Recommendatory

1.  Member in full time practice for not less than 10 years or a partnership firm in which such member is partner not to accept audit work of a Government company or Corporation for a fee of less than ₹3,000 except in case of newly formed Co. up to 2 years from commencement of operations.

2. Branch Audits of a company not to be conducted by its statutory auditors consisting of ten or more members but to be entrusted to local firm of auditors consisting of less than 10 members except where accounting records of branches are maintained at the Head Office of the Co. or significant operations of company are carried out at its branch office.

3. In case of large companies, senior firm not to object to appointment of a firm with less than 5 members as joint auditors. Practice of appointment of joint auditors to be encouraged.

4. Practising firm of CAs engaged in audit work to have at least one qualified member for every five non-qualified members of staff excluding articled/audit assistant, typists, peons or other office staff.

5. Auditor to disclose in the Company Balance Sheets the payments received by them for other services through media of a different firm or firms in which auditor is either a partner or proprietor.

6. Professional fees for audit and other services received by a firm, its partners individually and by other firm in which a partner or partners are partners, from one or more clients or companies under same management (as defined in S. 370(1B) of the Companies Act) not to exceed 40% of the gross annual fees of firm, other firms and partners referred to above in order to ensure that member is not over-dependent on one group of clients or companies under same management. Not to apply in a case where such fees do not exceed ₹2 lakhs from the group or where fees relate to audit of Govt. companies or where appointments are made by the Govt.

Code of Ethics — Some Provisions

Advertisement, Logo, etc.

(A) A practising C.A. CANNOT

1. Solicit work.

2. Give a client’s balance sheet on his letterhead.

3. Describe on his letterhead or visiting cards association with other Indian/Foreign firms.

4. Use a firm name not approved by the Institute.

5. Have his name displayed in Yellow pages in bold.

(B) A practising C.A. CAN

1. Give his audit report to the client on his letterhead.

2. Use a prescribed logo on visiting cards, letterheads, etc.

3. describe himself as a CA. in greeting cards and invitation cards. Can use the prefix CA. before his name.

4. Advertise in the official Yellow pages brought out by the telephone authorities.

5. Display his firm’s name board in a manner that it does not smack of advertisement.

6. Advertise as per the notified guidelines.

Website

The Institute has permitted each member to establish their own websites. Members should ensure that their Websites are run on a ‘pull’ model and not a ‘push’ model of the technology to ensure that any person who wishes to locate the member would only have access to the information and the information should be provided only on the basis of specific ‘pull’ request.

Tenders

The practising CA. —

CANNOT Respond to

• Advertisements inviting applications for appointment of auditors;

• Tenders or circulars or enquiry (made to more than one member) inviting quotations restricted to CA.

CAN Respond to Advertisement / Circular/Tenders or enquiries

• In other areas when competing with non CAs.

• If the same has been sought by World Bank/I.M.F./A.D.B./Other similar International Body /Govt. Co. or Agency/Autonomous Body sponsored or regulated by the Govt./Nationalised Institution. Any other similar body which Council may prescribe.

• In case of any other services, including audit services to be provided out of country CANNOT pay

• Earnest money/security deposit in areas which are exclusive to CA. as per law

CAN pay

• A reasonable amount as price for tender/bid document.

• Earnest money/security deposit in other areas open to both Chartered Accountants and other professionals at their discretion.

• Reasonable amount towards earnest money/security deposit, if any CAs. are recruited in non-exclusive area.

Directorships

A practising CA.

1. CAN be a director simpliciter in a company without prior permission of Council.

2. CAN be a promoter or promoter director in a company without prior permission of Council.

3. CAN be a Managing Director or Wholetime Director of a company with prior permission of Council. This permission is granted if such CA. and/or relative do not have substantial interest (i.e., more than 20%) in the company. However, w.e.f. 1-4-2005 the member is not permissible to do attest function.

Fees : For accounting periods beginning on or after 1-4-2004

Audits excluded from above restriction

1. Charitable institutions, clubs, prov. funds, etc.*
   * Earlier this exemption applied only if the above audits were honorary. This requirement has now been removed.

2. Bank branch statutory audit of branches of banks including regional rural banks.

3. Newly formed concerns for first two years from date of commencement of operations.

4. Certificate/audit under Income-tax Act or other attestation work carried out by statutory auditor.

Applicable for Accounting period beginning on or after 1-4-2004.

A practising C.A.

1. CANNOT accept contingency or percentage based fees, except in the following cases:

• A liquidator can accept his fee based on percentage of realisation of assets

• An auditor of a co-operative society can accept fees based on percentage of paid-up capital, working capital, gross income/profits, or net income/profits

• A valuer for direct tax purposes can accept fees based on the value of property valued.

2. CAN share fees with other practising CA. but not with others.

Audit

The Auditor of a Company should, before accepting audit, ensure himself that the following provisions are complied with:

Appointment of Auditors – Section 139 of CompaniesAct, 2013

• Instead of reappointment at each AGM, auditor to be appointed for a block of five years.

• Reappointment needs to be ratified at each AGM.

• Appointment shall be made taking into recommendations of the Audit Committee/Board

• At each AGM, CA members will have option to:

– rotate Audit partner/team

– appoint joint auditor

• Maximum of 20 companies (including private limited companies) can be audited by an individual Auditor

• Auditors need to provide a written consent and also indicate whether they satisfy the criteria provided in Section 141 of Companies Act, 2013

• Firm includes a LLP incorporated under the Limited Liability Partnership Act, 2008

Rotation of Auditors – Section 139 of Companies Act, 2013

• Mandatory auditor rotation

Companies covered by rotation (Listed companies, unlisted public companies with paid up share capital > ₹10 crores, private limited companies with paid- up share capital > ₹20 crores, all companies having public borrowings from banks/financial Institutions or public deposit > ₹50 crores)

• While a partnership firm would be eligible for two consecutive five year terms. an individual auditor would be eligible for one such term

• Term prior to commencement of New Act will be retrospectively reckoned for computing 5-10 year validity .

• After completion of audit engagement term, the Auditor will be subject to a continuous five year cool off period.

• Incoming auditor cannot be an associate or from same network as the outgoing auditor.

• If a partner who is in charge of an audit firm and also certifies the financial statements of a company, retires from the said firm and joins another firm of chartered accountants, such other firm shall also be ineligible to be appointed for a period of five years.

• Transaction period of three years set to implement the change.

• Where a company has appointed two or more persons as joint auditors. the rotation shall be done in such a manner that all of the joint auditors do not complete their term in the same year.

Disqualification and Independence criteria – Section 141 of Companies Act, 2013

• An Auditor shall be disqualified when:

• Officer/employee of company (or partner of/in employment of such person)

• Auditor in more than 20 Companies

• Convicted by Court

• Body Corporate, other than LLP

• Holding security of/interest in or indebted to company/its subsidiary/associate/holding company/subsidiary of its holding company exceeding ₹one lakh / ₹five lakhs.

• Person whose relative is Director/KMP of company

• Full time employment elsewhere

Non audit services – section 144 of Companies Act, 2013

The following are the Prohibited services by auditor and related entities, the transition period is 1 year :

• Management services

• Outsourced financial services

• Design and implementation of financial information system

• Investment advisory

• Actuarial services

• Investment banking

• Internal Audit

• Accounting & Book-keeping

• Any other prescribed service

Prohibition extends to holding and subsidiary companies . All non-audit services to be approved by Audit Committee or Board of Directors Duties and Liabilities of auditors – Sections 143 and 147 of Companies Act, 2013

Duties

• Auditor to report on specified matters, in the audit report

• Responsibility to report offence involving fraud to the Central government

• National Financial Reporting Authority can specify additional matters for reporting

Liabilities

• Contravention of provisions punishable with fine not less than ₹25,000 up to ₹500,000

• In case of wilful or contravention done knowingly or with wilful intent to deceive, imprisonment up to one year and fine not less than ₹100,000 but which may extend up to ₹2,500,000

• If convicted also liable to refund remuneration and liable to pay damages (to company, statutory bodies or authorities) arising out of the incorrect reporting .

Fraud reporting requirements – Section 143 and Rule 13 of Companies (Audit and Auditors) Rules

• All frauds to be reported within 60 days to Central Government (Secretary, Ministry of Corporate Affairs), after following prescribed procedure
• Procedure for reporting fraud

– Refer the matter to the Audit Committee/board and seek responses within 45 days

– After incorporating their response (or even if no response is received), report to the Central Government

• Fraud reporting to apply also to secretarial and cost auditors

• In case of non-compliance with the reporting obligation on frauds punishable with fine not less than ₹1 lakh but which may extend up to ₹25 lakh.

Tax Audit under Income-tax Act

1. Firm of CAs not to accept more than 45 tax audits per partner.

2. Member not to accept more than 45 tax audits.

3. Record of Tax Audit Assignments to be maintained. (Refer ICAI Journal May, 2003 page 1127 for the format)

4. Tax Auditor cannot act as an Internal Auditor.

Other activities

A practising CA.

1. CANNOT

1. Carry on any other business except with prior permission of the Council.

2. Act as portfolio manager for his client.

2. CAN

1. Be involved in business through HUF so long as he is not Karta of HUF.

2. Carry on the profession of practising Chartered Secretary, Cost Accountancy or as an advocate with prior permission of the Council and provided the other professional body permits the same.

3. Be the author of any books or articles and act as Editor of professional journals.

4. Hold office in an honorary capacity in a charitable, educational or other non-commercial organisation.

Disclosure

A practising CA.

1. CANNOT disclose confidential information relating to client to a third party without client’s permission or unless he is required to do so under law.

2. SHOULD disclose his interest if any in his report, before expressing his opinion on the financial statements of a concern in which his relatives as defined under section 6 of the Companies Act, 1956 or such relatives along with himself are substantially interested.

RULES OF NETWORK AND MERGER–DEMERGER

Rules of Network and Merger–Demerger amongst the firms registered with the ICAI (Refer February 2005 ICAIJ p. 1075)

CODE OF CONDUCT FOR CA STUDENTS

A separate Code of Conduct for “CA students” has been published in the ICAI Journal Jan., 2003 Page No. 742.

Cpe Requirements

Members holding Certificate of Practice (except those who are residing abroad or exempted), are required to Complete at least 90 CPE credit hours in each rolling three-year period of which 60 CPE credit hours should be of structured learning. But should Complete minimum 20 CPE credit hours of structured learning in each year.

All the members who are not holding Certificate of Practice or are residing abroad (whether holding Certificate of Practice or not), unless exempted, are required to Complete at least 45 CPE credit hours of structured/unstructured learning in each rolling three-year period Complete minimum 10 CPE credit hours of structured/unstructured learning in each year.

Unstructured CPE Learning can be Web-based learning modules (e-learning), Self-learning modules, Reading and individual home study Group or bilateral discussion on technical issues Acting as visiting faculty or guest faculty Participation in CPE Teleconferencing Programmes Internal Training Programmes being organised by firms of Chartered Accountants having seven or more partners etc.

The members are required to submit a Self-declaration in the prescribed form once in a year before 31st May, to avail the CPE Hours Credit for the ULAs undergone by them in the previous year.

CPE Portal

The CPE Portal (http://www.cpeicai.org) has been developed to facilitate the members in keeping themselves updated with their CPE credit hours.

The members can view the status of CPE hours by logging into the CPE Portal using their User ID and password and verify their CPE attendance. The portal also provides the information on upcoming events across India and abroad organised by various POUs such as Central Committees, Regional Councils, Foreign Chapters, CPE Chapters, CPE Study Circles and CPE Study Groups.