ICAI Code of Ethics: Guiding the Profession with Integrity and Trust

CA Deepakk Guptaa

Introduction

The Institute of Chartered Accountants of India (ICAI), established by the Chartered Accountants Act, 1949, is the apex regulatory body for the accounting profession in India. Beyond its technical expertise, what truly defines a Chartered Accountant (CA) is the adherence to ethical principles. The Code of Ethics, promulgated by the ICAI, is the moral compass that ensures every CA upholds the dignity, independence, and objectivity expected from the profession. The revised Code of Ethics (2020), now aligned with the International Ethics Standards Board for Accountants (IESBA) Code, came into force on 1st July 2020, with certain portions deferred for administrative reasons.

Framework of the ICAI Code of Ethics

The Code of Ethics consists of three parts:

1. Part A – General Application of the Code

Applies to all professional accountants and deals with:

• Fundamental Principles
  • Integrity
  • Objectivity
  • Professional competence and due care
  • Confidentiality
  • Professional behavior
• Conceptual Framework: Identifying, evaluating, and addressing threats to compliance.

2. Part B – Professional Accountants in Public Practice

Covers topics such as:

• Independence
• Fees and other types of remuneration
• Conflicts of interest
• Marketing and dealing with clients

 3. Part C – Professional Accountants in Business

Provides guidance for those in employment or management roles, emphasizing:

• Preparation and reporting of information
• Pressure to breach the fundamental principles

Schedules of the Chartered Accountants Act, 1949

Violations of the Code of Ethics are categorized under First Schedule and Second Schedule, each having Part I and Part II.

First Schedule

Part I – Misconduct by Members in Practice

Handled by the Board of Discipline. Examples:

• Clause 1: Allowing another person to practice in one’s name.
• Clause 6: Soliciting clients through advertisement.
• Clause 9: Failure to communicate with the previous auditor before accepting audit.
• Clause 10: Charging fees on a percentage basis (except under specific circumstances).
• Clause 11: Engaging in other business without ICAI permission.

Part II – Misconduct by Members Not in Practice

Examples:

• Clause 1: Taking up employment without informing the ICAI.
• Clause 2: Engaging in business during the period of articled training.

Second Schedule

Part I – Serious Misconduct by Members in Practice

Handled by the Disciplinary Committee. Examples:

• Clause 1: Being guilty of gross negligence.
• Clause 2: Issuing reports or certificates without examination.
• Clause 4: Non-disclosure of interest in business while certifying financial statements.
• Clause 6: Breach of confidentiality without proper cause.

Part II – Serious Misconduct by Members Not in Practice

Examples:

• Clause 1: Dishonesty or fraud.
• Clause 2: Conviction by a court for offences involving moral turpitude.

Key Highlights of the Revised Code

• NOCLAR (Non-Compliance with Laws and Regulations): Offers guidance on dealing with actual or suspected legal breaches.
• Fee Dependency: New limits introduced to avoid over-reliance on a single client.
• Management Responsibility: Clear prohibition on assuming decision-making roles in client entities.
• Long Association and Rotation: Mandatory rotation of key audit partners after defined tenure.

Disciplinary Mechanism of ICAI

The ICAI enforces its Code of Ethics through:

1. Director (Discipline) – Primary authority to examine complaints.

2. Board of Discipline – Handles first-level professional misconduct (First Schedule).

3. Disciplinary Committee – Deals with graver issues (Second Schedule).

4. Appellate Authority – For appeal against orders passed.

Role of Ethical Standards Board (ESB)

The Ethical Standards Board of ICAI plays a pivotal role in:

• Formulating ethical standards.
• Conducting awareness seminars and training.
• Providing ethical clarifications to members.

Conclusion

In today’s global economy, where public trust and transparency are paramount, Chartered Accountants must not only demonstrate technical excellence but also unshakeable ethical conduct. The Code of Ethics of the ICAI serves as a beacon of trust, guiding members to perform their duties with fairness, accountability, and responsibility. Every CA, whether in practice or in employment, must embrace this code not as a constraint but as a cornerstone of professional honor.