Financial Reporting · Professional and Ethical Duty of a Chartered Accountant

Fundamental Principles of the Code of Ethics (CA Final Paper 3 Audit)

Updated 5 October 2026 · Fact-checked

The ICAI Code of Ethics rests on five fundamental principles: integrity, objectivity, professional competence and due care, confidentiality, and professional behaviour. To solve a case, spot the facts, name the principle breached, state the rule in plain words, apply it to the facts, and conclude with what the CA should do.

Understand Fundamental Principles of the Code of Ethics

This topic belongs to Paper 3, Advanced Auditing, Assurance and Professional Ethics.

A Chartered Accountant is trusted because the public relies on their work. The Code of Ethics turns that trust into rules. It begins with five fundamental principles that every member must follow in every role: in practice, in service, or in business.

The five principles are:

Integrity: be straightforward and honest in all professional and business relationships. Do not be associated with information you know is false or misleading.
Objectivity: do not let bias, conflict of interest or the influence of others override your professional judgement.
Professional competence and due care: keep your knowledge and skill at the level needed to give competent service, and act diligently and in line with applicable technical and professional standards.
Confidentiality: do not disclose or use information obtained through professional work, unless there is a legal or professional right or duty to disclose, or proper authority.
Professional behaviour: comply with relevant laws and regulations and avoid any conduct that you know, or should know, might discredit the profession.

Think of the principles as the foundation and the rest of the Code as the application. When a case gives you a situation, you do not look for a section to match the story. You ask: which principle is under threat, and what would a reasonable and informed third party conclude?

The Code also recognises that threats can weaken compliance, such as self-interest, self-review, advocacy, familiarity and intimidation. If a threat is not at an acceptable level, you apply safeguards or decline or end the engagement. The principles stay fixed. Your response to each situation changes with the facts.

In your answer, always tie the principle to the facts in the case. A bare list of five principles earns little. A named principle, applied to named facts, with a clear conclusion earns marks.

Key rules to remember

The five fundamental principles: Integrity + Objectivity + Professional competence and due care + Confidentiality + Professional behaviour; These are set out in the fundamental principles part of the Code, as in the current ICAI edition. Learn them in this order so that the list is easy to recall.
Integrity: Straightforward + honest; no association with false or misleading information; Use it when a CA knowingly lets a misleading report, statement or return go out.
Objectivity: No bias + no conflict of interest + no undue influence; Use it when a client, employer or relationship pushes the CA to bend judgement.
Professional competence and due care: Current knowledge and skill + diligence + compliance with standards; Use it when a CA accepts work beyond their skill or does work carelessly or late.
Confidentiality: No disclosure or personal use of information unless legal or professional right or duty, or proper authority; Exceptions exist, so do not say that disclosure is never allowed.
Professional behaviour: Comply with laws and regulations + avoid conduct that discredits the profession; Use it for misleading marketing, breaking the law or conduct that harms the profession's reputation.
Threat categories: Self-interest, self-review, advocacy, familiarity, intimidation; Name the threat, then say whether it is at an acceptable level or needs safeguards.

How to solve Fundamental Principles of the Code of Ethics questions

Use this same sequence for any case scenario or written question on the fundamental principles.

1Read the facts and underline who the CA is (in practice, in service or in business) and what they did or are asked to do.
2Identify the principle or principles at risk. Many cases touch more than one, so check all five.
3State the principle in one plain sentence, in your own words.
4Apply it to the facts. Quote the key fact and show how it conflicts with, or satisfies, the principle.
5Name the threat if one exists (self-interest, self-review, advocacy, familiarity or intimidation) and say whether it is at an acceptable level.
6Say what the CA should do: apply safeguards, refuse, resign, seek advice, or disclose if there is a legal or professional duty.
7Close with a one-line conclusion that answers the exact question asked.

Quickest way: Principle-Fact-Action in three lines

When to use it: Use it for MCQs and for short written parts where time is tight.

Match the key word in the facts to a principle: false or misleading means integrity, bias or pressure means objectivity, lack of skill or care means competence, sharing client data means confidentiality, law breaking or discredit means professional behaviour.
Check for an exception before you answer, especially for confidentiality, such as a legal duty to disclose or proper authority.
Write the answer as: principle, fact, conclusion. For MCQs, eliminate options that treat a rule as absolute when the Code allows exceptions.

Common mistakes in Fundamental Principles of the Code of Ethics

Listing the five principles without applying them to the facts.
Students memorise the list and assume that naming it is enough.
Fix: Always link each principle to a specific fact in the case and end with a conclusion.
Saying confidentiality can never be broken.
The word sounds absolute, so students overstate it.
Fix: State that disclosure is allowed where there is a legal or professional right or duty, or proper authority.
Mixing up integrity and objectivity.
Both deal with honesty and fairness, so they feel alike.
Fix: Integrity is about being honest and not being linked to misleading information. Objectivity is about bias, conflicts and undue influence on judgement.
Treating competence as a one-time qualification.
Students think that being a CA already means being competent.
Fix: Competence is ongoing. It means keeping knowledge current and acting diligently each time, including declining work you cannot do properly.
Ignoring threats and safeguards.
Students jump straight to a verdict without analysing the situation.
Fix: Name the threat, say whether it is at an acceptable level, and list safeguards, or say the CA should decline if safeguards are not enough.
Giving only one principle when the case breaches several.
Students stop after finding the first obvious breach.
Fix: Scan all five principles before writing and cover each one that applies.

Worked examples

Example 1

CA Meera is the finance head of a listed company. The managing director asks her to defer recognising a large expense so that the quarterly profit meets analyst expectations. He says he will review her bonus if she refuses. She is unsure what to do. Which fundamental principles are involved and how should she act?

Show the solution

Facts: Meera is a CA in service. She is asked to defer an expense so that profit looks better, and she is pressured through her bonus.
Integrity: Deferring an expense that should be recognised would make the financial information false or misleading. A CA must not be associated with such information.
Objectivity: The bonus threat and the managing director's pressure are undue influence. This creates intimidation and self-interest threats to her judgement.
Professional behaviour: Misstating results can breach applicable laws and regulations and discredit the profession.
Action: She should refuse to alter the accounting, document her position, escalate to the audit committee or higher authority as per the entity's processes, and take advice from the Institute if needed.
Conclusion: Meera must not defer the expense. Integrity, objectivity and professional behaviour all require her to report the figures correctly.

Answer: Integrity, objectivity and professional behaviour are involved. Meera should refuse to defer the expense, escalate the matter, and report the numbers faithfully.

Example 2

CA Arjun audits Company X. While auditing, he learns that the company plans to bid for a contract that his friend's firm is also bidding for. His friend asks him to share the company's bid price. Arjun refuses. Later, a court orders him to produce audit records in a legal proceeding concerning the company. He wonders whether producing them would breach confidentiality. Analyse.

Show the solution

Facts: Arjun obtained the bid price in the course of professional work. The friend asks for it. Later, a court orders disclosure.
Principle: Confidentiality means a CA must not disclose or use information obtained through professional work, unless there is a legal or professional right or duty to disclose, or proper authority.
Friend's request: There is no legal or professional duty and no authority from the client. Sharing the price would breach confidentiality. The friendship creates a familiarity threat (and possibly intimidation) to his compliance with confidentiality. Arjun correctly refused to disclose.
Court order: A court order is a legal duty to disclose. Disclosure to comply with it is permitted and does not breach confidentiality.
Care point: Arjun should disclose only what the order requires and should consider taking legal advice on its scope.
Conclusion: Refusing the friend was correct. Producing records under the court order does not breach confidentiality.

Answer: Arjun correctly refused his friend because there was no right, duty or authority to disclose. Producing records under a legal order is allowed, limited to what the order requires.

Exam tips

In case-scenario MCQs, look for the one word that signals the principle: misleading, pressure, skill, disclosure, discredit.
In written answers, use the provision-facts-conclusion format: principle in one line, apply to the facts, then conclude.
Always check for an exception before declaring a confidentiality breach.
When facts are rich, cover every principle that applies and name the threat. This is where marks are scored.
Do not quote section numbers beyond what you are sure of. Naming the principle correctly matters more.

Practice questions from Professional and Ethical Duty of a Chartered Accountant

Fundamental Principles of the Code of Ethics in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Fundamental Principles of the Code of Ethics: frequently asked questions

What are the five fundamental principles of the ICAI Code of Ethics?

They are integrity, objectivity, professional competence and due care, confidentiality, and professional behaviour. Every member must follow them in every professional role.

Where are the fundamental principles stated in the Code?

They are set out in the fundamental principles part of the Code of Ethics, as in the current ICAI edition. Check the edition given in your study material, since numbering can change between editions.

Can a CA ever disclose confidential information?

Yes, in limited cases. Disclosure is allowed when there is a legal or professional right or duty to disclose, or when proper authority exists. Outside these cases, the information must be protected.

How do I answer a case-based ethics question in the exam?

Name the principle, apply it to the specific facts, mention any threat and safeguards, and end with a clear conclusion. Keep it short and tied to the case.