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Code of Ethics - Some Provisions

Sr. No.

A practising C.A. CANNOT

A practising C.A. CAN

1

Solicit work.

Give his audit report to the client on his letterhead

2

Give a client’s balance sheet on his letterhead.

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

3

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

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

4

Use a firm name not approved by the Institute

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

5

Have his name displayed in Yellow pages in bold.

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
  • Ensure that their Websites are run on a ‘pull’ model and not a ‘push’ model of the technology
  • Ensure that any person who wishes to locate the member would only have access to the information
  • Ensure the information should be provided only on the basis of specific ‘pull’ request.

Tenders

Sr. No.

The Practising CA CANNOT Respond to

CAN Respond to Advertisement / Circular/Tenders or enquiries

1

Advertisements inviting applications for appointment of auditors

In other areas when competing with non CAs.

2

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

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.

3

In case of any other services, including audit services to be provided out of country

4

A CA cannot pay Earnest money/security deposit in areas which are exclusive to CA. as per law

A CA 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

Firm size (No. of partners)

Min. Audit fees on basis of City Populn.

(At least 1 partner must have held certificate for min. 5 yrs.)

20 lakhs and above

Others

4 or more but less than 8

₹ 5,000

₹ 3,000

8 or more

₹ 9,000

₹ 6,000

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.

Sr. No.

A practising C.A. cannot

A practising C.A. can

1.

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

  1. A liquidator can accept his fee based on percentage of realisation of assets
  2. 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
  3. A valuer for direct tax purposes can accept fees based on the value of property valued.

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 Companies Act, 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 an 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 crore, private limited companies with paid-up share capital > ₹ 20 crore, all companies having public borrowings from banks/financial Institutions or public deposit > ₹ 50 crore)
  • 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 ₹ 1 lakh / ₹ 5 lakh.
  • 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

Sr. No.

Duties of Auditor u/s . 143 of the New Companies Act 2013

Liabilities of Auditor u/s. 147 of the New Companies Act, 2013

1

Auditor to report on specified matters, in the audit report

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

2

Responsibility to report offence involving fraud to the Central government

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

3

National Financial Reporting Authority can specify additional matters for reporting

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

Sr. No.

A practising CA Cannot

A practising CA CAN

1

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

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

2

Act as portfolio manager for his client.

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

Sr. No.

A practising CA CANNOT

A practising CA SHOULD

1.

Disclose confidential information relating to client to a third party without client’s permission or unless he is required to do so under law.

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)

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