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.
This article completes the Second Schedule. Part I items (6) to (10) cover failing to report a misstatement, not exercising due diligence, not obtaining enough information, not flagging departures from costing procedure and mishandling client money. Part II applies to all members and covers contravening the Act, breaching an employer's confidence, giving false particulars and defalcation. Part III deals with convictions for offences punishable with imprisonment above six months. The Act was called the Cost and Works Accountants Act, 1959 until 10 May 2022.
A cost accountant in practice commits Second Schedule misconduct by not reporting a known material mis-statement, not exercising due diligence or being grossly negligent, expressing opinions without sufficient information, not drawing attention to a material departure from costing and pricing procedure, or failing to keep client money in a separate banking account. Part II adds contravening the Act, regulations or Council guidelines, disclosing an employer's confidence, giving false particulars and defalcation. Part III covers a conviction for an offence punishable with imprisonment exceeding six months.
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. The heading of the Second Schedule in force reads "See sections 21(3), 21B(3) and 22". Section 73 of the 2022 Act would substitute "21(6), 21B(5) and (6)" and add "or his firm" in Part I item (3). Both are enacted but not in force as per S.O. 2184(E) dated 10 May 2022. Items (6) to (10) and Parts II and III were not changed by the 2022 Act. A later notification should be checked. Items (1) to (5) are in our article on the first part of the Second Schedule.
Part I, items (6) to (10)
Part I opens: "A cost accountant in practice shall be deemed to be guilty of professional misconduct, if he:".
Item (6): not reporting a material mis-statement
He fails to report a material mis-statement known to him to appear in a cost or pricing statement with which he is concerned in a professional capacity.
Knowledge is the trigger: the mis-statement must be material, known to him and in a statement with which he is professionally concerned. Item (5), in the first article, deals with failing to disclose a material fact; item (6) deals with a mis-statement that is already in the statement.
Item (7): due diligence and gross negligence
He does not exercise due diligence, or is grossly negligent in the conduct of his professional duties.
Two separate failures are named: lack of due diligence and gross negligence. The Act does not define either. The chartered accountants' counterpart is explained in our post on clause (7) of the Second Schedule to the Chartered Accountants Act, where the wording is that Act's own.
Item (8): sufficient information
He fails to obtain sufficient information which is necessary for expression of an opinion, or its exceptions are sufficiently material to negate the expression of an opinion.
Either he did not obtain the information needed to give an opinion, or the exceptions in his report are so material that an opinion cannot be given at all.
Item (9): departures from costing procedure
He fails to invite attention to any material departure from the generally accepted procedure of costing and pricing applicable to the circumstances.
If the statement departs from generally accepted costing and pricing procedure in a material way, the member must point it out. The Act does not name the procedure, and the standards are outside this series.
Item (10): client money
He fails to keep moneys of his client, other than fees or remuneration or money meant to be expended, in a separate banking account, or to use such moneys for purposes for which they are intended within a reasonable time.
Client money must be kept in a separate banking account and used for its intended purpose within a reasonable time. Fees, remuneration and money meant to be expended are excluded from the separate-account duty. The Act does not define a reasonable time. See our post on clause (10) of the Second Schedule to the Chartered Accountants Act.
Part II: members generally
A member of the Institute, whether in practice or not, is deemed guilty of professional misconduct if he:
| Item | Conduct |
|---|---|
| (1) | Contravenes any of the provisions of the Act or the regulations made under it or any guidelines issued by the Council |
| (2) | Being an employee of any company, firm or person, discloses confidential information acquired in the course of his employment, except as and when required by any law for the time being in force or as permitted by the employer |
| (3) | Includes in any information, statement, return or form to be submitted to the Institute, the Council or any of its Committees, the Director (Discipline), the Board of Discipline, the Disciplinary Committee, the Quality Review Board or the Appellate Authority any particulars knowing them to be false |
| (4) | Defalcates or embezzles moneys received in his professional capacity |
Item (1) is a catch-all for contravening the Act, the regulations or Council guidelines. It links to the provisions in this series, such as the certificate of practice in section 6. See also our post on clause (1) of Part II of the Second Schedule to the Chartered Accountants Act. Item (2) is the employed member's duty of confidence; the chartered accountants' counterpart is in our post on clause (2) of Part II. Item (3) lists the bodies to which false particulars must not be submitted, from the Institute to the Appellate Authority. Item (4) deals with money received in a professional capacity.
Part III: other misconduct
A member of the Institute, whether in practice or not, is deemed guilty of other misconduct if he is held guilty by any civil or criminal court for an offence which is punishable with imprisonment for a term exceeding six months.
This pairs with First Schedule Part IV item (1), which covers offences punishable with imprisonment not exceeding six months; see our article on First Schedule Parts II to IV. Section 8(v) also bars from the Register a person convicted of an offence involving moral turpitude and punishable with imprisonment, unless pardoned or the disability is removed by the Central Government; see our article on sections 6 to 8.
What follows a finding
All of these go to the Disciplinary Committee. On the in-force text it may reprimand, remove the name permanently or for a period, or fine up to rupees five lakhs; see our article on section 21B. An appeal lies to the Appellate Authority within ninety days; see sections 22A to 22E.
A short example
Karan Malhotra is the cost auditor of a company. During the audit he finds that the cost sheet overstates the cost of one product by a large amount, and does not report it (item (6)). Clients' advance for a survey is kept in his own current account and used for office expenses (item (10)). The first is a Part I item for a member in practice; the second shows that client money cannot be mixed with his own funds. Separately, a member who diverts money received in a professional capacity to himself commits defalcation under Part II item (4).
For the cost audit rules under the Companies Act, 2013, see our posts on section 148 and cost audit applicability.
A member or firm that must answer a complaint, or wants to review its controls on client money, reporting and due diligence, can use legal dispute resolution support.
The same rule for chartered accountants
See Second Schedule items 8 and 9, Part II items 3 to 5 and Part III of the Chartered Accountants Act, 1949. The numbering differs between the two Acts.
Need help with a Second Schedule complaint?
If you face a complaint on negligence, client money, false particulars or conviction, our legal dispute resolution team can help you prepare the reply and the hearing.
Key takeaways
- Part I items (6) to (10): mis-statements, due diligence, sufficient information, costing departures and client money.
- Part II: contravention, employee confidentiality, false particulars and defalcation, for all members.
- Part III: conviction for an offence punishable with imprisonment exceeding six months.
- The Disciplinary Committee hears these matters, and appeal lies to the Appellate Authority.
- The 2022 Schedule changes (heading and "or his firm") are not in force.
Read next
- Second Schedule, Part I, items (1) to (5)
- 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.