE BEST

• WHY FEAR WHEN ………….


•THANK YOU

P.R. SURESH – 98450 58988 -

[email protected]

Code of conduct & ethical Issues – Recent Trends

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