Code of Ethics - Some Provisions
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Sr. No.
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A practising C.A. CANNOT
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A practising C.A. CAN
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1
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Solicit work.
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Give his audit report to the client on his letterhead
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2
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Give a client’s balance sheet on his letterhead.
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Use a prescribed logo on visiting cards, letterheads, etc.
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3
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Describe on his letterhead or visiting cards association with other Indian/Foreign firms.
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Describe himself as a CA. in greeting cards and invitation cards. Can use the prefix CA. before his name.
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4
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Use a firm name not approved by the Institute
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Advertise in the official Yellow pages brought out by the telephone authorities.
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5
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Have his name displayed in Yellow pages in bold.
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Display his firm’s name board in a manner that it does not smack of advertisement.
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6
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Advertise as per the notified guidelines.
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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.
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The Practising CA CANNOT Respond to
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CAN Respond to Advertisement / Circular/Tenders or enquiries
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1
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Advertisements inviting applications for appointment of auditors
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In other areas when competing with non CAs.
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2
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Tenders or circulars or enquiry (made to more than one member) inviting quotations restricted to CA
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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.
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3
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In case of any other services, including audit services to be provided out of country
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4
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A CA cannot pay Earnest money/security deposit in areas which are exclusive to CA. as per law
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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.
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Directorships
A practising CA.
- CAN be a director simpliciter in a company without prior permission of Council.
- CAN be a promoter or promoter director in a company without prior permission of Council.
- 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)
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Min. Audit fees on basis of City Populn.
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(At least 1 partner must have held certificate for min. 5 yrs.)
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20 lakhs and above
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Others
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4 or more but less than 8
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₹ 5,000
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₹ 3,000
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8 or more
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₹ 9,000
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₹ 6,000
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Audits excluded from above restriction
- Charitable institutions, clubs, prov. funds, etc.*
* Earlier this exemption applied only if the above audits were honorary. This requirement has now been removed.
- Bank branch statutory audit of branches of banks including regional rural banks.
- Newly formed concerns for first two years from date of commencement of operations.
- 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.
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A practising C.A. cannot
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A practising C.A. can
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1.
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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.
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CAN share fees with other practising CA. but not with others.
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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.
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Duties of Auditor u/s . 143 of the New Companies Act 2013
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Liabilities of Auditor u/s. 147 of the New Companies Act, 2013
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1
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Auditor to report on specified matters, in the audit report
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Contravention of provisions punishable with fine not less than ₹ 25,000 up to ₹ 500,000
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2
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Responsibility to report offence involving fraud to the Central government
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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
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3
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National Financial Reporting Authority can specify additional matters for reporting
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If convicted also liable to refund remuneration and liable to pay damages (to company, statutory bodies or authorities) arising out of the incorrect reporting
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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
- Firm of CAs not to accept more than 45 tax audits per partner.
- Member not to accept more than 45 tax audits.
- Record of Tax Audit Assignments to be maintained. (Refer ICAI Journal May, 2003 page 1127 for the format)
- Tax Auditor cannot act as an Internal Auditor.
Other activities
Sr. No.
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A practising CA Cannot
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A practising CA CAN
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1
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Carry on any other business except with prior permission of the Council.
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Be involved in business through HUF so long as he is not Karta of HUF.
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2
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Act as portfolio manager for his client.
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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.
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3
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Be the author of any books or articles and act as Editor of professional journals.
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4
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Hold office in an honorary capacity in a charitable, educational or other non-commercial organisation.
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Disclosure
Sr. No.
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A practising CA CANNOT
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A practising CA SHOULD
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1.
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Disclose confidential information relating to client to a third party without client’s permission or unless he is required to do so under law.
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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.
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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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