All about professional ethics

ICAI (Institute of chartered Accountants) is a statutory body constituted under Chartered Accountants Act 1949 governed by Ministry of corporate affairs. The head office is in Delhi , 5 regional offices 164 branches and 34 foreign chapters as on date.

Members of ICAI are governed by the CA Act 1949, CA Amendment Act 2006 , CA Regulations 1988 . Members are either in industry /practice. In practice there are full time Certificate of practice holders as well as few who are part time Certificate of practice Holders. Certificate of practice is a license to practice chartered accountancy profession. Part time certificate of practice holders constitute about 7000 out of 300000 members. These members as per ICAI are deemed to be in practice but in reality cannot do any attestation function. There are associate and fellow members .

A member will be given fellow only if

1. If he is an associate member who has been in continuous practice in India for at least 5 years.

2. If he is employed in field relating to finance and has equivalent experience that of practice for atleast 5 years.

If either one condition is satisfied only will be given fellow (FCA). It is the discretion of member to decide whether to apply for fellow . However fellow is needed in the following cases. (FCA)

1. The Institute operates on a higher scale through Central council. The central council consist of 32 elected Council members (Chartered accountants who are FCA) either from industry or Practice who are elected by chartered accountants. 32 elected council members are all from five different Regions. These council members hold honorary position (no monetary consideration) render services to the profession. It also consist of 8 government Nominees (Ministry of corporate afffairs, Comptroller of audit general, Reserve bank of India and other government departments.) These government nominees are not CA but are positions like IAS, IRS, (people qualified civil service exams/government exams). These government nominees are entitled for salary because of their power only ICAI decisions can be executed. The 32 council members on a prima facie should be fellow members. The other conditions also apply like not subject to professional misconduct under CA act or any means of guilty of fraud. They can either be in practice or service. But past records indicate that 80% of central council members are practicing (mostly from Big audit firms, some from Global Audit firms, very few from small /mid firms). 20% are industry .(some like CFO of large corporates, few are entrepreneurs, academicians). A term of council consist of 3 years. As per present central council norms a central council member can contest only for maximum of three consecutive terms. Likewise there are 5 regional councils (South, North, East,West, Central). There are 64 Regional Council members on the whole (all 5 regions). They need not be FCA. Of these 70% are from practice (big firms, small/mid firms) and 30% are from Industry(CFO, Entrepreneurs) . They also hold Honorary post (no Monetary consideration) render services to profession. Beside these at branch level also some CA represent. They need not be FCA . Here also 70% are practicing CA 30% are from Industry. They also hold honorary position.
2. In order to practice Chartered accountancy while applying tenders to RBI,CAG , and other regulatory bodies FCA requirement is asked (majority partners should be FCA). Therefore it is desirable that practicing CA after Attaining eligibility should apply FCA.
3. The Institute apart from functioning from Central Council, Regional Council, branches, employees support ,Experts (time to time on contract basis) also has Coopted members. At the central council level out of 32 council members each council member has the power to take 4 to 5 CA as coopted member. Like that nearly 100 to 120 of CA'S are Coopted. These coopted members mainly work in 3 to 4 non standing committees only for a term of one year. They are all have atleast some 10 or even 15+ years experience. (It does not matter industry or practice ) . but past records indicate that 65% are from practice some 35% are industry. These members performs the following function as below

. They help in writing the publication of ICAI (other than board of studies but for committee in which they head e.g. International tax committee.) In case of board of studies they review and give ideas regarding syllabus setting.

. They do some live Webcast of ICAI CPE (continuous professional education) also do handle Training sessions for Government officials at tax department .

These coopted members also do honorary services (non monetary).

All these members (Central/Regional /Coopted ) get honorarium for writing articles in ICAI journal/books (few publications) also for handling Training sessions for Government officials(on yearly basis). Apart from that are entitled only for a conveyance on Daily basis. However as per council regulation they are not supposed to be part of politics (MP ,MLA)

CA Act consist of two schedules.

Schedule 1 consist of four parts

Part 1 (professional misconduct in relation to members in practice)
Part 2 (Professional misconduct in relation to members in service)
Part 3(Professional misconduct in relation to members generally )
Part 4(other Misconduct in relation to Members generally)

Schedule 2 consist of three parts

Part 1 (Professional misconduct in relation to members in practice)
Part 2 (Professional misconduct in relation to members generally)
Part 3 (other misconduct in relation to members generally)

The Institute has its own code of Ethics which governs The members in practice and members in service. But by large out of 24 clauses directly pertaining to members in service and members in practice 22 clauses pertains to Members in practice (holding full time COP also extends to Part COP) whereas only 2 clauses for member in service (not holding COP). This particular statement reveals that a member in practice is governed by large no of clauses under CA act whereas a member in service is just governed by 2 clauses.

Now let us try to understand the difference between a member in practice and a member in service.

Member in practice

Who is deemed to be a member in practice ?

A member who engages in practice of accountancy.

A member who does tax related service (Filing ,tax planning ,tax audit, assessment, certification and many miscellaneous areas) and does Audit assurance related services A member who performs Management consultancy services (portfolio ,broking , Underwriting are prohibited services)

Even when a member serves his client in armed forces he is also deemed to be in full time practice.

A practicing CA is one holds Full time certificate of practice.

He cannot use any designation other than “ Chartered Accountant” while doing all certification function ,Attestation function or any other functions This is because of Part 1 Schedule 1 Clause 7 also of section 7 of CA act 1949. While signing any financial statement ,signing audit report Membership no of ICAI has to be given.

. SA 230 "Working papers" largely applies to Practicing members. Even subject to peer Review.

Above all UDIN is applicable for certificate report generated by them (w.e.f 1/2/2019) as per notification.

Who is deemed to be a member in Service?

. A member who does not hold Certificate of practice .
. While doing any function they need not give membership no of ICAI as because they represent Board of directors or as a paid assistant in firm.
. A member in service can use any designation apart from Chartered accountant (e.g. merger acquisition consultant).

A common question arising in mind of readers what is status of a manager or paid Assistant in audit firm?

If not holding COP they are deemed as “MEMBERS IN SERVICE”. Even if Holding COP their status is "part time COP holders".

Today by large No of practicing CA are very less due to several factors . Apart from initial investment ,getting right partners ,right resources ,sourcing for clients retaining which is a mammoth task, the companies act 2013 has provided some risk, unusual complex reporting requirements like

1)132 of CA 2013 came into force from 1/10/2018. The much debated NFRA (National Financial reporting authority) came into force . It is a oversight body regulating the profession. This body is constituted for high profile disciplinary cases pending with ICAI. Now onwards Accounting standards /Auditing standards as prescribed by ICAI in consultation with NFRA as approved By central government. The power of setting standards (Accounting Auditing) is suo motto with ICAI as per 133 of Companies act 2013. For this body 3 central council members of ICAI are to be part of it (President, Vice President, Accounting standards chairman) . It is a body which is need of Finance professionals. ICAI has made several representation on it may be in time to come this body may be squashed like that of National tax tribunal . Erstwhile it was done through NACAS (National Advisory committee on accounting standards)

2) 143 (12) of Companies act 2013 is a fraud reporting Section. This make life terrible for auditors. The auditor is a watch dog but not a blood hound . This further states that more than a watch dog auditor should be like police dog . He should follow SA240 also follow the guidance note on reporting of fraud. If fraud is less than 1 crore should report to audit committee and if more than 1 crore should report to central government (as per CARO)

3) Criminal liabilities of auditor under Companies act are 140,447,448,34 of companies act 2013.

This is so terrible and pathetic for auditors.

4. Civil Liabilities of auditor under Companies act are section 34 of Companies act.
5. More than above a concept of rotation of auditors (a western concept adopted in India) . Large reporting has to be made on Internal financial control , corporate governance.

But those who want to practice CA can make use of Part 1 Schedule 1 Clause 11 of Chartered accountants Act 1949 which is productive in regard to General permissions (no need ICAI permission) .

The clause read as follows

A Chartered Accountant in practice is guilty of professional misconduct if he engages in any Business or occupation other than permission of council to engage.

The permission granted generally are

1. A Chartered Accountant in practice can be Director Simplicitor. He can hold position like Independent director ,Nominee director (as per CA 2013) . In short he can be entitled only for

. Remuneration for participation in board meeting and other meeting
. Reimbursement expenses in relation to duty
. Profit related commission as approved by members

While acting as director Simplicitor do not mention firm Name in Prospectus of Company (Council is taking steps but companies have to adopt a policy not mention firm name of CA who are Independent/Nominee director)

2. Act as exam paper setter ,head examiner ,Moderator, corrector for any exams (any course)
3. Attending classes and appear for exams(Make use of DISA,DIIT at very early stage)
4. Editorship of Professional journals (ICAI journal members, students, Newsletter from regional council, CPE study circle newsletter certain tax related newsletter of very profession related)
5. Author books/Write articles (professional related either in English or Vernacular or foreign language)

While authoring a book or Even while writing articles in Newsletter, ICAI journal, Professional magazine do not mention firm Name.

But can mention Chartered Accountant with particulars of address. The reason not include FIRM name is not to solicit clients for professional work by virtue of PART 1 Schedule 1 clause 6

6. Act as recovery consultant in banking sector or loss assessor as per Insurance act 1938.
7. Private Tutorship ,coaching related to Institute (but ensure than direct teaching hours dedicated does not exceed 25 hours as a matter of diligence also care for profession and render quality service in profession and teaching ) However if want to go for teaching into course other CA need to obtain permission (but ordinary lecture or special invitee for college on a very special occasion need not obtain permission ).While starting coaching center for CA don't put Banner or give advertisement as it is like solicit clients for professional work.
8. Holding of Life insurance agency license(renewal for premium merely)
9. Honorary office leadership in charitable, Non Commercial organization, educational organization. (ICAI council members Regional Central branch or even Coopted / Special invitee gets covered here) This also implies can be convener for CPE study circle or president of Club (other than lottery) /Chamber of commerce, Technical advisor to IFRS advisory council and several other bodies through which ICAI operates and Council members gets position for a particular term (by large European countries the developed Countries) as it is Honorary not on salary basis. One can do like providing content to professional website on Honorary basis(not on salary basis).
10. Acting as Notary public, Justice of peace, Special executive Magistrate.
11. Holding offices like MP, MLA MLC (public elective office)

A CA can also act Liquidator ,(resolution professional), arbitrator (as needed by CA 2013)Trustee.

Above all Council has taken a very important decision.

"Owing agricultural land and carrying out agriculture activity". This also does not require permission from ICAI.

Conclusion

To practice CA profession make use of the above mentioned clause and act ambit this clause. Apart from extra Honorarium it adds value to CA profession, facilitate in Building network like anything and carry on great ethical practices . Think of areas other than statutory audits (Companies) and make use of emerging areas. Have a well established team of specialist so that every facet of professional services can be rendered. The suitable form of Practice is LLP (Limited Liability Partnership) and have a partnership strength of minimum of 8 +. Establish offices in more no of location within INDIA to serve clients faster better. It is highly desirable to practice with advocate (as per bar council and permitted by regulation 53B of CA regulation 1988) to help in assessment cases, appearing before authorities, have edge in legal drafting. As CA services are not merely restricted within INDIA can also serve clients abroad (fortune 500 companies) or establish office outside India (particularly GULF). In order to achieve this feat "Think Globally ,Act locally". Above all Change is inevitable and that is the only thing which remains constant. Above all ICAI is a self financing Institution due to huge sacrifice made by members at large as well as some members who have shown desire in teaching as well as in exams(valuation ,moderation ,head examiner) and many areas relating to profession.