Modi Government has again taken a big step by approving to create an Auditing Regulator called National Financial Reporting Authority (NFRA) who will oversee the auditing function and profession, control and regulate in addition to the Institute of Chartered Accountants of India on 1st March, 2018.
It is big move forward in regulating the financial and overall auditing function of large companies. The NFRA is to be an independent regulator overseeing the auditing profession like other regulator as TRAI, SEBI, IBBI etc.
According to Section 132 of Companies Act 2013, “NFRA is responsible for recommending accounting and auditing policies and standards in the country, undertaking investigations, and imposing sanctions against defaulting auditors and audit firms in the form of monetary penalties and debarment from practice for up to 10 years.“National Financial Reporting Authority (NFRA) is a body proposed in Companies Act 2013 for the establishment and enforcement of accounting and auditing standards and oversight of the work of auditors. The Centre has appointed former IAS officer Rangachari Sridhar an as chairperson of NFRA.
It was the feeling of Modi Government that members of ICAI should set an example to making the financial discipline and it feels higher auditing standards and more ethical behavior shall be maintained after NFRA and there will be a seriousness in handling the complaints of professional misconduct by the ICAI.
Government did notwanted the lame-duck regulator. However we must understand that NFRA is nothing but another way for bureaucrats to hue and cry and say that we did not do anything wrong and CAs did it. It is anticipated by some members that soon NFRA will become the interfering devise for CAs and will be a new platform of corruption. It will become the career for retired IAS officers like other Government commissions and regulators as there will not be any CAs in NFRA will can understand the practical issues faced by CAs in general practice.
It will become the career for retired IAS officers like other Government commissions and regulators as there will not be any CAs in NFRA will can understand the practical issues faced by CAs in general practice.
The apex body of Chartered Accountants, ICAI was not open to the establishment of such an authority as it fears reduction in its own powers and control. However most of the members of the ICAI (who are approx. to be 3 lakhs in count) are feeling the Government did not played the proactive role to save the autonomy of the ICAI constituted under The Chartered Accountants Act, 1949.
Recently the Ministry of Corporate Affairs has notified relevant sections of The Companies Act, 2013 to give effect to NFRA by way of notification on 24th of October, 2018. Below are the few points and critical aspects that the members of ICIA need to consider about NFRA:
1. NFRA will become the middleman between the ICAI and the Government for making the recommendations to the Central Government on the formulation and laying down of accounting and auditing policies and standards as from now onwards ICAI will act as advisory to NFRA and NFRA will recommend to the Government of India.
2. NFRA have the power to investigate, either suo motu or on a reference made to it by the Central Government, for such class of bodies corporate or persons, in such manner as may be prescribed into the matters of *professional or other misconduct* committed by any member or firm of chartered accountants,And no other institute or body shall initiate or continue any proceedings in such matters of misconduct where the National Financial Reporting Authority has initiated an investigation and hence the power of disciplinary power of ICAI will be limited in the cases where NFRA has issued the proceedings and ICAI cannot interfere.
3. NFRA have the same powers as are vested in a civil court and has the power to impose the penalty and in the cases of professional misconduct.
4. NFRA has the power to impose one lakh rupees or five times of the fees received, in case of individuals OR ten lakh rupees or ten times of the fees received, in case of partnership firms. We all knows that companies cannot do the auditing function.
5. Debarring the member or the firm from Practice 6 months to 10 years as it think fit.
Due to notification of NFRA, India is now eligible for membership of International Forum of Independent Audit Regulators (IFIAR). At present most of the major economies of the world have independent audit regulators. Though this is another thing that over the last decade or so, apex auditing bodies of different countries have provided an element of cohesion to these regulators. At present more than 52 countries have such independent regulator. The NFRA would also have the power to refer cases to the Quality Review Board (QRB) as and when it decided to do so.