Clause explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Clause (1) of Part II of the Second Schedule makes it professional misconduct for a member of the Institute, whether in practice or not, to contravene any provision of the Chartered Accountants Act, the Regulations made under it, or any guidelines issued by the Council.
The clause that gives the guidelines their teeth
Clause (1): "contravenes any of the provisions of this Act or the regulations made thereunder or any guidelines issued by the Council"
Standing alone, a Council guideline is an instruction. Clause (1) is what converts a breach of that instruction into professional misconduct in the Second Schedule — the schedule reserved for the graver categories.
The Code puts it directly: the clause "requires every member of the Institute to act within the framework of the Chartered Accountants Act and the Regulations and guidelines made by the Council thereunder. Any violation of the guidelines or the Act or the Regulations by a member would be covered as a professional misconduct under this part."
Part II of the Second Schedule opens with those words. Unlike Part I, which is confined to chartered accountants in practice, this clause reaches every member — including members in industry, in government service, in academia and those not currently working. A member in employment who breaches a Council guideline is within Clause (1) exactly as a practising member would be.
What the Council has issued under this power
The Code records the lineage:
- The Council is empowered to issue guidelines in exercise of the power conferred by the Chartered Accountants Act, 1949.
- It has issued the Guidelines on Ethical Issues, 2026, earlier referred to as the Council General Guidelines, 2008.
- Those Guidelines were themselves issued in lieu of several notifications published in the Gazette of India regarding acts or omissions which may amount to misconduct, in exercise of the power conferred by the earlier Clause (2) of this Part — which was repealed by the CA Amendment Act, 2006.
So the current position is the third generation of the same idea: Gazette notifications, then the 2008 Council General Guidelines, and now the Guidelines on Ethical Issues, 2026, effective 1 April 2026.
The extension power
The Code states the constitutional point plainly:
"It is an authority for the Council to issue guidelines for extending the scope of misconduct to cover acts or omissions not already dealt with in the various clauses of the two schedules."
This is significant. The First and Second Schedules are in the Act and can be amended only by Parliament. Clause (1) of Part II lets the Council extend the effective scope of misconduct by guideline, without an amending Act. Every new Council guideline therefore expands what can be charged as professional misconduct.
A member who reads only the twelve clauses of First Schedule Part I and the ten clauses of Second Schedule Part I has read an incomplete list of what can constitute misconduct. The audit ceiling of 40, the undisputed-fees bar, the Rs 250 crore fee cap and the practice books-of-account requirement are all in the Guidelines — and all reach the disciplinary process through this single clause.
What is currently enforceable through Clause (1)
| Source | Examples of obligations |
|---|---|
| The Chartered Accountants Act, 1949 | Section 7 (designation), section 25 (companies not to practise), section 26 (unqualified persons not to sign), section 27 (branch offices) |
| The Chartered Accountants Regulations, 1988 | Regulation 190A (other business), Regulation 191 (permitted part-time employments), Regulation 192 (restriction on fees) |
| Guidelines on Ethical Issues, 2026 | Due diligence by an employed member; practice books of account — cash book, ledger, bill register; undisputed audit fees of the outgoing auditor; the ceiling of 40 audit assignments; the statutory auditor fee cap for PSUs, government, listed and large public companies |
| Council Guidelines for Advertisement, 2008 (updated to December 2025) | Write-up content, website pull-only rule for exclusive services, prohibition on fee disclosure and testimonials |
Worked example
A member in industry, not in practice, is a partner in no firm and signs no audit reports. He nonetheless breaches a Council guideline applying to members generally.
Clause (1) of Part II of the Second Schedule applies. The absence of a practice, of a client and of an attest engagement is irrelevant — the clause covers a member "whether in practice or not", and the breach is of a guideline issued by the Council.
Contrast a member in practice who exceeds the ceiling of 40 company audits. That ceiling is in Chapter V of the Guidelines on Ethical Issues, 2026, not in either Schedule. It becomes chargeable misconduct through Clause (1).
Practical checklist
- Read the Guidelines alongside the Schedules; the Schedules alone are an incomplete statement of misconduct.
- Track new and amended Council guidelines — each one expands the scope of Clause (1).
- Members not in practice should not assume Part II does not reach them.
- Re-cite internal policies from the 2008 Council General Guidelines to the Guidelines on Ethical Issues, 2026.
- Treat a Regulation breach — 190A, 191, 192 — as a Second Schedule matter, not a technical lapse.
Common mistakes
- Treating Council guidelines as advisory. Clause (1) makes breach a professional misconduct.
- Assuming Part II applies only to practising members.
- Reading only the Schedules to establish what constitutes misconduct.
- Citing the repealed Clause (2) of this Part, removed by the CA Amendment Act, 2006.