Professional Ethics (PE):

1. First Schedule:

Part I - Professional Misconduct CA in Practice (12 Clauses)

“Practice ka Paisa Pay ya Receive kewal Partnership Firm mein hi karna. Kaam Secure karne ke
liye Solicit ya Advertise mat karna. Purane ko Communicate bhi karna aur Company’s Act ke
compliance ka dhyan bhi rakhna. Percentage (%) fees leke Another Business mein Sign na Kare”

Part II - Professional Misconduct CA in Service (2 Clauses)

“Pay ya Receive mat karna”

Part III - Professional Misconduct CA in General (3 Clauses)
“FCA dikha kar Non-Submission karna ya False bolna galat hain”

Part IV - Professional Misconduct CA in General

“Disrepute or Punishable with imprisonment for a term not exceeding 6 months”

2. Second Schedule:
Part I - Professional Misconduct CA in Practice (10 Clauses)
“Information Disclosed kiye bina Report naa de. Estimate mein Substantial Interest na and
Finance Minister Gee Keeps their Money IN Separate Bank Account”
F – Fact
M – Misstatement
G – Grossly Negligence
I – Insufficient audit Evidences
N – No Disclosure in Audit Report
Separate Bank A/c
Part II - Professional Misconduct CA in General (4 Clauses)

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“Regulation todkar Disclosure by Employee galat hain. ICAI ko jhuthi bat bolkar Money
Defalcate naa kare”
A CA in practice has been sus
Case study
pended from practice for a period of 6 months and he had surrendered his COP for the said
period. During the said period of suspension, though the member did not undertook any audit
assignments, he undertook representation assignments for income-tax, whereby he would
appear before the tax authorities in his capacity as a CA is this action valid?

Solution: Once a person become a member of ICAI he is bound by the provisions of the CA Act
and its regulation. If he is suspended is not holding Certificate of Practice, he cannot in any
other capacity take up any practice separable from his capacity to practice as a member of ICAI.

Case Study
A Member cannot designate himself as a Cost Accountant, but he can use the letter ACMA
after his name, when he is a Member of that Institute.

Case Study
A Firm, all the Partners of which are Members of the Institute and in practice, can be known by
its Firm Name as ‘Chartered Accountants’.

Case Study
Whether following sentence is correct
“Every person eligible to become member of the Institute is entitled to designate himself as
Chartered Accountant”
Ans.: No, only member of ICAI can designate himself as CA (Sec. 7)

Case Study
Every member whether practicing or non practicing is entitled to designate himself as
Chartered Accountant. Give opinion.

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Ans.: Yes, Refer Sec. 7

Case Study
Mr. MN GARG a Chartered Accountant in practice pays 20% of his professional fees to the
widow of his deceases partner only on humanitarian grounds
Hint: Shall be provided in deed not on humanitarian grounds. (Clause 2 of Part 1 of The First
Schedule to the Chartered Accountant Act)

Case Study
The widow of deceased partner receives share of profit every year for the next fifteen years
pursuant to a clause in Partnership deed to this effect.
Hint: No Misconduct (Clause 2 Part 1 of the First Schedule to the Chartered Accountant Act)

Case Study
Mr A purchased a proprietary firm of Mr B after his death and agrees to pay 20% of total
professional fees to Mrs B in addition to purchase consideration paid Rs 325000 as goodwill
Hint: Misconduct (Clause 2 of Part 1 of the First Schedule to the Chartered Accountant Act)

Case Study
Mr. A a Chartered Accountant holding certificate of practice could not succeed in getting any
professional work from last 4 years, finally entered into partnership with his brother who is
MBA to undertake management consultancy services.
Hint: No Misconduct

Case Study
Mr. X a Chartered Accountant in practice entered into partnership with Mr. Y a member of ICAI
and ICWAI holding COP of ICWAI
Hint: No Misconduct, as allowed by regulation 53 B.

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Case Study
CA Manish Naramdeo who is finance manager of Electrolux India Ltd. has offered A Trivedi
practicing CA to a reconciliation work of dealers accounts on the basis that Mr. Trivedi will pay
10% of his fees with Mr. Naramdeo for next five years.
Hint: Misconduct (Clause 5 of Part I of the First Schedule to the Chartered Accountant Act)

Case Study
Mr. MD a PCA managed to get a table and chair in the industrial finance branch of IDBI Ltd. and
manger is forwarding all projects to him on the profit sharing mutually decided by them.
Hint: Misconduct (Clause 5 & 4 of Part 1 of the First Schedule to the Chartered Accountants Act)

Case Study
Mr. AP a PCA has been allotted a cabin in the industrial finance branch of Bank of Baroda and
manager is forwarding all projects on weekly basis for credit appraisal the fees has been
decided by the Head Office as Rs 3,000/- per application.
Hint: There is no misconduct it is outsourcing (Clause 5 of Part 1 of the First Schedule to the
Chartered Accountant Act)

Case Study
As Airtel Ltd changed all telephone No. a Group 25 of Chartered Accountants in practice has
published their own telephone Directory for new telephone No. and sent it to all the clients,
friends, relatives, and any person happens to be connected with them directly or indirectly.
Hint: Misconduct as indirect solicitation. (Clause 6 of Part 1 of the First Schedule to the
Chartered Accountants Act)

Case Study
A classified in Economics Times appeared as follows “Wanted a suitable life partner for a PCA
whom should also be a PCA as to create a life time partnership” Ms. A & Co., Chartered
Accountant.

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Hint: Misconduct advertisement shall be given in members personal name not in the name of
the firm hence indirect solicitation (Clause 6 of Part 1 of The First Schedule to the Chartered
Accountants Act)

Case Study
A CA in practice writes to the registrar of co operative societies, stating that though his name is
on the panel, no allotment of audit has been made to him and requests him to take actions
immediately.
Hint: Enquiry Misconduct, Indirect Solicitation (Clause 6 of Part 1 of The First Schedule to the
Chartered Accountants Act)

Case Study
Mr. A Chartered Accountant in practice created his website in the following name
www.taxbachao.com
Hint: Misconduct, as per guidelines issued by council in this behalf, name should resemble to
the firm name

Case Study
A prospectus of P Ltd includes introduction of its Directors in the introduction of Mr B a CA in
practice and one of the Directors of the company was appeared as follows
“Mr. B aged 58 years is a senior partner in B & S Chartered Accountants have vast experience
and expertise in income tax matters”
Hint: Misconduct (Clause 6 of Part 1 of the Fist Schedule to the Chartered Accountants Act)
indirect solicitation

Case Study
T, a PCA uses the designation, ‘Municipal Councillor’ apart from the expression ‘FCA’ on his
visiting card. Comment RTP

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Hint: Member must not use the designation such as ‘Member of Parliament’, ‘Municipal
Councilor’ or any other functionary in addition to that of Chartered Accountant. Hence, guilty
under Clause 7 of Part 1 of First Schedule.

Case Study
The visiting card of a CA in practice mentions that he specializes in tax planning
Hint: Misconduct, advertising professional attainment (Clause 7 of Part 1 of The First Schedule
to the Chartered Accountants Act)

Case Study
The Offer Document of a Listed Company in which Mr. D, a PCA is a Director, mentions the
name of Mr. D as a Director along with his various professional attainments and spheres of
specialization. Is there any misconduct on the part of the Ca in this case?
Hint: If a Public Company, in which a CA in practice is a Director, issues a Prospectus or gives
any CA’s expertise, specialization and knowledge in any particular field, it will attract
professional misconduct under Clauses 6 & 7, Part 1, First Schedule.

Case Study
A CA in practice who is appointed as the tax auditor of a company accepts the audit without
communicating with the predecessor.
Hint: Misconduct (Clause 8 of Part 1 of the First Schedule to the Chartered Accountants Act)

Case Study
A CA in practice appointed as Special Auditor has not communicated to the statutory auditor
before accepting the appointment.
Hint: No need to communicate

Case Study

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Mr. A before accepting an audit appointment communicated to Mr. B the predecessor about
his appointment as a new auditor. Mr. B objected on the same and replied to Mr. A that he
must not accept the appointment as he would have been issued a qualification on financial
statement I he would have been allowed to conduct the audit Mr. A however accepted the
appointment.
Hint: No Misconduct if A has sound reasons to accept the appointment.

Case Study
The auditor of a company charges audit fee on the basis of quantum of work as indicated by the
audited figure of sales for the year
Hint: Misconduct (Clause 10 of Part 1 of the First Schedule to the Chartered Accountants Act)

Case Study
The auditor of a co operative society charges the audit fee as a specified percentage of the
working capital of the society.
Hint: It is permitted to charge fee in % of finding in this case by Council.

Case study

A CA in practice undertakes to conduct an appeal before the IT appellate tribunal on the

understanding with his client that he would be paid Rs 2000 in the event of his succeeding in
the appeal and Rs 500 in the event of appeal not succeeding.
Hint: Misconduct (Clause 10 of Part 1 of The First Schedule to the Chartered Accountants Act)

Case Study
A CA in practice who was an agent of LIC before he become a member of the ICAI is receiving
the commission from the said corporation.
Hint: No Misconduct as permitted to receive commission for policies issued earlier.

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Case Study
Mr. A CA in practice authored a book on “Jyotish and Vastu Shasthra”
Hint: No Misconduct

Case study
Mr. B accepted editorship of a monthly magazine “Desh Darshan” without first obtaining the
permission from the Council.
Hint: Misconduct (Clause 11 of Part 1 of the First Schedule to the Chartered Accountants Act)
special permission required

Case Study
A CA in practice to allows his audit assistant who is not a CA to sign the bills for audit fee on
behalf of the firm.
Hint: No Misconduct, billing is not an attest function.

Case Study
A CA in practice met with an accident and hence authorized his employee who is a qualified CA
to sign the audit report of the company as it was getting delayed.
Hint: Misconduct (Clause 12 of Part 1 of The First Schedule to the Chartered Accountants Act)

Case Study
Inspite of repeated reminders a CA fails to reply to the letters of the Director Discipline asking
him to confirm the date of registration by a paid assistant.
Hint: Misconduct (Clause 2 of Part 3 of the First Schedule to the Chartered Accountants Act)

Case Study
A CA in practice is presently an associate member of the Institute but has applied for
admissions to fellowships describes himself as FCA in an empanelment of auditors, since only
FCAs are entitled to make the applications.

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Hint: Misconduct (Clause 1 of Part 3 The First Schedule to the Chartered Accountants Act) also
misconduct (Clause 3 of Part 3 The Second Schedule to the Chartered Accountants Act)

Case study
Guna, a CA in practice as a Sole Proprietor, has an office in Mumbai near Churchgate. Due to
increase in professional work, he opens another office in a suburb of Mumbai, which is
approximately 80 kilometers away from his existing office. For running the new office, he
employs 3 retired income-tax officers. Is he guilty of professional misconduct?
Ans:
1. In the given case, the Second Office is located beyond 50 kms from the Municipal Limits of
Mumbai City. The exemption in respect of Second Office is not available.
2. The CA in practice has contravened the provision of Sec. 27. Since the suburb “Branch” is not
under the separate charge of a Member

Case Study
Mr. X PCA retain the books of his client and fails to return them to the client without
reasonable cause.
Hint: Other misconduct as per clause (2) of Part IV of The First Schedule to THE ACT.

Case Study
Mr. X PCA retain the books of accounts on the grounds that client is not paying the fees for
work done by him on the books.
Hint: Can retain books according to general law of lien, Hence no misconduct.

Case Study
During a raid of income tax some important files of income concealment were found at
auditor’s residence?
Hint: Other misconduct as per clause (2) of part IV of The First Schedule to THE ACT.

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Case Study
The Mayor of Mumbai Mahanagar Palika Nigam has complained to the Council that Mr. X the
PCA is not giving property tax of his office premises despite of several reminders.
Hint: Other misconduct as per clause (2) of the part IV of The First Schedule to THE ACT.

Case Study
Manager of Dena Bank complained about the Mr. JM a PCA that he has signed the balance
sheet of their branch on the following grounds
- All pending finance proposal of his client M/s SG shall be cleared before the dispatch of the
audit report.
- All financial proposal of South Mumbai shall be directed by the manger to him for CMA data
and projection.
Hint: Other misconduct as per clause (2) of Part IV of The First Schedule TO THE ACT.

Case Study
A CA who has requested to prepare the income tax return by a client finds that a substantial
part of the current income has been suppressed. He advises, the client to make full disclosure in
the return. The client does not oblige. The CA nevertheless continues with the assignment.
Hint: Misconduct. It is not duty of the member to shield the client under tax frauds (Clause 1 of
Part I of the Second Schedule to the Chartered Accountants Act)

Case Study
While reporting on a profit forecast to be submitted to a bank in connection with a loan
application of the client the CA mentions that in his view forecast are most likely to materialize.
Hint: Misconduct (Clause 3 of Part I of the Second Schedule to the Chartered Accountants Act )

Case Study
A PCA who is working as a part-time lecturer in a college accepts its audit.
Hint: Misconduct (Clause 4 of Part I of the Second Schedule to the Chartered Accountants Act)

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Case Study
A PCA accepts a audit of a trust in which his partner is a trustee.
Hint: Misconduct (Clause 4 of Part I of the Second Schedule to the Chartered Accountants Act)

Case Study
A firm of CA’s was appointed by a Company to evaluate the costs of the various products
manufactured by it for their information system. One of the Partners of the Firm was a Non-
Executive Director of the Company. Do you approve the above? Why ? N 01, N 04, N 10
Hint: Clause 4 of Part I of Second Schedule:
1. Where a CA is a Director of a Company, the Firm in which the said Member is a Partner,
should not express any opinion on its financial statements.
2. There is no “expression of opinion” on Financial Statements in the given case. Since the firm
has been appointed to evaluate the costs of the various products manufactured by it for their
information system, it cannot be held liable for professional misconduct.

Case Study
Shah, a CA, certified the Financial Statements of a Company in which his wife is a Director
holding substantial interest. Is he guilty of any misconduct?
Hint: The CA is guilty of professional misconduct under Clause (4) of Part I of Second Schedule
and the cases cited above.

Case Study
A company did not provide for depreciation as required by the relevant law and although the
auditor is aware that the company has substantially under provide depreciation he does not
bring out this fact in his report.
Hint: Misconduct (Clause 5 & 6 of Part I of the Second Schedule to the Chartered Accountants
Act)

Case Study

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A CA certifies the circulation figures of a news paper by stating that he has checked interalia
news print sheets and machine room returns when they have not at all been maintained by the
publishers.
Hint: Misconduct (Clause 7 of Part I of The Second Schedule to the Chartered Accountants Act)

Case Study
Rakesh, A CA, was employed by the Complainant for the purpose of Income Tax Appeal, before
the Income Tax Appellate Tribunal (ITAT). The remuneration for this purpose to be paid had
been fixed on certain percentage of the relief of tax.
The Complainant now submitted a complaint to the ICAI on the following grounds:
a. That the Respondent failed to appear at the hearing of the appeal before the Tribunal inspite
of agreement between them.
b. That a large sum of money were wrongfully taken by him by false representation of the case
RTP
Hint: Refer Clause 10 Part I of First Schedule and Clause 7 Part I of Second Schedule.
Charging Fees at a percentage of relief of tax claimed in appeal, constitutes misconduct under
clause 10 Part I of First Schedule. Failure to appeal at the hearing, false representation of the
case, etc. constitutes gross negligence covered by Clause 7 Part I of Second Schedule.

Case Study
Kunal, a CA was the Auditor of A Limited During a financial year, the Investments appeared in
the Balance Sheet of the Company at Rs 10 lakhs, and was the same amount as in the last year.
Later on, it was found that the Company’s investments were only Rs 25,000, but the value of
Investments was initiated for the purpose of obtaining higher amount of Bank Loan. Comment
N 09
Hint: This constitutes Gross Negligence, and hence, the CA is guilty of Professional Misconduct
under Clauses 5, 6 and 7 of Part I, Second Schedule

Case Study

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The auditors of a ban branch reports that he has not verified the cash in hand and that he has
also signed the balance sheet in anticipation of the receipt of the confirmation letters from the
banks in respect of balances with them.
Hint: Misconduct (Clause 8 of Part I of the Second Schedule to the Chartered Accountants Act

Case Study
A PCA does not keep the monies given to him by a client for purchase of stamp paper and
payment of court fees in a separate bank account. These moneys are with him for a year.
Hint: Misconduct (Clause 10 of Part I of The Second Schedule to the Chartered Accountants Act)

Case Study
A PCA accepts a audit of a concern in which one of his relatives has a substantial interest.
Hint: Misconduct (Clause 1 of Part II of The Second Schedule to the Chartered Accountants Act)
as per Council general guidelines, 2008.

Case Study

A PCA does not maintain any record of his professional receipts

Hint: Misconduct (Clause 1 of Part II of The Second Schedule to the Chartered Accountants Act)
as per council general guidelines, 2008.

Case Study
A PCA took a loan Rs 20,000 from a firm in which his articled clerk and his father were
interested.
Hint: Misconduct (Clause 1 of Part II of The Second Schedule tot eh Chartered Accountants Act)
violating regulation.

Case Study
A and B two CAs practice incorporate “Ticks and Ticks Pvt. Ltd. Chartered Accountants with the
main object of carrying on the profession of accountancy and auditing.

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Hint: Misconduct (Clause 1 of Part II of The Second Schedule to the Chartered Accountants Act)
violating Section 25.

Case Study:
Mr. X accepted the appointment as a cost auditor of a company in which he is auditor
appointed U/s 224.
Hint: Misconduct (Clause 1 of Part II of The Second Schedule to the Chartered Accountants Act)
as per council general guidelines, 2008.

Q-1 Comment on the following with reference to the Chartered Accountants Act, 1949 and
schedules thereto:
(a) The Cashier of a company committed a fraud and absconded with the proceeds thereof. This
happened during the course of the accounting year. The Chief Accountant of the company also
did not know about fraud. In the course of the audit, at the end of the year, the auditor failed
to discover the fraud. After the audit was completed, however, the fraud was discovered by the
Chief Accountant. Investigation made at that time indicates that the auditor did not exercise
proper skill and care and performed his work in a desultory and haphazard manner. With this
background, the Directors of the company intend to file disciplinary proceedings against the
auditor.
Discuss the position of the auditor with regard to the disciplinary proceedings.

(b) Priya Co. Ltd. has applied to a bank for loan facilities. The bank on studying the financial
statements of the company notices that you are the auditor and requests you to call at the
bank for a discussion. In the course of discussions, the bank asks for your opinion regarding the
company and also asks for detailed information regarding a few items in the financial
statements. The information is available in your working paper file. What should be your
response and why?

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(c) Binaca & Co, a firm of Chartered Accountants, accepted an assignment for audit under State
level VAT Act, without any prior communication with the previous auditor.

(d) Qurashi, a Chartered Accountant, failed to report to the shareholders of the Zee Ltd, about
the non-creation of a sinking fund in accordance with the Debenture Trust Deed and did not
make clear that the amount shown as Sinking Funds were borrowed from the Managing Agents
of the Zee Ltd.

(e) M/s. Appu, a firm of Chartered Accountants responded to a tender from a State
Government for computerization of property takings records. For this purpose, the firm also
paid Rs 60, 000 as earnest deposit as part of the terms of the tender.

Solution: (a) Failure to Exercise Reasonable Care and Skill: Apparently, as it appears from the
facts of the case that the auditor did not exercise proper skill and care and that he performed
his work in a desultory and haphazard manner. In this matter, the test for auditor’s liability lies
in whether he has applied reasonable care, skill and caution called for in the circumstances of
the case and whether he reasonably used all the information that he came across in the course
of audit. Cash is a very significant item in any situation and the fact that the cashier had left
during the year without notice should have placed the auditor on alert as regards the cash
book. In fact, the very fact that the cashier was absconding, i.e., left without any notice
constituted sufficient circumstances to excite suspicion of the auditor to probe to the bottom.
As per SA 240, “The Auditor’s Responsibilities relating to Fraud in an Audit of Financial
Statements”, it can be concluded that the auditor did not plan and perform the audit with an
attitude of professional skepticism. Thus, having regard to this and a fraud has actually taken
place during the year, committed by the absconding cashier, it is reasonable to think that prima
facie there is a case against the auditor for gross negligence. Clause (7) of Part I of Second
Schedule to the CA Act, 1949 requires that it is the duty of an auditor to bring to bear in the
work he has to perform that skill, care and caution as per the circumstances in an honest and

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reasonable manner. As it appears from the facts of the case, the auditor has been grossly
negligent in performing his duties which constitutes professional misconduct.

Conclusion:
Thus, such instances require reference to Disciplinary Committee of the Council of the Institute.
If a member is found guilty by the Council of any of the acts or omissions stated in the
Schedule, its finding with recommendations are to be referred to the High Court for decision .

(b) Clause (1) of Part I of the Second Schedule to the Chartered Accountants Act, 1949 states
that a chartered accountant in practice shall be deemed to be guilty of professional misconduct
if he discloses information acquired in the course of his professional engagement to any person
other than his client, without the consent of the client or otherwise than as required by law for
the time being in force. SA 200 on "Basic Principles Governing an Audit" also reiterates that,
"the auditor should respect the confidentiality of information acquired in the course of his work
and should not disclose any such information to a third party without specific authority or
unless there is a legal or professional duty to disclose". In the instant case, the bank has asked
the auditor for detailed information regarding few items in the financial statements available in
his working papers. Having regard to the position stated earlier, the auditor cannot disclose the
information in his possession without specific permission of the client as far as working papers
are concerned, SA 230 on "Audit Documentation" states "working papers are the property of
the auditor. The auditor may at his discretion, make portions of or extracts from his working
papers available to his client".
Conclusion:
Thus, there is no requirement compelling the auditor to divulge information obtained in the
course of audit and included in the working papers to any outside agency except as and when
required by any law.

(c) As per Clause 8 of Part I of First Schedule to the CA Act, 1949, A chartered accountant in
practice is deemed to be guilty of professional misconduct if he accepts a position as auditor

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previously held by another chartered accountant or a certified auditor who has been issued
certificate under the Restricted Certificates Rules 1932, without first communicating with him in
writing. In the instant case, Binaca & Co. accepted VAT – audit under State Level Act, carried
out by another firm of chartered accountants in the previous year, without prior
communication with the previous auditor.
Conclusion:
A communication is mandatory requirement for all types of audit, if the previous auditor is a
chartered accountant. Hence, the firm is guilty of professional misconduct.

(d) As per Clause 5 of Part I of Second Schedule to the Chartered Act, 1949, if a chartered
accountant in practice shall be deemed to be guilty of professional misconduct, if he fails to
disclose a material fact known to him which is not disclosed in the financial statement, but
disclosure of which is necessary in making such financial statement in a professional capacity In
the instant case, Qurashi was in duty bound to see that the nature and subject matter of the
charge over a security and the nature and mode of valuation of the Sinking Fund Investments
were disclosed in the Balance Sheet of Zee Ltd., in accordance with Form F.
Conclusion:
Hence, Q was found guilty of misconduct.

(e) Responding to Tenders: Clause (6) of Part I of the First Schedule to the Chartered
Accountants Act, 1949 lays down guidelines for responding to tenders, etc. As per the
guidelines if a matter relates to any services other than audit, members can respond to any
tender. Further, in respect of a non-exclusive area, members are permitted to pay reasonable
amount towards earnest money/security deposits.
In the instance case, since computerisation of property takings records does not fall within
exclusive areas for chartered accountants, M/s Appu can respond to tender as well as deposit
Rs 60,000 as earnest deposit and shall not have committed any professional misconduct.

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Q-2 Comment on the following with reference to the Chartered Accountants Act, 1949, and
Schedules thereto:
(a) Mr. Clever, a Chartered Accountant, prepared a project report for one of his client, Mr. King,
to obtain long term loan of Rs 100 lakhs from a scheduled bank and decided to charge fees
@10% of the loan approved. Subsequently, the bank approved the loan amounting to Rs 80
lakhs. Consequent to the approval of loan by the bank, Mr. Clever raised an invoice for his
services @10% of the loan approved, as decided.

(b) Ms. Preeti is a practicing Chartered Accountant. Mr. Preet is a practicing Advocate
representing matters in the court of law. Ms. Preeti and Mr. Preet decided to help each other in
the matters involving their professional expertise. Accordingly, Ms. Preeti recommends Mr.
Preet in all tax litigation matters in the court of law and Mr. Preet consults Ms. Preeti in all
matters related to finance and other related matters, which comes to him in arguing various
cases in the court of law. Consequently, they started sharing some part in the profits of their
professional work.

(c) A special notice has been issued for a resolution at 3rd annual general meeting of Fiddle Ltd.
providing expressly that CA Smart shall not be re-appointed as an auditor of the company.
Consequently, CA Smart submitted a representation in writing to the company as provided
under section 140(4)(iii) of the Companies Act, 2013. In the representation, CA Smart
incorporated his independent working as a professional throughout the term of office and also
indicated his willingness to continue as an auditor if reappointed by the shareholders of the
Company.

(d) Mr. Brainy, a Chartered Accountant in practice, is the auditor of Fair Ltd. He advised the
Managing Director of the company to include ‘orders under negotiation’ in sales, to reflect
higher profit and better financial position for obtaining bank loans in future. Mr. Brainy,
thereafter, gave clean reports on the balance sheet prepared accordingly without examining
the accounts.

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Solution: (a) Charging of Fees Based on Percentage: As per Clause (10) of Part I of First
Schedule to the Chartered Accountants Act, 1949, a Chartered Accountant in practice is
deemed to be guilty of professional misconduct if he charges or offers to charge, accepts or
offers to accept in respect of any professional employment fees which are based on a
percentage of profits or which are contingent upon the findings, or results of such employment,
except as permitted under any regulations made under this Act.
In the given case, Mr. Clever has prepared a project report, to obtain a long term loan, for Mr.
King. However, he decided to raise the invoice of his service @10% of the loan to be sanctioned
in future, which is basically contingent upon the findings. Therefore, Mr. Clever will he held
guilty for professional misconduct under the above mentioned clause.

(b) Sharing and Accepting of Part of Profits with an Advocate: According to Clause (2) of Part I
of the First Schedule to the Chartered Accountants Act, 1949, a Chartered Accountant in
practice is deemed to be guilty of professional misconduct if he pays or allows or agrees to pay
or allow, directly or indirectly, any share, commission or brokerage in the fees or profits of his
professional business, to any person other than a member of the Institute, for the purpose of
rendering such professional services from time to time in or outside India. Furthermore, Clause
(3) of Part I of the First Schedule to the said Act states that a Chartered Accountant in practice is
deemed to be guilty of professional misconduct if he accepts any part of the profits of the
professional work of a person who is not a member of the Institute. However, a practicing
member of the Institute can share fees or profits arising out of his professional business with
such members of other professional bodies or with such other persons having such
qualifications as prescribed by the Council under Regulation 53-A of the Chartered Accountants
Regulations, 1988. Under the said regulation, the member of “Bar Council of India” is included.
Therefore, Mr. Preet, an advocate, a member of Bar Council, is allowed to share part of profits
of his professional work with Ms. Preeti. Hence, Ms. Preeti, a practicing Chartered Accountant,
will not be held guilty under any of the above mentioned clauses for paying and accepting part
of profits from Mr. Preet.

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(c) Soliciting Clients: As per Clause (6) of Part I of First Schedule to the Chartered Accountants
Act, 1949, a Chartered Accountant in practice is deemed to be guilty of professional misconduct
if he solicits clients or professional work either directly or indirectly by circular, advertisement,
personal communication or interview or by any other means except applying or requesting for
or inviting or securing professional work from another chartered accountant in practice and
responding to tenders. Further, section 140(4)(iii) of the Companies Act, 2013, provides a right,
to the retiring auditor, to make representation in writing to the company. The retiring auditor
has the right for his representation to be circulated among the members of the company and to
be read out at the meeting. However, the content of letter should be set out in a dignified
manner how he has been acting independently and conscientiously through the term of his
office and may, in addition, indicate, if he so chooses, his willingness to continue as auditor, if
re- appointed by the shareholders. Thus, the incorporation as an independent professional,
made by CA Smart, while submitting representation under section 140(4)(iii) of the Companies
Act, 2013 and indication of willingness to continue as an auditor if reappointed by shareholders,
does not leads to solicitation.
Therefore, CA Smart will not be held guilty for professional misconduct under Clause (6) of Part
I of First Schedule to the Chartered Accountants Act, 1949.

(d) Grossly Negligent and Bringing Disrepute to the Institute: Clause (7) of Part I of the Second
Schedule to the Chartered Accountants Act, 1949 states that a Chartered Accountant in practice
shall be deemed to be guilty of professional misconduct if he does not exercise due diligence, or
is grossly negligent in the conduct of his professional duties.
Furthermore, Clause (2) of Part IV of the First Schedule to the said Act states that a member of
the Institute, whether in practice or not, shall be deemed to be guilty of other misconduct, if
he, in the opinion of the Council, brings disrepute to the profession or the Institute as a result
of his action whether or not related to his professional work.
In the given case, Mr. Brainy, a Chartered Accountant in practice, is grossly negligence in
conduct of his professional duties by issuing clean reports on the balance sheet without
examining the accounts. Further, he has also brought disrepute to the profession by advising

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unethical practice to the managing director of the company. Therefore, Mr. Brainy will be held
guilty for professional and other misconduct under abovementioned Clauses to the Chartered
Accountants Act, 1949.

Q-3 Comment on the following with reference to the Chartered Accountants Act, 1949 and
schedules thereto:
(a) M/s LMN & Associates, a firm of Chartered Accountants responded to a tender issued
exclusively for Chartered Accountants by an organisation in the area of tax audit. However no
minimum fee was prescribed in the tender document.

(b) PQR Pvt Ltd. approached CA. Whai, a Chartered Accountant in Practice, for debt recovery
services. CA Whai accepted the work and insisted for fees to be based on 2% of the debt
recovered.

(c) M/s ABZ & Co., a firm of Chartered Accountants, develops a website “abz.com”. The colour
chosen for the website was a very bright green and the web-site was to run on a “push”
technology where the names of the partners of the firm and the major clients were to be
displayed on the web-site without any disclosure obligation from any regulator.

(d) M/s XYC & Co., a firm of Chartered Accountants, received Rs 4.8 lakhs in January, 2016 on
behalf of one of their clients, who has gone abroad and deposited the amount in their Bank
account, so that they can return the money to the client in July, 2016, when he is due to return
to India.

Solution: (a) Responding to Tenders: Clause (6) of Part I of the First Schedule to the Chartered
Accountants Act, 1949 lays down guidelines for responding to tenders, etc. It states that a
member may respond to tenders or enquiries issued by various users of professional services or
organizations from time to time and secure professional work as a consequence.

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However, a member of the Institute in practice shall not respond to any tender issued by an
organization or user of professional services in areas of services which are exclusively reserved
for Chartered Accountants, such as audit and attestation services. Though, such restriction shall
not be applicable where minimum fee of the assignment is prescribed in the tender document
itself or where the areas are open to other professionals along with the Chartered Accountants.

In the instant case, M/s LMN & Associates responded to a tender of tax audit which is
exclusively reserved for Chartered Accountants even though no minimum fee was prescribed in
the tender document.

Therefore, M/s LMN & Associates shall be held guilty of professional conduct for responding to
such tender in view of abovementioned guideline.

(b) Charging of Fees based on Percentage: Clause (10) of Part I to First Schedule to the
Chartered Accountants Act, 1949 prohibits a Chartered Accountant in practice to charge, to
offer, to accept or accept fees which are based on a percentage of profits or which are
contingent upon the findings or results of such work done by him.

However, this restriction is not applicable where such payment is permitted by the Chartered
Accountants Act, 1949. The Council of the Institute has framed Regulation 192 which exempts
debt recovery services where fees may be based on a percentage of the debt recovered.

In the given case, CA. Whai has insisted for fees to be based on percentage of the debt
recovered (which is exempted under Regulation 192). Hence, CA. Whai will not be held guilty
for professional misconduct.

(c) Posting of Particulars on Website: The Council of the Institute had approved posting of
particulars on website by Chartered Accountants in practice under Clause (6) of Part I of First

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Schedule to the Chartered Accountants Act, 1949 subject to the prescribed guidelines. The
relevant guidelines in the context of the website hosted by M/s ABZ & Co. are:
 No restriction on the colours used in the website;
 The websites are run on a “pull” technology and not a “push” technology
 Names of clients and fees charged not to be given.

However, disclosure of names of clients and/or fees charged, on the website is permissible only
where it is required by a regulator, whether or not constituted under a statute, in India or
outside India, provided that such disclosure is only to the extent of requirement of the
regulator. Where such disclosure of names of clients and/or fees charged is made on the
website, the member/ firm shall ensure that it is mentioned on the website [in italics], below
such disclosure itself, that “This disclosure is in terms of the requirement of [name of the
regulator] having jurisdiction in [name of the country/area where such regulator has
jurisdiction] vide [Rule/ Directive etc. under which the disclosure is required by the Regulator].

In view of the above, M/s ABZ & Co. would have no restriction on the colours used in the
website but failed to satisfy the other two guidelines. Thus, the firm would be liable for
professional misconduct since it would amount to soliciting work by advertisement.

(d) Money of Clients to be Deposited in Separate Bank Account: Clause (10) of Part I of Second
Schedule states that a Chartered Accountant shall be deemed to be guilty of professional
misconduct if “he fails to keep money of his clients in separate banking account or to use such
money for the purpose for which they are intended”.
In the given case, M/s XYC & Co. received the money in January, 2016 which is to be paid only
in July 2016, hence, it should be deposited in a separate bank account. Since in this case M/s
XYC & Co. has failed to keep the sum of ` 4.8 lakhs received on behalf of their client in a
separate Bank Account, it amounts to professional misconduct under Clause (10) of Part I of
Second Schedule.

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