Professional Ethics, Governance and Case-Based Application
The ethical framework
The ICAI Code of Ethics rests on five fundamental principles: integrity, objectivity, professional competence and due care, confidentiality, and professional behaviour. Independence is a separate requirement for audits and reviews. Threats are classified as self-interest, self-review, advocacy, familiarity and intimidation, and must be met with safeguards or the engagement declined.
NOCLAR
Sections 260 and 360 of the Code require a member to respond to identified or suspected non-compliance with laws and regulations - understanding the matter, discussing it with management and those charged with governance, and considering withdrawal and reporting where appropriate.
Statutory governance hooks
- Section 141 disqualifications; Section 139 rotation for listed companies and prescribed classes.
- Section 144 bars certain non-audit services by the statutory auditor.
- Section 188 governs related-party transactions; the audit committee approves and members' approval is needed above thresholds.
- LODR Regulations 17 to 27 set board composition, independent director, audit committee and vigil mechanism norms.
- Section 148 bars the cost auditor from being the statutory auditor.
Worked example
A cost auditor is offered the internal audit of the same company. This is a self-review threat: internal audit work feeds the very cost records the auditor must opine on, and Section 148 eligibility is compromised. The correct response is to decline and document the reasoning, not to accept and rely on a management representation.
Traps
- Treating confidentiality as absolute when law requires disclosure.
- Confusing independence rules for statutory auditors with those for cost auditors.
- Approving a related-party transaction without audit committee review.