Chartered Accountant in Practice-Defined in section 2(2) of CA Act,1949

Purpose of  the CA Act,1949 -“to make provision for the regulation of the profession of CAs.”  ICAI-Institute of Chartered Accountants of India constituted under the Act.  
ICAI’s affairs managed by-The Council of the Institute.(i.e. the Central Council). The Council has been empowered to discharge the functions assigned to it under the Act.  
The Amendment Act,2006-New Disciplinary mechanism introduced by the Amendment Act,2006 
The Amendment Act,2011-Allowing LLPs of CAs to practice; allowing multi-disciplinary firms/LLPs of CAs and other recognised professionals   

MEMBERS OF ICAI

Every member of ICAI- is entitled to designate himself as a Chartered Accountant. 
Two classes of members 

• those who are in practice and  
• those who are otherwise occupied.

WHEN IS MEMBER OF ICAI DEEMED TO BE IN PRACTICE?-SECTION 2(2)

A member of the Institute shall be deemed “to be in practice” when 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 opinion of the Council, are or may be rendered by a CA in practice.

A member shall be deemed to be in practice if he  practices as above:

• individually or 
• in partnership with CA/CAs in practice or 
• in partnership with members of such other recognised professions as may be prescribed. 

 According to section 2(1) (ec) of the Act “partnership” means—
(A) a partnership as defined in section 4 of the Indian Partnership Act, 1932; or
(B) a limited liability partnership which has no company as its partner;’

According to section 2(1)(ca) of the Act  “firm” shall have the meaning assigned to it in section 4 of the Indian Partnership Act, 1932, and includes,—
(i) the limited liability partnership as defined in clause (n) of sub-section (1) of section 2 of the Limited Liability Partnership Act, 2008; or
(ii) the sole proprietorship, registered with the Institute;’;

A member who is a salaried employee of a CA in practice or  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 be deemed to be in practice for the limited purpose of the training of articled assistants.

Significance of the expressions “offers to perform” and “holds himself out …” used in section 2(2)- A person is deemed to be in practice not only when he is actually engaged in the practice of accountancy but also when he offers to render accounting services whether or not he in fact does so. In other words, the act of setting up of an establishment offering to perform accounting services would tantamount to being in practice even though no client has been served

Professional Ethics and-Professional misconduct-concepts

Professional Ethics
The expression "Professional Ethics" is not defined by the Chartered Accountants Act,1949.Noble and learned Professions like Doctors, Lawyers, Chartered Accountants despise conducts of their fellow professionals which are inconsistent with the values held and cherished by the fraternity of these professionals.  These  values  are called Professional Ethics. Professional Ethics  goes beyond what is specified in statutes. Conduct of learned professionals which is contrary to professional ethics is professional misconduct

Professional or Other Misconduct 

• The expression "Professional Misconduct"  has been defined by the Act. However, the definition is inclusive but not exhaustive.  
• The Act  contains two Schedules which specify acts and omissions which are regarded as breach of professional ethics and hence, professional misconduct. 
• However, the Schedules are not exhaustive as the definition of “Professional or Other Misconduct” in the Act is an inclusive definition.
• Stroud’s Judicial Dictionary defines “professional misconduct” or “'infamous conduct in a professional respect”  as  something  which will be reasonably regarded as disgraceful, or dishonourable by  professional brethren of good repute and competency
• Thus, any  act or omission by a CA which will be reasonably regarded as disgraceful, or dishonourable by his professional brethren of good repute and competency”may be regarded professional misconduct by CA even if not specified in the Schedules.
• This adherence to Professional Ethics enforceable by law is necessary to build public confidence in the Profession. 

 

CA FINAL ADVANCED AUDITING NOTES- CA(AMENDT)ACT,2011 AMENDING CA ACT

The  Chartered Accountants(Amendment) Act,2011(“the Amendment Act,2011”)  received the assent of the President on 08.01.2012. 

The Amendment Act,2011  amends the Chartered Accountants Act,1949(“the 1949 Act”) so as to allow:

(i)Limited Liability Partnerships(LLPs) of CAs or LLPs of CAs and other specified professionals to  practice the profession of Chartered Accountancy

(ii)Setting up of multi-disciplinary firms/LLPs of CAs and other specified professionals and to enable them to practice the  profession of Chartered Accountancy.

(iii)Sole proprietorship of CAs registered with ICAI included in definition of 'firm"

These amendments came into force with effect from 1^st February,2012[Notification No. S.O.190(E) dated 1^st February,2012]

INDIAN LLPS OF CAs/CAs WITH OTHER RECOGNIZED PROFESSIONALS ALLOWED TO PRACTICE THE CA PROFESSION

.A Limited Liability Partnership may practice as Chartered Accountants with effect from 1^st February,2012 ( the date the Amendment Act,2011) comes into force provided the following conditions are satisfied:

• Condition (i)-It is an Indian LLP(LLP formed and registered under the LLP Act,2008) and not a foreign LLP
• Condition (ii)-The partners of the LLP are  only CAs in practice or CA/(s) in practice and other recognized professionals as may be prescribed.
• Condition (iii)-None of the partners of the LLP shall be a company[Sub-clause (B) of new clause(ec) of section 2(1) of the 1949 Act; Explanation  inserted in section 25 of the 1949 Act] or an Indian LLP or a foreign LLP
• Condition (iv)-The LLP is registered with the Institute of Chartered Accountants of India

Condition (i)- It is an Indian LLP and not a foreign LLP 

• It is a limited liability partnership within the meaning of section 2(1)(n) of the Limited Liability Partnership Act,2008(LLP Act,2008). 
• The said section 2(1)(n) defines LLP as  a partnership formed and registered under “this Act”(i.e. the LLP Act,2008). 
• In other words, LLPs registered in India under the LLP Act,2008 are only allowed to practice as CAs 
• LLPs registered in  foreign countries or foreign LLPs shall not be allowed to practice as CAs 

Condition (ii)-Partners of  LLP are  CAs in practice or CA/(s) in practice and other recognized professionals 

• The partners of the LLPs shall  be either CAs only or CAs and members of such other recognized professions as may be prescribed.   
• This is clear from the words “or in partnership with members of such other recognized professions as may be prescribed” inserted by the Amendment Act,2011  in section 2(2) of the 1949 Act . 
• This amendment  will enable a CA to practice not only in partnership with other CAs in practice(as it is now) but also to practice  in partnership with members of such other recognized professions as may be prescribed.

Condition (iii)-None of the partners of the LLP shall be a company or an Indian LLP or a foreign LLP.

• From section 25(1) of the 1949 Act, it would appear that “company” used in Explanation to  section 25 of the 1949 Act would cover any company, whether incorporated in India or not. 
• At the first glance it appears there is no bar on an Indian LLP of CAs having an Indian LLP/foreign LLP as a partner from practicing the profession of CAs. 
• However, such an interpretation would conflict with the requirements of section 2(2) of the 1949 Act (as amended  by the Amendment Act,2011) which permit  a CA to practice in  partnership with only with  other CAs in practice or in partnership with  members of such other recognized professions as may be prescribed. LLPs, whether Indian or foreign, have a distinct entity from partners .
• Therefore, it appears that partnership with LLPs of CAs/other recognized professionals cannot be treated as partnership with CAs/other recognized professionals  within the meaning of section 2(2) of the 1949 Act. This matter needs ICAI’s clarification.

Condition (iv)-The LLP is registered with the Institute- This is clear from the new definition of “firm” in new clause (ca)  inserted in section 2(1) of the 1949 Act by the Amendment Act,2011.

MULTI-DISCIPLINARY FIRMS/LLPS OF CAs IN PRACTICE WITH OTHER RECOGNIZED PROFESSIONALS TO BE ALLOWED

Section  2(2) of the 1949 Act has been amended to permit a CA to practice in partnership with not only other CAs in practice but also in partnership with  members of such other recognized professions as may be prescribed. Such partnerships may be formed on and from the date the Amendment Act,2011 comes into force(i.e. 1^st February,2012). 

New definitional clauses (ca) (eb) and (ec) defining the terms “firm”, “partner”, “partnership” respectively have been  inserted in section 2(1) of the 1949 Act by the Amendment Act,2011. 

The new definitional clauses (ca) (eb) and (ec) defining the terms “firm”, “partner”, “partnership” are as under:

‘(ca)“firm” shall have the meaning assigned to it in section 4 of the Indian Partnership Act, 1932, and includes,—

(i) the limited liability partnership as defined in clause (n) of sub-section (1) of section 2 of the Limited Liability Partnership Act,

(ii) the sole proprietorship,

registered with the Institute;

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‘(eb) “partner” shall have the meaning assigned to it in section 4 of the Indian Partnership Act, 1932 or in clause (q) of sub-section (1) of section 2 of the Limited Liability Partnership Act, 2008, as the case may be;

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(ec) “partnership” means—

(A) a partnership as defined in section 4 of the Indian Partnership Act, 1932; or

(B) a limited liability partnership which has no company as its partner;

 

The said new clauses provide that a firm or LLP having  one or more CAs in practice as partners and other partners who are members of such other recognized professions as may be prescribed may be got registered with ICAI .Then such multi-disciplinary firm/LLP may practice the profession of Chartered Accountancy 

SOLE PROPRIETORSHIP REGISTERED WITH ICAI IS "FIRM"

According to new clause(ca) of section 2(1) of the 1949 Act, the term “firm” inter alia includes “sole proprietorship” registered with ICAI. 

New clause (haa) defines “sole proprietorship” to mean an individual who engages himself in the practice of accountancy or offers to perform services referred to in clauses (ii) to (iv) of sub-section (2). 

It has hitherto been clarified by MCA that only a CA firm with partners can be appointed auditors by company by  firm name in terms of section 226(1) of the Companies Act,1956 and a sole proprietorship  firm of CA can only be appointed as auditor by company by individual name only. Once the above amendments come into force, can a company appoint a “sole proprietorship” as auditor by firm name? This matter would need ICAI’s/MCA’s clarification.

AMENDMENTS TO THE CWA ACT,1959 AND CS ACT,1980

Similar amendments as above have been made to the Cost and Works Accountants Act,1959 by the Cost and Works Accountants(Amendment) Act,2011 which received the assent of the  President on 12-01-2012 and to the Company Secretaries Act,1980 by the Company Secretaries(Amendment)Act,2011 which received the assent of the  President on 08-01-2012. 

LLP of CAs not disqualified from being appointed auditor of company u/s 226(3)(a) of the Companies Act,1956

Section 226(3)(a) of the Companies Act,1956 disqualifies a body corporate from being appointed as auditor of a company.Limited Liability Partnership is a body corporate. This  is clear from section 3(1) of the Limited Liability Partnership  Act,2008. So, LLP of CAs would  be disqualified from being appointed auditor of a  company under section 226(3)(a) of the Companies Act,1956 read with section 3(1) of the LLP Act,2008.  

To remove the disqualification of LLPs , Central Government issued Notification SO NO.1152(E) dated 23-5-2011. This notification was issued under section 2(7) of the Companies Act,1956.According to section 2(7) of the Act, the term ‘body corporate’ includes a company incorporated outside India but does not include—“(a)   a corporation sole   (b)   a co-operative society registered under any law relating to co-operative societies; and   (c)   any other body corporate (not being a company as defined in this Act) which the Central Government may, by notification, specify in this behalf.” Thus, the Notification was issued under powers conferred by section 2(7)(c) of the Act. The Notification provides that   LLP incorporated under the LLP Act,2008 is not a body corporate for the limited purpose of section 226(3)(a) of the Companies Act,1956http://www.mca.gov.in/Ministry/notification/pdf/S.O.1152%28E%29_23may2011.pdf 

Subsequently, the Central Government  clarified  vide Circular No.30A dated 26.05.2011  that LLP will not be considered as body corporate for limited purpose of section of section 226(3)(a). www.mca.gov.in  

Hence, LLP of CAs though  a body corporate is  not  disqualified under section 226(3)(a) of the Companies Act,1956 from being appointed auditor of a company.

However, in order to form an LLP of CAs amendments to the Chartered Accountants Act,1949 were necessary. These were made by the Chartered Accountants(Amendment)Act,2011 with effect from 1st February,2012. These will be covered in a  subsequent blogpost.