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Schedule II

Part I:

Professional misconduct in relation to C.A. in practice:

Clause 1:

      Discloses information acquired in the course of his professional engagement to any person other than his client, without consent of his client or otherwise than as required by any law for the time being in force.”


Request for disclosure must come from client.


Duty in relation to unlawful act by client:


(i)      No duty on C.A. to inform I.T. Authorities.

(ii)       No duty to shield him from consequences of tax frauds.


(iii)     Disclosure immediately. If small fraud may be made with submission of current return.

(iv)    Genuine mistake/omission client won’t object to make complete disclosure.

(v)      Fraud in past returns/A/c. in which no same C.A. Client Is advised to disclose. He may continue to act.

(vi)    Fraud relates to A/c. examined/reported by same C.A. client advised to disclose. If he refuses, disassociate himself and disclose the same in report to authorities.

(vii)  If fraud in returns/a/c. currently being prepared client advised to disclose. Else reservation in his report and disassociate with return.

(viii)Member’s assignment is dispensed with before A/c. completed/reported on/return submitted ® no further duty.

(ix)    Relates to A/c. not prepared/reported by member, for example where he is preparing business returns while fraud is there is individual return of partner,  he may continue with Business A/c. but under no obligation to do so.

(x)      Impression on Client :

(a)Disclosure only penalty, non disclosure with fine/imprisonment.

(b)Intimation by member to I.T. authorities about disassociation can start investigation against client.

(xi)    Summon the member to examine him on oath, legal expert advice is taken.

(xii)  For production of Books of Accounts/Documents ® Expert advice.


Clause 2:

   If he certifies/submits in his/his firm’s name a report of an

    examination of financial statements unless examination is made

    by him / a partner / employee / another C.A. in practice.


Clause 3:

     Permits his / his firm’s name to be used in connection with estimate of earnings contingent upon future transaction in manner which may lead to belief that he vouches for accuracy of the forecast. “


He may participate in preparing and servicing them provided he clearly indicates source of information, basis of forecasts and major assumption and provided that he doesn’t vouch for accuracy of the forecasts.


Clause 4:


      Expresses his opinion on Financial Statement of any Business / Enterprise in which he, his firm or partner has substantial nit. Unless he discloses nit. Also in his report. “


Council clarification:

He or in his firm name shouldn’t accept,

Auditor ship of college in which he’s lecturer.

Auditor ship of trust wherein he/partner is either employee or a trustee.

Members should not write Books of Account of clients.

And also the following:

1. Enterprise/Business in which member’s either owner or partner.


2. Enterprise/Business in which his partner/relative has sub. Interest.


3. Company in which he is director.


4. Company in which his Partner/Relative is director having sub. Interest.

He should take care of the same while acting as Tax Consultant/Financial Advisor also.

Shouldn’t accept.


Disclose the fact if audit the same


Shouldn’t accept


Disclose the fact if audit the same

Clause 5:

      Fails to disclose a material fact known to him which is not disclosed in the Financial Statement, but disclosure of which is necessary to make financial statements not misleading


Clause 6:

      Fails to report a material misstatement known to him to appear in a financial statement with which he is concerned in a professional capacity.”


Clause 7:


“Does not exercise Due diligence, or is grossly negligent in the conduct of his professional duties”

E.g.:1. C.A issues false certificates of Cash in Hand,

       2. Fails to indicate the mode of valuation of investments.

“Gross negligence” means negligence of high degree arising out of recklessness and covering misconduct.

Gross negligence is the same thing as ‘negligence’ with the addition of vituperative epithet.


Vituperative: means offensive, malicious, insulting, abusive, etc.

Epithet: means description, nick name, etc 

Clause 8:

   “Fails to obtain sufficient information to warrant the expression of opinion as his exception is sufficient material to negate the expression of opinion.”

ü      He shouldn’t express it before obtaining required information.

ü      He should reproduce (brief self-explanatory explanation) the notes of qualificatory nature in report to enable reader to know importance of these qualification.


Clause 9:

      Fails to invite attention to any material departure from generally accepted procedure of audit applicable to the circumstances.”


Clause 10:

      Fails to keep moneys of his client in separate banking A/c. or to use such moneys for purposes other than those for which they are intended within a reasonable time.”




(i)   Advance received by C.A. against services to be rendered doesn’t fall under this clause.

(ii) It doesn’t apply to expenses to be spent within reasonably short time. These need not be deposited into separate bank account.




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