ETHICAL ETHICAL STANDARDS STANDARDS

BOARD (ESB)BOARD (ESB)

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CODE OF ETHICSCODE OF ETHICS

The mission statement of ESB :-The mission statement of ESB :- "To work towards evolving a dynamic "To work towards evolving a dynamic

and contemporaryand contemporary Code of EthicsCode of Ethics and ethical behaviour for members and ethical behaviour for members while retaining the long cherished while retaining the long cherished ideals of `excellence, independence, ideals of `excellence, independence, integrity' as also to protect the dignity integrity' as also to protect the dignity and interests of the members".and interests of the members".

Thus, ‘Code of Ethics’ for Thus, ‘Code of Ethics’ for members is not a mere members is not a mere publication of ESB, it is an publication of ESB, it is an ideology , carefully nurtured ideology , carefully nurtured and developed by ESB, and and developed by ESB, and synonymous with ESB.synonymous with ESB.

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THE CA ACT – THE CA ACT – PRECURSOR TO THE PRECURSOR TO THE CODE OF ETHICSCODE OF ETHICS

Code of Ethics today represents the Code of Ethics today represents the strong edifice of virtues evolved through strong edifice of virtues evolved through a period of time. However, the legacy a period of time. However, the legacy from which it took over the realm of from which it took over the realm of ethics , is that of : ethics , is that of : The Chartered The Chartered Accountants Act , 1949. Accountants Act , 1949.

The Act comprehensively covers matters The Act comprehensively covers matters pertaining to regulation to the profession pertaining to regulation to the profession of chartered accountancy . of chartered accountancy .

The two Schedules spell out the various The two Schedules spell out the various acts and omissions entailing acts and omissions entailing professional/other misconduct , which are professional/other misconduct , which are dealt with punishment in accordance with dealt with punishment in accordance with Chapter-V of the Act. Chapter-V of the Act.

For quality control, there is Section 15. For quality control, there is Section 15. The Disciplinary mechanism of the The Disciplinary mechanism of the

Institute is also provided in detail in the Institute is also provided in detail in the Act. Act.

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CODE OF CONDUCT FOR CODE OF CONDUCT FOR MEMBERSMEMBERS

In November, 1963 , the Council of In November, 1963 , the Council of ICAI brought the first edition of the ICAI brought the first edition of the ‘Code of Conduct’ ‘Code of Conduct’ , which included , which included not only the provisions of the not only the provisions of the Chartered Accountants Act but also Chartered Accountants Act but also the interpretation of the Council, the interpretation of the Council, various High Courts and the various High Courts and the Supreme Court. The Supreme Court. The "Code of "Code of Conduct"Conduct" was essentially a set of was essentially a set of professional ethical standards professional ethical standards regulating the relationship of regulating the relationship of Chartered Accountants with others. Chartered Accountants with others.

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ESB : FORMATIONESB : FORMATION

For the formulation of ethical For the formulation of ethical standards for members in standards for members in response to changing response to changing conditions and environment , conditions and environment , the Council of ICAI constituted the Council of ICAI constituted Ethical Standards Committee Ethical Standards Committee (a non standing committee) (a non standing committee) at its 74th Meeting held in at its 74th Meeting held in December, 1975. December, 1975.

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FUNCTIONS OF ESB FUNCTIONS OF ESB EXPANDEDEXPANDED

The Committee was later The Committee was later also given the also given the responsibility of evolving responsibility of evolving ethical standards , ethical standards , providing guidelines and providing guidelines and to generally oversee the to generally oversee the that the ethical that the ethical standards were observed standards were observed by the members. by the members.

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NOMENCLATURE NOMENCLATURE CHANGEDCHANGED

ESC, as it then was , later ESC, as it then was , later changed to Committee on changed to Committee on Ethical Standards and Ethical Standards and Unjustified Removal of Unjustified Removal of Auditors (CESURA), Auditors (CESURA), whereinafter it would be a whereinafter it would be a fact-finding body and shall fact-finding body and shall also be entitled to consider also be entitled to consider cases of unjustified removal cases of unjustified removal of Auditors in Government of Auditors in Government Companies Public Sector Companies Public Sector Banks etc.Banks etc.

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CODE OF ETHICSCODE OF ETHICS

The ‘The ‘Code of Conduct’Code of Conduct’ , was , was called as called as ‘Code of Ethics’‘Code of Ethics’ for the first time in its ninth for the first time in its ninth edition in 2001. edition in 2001.

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ETHICAL STANDARDS BOARDETHICAL STANDARDS BOARD

CESURA was changed to CES , i.e CESURA was changed to CES , i.e Committee on Ethical Standards by Committee on Ethical Standards by the Council at its 249the Council at its 249thth Meeting Meeting held in March, 2005 .held in March, 2005 .

Finally, CES came to be known as Finally, CES came to be known as Ethical Standards Board (ESB) in Ethical Standards Board (ESB) in December, 2008 in line with the December, 2008 in line with the international practice, as majority of international practice, as majority of the countries have Ethical Standards the countries have Ethical Standards Boards in place.Boards in place.

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UPDATION TIME TO TIMEUPDATION TIME TO TIME

Since its first edition, the Code has been Since its first edition, the Code has been constantly updated from time to time to constantly updated from time to time to fine tune it with the changes in legislation, fine tune it with the changes in legislation, ethical and professional standards .ethical and professional standards .

E.g. the fourth edition of the Code E.g. the fourth edition of the Code included certain relaxations made by included certain relaxations made by Council with regard to publicity by Council with regard to publicity by members ,the seventh edition contained members ,the seventh edition contained principles pertaining to responding to principles pertaining to responding to tenders & use of CA designation in tenders & use of CA designation in invitation cards, the eighth edition made invitation cards, the eighth edition made changes necessitated by the advent of changes necessitated by the advent of the Chartered Accountants Regulations , the Chartered Accountants Regulations , 1988 (by repealing the Chartered 1988 (by repealing the Chartered Accountants Regulations, 1964) . Accountants Regulations, 1964) .

The current (2009) edition of the Code of The current (2009) edition of the Code of Ethics is the eleventh edition of Code.Ethics is the eleventh edition of Code.

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CONVERGENCE WITH CONVERGENCE WITH IFACIFAC Code of Ethics, 2009Code of Ethics, 2009 incorporates incorporates

for the first time ever, the for the first time ever, the provisions of IFAC provisions of IFAC Code of Ethics, Code of Ethics, thus complying with the thus complying with the membership obligation of ICAI membership obligation of ICAI towards IFAC. towards IFAC.

The The Code of Ethics, 2009Code of Ethics, 2009 is is divided into Part-A and Part-B, Part-divided into Part-A and Part-B, Part-A incorporating provisions of IFAC A incorporating provisions of IFAC Code of Ethics ,Code of Ethics , and Part-B based and Part-B based on the Chartered Accountants Act, on the Chartered Accountants Act, 1949. The two parts are 1949. The two parts are complimentary components of complimentary components of each other.each other.

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REVISION DUE TO IFAC REVISION DUE TO IFAC CODE OF ETHICS, 2010 IN CODE OF ETHICS, 2010 IN OFFINGOFFING

IFAC has now issued ‘IFAC has now issued ‘Handbook of the Handbook of the Code of Ethics for professional Code of Ethics for professional accountants (2010 edn.)’accountants (2010 edn.)’ clarifying the clarifying the requirements for all professional requirements for all professional accountants and significantly accountants and significantly strengthening the independence strengthening the independence requirements of all auditors. Another requirements of all auditors. Another significant change in the revised Code significant change in the revised Code is making all compliances mandatory is making all compliances mandatory by replacing ‘should’ with ‘shall’. by replacing ‘should’ with ‘shall’.

ESB has made recommendations for ESB has made recommendations for changes required in the changes required in the Code of Code of Ethics, 2009 Ethics, 2009 due to the revised IFAC due to the revised IFAC Code . The recommendations are Code . The recommendations are pending approval of the Council , pending approval of the Council , whereinafter they shall become whereinafter they shall become effective. effective.

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ESB HAS A DYNAMIC ROLE ESB HAS A DYNAMIC ROLE TODAYTODAY

Over the time , functions of ESB have Over the time , functions of ESB have not only become manifold, but critical to not only become manifold, but critical to the well being of the profession. ESB is the well being of the profession. ESB is today engaged in dissemination of today engaged in dissemination of professional ethics, to the highest professional ethics, to the highest standards, among the members of the standards, among the members of the ICAI. It formulates ethical principles for ICAI. It formulates ethical principles for members and creates awareness of members and creates awareness of ethics among them through various ethics among them through various ways. Besides, it examines and renders ways. Besides, it examines and renders advice on ethical issues referred to it. It advice on ethical issues referred to it. It reviews and revises its publications as reviews and revises its publications as and when required. It promotes public and when required. It promotes public awareness and confidence in the awareness and confidence in the fundamental principles. It also examines fundamental principles. It also examines and deals with the complaints of and deals with the complaints of members against their unjustified members against their unjustified removal as auditors.removal as auditors.

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TAKING LEAD TAKING LEAD During its nearly six decades of During its nearly six decades of existence, ICAI has achieved recognition existence, ICAI has achieved recognition as a premier accounting body globally. as a premier accounting body globally. Some of the (ethical) areas where ICAI is Some of the (ethical) areas where ICAI is ahead of International standards are :-ahead of International standards are :-

( 1) Writing the books of accounts of ( 1) Writing the books of accounts of auditee clients prohibited in ICAI , auditee clients prohibited in ICAI , whereas IFAC Code of Ethics contains whereas IFAC Code of Ethics contains situations where a member may provide situations where a member may provide book-keeping services.book-keeping services.

(2) ICAI Code of Ethics provides that a (2) ICAI Code of Ethics provides that a statutory auditor of a company cannot statutory auditor of a company cannot also be its internal auditor whereas IFAC also be its internal auditor whereas IFAC Code contains situations where a Code contains situations where a member may provide internal audit member may provide internal audit services.services.

( 3) Contingent fees is not allowed by ICAI ( 3) Contingent fees is not allowed by ICAI whereas the provisions for contingent whereas the provisions for contingent fees on non-audit services as contained fees on non-audit services as contained under the IFAC Code of Ethics are under the IFAC Code of Ethics are elaborative.elaborative.

( 4) Other areas where we are ahead are : ( 4) Other areas where we are ahead are : having self -regulatory measures , having self -regulatory measures , MCS, Recommended scale of fees, MCS, Recommended scale of fees, Ceiling of Audit Assignments, Ceiling of Audit Assignments, Advertisement Guidelines, Website Advertisement Guidelines, Website Guidelines, etc. Guidelines, etc.