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Second Schedule - Coggle Diagram

- - - - The Rule: A Chartered Accountant in practice (CAP) is deemed guilty of professional misconduct if they disclose confidential information acquired in the course of their professional engagement to any person other than their client, without the consent of the client or otherwise than as required by any law.
      - Meaning Explained: This is the cornerstone of client trust. You cannot share your client's secrets or financial data with anyone unless the client says it's okay, or a court or law forces you to. This duty continues even after the engagement is over.
      - Specific Provisions and Exceptions:
        
        Legal Compulsion: A CAP may disclose information if there is a legal requirement to do so and privilege under the Evidence Act is not applicable.
        
        Unlawful Acts by Client: If an accountant suspects the client has committed an unlawful act (e.g., tax evasion), it creates a conflict between confidentiality and the duty to report illegal acts.
        
        Fraud Reporting: An exception exists where an auditor is required by law (e.g., Section 143(12) of the Companies Act) to report a suspected fraud to the Central Government.
        
        Working Papers: Your audit working papers are your property. You are not required to provide them to the client, but you may share extracts at your discretion.
    - - The Rule: A CAP is guilty if they certify or submit a report on any financial statements that have not been examined by them, a partner or employee in their firm, or another Chartered Accountant in practice.
      - Meaning Explained: Your signature is your bond. You can only sign off on work that has been properly reviewed by you or your team. You cannot simply lend your signature to a report or financial statement that you haven't personally verified.
      - Example of an Exception: This rule does not prevent a joint auditor from relying on the work performed by other joint auditors.
    - - The Rule: A CAP is guilty if they permit their name to be used in connection with any estimate of earnings contingent upon future events in a manner which may lead to the belief that they vouch for the accuracy of the forecast.
      - Meaning Explained: As a CA, you cannot guarantee the future. This rule prevents you from putting your name on a financial projection in a way that makes it seem like you are promising those results will be achieved.
      - The Exception: You can be associated with a forecast, provided you clearly indicate in the report:
        
        The sources of information used.
        
        The basis of the forecast and the major assumptions made.
        
        A clear disclaimer that you do not vouch for the accuracy of the forecast.
    - - The Rule: A CAP is guilty if they express an opinion on financial statements of any business or enterprise in which they, their firm, or a partner in their firm has a substantial interest.
      - Meaning Explained: This is a core independence rule. You cannot audit your own business or a business in which you have a significant financial stake. It creates an obvious conflict of interest.
      - Line-by-Line Examples of Violations:
        
        A chartered accountant serving as a liquidator should not audit the Statement of Accounts.
        
        A chartered accountant in employment cannot certify the financial statements of their employer, even with a Certificate of Practice.
        
        A member cannot accept an auditorship of a college if they are a part-time lecturer there.
        
        A member cannot audit a trust where their partner is an employee or trustee.
        
        A member cannot audit a company if their partner or relative is a director or employee.
        
        A member cannot audit a company if they, their partner, or relative holds securities or interest in that company.
        
        A member is not allowed to write the books of account for their auditee clients.
        
        The Statutory Auditor cannot be the Internal Auditor for the same entity.
        
        The Internal Auditor of an entity cannot undertake the GST Audit or Income Tax Audit for the same entity.
        
        A member cannot accept an audit of a company for 2 years after resigning from its directorship.
    - - The Rule: A CAP is guilty if they fail to disclose a material fact known to them which is not disclosed in a financial statement, but disclosure of which is necessary to make the financial statement not misleading.
      - Meaning Explained: If you know something important is missing from the financial statements, and its absence makes them misleading, you have a professional and ethical duty to ensure it is disclosed in your report.
    - - The Rule: A CAP is guilty if they fail to report a material misstatement known to them to appear in a financial statement with which they are concerned in a professional capacity.
      - Meaning Explained: Similar to Clause 5, if you know a number, statement, or disclosure in the financial statements is wrong and is material, you must explicitly report it.
    - - The Rule: A CAP is guilty if they do not exercise due diligence, or are grossly negligent in the conduct of their professional duties.
      - Meaning Explained: You must perform your work with the skill, care, and caution that a reasonably competent Chartered Accountant would use. While minor errors can happen, a significant or repeated failure to apply proper standards is considered gross negligence and is a serious misconduct.
      - Guiding Principle: An auditor is a watchdog, not a bloodhound. They are not expected to be a detective by default, but if something looks suspicious, they must investigate it thoroughly.
    - - The Rule: A CAP is guilty if they fail to obtain sufficient information which is necessary for the expression of an opinion or its exceptions are sufficiently material to negate the expression of an opinion.
      - Meaning Explained: Your audit opinion must be based on solid, sufficient, and appropriate evidence. If you can't get enough evidence to form a proper conclusion, you cannot issue a clean opinion.
      - Proper Action: If you are unable to obtain sufficient evidence, you must state that in your report by issuing a qualified opinion or a disclaimer of opinion.
      - Example from Council/Court Decisions: A CA was held guilty under this clause for certifying the circulation figures of a newspaper without examining elementary details like financial records, bank statements, or evidence of payments to the printer.
    - - The Rule: A CAP is guilty if they fail to invite attention to any material departure from the generally accepted procedure of audit applicable to the circumstances.
      - Meaning Explained: You must follow the mandatory auditing standards and procedures set by ICAI (like the Standards on Auditing - SAs). If you deviate from these standards for any reason, you must clearly state it in your report.
      - Line-by-Line Examples of Violations:
        
        Not mentioning your Membership Number and Firm Registration Number (FRN) in your audit report.
        
        Not generating a Unique Document Identification Number (UDIN) for all certifications and audit reports as required.
        
        Failing to perform your statutory duty, which cannot be excused by simply giving qualifications in the audit report.
    - - The Rule: A CAP is guilty if they fail to keep moneys of their client (other than fees or remuneration) in a separate banking account or fail to use such moneys for purposes for which they are intended within a reasonable time.
      - Meaning Explained: You must not mix your client's money with your own firm's money. Any funds you hold on behalf of a client must be kept in a dedicated, separate bank account and used only for the client's stated purpose.
      - Examples of Exceptions: This rule does not apply to an advance received for services to be rendered or money received to cover upcoming expenses like statutory fees.
  - - - The Rule: A member is deemed guilty of professional misconduct if they contravene any of the provisions of the Chartered Accountants Act, 1949, or the regulations made thereunder.
      - Meaning Explained: As a member of ICAI, you must follow all the rules and regulations set by the Institute. This includes rules about articled assistants, maintaining your office register, and other administrative requirements.
      - Examples of Common Violations: Violating regulations on engaging an Articled Assistant (e.g., Regulation 48: Stipend), not paying the prescribed stipend, or Regulation 190A (engaging in any other business without permission).
    - - The Rule: A member in service is guilty if they disclose confidential information acquired in the course of their employment, except as required by law or permitted by the employer.
      - Meaning Explained: Just like a CA in practice has a duty of confidentiality to their client, a CA in a job has a duty of confidentiality to their employer. You cannot leak your employer's sensitive information.
    - - The Rule: A member is guilty if they include in any statement, return, or form submitted to the Institute any particulars knowing them to be false.
      - Meaning Explained: You cannot lie to ICAI. Any information you provide to the Institute or its disciplinary bodies must be truthful.
      - Example: A member who falsely claimed to be a partner in a firm when he was only a manager was found guilty of misconduct under this clause.
    - - The Rule: A member is deemed guilty of professional misconduct if they defalcate or embezzle any money received in their professional capacity.
      - Meaning Explained: Stealing or misappropriating a client's or employer's money is a severe form of misconduct and is considered a fraudulent act.
  - - - The Rule: A member is deemed guilty of other misconduct if they are held guilty by any court for an offense which is punishable with imprisonment for a term exceeding six months.
      - Meaning Explained: Committing a serious crime that results in a significant jail term is automatically considered misconduct, as it reflects on the member's integrity and fitness to be a professional. This is more severe than the similar clause in the First Schedule.