Professional Ethics

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Questions and Answers

Which of the following is NOT a fundamental principle in the Code of Ethics for Chartered Accountants?

Integrity

Objectivity

Professional Skepticism (correct)

Confidentiality

According to the Chartered Accountants Act, 1949, which of the following circumstances debars a person from membership of the Institute?

Being over 21 years of age

Being convicted of an offense involving moral turpitude (correct)

Holding a Certificate of Practice

Passing CA Final

Which section of the Chartered Accountants Act, 1949, relates to the maintenance of a Register for members of the Institute?

Section 8

Section 19 (correct)

Section 27

Section 10

In the conceptual framework, what is the "reasonable and informed third party" test primarily used for?

To evaluate the appropriateness of an accountant’s conclusions Signup and view all the answers

A Chartered Accountant in practice must hold which of the following documents?

Certificate of Practice Signup and view all the answers

A member of the Institute is permitted to use the designation of "Certified Public Accountant (CPA)" in India.

False Signup and view all the answers

Confidentiality remains an obligation for a professional accountant even after the professional relationship ends.

True Signup and view all the answers

Familiarity threats arise when a professional accountant has a close business relationship with a client.

True Signup and view all the answers

NOCLAR applies to professional accountants only in audit engagement

False Signup and view all the answers

The Code of Ethics mandates that Chartered Accountants must promote themselves through advertising.

False Signup and view all the answers

What are the five fundamental principles outlined in the ICAI Code of Ethics?

The five fundamental principles are: Integrity: Being straightforward and honest in professional and business relationships. Objectivity: Not allowing bias or conflict of interest to compromise professional judgment. Professional Competence and Due Care: Maintaining the necessary knowledge and skills to provide competent services. Confidentiality: Respecting the confidentiality of information acquired during professional and business relationships. Professional Behavior: Complying with laws and avoiding actions that discredit the profession. Signup and view all the answers

What actions should an accountant take if they identify a conflict between two fundamental ethical principles?

The accountant should: Evaluate the conflict and its potential impact. Consult with others (within the firm, with governance, or the Institute) for guidance. Apply professional judgment to resolve the conflict in line with ethical principles. Document the conflict, discussions, and the decisions made, ensuring transparency and accountability. If the conflict cannot be resolved, the accountant may need to disassociate from the engagement. Signup and view all the answers

What are the potential consequences for a Chartered Accountant who discloses client information without consent?

Unauthorized disclosure of client information without proper consent or legal requirement constitutes a breach of the confidentiality principle. Consequences may include: Disciplinary action by the ICAI, such as suspension or removal from membership. Legal action by the client for breach of contract or confidentiality agreements. Damage to the accountant’s professional reputation and career. Signup and view all the answers

Describe the concept of "Intimidation Threat" and give an example.

An intimidation threat occurs when a professional accountant is deterred from acting objectively due to actual or perceived pressures, often from influential individuals. This pressure may cause the accountant to compromise their ethical standards to please a client or superior. Example: An accountant is threatened with dismissal if they do not agree with the client's aggressive tax treatment, which could violate tax laws. The threat creates pressure to comply, even though the action may be unethical. Signup and view all the answers

What is the primary objective of NOCLAR?

NOCLAR (Non-Compliance with Laws and Regulations) is designed to address situations where a professional accountant encounters, or is made aware of, non-compliance by a client or employer. Its primary objective is to: Protect the public interest by ensuring that accountants act appropriately when they become aware of illegal or unethical actions. Ensure that non-compliance is reported to management, governance, or, in some cases, regulatory authorities, while maintaining professional confidentiality. Signup and view all the answers

Under what conditions can a member’s name be removed from the Register of Members?

Death of the member. Voluntary request for removal by the member. Non-payment of prescribed fees to the Institute. Being found guilty of professional misconduct or any other reason where the member ceases to meet the qualifications for membership. Being declared insolvent or convicted of an offense involving moral turpitude. Signup and view all the answers

Explain the principle of "Professional Competence and Due Care."

The principle of professional competence and due care requires accountants to: Maintain up-to-date knowledge and skills to ensure they provide competent professional services. Act diligently and in accordance with applicable technical and professional standards. Accountants should continually develop their expertise to meet the evolving needs of clients or employers and to ensure the quality of their work remains high. Signup and view all the answers

NOCLAR applies only to criminal activities.

False Signup and view all the answers

Threats to objectivity can be managed entirely through professional skepticism.

False Signup and view all the answers

A member suspended for non-payment of fees can have their name restored in the Register by paying the dues.

True Signup and view all the answers

A Chartered Accountant can act as a broker or underwriter under the Management Consultancy and other services guidelines.

False Signup and view all the answers

A partner at an audit firm is not allowed to accept personal gifts from audit clients.

True Signup and view all the answers

What is the primary safeguard against a self-review threat in an audit engagement?

Using a different partner for review Signup and view all the answers

Which of the following does NOT constitute a threat to professional ethics?

Competence threat Signup and view all the answers

Which category of threats involves the risk of personal financial interest influencing a professional’s objectivity?

Self-interest Signup and view all the answers

According to the Chartered Accountants Act, how many years of continuous practice are required to be eligible for Fellow membership?

5 Signup and view all the answers

If an accountant uncovers NOCLAR during an engagement, what is the first recommended action?

Obtain an understanding of the matter Signup and view all the answers

A professional accountant can disclose confidential information at any time without authority.

False Signup and view all the answers

Which of the following are circumstances where disclosure of confidential information might be appropriate? (Select all that apply)

Disclosure permitted by law and authorized by the client Signup and view all the answers

What must professional accountants consider before disclosing confidential information?

The interests of any party, the relevance and substantiation of information, and the appropriateness of the recipients. Signup and view all the answers

Match the following threats to their categories:

Self-interest threat = Financial interest in a client Self-review threat = Issuing a report after implementing systems Advocacy threat = Promoting client interests in disputes Familiarity threat = Close family relations with a client Intimidation threat = Pressure to agree with a client's judgment Signup and view all the answers

What does it mean for a threat to be at an 'acceptable level'?

It means that a reasonable and informed third party would likely conclude that the accountant complies with the fundamental principles. Signup and view all the answers

What should a professional accountant do when they are associated with misleading information?

Disassociate from that information. Signup and view all the answers

P, a Chartered Accountant in practice provides management consultancy and other services to his clients. During 2023, looking to the growing needs of his clients to invest in the stock markets, he also advised them on Portfolio Management Services whereby he managed portfolios of some of his clients. Is P guilty of professional misconduct?

Section 2(2)(iv) of the Chartered Accountants Act, 1949, allows Chartered Accountants to provide “Management Consultancy and other Services.” However, they are specifically prohibited from broking, underwriting, and portfolio management. Therefore, P would be guilty of misconduct for managing client portfolios. Signup and view all the answers

Mr. G, a Chartered Accountant in practice as a sole proprietor has an office in Mumbai near Church Gate. Due to increase in professional work, he opens another office in a suburb of Mumbai which is approximately 80 kilometers away from the municipal limits of the city. For running the new office, he employs three retired Income-tax Officers. Is Mr. G guilty of professional misconduct?

Per Section 27 of the Chartered Accountants Act, 1949, each office of a CA in practice must be under a separate member's charge unless located within 50 km of the primary office. Since the second office here is beyond this limit, the CA is liable for professional misconduct. Signup and view all the answers

Provide a short explanation of what constitutes "Other Misconduct" under the ICAI guidelines.

Other misconduct has been defined in part IV of the First Schedule and part III of the Second Schedule. Part IV of the First Schedule: A member of the Institute, whether in practice or not, shall be deemed to be guilty of other misconduct, if he - Clause (1) is held guilty by any civil or criminal court for an offence which is punishable with imprisonment for a term not exceeding six months. Clause (2) in the opinion of the Council, brings disrepute to the profession or the Institute as a result of his action whether or not related to his professional work. part III of the Second Schedule.: A member of the Institute, whether in practice or not, shall be deemed to be guilty of other misconduct, if he is held guilty by any civil or criminal court for an offence which is punishable with imprisonment for a term exceeding six months. Imprisonment awarded for a term exceeding six months in any civil/criminal matter treated as a major offence under ‘other misconduct’ is included in this Schedule. Signup and view all the answers

Mr. K, a Chartered Accountant, has been giving 50% of the audit fees received to a non-Chartered Accountant for years. Is this permissible under ICAI’s professional ethics?

According to Clause (2) of Part I of the First Schedule, a CA must not share fees or profits with non-members. Mr. K’s practice of sharing 50% of his audit fees with Mr. L (a non-member) under the pretext of “office allowance” constitutes misconduct, regardless of the label used Signup and view all the answers

Mr. X, a newly practicing Chartered Accountant, offered an articled clerk 1% of his firm's profits in addition to a stipend. Is this allowed under ICAI guidelines?

Clause (2) of Part I of the First Schedule prohibits sharing profits with non-members, including articled clerks. Therefore, Mr. X’s practice of sharing 1% of profits with an articled clerk is misconduct, despite his intent to provide financial support. Signup and view all the answers

M/s XYZ developed a website with a bright color scheme and featured the names of its partners and clients. Is this website design compliant with ICAI’s guidelines?

The ICAI allows CAs to post website details under Clause (6) of Part I, provided they adhere to guidelines, including not listing client names or fees (unless required by a regulator). Since M/s XYZ failed to meet these guidelines, it amounts to misconduct by advertising. Signup and view all the answers

A partner of a firm of chartered accountants during a T.V. interview handed over a bio-data of his firm to the chairperson. Such bio-data detailed the standing of the international firm with which the firm was associated. It also detailed the achievements of the concerned partner and his recognition as an expert in the field of taxation in the country. The chairperson read out the said bio-data during the interview. Discuss whether this action by the Chartered Accountant would amount to misconduct or not.

Clause (6) of Part I prohibits soliciting clients or promoting services publicly. Here, a CA's bio-data, which was read on TV, promoted the firm, which is deemed misconduct for indirectly soliciting work. Signup and view all the answers

An advertisement was published in a Newspaper containing the photograph of Mr. X, a member of the institute wherein he was congratulated on the occasion of the opening ceremony of his office.

Signup and view all the answers

Mr. X, a Chartered Accountant and the proprietor of X & Co., wrote several letters to the Assistant Registrar of Co-operative Societies stating that though his firm was on the panel of auditors, no audit work was allotted to the firm and further requested him to look into the matter.

Mr. X’s repeated letters to request audit work from the Assistant Registrar amount to misconduct under Clause (6). Signup and view all the answers

A practising Chartered Accountant uses a visiting card in which he designates himself, besides as Chartered Accountant, Cost Accountant. Is this a misconduct?

Under Clause (7) of Part I of first schedule, a CA cannot use any designation other than "Chartered Accountant." While members may use letters of certain accountancy bodies, “Cost Accountant” is not permissible, and using it constitutes misconduct. Signup and view all the answers

Mr. Nigal, a Chartered Accountant in practice, delivered a speech in the national conference organized by the Ministry of Textiles. While delivering the speech, he told to the audience that he is a management expert and his firm provides services of taxation and audit at reasonable rates. He also requested the audience to approach his firm of chartered accountants for these services and at the request of audience he also distributed his business cards and telephone number of his firm to those in the audience. Comment.

Clause (6) and Clause (7) Part 1 of First Schedule restrict CAs from using titles like “Management Expert” and promoting firm services. In this case, the CA’s use of such a title and mentioning services is deemed misconduct, along with distributing promotional materials to the audience. Signup and view all the answers

Mr. A is a practicing Chartered Accountant working as proprietor of M/s A & Co. He went abroad for 3 months. He delegated the authority to Mr. Y a Chartered Accountant his employee for taking care of routine matters of his office. During his absence Mr. Y has conducted the under mentioned jobs in the name of M/s A & Co. (i) He issued the audit queries to client which were raised during the course of audit. (ii) He issued production certificate to a client under the GST Act. (iii) He attended the Income Tax proceedings for a client as authorized representative before Income Tax Authorities. Please comment on eligibility of Mr. Y for conducting such jobs in name of M/s A & Co. and liability of Mr. A under the Chartered Accountants Act, 1949.

A CA in practice (CA A) allowed an employee CA (Mr. Y) to handle certain office matters while CA A was abroad. Under Clause (12) of Part I of the First Schedule of the Chartered Accountants Act, 1949, it is permissible for an employee CA to handle routine matters, such as issuing audit queries, as long as they do not involve providing a professional opinion. However: Routine tasks: Mr. Y issuing audit queries was deemed acceptable since it qualifies as routine work. Non-routine tasks: Issuing a production certificate under the GST Act is beyond Mr. Y’s authority, leading to CA A being guilty of misconduct. Tax matters: Mr. Y attending tax proceedings was acceptable, as it’s allowed within routine tax practices. Signup and view all the answers

XYZ Co. Ltd. has applied to a bank for loan facilities. The bank on studying the financial statements of the company notices that you are the auditor and requests you to call at the bank for a discussion. In the course of discussions, the bank asks for your opinion regarding the company and also asks for detailed information regarding a few items in the financial statements. The information is available in your working paper file. What should be your response and why?

Clause (1) of Part I of the Second Schedule of the Chartered Accountants Act, 1949, restricts a CA from disclosing client information without consent. In this case, a bank requested specific details from an auditor's working papers. However, the auditor is not obligated to share these details unless required by law, as working papers are the auditor's property. Signup and view all the answers

Mr. A, a newly qualified Chartered Accountant, started his practice and sought clients through telephone calls from his family and friends, almost all of them employed in one or the other retail trade business. One of his friends Mr. X gave him an idea to start online services and give stock certifications to traders with Cash Credit Limits in Banks. Mr. A started a website with colorful catchy designs and shared the website address on his all social media posts and stories and tagged 30 traders of his local community with the caption “Easy Online Stock Certification Services”. Besides, Mr. A entered in an agreement with a Digital Marketer to give him 5% commission on each service procured through him. Discuss if the actions of Mr. A are valid in the light of the Professional Ethics and various pronouncements and guidelines issued by ICAI.

Clause (6) of Part I of the First Schedule of the Chartered Accountants Act, 1949, prohibits soliciting clients through advertisement or personal communication. Here, Mr. A, a CA, improperly used social media to share his website link, tag local traders, and mention client names, all of which contravene ICAI’s guidelines on solicitation, making him guilty of professional misconduct. Signup and view all the answers

Mr. D, a practicing CA, is appointed as a Director Simplicitor in XYZ Pvt. Ltd. After one year of appointment, Mr. D resigned as the Director and accepted the Statutory Auditor position of the company. Is Mr. D right in accepting the auditor position?

Clause (4) of Part I of the Second Schedule of the Chartered Accountants Act, 1949, prohibits a CA from auditing a business in which they have a substantial interest. CA D, previously a director in a company, cannot accept the statutory auditor role until two years after resignation. Accepting this role sooner results in a professional misconduct violation. Signup and view all the answers

Mr. F, a Chartered Accountant, gave advisory services to PQR Pvt. Ltd. Further, he gave them GST consultancy, compilation engagement for historical financial information and helped in ERP set up. Later, the company turned out to be a part of a group of companies involved in money laundering. Mr. F was asked to provide details of the companies. Mr. F refused on the grounds that he gave only consultancy services to the company and wasn’t supposed to keep any information about the company. Is Mr. F right as per the guidelines issued by the ICAI?

The ICAI mandates KYC compliance for CAs providing client services. Here, CA F provided consultancy to a company later linked to money laundering but argued KYC wasn’t necessary due to limited services provided. However, as KYC norms are mandatory for all services, CA F should have gathered essential details about the client, including company and regulatory information. Signup and view all the answers

Mr. S, the auditor of ABC Pvt. Ltd. has delegated following works to his articles and staff: i. Issue of audit queries during the course of audit. ii. Issue of memorandum of cash verification and other physical verification. iii. Letter forwarding draft observations/financial statements. iv. Issuing acknowledgements for records produced. v. Signing financial statements of the company. Is this correct as per the Professional Ethics and ICAI’s guidelines and pronouncements?

Clause (12) of Part I of the First Schedule of the Chartered Accountants Act, 1949, forbids a CA from allowing non-partners to sign key financial statements. CA S delegated some tasks, such as issuing audit queries, to staff and articles, which was appropriate. However, delegating the signing of financial statements to them is a violation, making him guilty of misconduct. Signup and view all the answers

Mr. S is a practising chartered accountant based out of Chennai. During the weekends, he involved himself in equity research and used to advise his friends, relatives and other known people who are not his clients. Apart from this, he was also involved as a paper-setter for Accountancy subject in the school in which he studied. He also owned agricultural land and was doing agriculture during his free time. During the year 20X1, heavy losses were incurred in agricultural activity due to natural calamities and misfortune, and he lost almost all of his wealth and became undischarged insolvent. After a few court hearings, finally, in the year 20X3, he was declared discharged insolvent and obtained a certificate from the court stating that his insolvency was caused by misfortune without any misconduct on his part. You are required to comment on the above situation with reference to the Chartered Accountants Act, 1949 and Schedules thereto, (especially from the point of section 8: Entry of name in Register of Members).

Clause 11 of Part I of the First Schedule allows CAs to engage in certain activities, such as equity research and agriculture, without Council approval, provided they don’t publish retail research reports. Mr. S’s involvement in equity research for private advice, paper-setting, and agriculture are permitted activities. Additionally, since Mr. S’s insolvency was declared without misconduct, he retains his membership rights under Section 8 of the CA Act, 1949. Signup and view all the answers

Study Notes