Applicability of ca act and ca rules of icai on company

01 April 2014

Dear Members ,

I came across the discussion with one of my friend who is Serving in Industry and is a Member of ICAI .He is exploring the possibilities of Commencement of Various Service Lines in the Company to be floated by him . One of the Service Lines is Accounting Finance & Taxation.

The Company Also plans to Hire the Services of Chartered Accountant in Practice.

While having Discussion I came across his questions of Legal implications of applicability of Chartered Accountants Act 1949 and Chartered Accountants Regulations 1988 on the Company and him being a director of the Company and also look into the matter whether the provisions of Professional Misconduct is attracted for Chartered Accountant in Practice(Service Provider) and CA in industry(Director) in case he start the division Accounting Finance & Taxation in the Company.

I came across various questions pertaining to the provisions of of the Chartered Accountants Act and Chartered Accountant Regulations during discussions which according to me may be applicable to the company and may impact the Operations of above Business lines:-

The Provisions of the Chartered Accountants Act and Chartered Accountant Regulations are provided below . I request the Members to Provide their valuable opinion on the same so that I can appropriately advise him on the relevant points:-

PROVISIONS OF CHARTERED ACCOUNTANTS ACT 1949

Section 2(2): Interpretation

A member of the Institute shall be deemed “to
be in practice”, when individually or in
partnership with chartered accountants 15[in
practice], 16[or in partnership with members
of such other recognised professions as may
be prescribed], he, in consideration of
remuneration received or to be received,−
(i)	engages himself in the practice of
	accountancy; or
(ii)	offers to perform or performs services
	involving the auditing or verification of
	Financial	transactions,	books, accounts
	or records, or the preparation,
	verification or certification of financial
	accounting and related statements or
	holds himself out to the public as an
	accountant; or
(iii)	Renders	professional	services	or
	assistance in or about matters of
	principle or detail relating to accounting
	procedure or the recording, presentation

or certification of financial facts or data; or

(iv) renders such other services	as, in the
opinion17 of the Council, are or may be
rendered by a chartered	accountant
18[in practice];

and the words “to be in practice” with their grammatical variations and cognate expressions shall be construed accordingly.

Explanation − An associate or a fellow of the Institute who is a salaried employee of a chartered accountant 19[in practice] or 20[a firm of such chartered accountants or firm consisting of one or more chartered accountants and members of any other professional body having prescribed qualifications] shall, notwithstanding such employment, be deemed to be in practice for the limited purpose of the 21[training of articled assistants].

Appendix No. (2)

Resolutions passed by the Council under clause (iv) of sub-section (2) of Section 2

“Resolved that a member of the Institute shall be deemed to be in practice during the period he renders `service with armed forces’.”

“Pursuant to Section 2(2)(iv) of the Chartered Accountants Act, 1949, the Council hereby reiterates its opinion that the service that may be rendered by a

Chartered Accountant in practice include the entire range of Management Consultancy Services.”

“Pursuant to Section 2(2)(iv) of the Chartered Accountants Act, 1949, the Council hereby reiterates its opinion that a member shall be deemed to be in practice if he, in his professional capacity and neither in his personal capacity nor in his capacity as an employee, acts as a liquidator, trustee, executor, administrator, arbitrator, receiver, adviser or representative for costing, financial or taxation matters or takes up an appointment made by the Central Government or a State Government or a Court of law or any other legal authority or acts as a Secretary unless his employment is on a salary-cum-full-time basis;

Provided that nothing contained hereinabove, shall apply to a member who is holding a Certificate of Practice from the Institute of Cost & Works Accountants of India or the Institute of Company Secretaries of India or from the Bar Council or such other bodies, as may be specified in this behalf, by the Council.”

MY OPINION

By the interpretation of the Section 2(2) it means that the company is deemed to be in Practice if the company provide the following Services and the provisions of Professional Misconduct pertaining to the CA in Practice will be applicable.

Company provide Accounting Services.
Offer Services Involving auditing and Verification of Financial Transactions, Books, Accounts or Records , or preparation Verification and Certification of Financial Accounting and related statements or holds ourselves as accountants to the Public ?
Renders professionals Services or assistance in orb about the matters or principle or detail relating to accounting Procedure or the Recording , presentation or Certification of Financial Facts.
Renders Such other Services as in the Opnion of the Council , are or may be rendered by a chartered Accountant.
if in our professional capacity and neither in his personal capacity nor in his capacity as an employee, acts as a liquidator, trustee, executor, administrator, arbitrator, receiver, adviser or representative for costing, financial or taxation matters or takes up an appointment made by the Central Government or a State Government or a Court of law or any other legal authority or acts as a Secretary unless his employment is on a salary-cum-full-time basis;

Does it means that the Company should not Provide the above Services and Provide all Services Other than the above so that there is no Misconduct under CA act , CA Regulations to be applicable to Company and Directors being member of ICAI.

Section 22

Professional or other misconduct defined

For the purposes of this Act, the expression “professional or other misconduct” shall be deemed to , but nothing in this Section shall be construed to limit or abridge in any way the power conferred or duty cast on the Director (Discipline) under sub-section (1) of Section 21 to inquire into the ]

Section 24

Penalty for falsely claiming to be a member, etc.

Any person who −

(i)	not being a member of the Institute −
	(a) represents that he is a member of the
	Institute; or
	(b) uses	the	designation	Chartered
	Accountant; or
(ii)	being a member of the Institute, but not having
	a certificate of practice, represents that he is in
	practice or practises as a chartered
	accountant,	shall	be punishable	on first

conviction with fine which may extend to one thousand rupees, and on any subsequent conviction with imprisonment which may extend to six months or with fine which may extend to five thousand rupees, or with both.

Section 24 of the Act

Companies not to engage in accountancy

(1) No company, whether incorporated in India or elsewhere, shall practise as chartered accountants.

3[Explanation − For the removal of doubts, it is hereby declared that the “company” shall include any limited liability partnership which has company as its partner for the purposes of this section.]

(2) If any company contravenes the provisions of sub-section (i), then, without prejudice to any other proceedings which may be taken against the company, every director, manager, secretary and any other officer thereof who is knowingly a party to such contravention shall be punishable with fine which may extend on first conviction to one thousand rupees, and on any subsequent conviction to five thousand rupees.

My Opinion : The Company should not engage in Providing the services in Clause mentioned above which is exclusively reserved for Chartered Accountant in Practice(i.e

Does Not Provide

Accounting Services.
Services Involving auditing and Verification of Financial Transactions, Books, Accounts or Records , or preparation Verification and Certification of Financial Accounting and related statements or holds ourselves as accountants to the Public ?
Professionals Services or assistance in orb about the matters or principle or detail relating to accounting Procedure or the Recording , presentation or Certification of Financial Facts.
other Services as in the Opnion of the Council , are or may be rendered by a chartered Accountant.
acts as a liquidator, trustee, executor, administrator, arbitrator, receiver, adviser or representative for costing, financial or taxation matters or takes up an appointment made by the Central Government or a State Government or a Court of law or any other legal authority or acts as a Secretary unless his employment is on a salary-cum-full-time basis
PROFESSIONAL MISCONDUCT IN RELATION TO CHARTERED ACCOUNTANT IN PRACTICE(From the Point of View of Practicing Chartered Accountants who take up Professional Work to be Granted by us to Them)(FIRST SCHEDULE)

CLAUSE (2)

“pays or allows or agrees to pay or allow, directly or indirectly, any share, commission or brokerage in the fees or profits of his professional business, to any person other than a member of the Institute or a partner or a retired partner or the legal representative of a deceased partner, or a member of any other professional body or with such other persons having such qualifications as may be prescribed, for the purpose of rendering such professional services from time to time in or outside India.

Explanation − In this item, “partner” includes a person residing outside India with whom a chartered accountant in practice has entered into partnership which is not in contravention of item (4) of this Part;

My Opinion : If the Work is allotted by a Member in Personal Capacity, the Same can be Accepted by a Chartered Accountant in Practice and the Fees can be Shared with the Other Member based on Certain Percentage.(i.e )

Other Members of ICAI in Individual professional Capacity
By the Partner of the Chartered Accountant in Practice.
Members of other Professional Bodies like CS and ICWA.
Advocates , member Bar Council of India
Engineers, the Institution of Engineers, India
Architect AND
Actuary.

CLAUSE (3)

“accepts or agrees to accept any part of the profits of the professional work of a person who is not a member of the Institute:

Provided that nothing herein contained shall be construed as prohibiting a member from entering into profit sharing or other similar arrangements, including receiving any share commission or brokerage in the fees, with a member of such professional body or other person having qualifications, as is referred to in item (2) of this Part;

My Opinion: A Chartered Accountant in Practice can Accept the Professional work from members of other professional Bodies like ICWA AND ICSI and Share the profits provided by Members of other Professional Bodies.

CLAUSE (5)

“secures, either through the services of a person who is not an employee of such chartered accountant or who is not his partner or by means which are not open to a chartered accountant, any professional business:-

Provided that nothing herein contained shall be construed as prohibiting any arrangement permitted in terms of items (2), (3) and (4) of this Part;

Our Opinion: A Chartered Accountant in Practice can secure the work provided by

Other Members of ICAI in Individual professional Capacity
By the Partner of the Chartered Accountant in Practice.
Members of other Professional Bodies like CS and ICWA.
Advocates , member Bar Council of India
Engineers, the Institution of Engineers, India
Architect AND
Actuary.

CLAUSE(6)
“Solicits clients or professional work either directly or indirectly by circular, advertisement, personal communication or interview or by any other means:

Provided that nothing herein contained shall be construed as preventing or prohibiting−

(i)	any chartered accountant from applying
	or requesting for or inviting or securing
	Professional	Work	from	another
	chartered accountant in practice; or
(ii)	a member from responding to tenders
	or enquiries issued by various users of
	Professional	Services	or organizations
	from time to time and securing
	professional work as a consequence;

My Opinion : A Chartered Accountant in practice can respond to Tenders or Enquiries by the Company which is a User of the Professional Services of Chartered Accountant in practice.

CLAUSE(10)

“charges or offers to charge, accepts or offers to accept in respect of any professional employment, fees which are based on a percentage of profits or which are contingent upon the findings, or results of such employment, except as permitted under any regulation made under this Act;”

My Opinion: A Chartered Accountant in practice can accept the fees based on the percentage of profits as permitted under any regulation made under this act(i.e can accept the fees based on the percentage of profits from Other members of ICAI, ICSI AND ICWA )

PROFESSIONAL MISCONDUCT IN RELATION TO MEMBERS OF INSTITUTE IN SERVICE (From the Point of View of Members in Industry) (FIRST SCHEDULE)

CLAUSE 2

“accepts or agrees to accept any part of fees, profits or gains from a lawyer, a chartered accountant or broker engaged by such company, firm or person or agent or customer of such company, firm or person by way of commission or gratification”

My Opinion: Unable to Answer. Any possible reason ?

PROFESSIONAL MISCONDUCT IN RELATION TO MEMBERS OF INSTITUTE GENERALLY( CA IN practice and CA in Industry) (FIRST SCHEDULE)

CLAUSE 3

“while inviting professional work from another chartered accountant or while responding to tenders or enquiries or while advertising through a write up, or anything as provided for in items (6) and (7) of Part I of this Schedule, gives information knowing it to be false.”

My Opinion: The Chartered Accountant should take Care of the above Clause while providing the Professional Service while in Practice and in Employemnt.

OTHER MISCONDUCT IN RELATION TO MEMBERS OF INSTITUTE GENERALLY. (FIRST SCHEDULE)

CLAUSE 1

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 not exceeding six months;

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.

My Opinion: The Chartered Accountant should take Care of the above Clause while providing the Professional Service while in Practice and in Employment.

Hope to receive the Valuable Contribution of the members on the above.