Lecture - 5

Chapter – 5 “Professional Ethics”

(5) First Schedule: PART – II (Professional Misconduct for Members in Service)
A member in service, shall be deemed to be guilty of professional misconduct, if he

Clause – 1: pay or allow or agree to pay

directly or indirectly, to any person

any share in emoluments of employment undertaken by him.

For Example: Mr. X agree to pay 50% of his salary of first month to ABC

ABC consultants as consideration for arranging employment for

him.

Clause – 2: accept or agree to accept

any part of fees, profits or gains from

a Lawyer, CA or broker engaged by the company, firm or other person

(i.e. Employer)

Or

agent or customer of such company firm or other person

by way of commission or Gratification.

For Example: Mr. A (Finance Manager) of ABC Ltd. ask for 50% share in fees

of Advocate, as a consideration to refer legal cases of ABC

Ltd. to him.

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Professional Ethics Chapter 5
(6) First Schedule – Part III – Professional Misconduct – Members Generally:

A member of ICAI, whether in practice or not, shall be deemed to be guilty of professional

misconduct, if he

Clause – 1: not being a fellow member, but acting as a fellow member.

Clause – 2: does not supply the information called for

or

does not comply with the requirements asked for

by ICAI, its Council, Committees, Director Discipline, Board of Discipline,

Disciplinary Committee, Appellate Authority or Quality Review Board.

Note: Providing false information to ICAI, its Council, Committees, Director

Discipline, Board of Discipline, its Committee, Disciplinary Committee,

Appellate Authority or Quality Review Board will amount to Professional

Misconduct under Clause 3, Part II of Second Schedule.

Clause – 3: While inviting professional work from another CA

or

responding to tenders

or

advertises the professional work

as per permitted means under clause 6 and 7 of

Part I of First Schedule

provides the information, knowing to be false.

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Chapter 5 Professional Ethics
(7) Other Misconduct – Part IV of First Schedule

- Part III of Second Schedule for Members Generally

A member of the Institute, whether in practice or not, shall be deemed to be guilty of

Other Misconduct, if he

Clause – I, Part IV, First Schedule Clause I, Part III, 2nd Schedule

is held guilty of any offence by any Civil is held guilty of any offence by any Civil

or Criminal Court, which is punishable or Criminal Court, which is punishable

with imprisonment for a term with imprisonment for a term exceeding

upto 6 Months 6 Months

Clause – 2, Part IV, First Schedule:

A member of the Institute, whether in practice or not, shall be deemed to be guilty of

Other Misconduct, if he

brings any disrepute to the profession or the Institute

as a result of his conduct, whether or not related with the professional work.

Examples:

(a) Dishonor of cheques due to insufficient funds.

(b) Using Coercive methods to obtain a loan.

(c) Non-repayment of loan.

(d) Retaining client’s records without sufficient cause.

(e) Misappropriation of funds, etc.

DO PRACTICE – Questions on Part II, III and IV

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Professional Ethics Chapter 5
(8) Second Schedule – Part I – Professional Misconduct – Members in PRACTICE

Clause – I: Disclosure of Client’s information:

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

discloses the client’s information acquired during the course of professional

work to others

Except when – (a) permitted by client

or

(b) required by law.

Auditor’s duties as to disclosure of frauds committed by clients:

(i) SA-240 requires the auditor to communicate the information relating to fraud to

Regulatory and Enforcement Authorities, when required by law.

(ii) Sec. 143(12) of Companies Act, 2013 requires the auditor to report the fraud in

certain cases to Central Government in the manner prescribed under Rule 13 of

Companies (Audit and Auditor’s) Rules, 2014.

(iii) Para 3(xi) of CARO, 2020 requires the auditor to report the fraud committed by the

company or over the company by any officer or Employee of the company.

In addition, auditor is also required to report whether he has considered Whistle -

blower complaints, if any received during the year by the company.

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Chapter 5 Professional Ethics

Member’s duties in relation to taxation fraud:

Taxation fraud

Belongs to past period Current Period

Client represented by client not represented

by the Member by the Member

Advise client to Advise client to Advise client to

Disclose disclose disclose

If not disclosed if not disclosed if not disclosed

Withdraw from current Determine its impact Modify the opinion

Period Assignment on current year and

AND disassociate with Income

Inform Income Tax Tax Return.

Authorities not to rely

over the report for No Impact Impact on Current year

Past Period

No Further duty Modify the opinion

Note: Details about and

Fraud need not disassociate with

be disclosed Income Tax Return

DO PRACTICE – Questions on clause 1

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Professional Ethics Chapter 5
Clause 2: Certification without Examination:

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

certifies or submits in his name or firm’s name

a report on examination of financial statements

unless examination of such statement and related records has been made by

him, his partner, employee or another CA in practice.

Clause 3: Permitting use of name in Connection with Estimate of Earnings:

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

permits his name or firm’s name

to be used in connection with an estimate of earnings, which is contingent upon

future transactions

in a manner which leads to belief that he vouches for the accuracy of

the forecast.

Note: In this reference, practicing CA must ensure compliance of requirements of SAE-3400

“The Examination of Prospective Financial Information (PFI)”.

As per SAE – 3400,

(i) Preparation of PFI is responsibility of management.

(ii) While preparing PFI, following disclosure must be there:

(a) Source of information, (b) Basis of forecast, & (c) Assumptions used.

(iii) A Practicing CA, if engaged by management for prepn of PFI, he should ensure

appropriate disclosures and in the “Accountant Report”, it should be stated

that no vouching done for the accuracy of the forecast.

DO PRACTICE – Questions on Clause 3

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Chapter 5 Professional Ethics
Clause – 4: Expressing opinion on financial statements of an entity in which member has

substantial interest:

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

expresses an opinion on the financial statements of an entity in which

he, his partner or firm is having substantial interest.

Other Explanations as per Code of Ethics: details to be covered from books.

DO PRACTICE – Questions on Clause 4

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