Second Schedule 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.
The Second Schedule lists the graver professional misconduct, heard by the Disciplinary Committee, which can remove a name permanently. Part I, items (1) to (5), covers disclosing client information, certifying work one has not examined, lending one's name to forecasts, giving an opinion where one has a substantial interest, and failing to disclose a material fact. The Act was called the Cost and Works Accountants Act, 1959 until 10 May 2022.
A cost accountant in practice is guilty of Second Schedule misconduct if he discloses a client's information without consent (unless the law requires), certifies a report on cost accounting statements that neither he nor his partner, employee or another cost accountant in practice examined, lets his name be used with a forecast so as to suggest he vouches for it, expresses an opinion on a business in which he, his firm or a partner has a substantial interest, or fails to disclose a material fact needed to make a statement not misleading. The 2022 words "or his firm" in item (3) are not in force.
How this article reads the Act
This article follows the Act as printed by the Institute (as amended in 2011), read with the 2022 Amendment Act to the extent brought into force by S.O. 2184(E) dated 10 May 2022. The Second Schedule printed by the Institute is the version substituted in 2006; the wording that Act replaced is not law and is not used here. Later amendments and notifications should be checked.
The commencement trap. Two 2022 changes to the Second Schedule are enacted but not brought into force as per S.O. 2184(E) dated 10 May 2022 (section 73 of Act 12 of 2022):
| Point | In force | Enacted in 2022, not in force |
|---|---|---|
| Heading | "See sections 21(3), 21B(3) and 22" | "21(6), 21B(5) and (6)" in place of "21(3), 21B (3)" |
| Part I, item (3) | "...in a manner which may lead to the belief that he vouches for the accuracy of the forecast" | "...the belief that he or his firm vouches for the accuracy of the forecast" |
Until a notification brings them into force, the earlier heading and the words of item (3) without "or his firm" are the law. A later notification should be checked.
How the Second Schedule fits
| Part | Subject |
|---|---|
| Part I | Misconduct of cost accountants in practice (items 1 to 10) |
| Part II | Misconduct of members generally |
| Part III | Other misconduct (conviction for an offence punishable with imprisonment exceeding six months) |
This article covers items (1) to (5). Items (6) to (10), Part II and Part III are in our article on the rest of the Second Schedule. Part I opens: "A cost accountant in practice shall be deemed to be guilty of professional misconduct, if he:".
Item (1): disclosing client information
He discloses information acquired in the course of his professional engagement to any person other than his client so engaging him, without the consent of his client, or otherwise than as required by any law for the time being in force.
Two routes are open: the client's consent, or a legal requirement. Anything else is misconduct. The item protects what the member learns while working for a client. The chartered accountants' counterpart is explained in our post on clause (1) of the Second Schedule to the Chartered Accountants Act.
Item (2): certifying what he has not examined
He certifies or submits in his name, or in the name of his firm, a report of an examination of cost accounting and related statements unless the examination of such statements has been made by:
- him, or
- a partner or an employee in his firm, or
- another cost accountant in practice.
The member signs only what he, his team or another practising cost accountant has actually examined. A report on statements examined by an outsider who is none of these is misconduct. It sits beside First Schedule Part I item (11), which deals with who may sign on a member's behalf; see our article on items (7) to (11).
Item (3): forecasts
He permits his name or the name of his firm to be used in connection with an estimate of cost or earnings contingent upon future transactions in a manner which may lead to the belief that he vouches for the accuracy of the forecast.
The test is the impression created: using the member's or firm's name with a forecast so that a reader may believe the member vouches for its accuracy. The words in force say "he"; the 2022 text, not in force, would read "he or his firm". The name of the firm is already covered in the first part of the item, which refers to "the name of his firm". The difference is in who is believed to vouch. A member who lends a name to a forecast should say clearly that he does not vouch for it, to avoid the impression.
Item (4): substantial interest
He expresses his opinion on cost or pricing statements of any business or enterprise in which he, his firm or a partner in his firm has a substantial interest.
The in-force text of the item does not add a disclosure exception. "Substantial interest" is not defined in the item. A member must therefore consider whether he, the firm or any partner has a substantial interest before giving an opinion on statements of that business, and take advice if it is a close call.
Item (5): undisclosed material facts
He fails to disclose a material fact known to him in a cost or pricing statement, which is not disclosed in a cost or pricing statement but disclosure of which is necessary in making such statement, where he is concerned with such statement in a professional capacity.
The elements are:
- the fact is material;
- it is known to him;
- it is not disclosed in the statement;
- disclosure is necessary in making the statement; and
- he is concerned with the statement in a professional capacity.
Summary table
| Item | The cost accountant in practice must not | Core test |
|---|---|---|
| (1) | Disclose client information | Without consent or legal requirement |
| (2) | Certify an unexamined report | Not examined by him, a partner or employee, or another practising cost accountant |
| (3) | Allow his name on a forecast | Impression that he vouches for accuracy |
| (4) | Give an opinion where he has a substantial interest | He, his firm or a partner has the interest |
| (5) | Fail to disclose a known material fact | Disclosure necessary in making the statement |
What follows a finding
Second Schedule misconduct goes to the Disciplinary Committee (also where the facts fall under both Schedules), which may reprimand, remove the name permanently or for a period, or fine up to rupees five lakhs on the in-force text; see our article on section 21B. Appeal lies to the Appellate Authority.
A short example
Neha Bansal certifies a statement of expected costs for a client's new plant for a lender. The lender reads her certificate as a promise that the forecast will be met (item (3)). She also relied on statements prepared by a freelancer who is not in her firm and whom she has not asked another cost accountant to review (item (2)). During the work she learned of a pending dispute that would raise the cost, but left it out of the statement (item (5)). Each can be raised as Second Schedule misconduct.
A member or firm that gives certificates, due diligence reports or opinions can use financial and legal due diligence support to put controls around confidentiality, examination, forecasts and disclosure.
The same rule for chartered accountants
See Second Schedule Part I items 2 to 6 of the Chartered Accountants Act, 1949. The cost accountants' items refer to cost accounting and related statements and to cost or pricing statements.
Need help with certificates and opinions?
If you or your clients rely on certificates, forecasts or opinions on cost and pricing statements, our financial and legal due diligence team can help you review the work against the Second Schedule.
Key takeaways
- Client information may be disclosed only with consent or as required by law.
- A report may be certified only if examined by the member, his partner or employee, or another cost accountant in practice.
- Do not let a forecast carry your name in a way that suggests you vouch for it.
- Do not give an opinion where you, your firm or a partner has a substantial interest.
- The 2022 words "or his firm" in item (3) and the heading change are not in force.
Read next
- Second Schedule, Part I items (6) to (10), Part II and Part III
- First Schedule, Parts II to IV
- Section 21B: the Disciplinary Committee
Disclaimer: Based on the Cost and Works Accountants Act, 1959 (now the Cost Accountants Act, 1959) as printed by the Institute of Cost Accountants of India (as amended in 2011), read with the Chartered Accountants, the Cost and Works Accountants and the Company Secretaries (Amendment) Act, 2022 to the extent brought into force by S.O. 2184(E) dated 10 May 2022, as consulted on 3 October 2026. Regulations, rules, later amendments and commencement notifications should be checked. This article is general information, not legal advice; check the official text before acting.