The accounting profession is built on trust, competence, and an unwavering commitment to ethical conduct. Chartered Accountants, as custodians of financial integrity, play a central role in safeguarding stakeholder interests through their work in auditing, advisory, taxation, and assurance services. The Institute of Chartered Accountants of India prescribes a comprehensive code of ethics, setting out both the principles to be followed and the liabilities that may arise from non-compliance.
A Chartered Accountant’s professional obligations are not merely technical in nature; they extend to behaviour, judgment, and the maintenance of public confidence in the profession. This involves balancing client service with a duty to the public interest, adhering to strict professional principles, and applying sound judgment in complex situations.
Ethical Principles for Chartered Accountants
Every Chartered Accountant is expected to follow a set of fundamental principles that guide decision-making and professional behaviour. These principles are designed to protect the credibility of the profession and ensure that work is carried out in a manner that upholds public trust.
Integrity
Integrity requires accountants to be honest and straightforward in all professional and business relationships. Misrepresentation of facts, deliberate omission of information, or participation in misleading practices is incompatible with this principle. Clients, regulators, and the public rely on accountants to present information truthfully and transparently, even when doing so may not be in the immediate interest of a client.
Objectivity
Objectivity ensures that accountants do not allow bias, conflicts of interest, or undue influence from others to override professional or business judgment. In practice, this means making decisions based solely on facts, applicable standards, and relevant legal requirements, without allowing personal relationships or financial considerations to interfere.
Professional Competence and Due Care
This principle imposes a continuing duty to maintain professional knowledge and skill at a level required to ensure that clients or employers receive competent services. Accountants must stay informed of the latest developments in accounting standards, tax regulations, corporate laws, and other relevant areas. Due care involves acting diligently and in accordance with applicable technical and professional standards in all assignments undertaken.
Confidentiality
Accountants often have access to sensitive information about a client’s financial position, operations, or strategies. The principle of confidentiality requires that such information is not disclosed to third parties without proper authority unless there is a legal or professional duty to do so. Breaching confidentiality can lead to loss of trust, reputational damage, and disciplinary action.
Professional Behaviour
Professional behaviour involves complying with all relevant laws and regulations and avoiding conduct that might discredit the profession. This includes not only actions taken in the course of professional duties but also conduct in personal and business activities that could undermine public trust in the profession.
Liabilities of Chartered Accountants
While ethical principles guide conduct, liabilities represent the potential consequences of failing to meet professional obligations. Chartered Accountants can face legal, criminal, and disciplinary consequences depending on the nature of their actions or omissions.
Legal Liability
Legal liability may arise from negligence, breach of contract, or failure to comply with statutory provisions. A client or third party who suffers financial loss as a result of incorrect advice, misstatements, or poor-quality work can initiate legal proceedings for damages. The scope of legal liability can be significant, especially in large audit or advisory engagements where the financial stakes are high.
Criminal Liability
Criminal liability applies when an accountant is involved in fraudulent activities or other offences under the law in the course of professional work. Examples include certifying false financial statements, aiding in tax evasion, or facilitating money laundering. Criminal proceedings can result in fines, imprisonment, or both, and such actions almost always result in permanent damage to professional standing.
Regulatory and Disciplinary Liability
The Institute of Chartered Accountants of India enforces disciplinary standards through investigation, hearings, and sanctions. Misconduct, whether professional or otherwise, can lead to penalties ranging from fines and suspension to cancellation of membership. The disciplinary process aims to protect the public and maintain the profession’s integrity by holding members accountable for their actions.
Threats to Compliance with Ethical Principles
The professional environment in which accountants operate can give rise to situations that threaten compliance with ethical principles. These threats must be identified, evaluated, and addressed appropriately to ensure that professional judgment remains uncompromised.
Self-Interest Threat
A self-interest threat occurs when a personal or financial interest could inappropriately influence professional judgment or behaviour. For instance, having a direct financial interest in a client, relying heavily on fees from a single client, or quoting a fee so low that it may impair the quality of work can all lead to this type of threat.
Self-Review Threat
Self-review threats arise when an accountant is required to review or evaluate work they have previously performed. This can occur if the accountant audits financial statements that they were involved in preparing or if they are asked to provide assurance on a system they helped design and implement. The risk here is that the accountant may not objectively evaluate their prior work.
Advocacy Threat
An advocacy threat occurs when an accountant promotes a client’s position to the extent that objectivity is compromised. This might involve promoting shares of a client, acting as an advocate in legal disputes, or lobbying for legislation on behalf of a client. In such cases, the accountant’s ability to maintain impartiality in related professional work is diminished.
Familiarity Threat
Familiarity threats develop from close relationships with a client, such as long-term professional associations or personal ties with individuals in influential positions within the client’s organisation. Over time, this closeness may lead to undue sympathy or acceptance of the client’s views and reduce the accountant’s professional scepticism.
Intimidation Threat
An intimidation threat exists when an accountant is deterred from acting objectively due to actual or perceived pressure from others. Examples include threats of dismissal, loss of engagement, or non-renewal of contracts if the accountant does not agree with the client’s position. Even implied threats can create a hostile environment for objective judgment.
Addressing Threats to Compliance
When threats are identified, accountants are required to assess whether they are at an acceptable level. If a threat cannot be reduced to such a level, the professional must take steps to eliminate it or withdraw from the engagement. Safeguards may include removing the individual causing the threat, assigning additional qualified personnel, obtaining independent reviews, separating teams handling conflicting work, or engaging another firm to carry out certain tasks.
If threats cannot be mitigated effectively, declining or terminating the professional engagement is the appropriate course of action. The protection of the public interest and adherence to ethical principles must take precedence over commercial or personal considerations.
Non-Compliance with Laws and Regulations (NOCLAR)
NOCLAR is a framework within the code of ethics that addresses situations where a professional accountant becomes aware of acts of omission or commission by a client, an employing organisation, or individuals within these entities that are contrary to laws or regulations. It balances the duty of confidentiality with the responsibility to act in the public interest.
Meaning and Scope
NOCLAR covers a broad range of legal and regulatory breaches, including fraud, corruption, money laundering, securities market violations, environmental offences, and breaches of tax laws. The framework does not expect accountants to become legal experts but does require them to recognise when a matter may constitute non-compliance and take appropriate action.
Applicability in India
In the Indian context, NOCLAR applies to audits of listed entities with a net worth exceeding ₹250 crore, as well as to senior professional accountants in key managerial positions within such entities. The requirements apply to both external auditors and internal accountants in significant roles.
Responsibilities of Senior Professional Accountants
When a senior professional accountant becomes aware of a potential NOCLAR situation, they must take specific steps. These include understanding the matter in detail, addressing it with the appropriate level of management or those charged with governance, determining whether further action is necessary, seeking professional or legal advice if needed, and deciding whether disclosure to a regulatory or enforcement authority is required.
The decision to disclose is complex, involving consideration of confidentiality obligations, legal requirements, and the potential consequences for stakeholders. In some cases, disclosure may be mandated by law; in others, it may be made to prevent harm or protect the public interest.
Public Interest Considerations
One of the central objectives of the NOCLAR framework is to reinforce the accountant’s duty to the public interest. While the primary responsibility of a professional may be to their client or employer, there is a broader obligation to protect investors, creditors, employees, and the public from the harmful effects of unlawful conduct. The framework thus positions accountants as important contributors to the integrity and stability of financial markets and business practices.
Membership Conditions under Section 8
Membership of the Institute is not automatically available to everyone who completes the academic and practical requirements. Certain disqualifications are set out to ensure that only individuals of appropriate character and capacity are entered into the register of members.
Age Requirement
An applicant must have attained the age of 21 years to be eligible for membership. This ensures that members have attained a level of maturity appropriate for handling the responsibilities and complexities of professional practice.
Mental Capacity
Individuals of unsound mind, as declared by a competent court, are not eligible for membership. Professional work requires the capacity to exercise sound judgment, make independent decisions, and understand the implications of actions.
Financial Solvency
Undischarged insolvents are disqualified from membership. Those who have been discharged from insolvency proceedings must obtain a certificate from the relevant court to prove their financial rehabilitation before applying. This is intended to uphold confidence in members’ ability to manage financial matters responsibly.
Criminal Convictions
A person convicted of an offence involving moral turpitude is not eligible for membership. This restriction applies irrespective of whether the offence was related to professional work.
Misconduct-Based Removal
Anyone removed from the register due to being found guilty of professional or other misconduct cannot re-enter unless the Institute specifically allows it, following a proper application and demonstration of reformation.
Chartered Accountants in Practice
Membership alone does not entitle a person to practise. For that, a Certificate of Practice (COP) is mandatory. The rules governing practice define what activities are reserved for Chartered Accountants and set limits on other services they may provide.
Certificate of Practice Requirement
A member must hold a valid COP to perform services reserved for practising accountants, such as statutory audits or certification work. If a member appears before an authority such as the Income Tax Appellate Tribunal as a representative, it must be in their capacity as a Chartered Accountant and as a member of the Institute.
Restrictions on Non-Practice
Members without a COP cannot accept engagements for services that are exclusively meant for practising Chartered Accountants. If a member has surrendered their COP, they may not carry out professional work in any other capacity that overlaps with what is reserved for a practising member.
Permissible Consultancy Services
The definition of being in practice includes providing management consultancy and other services, such as acting as a registered valuer, offering advisory services for securities issues, and working as an insolvency professional. However, certain financial market activities such as broking, underwriting, and portfolio management are prohibited to ensure independence and avoid conflicts of interest.
Use of Professional Designation
Every practising member must use the designation of Chartered Accountant. They are not permitted to use any other description alongside this designation that might mislead clients or the public.
Office Name Boards and Multiple Offices
A member may display a name board at their residence, but only for themselves as an individual member and not for a firm. Where a practitioner operates from more than one office, each location must have a separate member, either as a partner or employee, in active charge of that office.
Know Your Client Norms
Members in practice are expected to follow know-your-client procedures to ensure the authenticity and reliability of engagements. These norms are part of broader professional safeguards against fraud, money laundering, and other misconduct.
Professional Misconduct and Other Misconduct
The Chartered Accountants Act categorises misconduct into different schedules and parts, each addressing specific circumstances and roles. Misconduct provisions apply not only to practising members but also to members in service or those not actively practising.
First Schedule – Part I (Member in Practice)
This part lists misconduct relating to practising members. Examples include sharing fees with non-members, soliciting clients through improper means, and failing to observe the required level of diligence and quality in work. Breaches here undermine the competitive fairness of the profession and the quality of its services.
First Schedule – Part II (Member in Service)
Members employed in industry or other organisations are prohibited from accepting commissions or any share in the fees, profits, or gains from third parties such as lawyers, brokers, or other Chartered Accountants engaged by their employer. They are also barred from sharing their employment income with others in ways not permitted by law.
First Schedule – Part III (Member Generally)
This section applies to all members, whether in practice or service. Offences include falsely claiming to be a fellow member, failing to respond to communications from the Institute, and knowingly providing false information when seeking professional work or responding to tenders.
First Schedule – Part IV (Other Misconduct for Member Generally)
This part addresses conduct outside the direct scope of professional assignments but still affecting the reputation of the profession. Examples include misuse of client funds, coercive actions to secure personal loans, and behaviour bringing disrepute to the Institute or the profession.
Second Schedule – Part I (Member in Practice)
Misconduct in this category includes issuing reports or certificates without proper examination and disclosing confidential client information without consent or legal requirement. It also covers breaches of independence in audit or assurance engagements.
Second Schedule – Part II (Member Generally)
Members in any capacity are guilty of misconduct if they contravene provisions of the Act or regulations, knowingly provide false information in documents submitted to the Institute, or misappropriate funds received in a professional capacity. It also includes breaches of confidentiality while acting as an employee, except when required by law.
Second Schedule – Part III (Other Misconduct for Member Generally)
This provision applies when a member is convicted of an offence punishable with imprisonment for more than six months. Such a conviction indicates conduct inconsistent with the ethical and professional standards expected of Chartered Accountants.
The Disciplinary Framework
The misconduct provisions are enforced through a structured disciplinary mechanism. Complaints are investigated by designated authorities within the Institute, including the Director (Discipline), the Board of Discipline, and the Disciplinary Committee.
The process typically begins with a preliminary examination to determine if there is a prima facie case. If so, a formal inquiry follows, giving the member an opportunity to respond. The outcome can range from admonishment to fines, suspension of membership, or permanent removal from the register.
In cases involving criminal conduct or serious breaches of trust, the Institute may also coordinate with law enforcement and regulatory bodies to ensure that broader legal consequences are applied.
Importance of Professional Conduct
The purpose of these rules is not merely punitive but preventive. By setting clear boundaries on acceptable conduct and enforcing them consistently, the Institute ensures that the profession retains the trust of clients, regulators, and the public.
Professional misconduct damages not only the individual involved but also the collective reputation of the profession. In financial markets and corporate governance, confidence is a critical currency, and once lost, it is difficult to regain.
Role of Ethical Awareness
Beyond compliance with rules, members are encouraged to cultivate ethical awareness and judgment. Not all situations can be addressed through codified regulations. Many professional dilemmas require a careful weighing of principles, possible consequences, and the interests of various stakeholders.
Training programmes, continuing professional education, and peer discussions can help members stay informed about evolving expectations. The profession’s standing depends on members not only avoiding prohibited acts but also demonstrating proactive commitment to high standards of integrity and independence.
Council Guidelines on Conduct of Members in Employment
Members in employment hold positions of trust within organisations and are expected to maintain the same level of professional integrity as those in practice. The council guidelines require such members to exercise due diligence in their duties, ensuring accuracy, fairness, and objectivity in all work performed.
Gross negligence, such as ignoring significant irregularities, failing to verify critical information, or omitting material facts in reports, is considered a breach of these guidelines. The expectation is that members will act not only in the interest of their employer but also in the broader public interest, particularly when financial reporting or regulatory compliance is involved.
Maintenance of Books of Account by Practising Members
Members in practice are required to maintain proper books of account for their professional activities. This includes a cash book recording all receipts and payments on a daily basis and a ledger classifying transactions under relevant heads. Maintaining accurate and up-to-date records is both a legal requirement and a fundamental aspect of accountability.
These records serve multiple purposes: they allow for internal financial control, facilitate the preparation of income tax returns, and provide transparency in case of review or inspection by the Institute. Failure to maintain such records can lead to disciplinary action.
Tax Audit Limits under Section 44AB of the Income-tax Act
Practising members conducting tax audits must observe the maximum ceiling prescribed under section 44AB. The limit is currently set at sixty audits per partner or proprietor in a financial year. This ceiling ensures that auditors can devote adequate time and attention to each assignment, preserving the quality of their work.
Exceeding the limit is considered a violation of council guidelines and can result in penalties. The restriction applies to audits conducted in the capacity of a sole practitioner, partner in a firm, or in any other capacity where the member signs the report.
Restrictions on Advertising and Soliciting Work
The profession’s credibility relies on impartiality, and aggressive marketing can compromise that image. Therefore, advertising by Chartered Accountants is subject to strict limitations.
Members are prohibited from highlighting professional achievements, listing clients, or making comparative claims in any public forum. The use of social media, websites, and other electronic means must be restricted to factual information about the firm or member, such as name, address, and contact details, along with the nature of services provided.
The guidelines also prohibit members from approaching potential clients with offers of reduced fees or other inducements. This prevents unhealthy competition and preserves professional dignity.
Restrictions on Online Listings and App-Based Platforms
With the growth of online business platforms, members may be tempted to register their services on commercial portals or mobile applications. The guidelines allow such listings only where the platform does not promote competitive bidding, does not rank professionals based on client reviews, and does not involve any promotional claims beyond factual details.
App-based platforms that charge a commission for referrals or allow rating-based rankings are considered inconsistent with professional ethics. Members using such services risk disciplinary action for improper solicitation.
Prohibition of Marketing via Messaging Applications
Recent Ethical Standards Board decisions have clarified that marketing professional services through messaging platforms such as instant messaging apps, where the message specifically mentions the services offered, is prohibited. This is treated as solicitation, which is not permitted under the Code of Ethics.
However, sharing factual information about the firm’s address, contact details, and general profile, without direct solicitation or promotional language, is acceptable if sent in response to an enquiry rather than as an unsolicited message.
Independence in Non-Executive Directorships
Serving as a non-executive director in companies is allowed for members, but they must ensure that such positions do not impair independence in professional engagements. If a member’s firm is engaged to audit the same company in which the member serves as a non-executive director, independence is compromised.
Members are required to evaluate such conflicts carefully. The Institute has clarified that even if the member is not directly involved in the audit, the association could impair perceived independence, which is equally important in maintaining public trust.
Restrictions on Acting as Financial Advisors
Members are prohibited from acting as financial advisors where remuneration is linked to commissions from financial institutions. This includes cases where a member recommends investment products or loans to clients and receives a percentage of the transaction value as payment.
The reason for this prohibition is to prevent self-interest threats. When a member’s income depends on a client accepting a particular product, objectivity and independence may be compromised.
Lien on Client Documents
One of the more recent clarifications from the Ethical Standards Board addresses whether a member can exercise a lien over client documents for unpaid fees. The decision states that no lien is allowed. Members are expected to return client records promptly upon request, irrespective of fee disputes.
This reinforces the fiduciary nature of the client-accountant relationship and ensures that clients are not prevented from fulfilling statutory obligations due to a payment disagreement.
Bank Audit Restrictions
Members are barred from accepting audit assignments of banks in which they hold loans or deposits, either individually or through related entities, if the relationship could impair independence. The restriction covers statutory audits, branch audits, and other assurance services where independence is essential.
This measure addresses the intimidation and self-interest threats that may arise if an auditor’s personal financial relationship with the bank could influence professional judgment.
Prohibition of Dual Roles
The Institute has clarified that members cannot undertake two roles for the same client where such roles create a conflict of interest. For example, if a member acts as a statutory auditor for a company, they cannot also undertake the valuation of that company’s shares.
Similarly, providing internal audit services while acting as an external auditor for the same entity is prohibited. The aim is to prevent self-review threats, where the auditor may be required to assess work they themselves have performed.
Quality Control in Professional Work
The council guidelines place strong emphasis on quality control measures, particularly in assurance engagements. Firms are expected to implement internal policies and procedures to ensure compliance with technical and ethical standards.
This includes assigning work to personnel with appropriate competence, reviewing work before issuing reports, and maintaining documentation sufficient to support conclusions. Peer review is encouraged as a safeguard against errors and lapses.
Continuing Professional Education Requirements
To maintain professional competence and due care, members must complete a specified number of continuing education hours each year. This requirement applies to both practising and non-practising members, although the number of hours may vary depending on the category of membership.
Continuing education activities may include attending seminars, completing online courses, or participating in technical committees. Non-compliance can affect eligibility to hold a Certificate of Practice or to serve on statutory audit panels.
Addressing Ethical Threats Through Safeguards
In addition to following explicit prohibitions, members are expected to apply safeguards to reduce threats to compliance with fundamental principles. Safeguards may include obtaining an independent review of work, separating teams handling different engagements for the same client, and disclosing relationships that might affect independence.
Where threats cannot be reduced to an acceptable level, the only appropriate course is to decline or terminate the engagement. This proactive approach reinforces the credibility of the profession and minimises the risk of misconduct.
Public Interest Role of Chartered Accountants
All these rules and guidelines ultimately serve to protect the public interest. Chartered Accountants play a central role in financial reporting, taxation, and regulatory compliance. The trust placed in them by clients, investors, regulators, and the public is based on the expectation of independence, competence, and integrity.
By adhering to council guidelines and respecting the boundaries set by the Ethical Standards Board, members contribute to maintaining this trust. Each rule reflects lessons learned from past misconduct cases and anticipates potential risks in emerging professional contexts.
Conclusion
The professional journey of a Chartered Accountant is defined not only by technical expertise but also by an unwavering commitment to ethical principles, compliance with legal obligations, and adherence to the detailed guidelines issued by the Institute. The framework of integrity, objectivity, professional competence, confidentiality, and professional behaviour forms the core of the Code of Ethics, guiding decisions in both routine engagements and challenging circumstances.
Liabilities, whether legal, criminal, regulatory, or disciplinary, serve as reminders that the role carries significant responsibilities to clients, employers, regulators, and society at large. Understanding the sources of ethical threats, from self-interest to intimidation, equips professionals to apply effective safeguards or to withdraw from engagements where independence cannot be preserved. The concept of Non-Compliance with Laws and Regulations further strengthens the profession’s role as a guardian of public trust, requiring members to act decisively when faced with illegal or unethical practices.
Council guidelines and recent Ethical Standards Board decisions highlight the evolving nature of professional regulation. Restrictions on advertising, online platforms, and financial advisory roles, along with rules on independence, quality control, and continuing education, ensure that members remain focused on service quality and public interest over personal gain. By following these rules, Chartered Accountants maintain the credibility of the profession in an era of rapid technological change and heightened scrutiny.
Ultimately, the reputation of the profession rests on the conduct of each individual member. A Chartered Accountant who upholds the Code of Ethics, complies with legal and professional obligations, and applies sound judgment under pressure not only safeguards their own career but also strengthens the collective trust in the profession. The standards and safeguards discussed are not merely regulatory requirements, they are the foundation upon which lasting professional respect and societal confidence are built.