Revised Code of Ethics for CAs applicable from 1.4.2020

CONTENTS

Part -1

Complying with the Code, fundamental principles and conceptual framework

S.100 to S.199

Part -2

Professional Accountants in Service - Concentrate on working in a firm as an employee

S.200 to S.299

Part - 4A

Independence for Audit and Review engagements

S.400 to S.899

Part - 4B

Independence for Assurance engagements other than audit and review engagements which applies when performing assurance engagements

S.900 to S.999

Section

Content

Important Highlights of the section

100

Complying with the code

110

Fundamental principles

Compliance with each of the fundamental principles

111

Integrity

1. Straight forward & honest

2. Non-Associate with reports / information having false or misleading statements, negligent information, omission leading to misleading

112

Objectivity

1. Not to compromise professional or business judgement because of bias, conflict of interest or undue influence of others

113

Professional competence and due care

1. Attain & maintain professional knowledge, act diligently, confidentiality, professional behaviour

2. Act diligently and in accordance with applicable technical & professional standards

3. Make client aware of limitations inherent in services or activities

114

Confidentiality

1. Not disclose confidential information without proper & specific authority

2. Not to disclose information even after end of relationship with the client
(except as required by law)

115

Professional behaviour

1. Any conduct which disregards the profession

2. Adversely effects the good reputation of the profession

3. Honest and truthful and should not exgragate the profession

120

Conceptual framework

1. Decide on the issue that has arisen
'--Identifying the threats with fundamental principles
'--Evaluating the acceptability of threat
'-- Addressing the threat by eliminating or reducing them to acceptable level

300

Applying the conceptual framework - Professional accountant in public practice

310

Conflict of interest

1. Conflict of interest should not compromise professional or business judgement

2. Conflict identification before acceptance of assignment

3. Possible changes which may lead to conflict of interest

4. Conflict of interest being member of network

5. Specific disclosure and explicit consent necessary when addressing the threat

6. Alert to confidential information while sharing the information or making disclosure within the network

7. Documentation for measure to prevent disclosure of information, role that accountant has to undertake, why is it appropriate to accept or continue with engagement

320

Professional appointment

1. Client and engagement acceptance should review various threats before acceptance
'-- Compliance with "Know Your Client" norms of ICAI
'-- Reasons for non-acceptance of client
'-- Communicating with the existing or predecessor accountant to provide known facts or other information
'-- Periodic review of continuation of engagement
'-- Evaluation for requirement of using work of an expert

321

Second opinion

1. When accountant has to provide second opinion from predecessor accountant, threat for sharing information to be evaluated

330

Fees and other type of remuneration

1. Lower fees as compared to predecessor accountant should have proper basis

2. The scope of work and the fees should be as per Industry standard

3. Fees as percentage of profit or which is contingent upon certain findings are not allowed (except for certain cases)

4. Self-interest threat resulting from payment or receipt of referral fees

5. Purchase or sale of firm on death of proprietor or partner

340

Inducements, including gifts and hospitality

1. Professional Accountant should not offer or accept any inducement with intent to improperly influence the behaviour of the recipient.

2. Improperly influencing the behaviour of the recipient requires professional judgement

3. Factors to be considered to determine improper influence are (customary and cultural practice, recipient of inducement, degree of transparency).

4. Alert regarding the threats due to inducement to immediate or close family members.

350

Custody of client assets

1. Professional accountant shall not assume custody of client money or other assets unless permitted to do so by law
'-- Part of the client engagement audit procedure related to assuming custody of client money or assets, enquiries to be made regarding the source of assets and related legal & regulatory obligations
'-- After assuming the custody of assets, keep asset separately, use the asset for the purpose prescribed, be accountable for the assets held

360

Responding to non-compliance with laws and regulations during the course of audit engagements of listed entity

1. Non-compliance refers to acts of omission or commission, intentional or unintentional, which are contrary to the prevailing laws or regulations

2. Professional Accountant on encountering such non-compliance determine the requirement to report or prohibition on alerting the client

3. Requirement for the timely steps taken by the professional accountant

4. Non-compliance during the performance of audit, professional accountant shall obtain understanding of the matter and impact of the non-compliance with management / TCWG

5. If the management is involved in non-compliance, inform to TCWG

6. Appraise the management / TCWG regarding legal or regulatory requirements with regard to non-compliance or suspected non-compliance

7. If the non-compliance is observed in component (where parent Co. is listed in India) the matter has to be communicated to group engagement partner.

8. Group engagement partner shall consider whether such matter is related to one component or more than one component.

9. Determination of whether further action is required after ascertaining non-compliance

10. If the non-compliance is required to be disclosed to appropriate authority, disclosing the same to the client has to be considered.

11. Documentation of how the management has responded to the non-compliance, course of action taken by the accountant

4A & 4B - Independence for audit and review engagements

400

Applying conceptual framework to independence for audit and review engagements

1. Establish policies & procedures to provide reasonable assurance regarding independence

2. Compliance of independence requirement as per S.139(2) of Companies Act, 2013.

3. Independence of related entities in the group / network firm are required to be considered

4. Period of independence - engagement period & period covered by the financial statement

5. Review of the merger of client creating independence threat to be analysed

6. Addressing the breaches of independence in the policies and procedures.

7. Communication to TCWG regarding the breach of independence

8. Documentation of the independence and steps taken to address the breaches of independence.

410

Fees

1. For two consecutive years, if gross total annual fees from client exceeds 15% of the total fees received by the firm. (Ceiling not applicable if the total fees does not exceed Rs. 5 lakhs, audit of Govt. Companies or public sector undertaking)

2. Fees overdue for long period, considering the fees to be loan and continue the audit engagement

3. Contingent fees (except in few cases)

411

Compensation & evaluation policies

1. Compensation & evaluation of partner or member of audit team shall not be based on partner's success in selling non-assurance services to partner's audit client

420

Gifts and hospitality

2. A firm, network firm or audit team member shall not accept gifts and hospitality from audit client unless such amount is of trivial and inconsequential

430

Actual or threatened litigation

1. Materiality of the litigation to be considered

2. Analyse whether litigation refers to prior audit engagement

510

Financial interests

1. Holding financial interest in client business may result in financial threat

2. Financial interest may be directly or indirectly through collective investment vehicle.

3. Financial interest held by firm; network firm & Audit team members is required to be considered

4. Firm, network of firm or an audit team member having same financial interest as the audit client.

511

Loans and guarantees

1. A firm, network of firm, an audit team member or any individual's immediate family member shall not make or guarantee a loan to an audit client.

2. Loan or guarantee, deposit or brokerage account with an audit client that is a bank and similar institution if money is taken in the normal audit procedure

520

Business relationships

1. Having financial interest in a joint venture with client or controlling owner from commercial relationships or common financial interest

2. A firm, network of firm or an audit team member shall not have close business relationship with an audit client or its management unless the financial interest is immaterial.

521

Family and personal relationships

1. No close relationship of audit team members with management. (Materiality of financial interest has to be considered in this regard)
'-- Relationship of firm, network of firms and audit team & association of close family members has to be considered to ascertain the common interest in closely held entities
'-- An individual shall not participate in the audit when immediate family member is director or holding significant position in the company

522

Recent service with an Audit client

1. Audit team shall not contain any member who during the period of audit report has served as director of officer or in position to exert significant influence on which firm will express an opinion

523

Serving as Director or officer of an audit client

1. A partner or employee of the firm or network of firm shall not serve as director or officer or company secretary of an audit client of the firm

524

Employment with audit client

1. No significant connections remain between firm and network of firm and former partner of former team member of firm as director or a person who in the capacity to exert significant influence with 12 months.

2. Policies and procedures to be in place that require audit team members to notify the firm or network of firm when entering employment negotiation with audit client

525

Temporary personal assignments

1. A firm or network of firm shall not loan personnel to an audit client unless such assignment is provided for short period of time, does not assume management responsibilities, providing non-assurance services

540

Long association of personnel (including rotation of partner) with an audit client

1. Policy for the rotation of the audit team members for audit engagement, provide quality control or direct influence

2. Defining the cooling period for the engagement partner, Quality reviewer and person having significant role

3. In small firms, steps to safeguard the threat due to non-rotation to be defined

550

Auditor rotation

1. As per the requirements of Companies Act for Companies & SEBI regulation for stock broker, mutual funds, Private Sector banks, Employees Provident Fund scheme, 1952

600

Provision for Non-assurance services to an Audit Client

1. Before providing non-assurance services, threat to independence to be evaluated

2. Cannot undertake management responsibility of audit client