In addition to responding to the matter in accordance with the provisions of this section, the chartered accountant being a key managerial personnel in service shall determine whether disclosure of the matter to the employing organization’s external auditor, if any, is needed. 260.15 A1 Such disclosure would be pursuant to the duty or legal obligation of the chartered accountant being a key managerial personnel in service to provide all information necessary to enable the auditor to perform the audit.
Determining Whether Further Action Is Needed
The chartered accountant being a key managerial personnel
in service shall assess the appropriateness of the response of the accountant’s superiors, if any, and those charged with governance. 260.16 A1 Relevant factors to consider in assessing the appropriateness of the response of the superiors of chartered accountant being a key managerial personnel in service if any, and those charged with governance include whether: • The response is timely. • They have taken or authorized appropriate action to seek to rectify, remediate or mitigate the consequences of the non-compliance, or to avert the non-compliance if it has not yet occurred. • The matter has been disclosed to an appropriate authority where appropriate and, if so, whether the disclosure appears adequate.
In light of the response of the, superiors of chartered
accountant being a key managerial personnel in service, if any, and those charged with governance, the accountant shall determine if further action is needed in the public interest. 260.17 A1 The determination of whether further action is needed, and the nature and extent of it, will depend on various factors, including: • The legal and regulatory framework. • The urgency of the situation. • The pervasiveness of the matter throughout the employing organization. • Whether the chartered accountant being a key managerial personnel in service continues to have confidence in the integrity of the accountant’s superiors and those charged with governance. • Whether the non-compliance or suspected non- compliance is likely to recur. • Whether there is credible evidence of actual or potential substantial harm to the interests of the employing organization, investors, creditors, employees or the general public. 260.17 A2 Examples of circumstances that might cause the chartered accountant being a key managerial personnel in service no longer to have confidence in the integrity of the accountant’s superiors and those charged with governance include situations where: • The accountant suspects or has evidence of their involvement or intended involvement in any non- compliance. • Contrary to legal or regulatory requirements, they have not reported, or authorized the reporting of, the matter to an appropriate authority within a reasonable period.
The chartered accountant being a key managerial personnel
in service shall exercise professional judgment in determining the need for, and nature and extent of, further action. In making this determination, the accountant shall take into account whether a reasonable and informed third party would be likely to conclude that the accountant has acted appropriately in the public interest. 260.18 A1 Further action that the chartered accountant being a key managerial personnel in service might take includes: • Informing the management of the parent entity of the matter if the employing organization is a member of a group. • Disclosing the matter to an appropriate authority as specified under respective law. • Resigning from the employing organization. 260.18 A2 Resigning from the employing organization is not a substitute for taking other actions that might be needed to achieve the objectives of chartered accountant being a key managerial personnel in service under this section. However, there might be limitations as to the further actions available to the accountant. In such circumstances, resignation might be the only available course of action.
260.19 A1 As assessment of the matter might involve complex analysis and judgments, the chartered accountant being a key managerial personnel in service, might consider: • Consulting internally. • Obtaining legal advice to understand the accountant’s options and the professional or legal implications of taking any particular course of action. • Consulting on a confidential basis with the Institute.
Determining Whether to Disclose the Matter to an Appropriate Authority
260.20 A1 Disclosure of the matter to an appropriate authority would be precluded if doing so would be contrary to law or regulation.
Otherwise, the purpose of making disclosure is to enable an
appropriate authority to cause the matter to be investigated and action to be taken in the public interest. 260.20 A2 The determination of whether to make such a disclosure depends in particular on the nature and extent of the actual or potential harm that is or might be caused by the matter to investors, creditors, employees or the general public. For example, the chartered accountant being a key managerial personnel in service might determine that disclosure of the matter to an appropriate authority is an appropriate course of action if: • The employing organization is engaged in bribery (for example, of local or foreign government officials for purposes of securing large contracts). • The employing organization is regulated and the matter is of such significance as to threaten its license to operate. • The employing organization is listed on a securities exchange and the matter might result in adverse consequences to the fair and orderly market in the employing organization’s securities or pose a systemic risk to the financial markets. • It is likely that the employing organization would sell products that are harmful to public health or safety. • The employing organization is promoting a scheme to its clients to assist them in evading taxes. 260.20 A3 The determination of whether to make such a disclosure will also depend on external factors such as: • Whether there is an appropriate authority that is able to receive the information, and cause the matter to be investigated and action to be taken. The appropriate authority will depend upon the nature of the matter. For example, the appropriate authority would be the Institute in case of complaint of professional misconduct against a chartered accountant, whether in practice or in service, Securities and Exchange Board of India (SEBI) in the case of fraudulent financial reporting or an environmental protection agency, e.g.
Environment Pollution (Prevention & Control) Authority
for National Capital Region of Delhi in the case of a breach of environmental laws and regulations. • Whether there exists robust and credible protection from civil, criminal or professional liability or retaliation afforded by legislation or regulation, such as under whistle-blowing legislation or regulation. • Whether there are actual or potential threats to the physical safety of the chartered accountant being a key managerial personnel in service or other individuals.
If the chartered accountant being a key managerial personnel
in service determines that disclosure of the matter to an appropriate authority, if required, is an appropriate course of action in the circumstances, that disclosure is permitted pursuant to paragraph R114.3 of the Code. When making such disclosure, the accountant shall act in good faith and exercise caution when making statements and assertions.
In exceptional circumstances, the chartered accountant being
a key managerial personnel in service might become aware of actual or intended conduct that the accountant has reason to believe would constitute an imminent breach of a law or regulation that would cause substantial harm to investors, creditors, employees or the general public. Having first considered whether it would be appropriate to discuss the matter with management or those charged with governance of the employing organization, the accountant shall exercise professional judgment and determine whether to disclose the matter immediately to an appropriate authority in order to prevent or mitigate the consequences of such imminent breach. If disclosure is made, that disclosure is permitted pursuant to paragraph R114.3 of the Code.
260.23 A1 In relation to non-compliance or suspected non-compliance that falls within the scope of this section, the chartered accountant being a key managerial personnel in service is encouraged to have the following matters documented: • The matter. • The results of discussions with the accountant’s superiors, if any, and those charged with governance and other parties. • How the accountant’s superiors, if any, and those charged with governance have responded to the matter. • The courses of action the accountant considered, the judgments made and the decisions that were taken. • How the accountant is satisfied that the accountant has fulfilled the responsibility set out in paragraph R260.17.
Responsibilities of Chartered accountants Other than Chartered
Accountants being Key Managerial Personnel in Service1
If, in the course of carrying out professional activities, a
chartered accountant becomes aware of information concerning non-compliance or suspected non-compliance, the accountant shall seek to obtain an understanding of the matter. This understanding shall include the nature of the non- compliance or suspected non-compliance and the circumstances in which it has occurred or might occur. 260.24 A1 The chartered accountant is expected to apply knowledge and expertise, and exercise professional judgment. However, the accountant is not expected to have a level of understanding of laws and regulations greater than that which is required for the accountant’s role within the employing organization.
Whether an act constitutes non-compliance is ultimately a
matter to be determined by a court or other appropriate adjudicative body. 260.24 A2 Depending on the nature and significance of the matter, the chartered accountant might consult on a confidential basis with others within the employing organization or the Institute, or with legal counsel.
If the chartered accountant identifies or suspects that non-
compliance has occurred or might occur, the accountant shall, subject to paragraph R260.9, inform an immediate superior to enable the superior to take appropriate action. If the 1 Paragraphs R260.24 to 260.27 A1 will be applicable from such date as will be notified accountant’s immediate superior appears to be involved in the matter, the accountant shall inform the next higher level of authority within the employing organization.
In exceptional circumstances, the chartered accountant may
determine that disclosure of the matter to an appropriate authority is an appropriate course of action. If the accountant does so pursuant to paragraphs 260.20 A2 and A3, that disclosure is permitted pursuant to paragraph R114.3 of the Code. When making such disclosure, the accountant shall act in good faith and exercise caution when making statements and assertions.
260.27 A1 In relation to non-compliance or suspected non-compliance that falls within the scope of this section, the chartered accountant is encouraged to have the following matters documented: • The matter. • The results of discussions with the accountant’s superior, management and, where applicable, those charged with governance and other parties. • How the accountant’s superior has responded to the matter. • The courses of action the accountant considered, the judgments made and the decisions that were taken.
