Ministry of Corporate Affairs has appointed 21st March, 2018 from which the provisions related to the Constitution of National Financial Reporting Authority come into force. This will pave a way towards the establishment of NFRA.
Although all the provisions of Section 132 have not been notified but after the notification of the remaining provisions of section 132 of the Companies Act, 2013, NFRA shall act as an independent regulator for the auditing profession which is one of the key changes brought in by the Companies Act, 2013. The inclusion of the provision in the Act was on the specific recommendations of the Standing Committee on Finance (in its 21 report).
The implementation of NFRA will not only bring certain recommendation to change in accounting and audition policies and standards but also monitor and enforce the compliance thereof by the Companies, oversee the quality of service of professionals associated with compliance of accounting and auditing standards.
The jurisdiction of NFRA for investigation of Chartered Accountants and their firms under section 132 of the Act would extend to listed companies and large unlisted public companies, the thresholds for which shall be prescribed in the Rules. The Central Government can also refer such other entities for investigation where public interest would be involved.
The inherent regulatory role of ICAI as provided for in the Chartered Accountants Act, 1949 shall continue in respect of its members in general and specifically with respect to audits pertaining to private limited companies, and public unlisted companies below the threshold limit to be notified in the rules.
The Quality Review Board (QRB) will also continue quality audit in respect of private limited companies, public unlisted companies below prescribed threshold and also with respect to audit of those companies that may be delegated to QRB by NFRA. Further, ICAI shall continue to play its advisory role with respect to accounting and auditing standards and policies by making its recommendations to NFRA.
Since long back the questions regarding to quality audits have been raised. Not only on the quality but questions have been raised on responsibilities of auditors. The recent PNB (Punjab National Bank) fraud in India has again done the same.
The need for constitution of The National Financial Reporting Authority (NFRA) has arisen in the wake of recent accounting scams, to enforce auditing standards, to enhance the quality of audits and to ensure & strengthen independence of audit firms.
Under Section 210A of the Companies Act, 1956 an advisory Committee called ‘National Advisory Committee on Accounting Standards’ (NACAS) had been constituted by the Central Government to advise it on the formulation and laying down of accounting standards and auditing policies. As per the new Companies Act, 2013 NACAS will be replaced by National Financial Reporting Authority (NFRA). NFRA is a quasi- judicial body which regulates aspects related to accounting and auditing.
Powers of NFRA
Section 132 (4) of the Companies Act, 2013 empowers NFRA as under:
(i) It can carry out investigation, either suo motu or on a reference made to it by the Central Government, for such class of bodies corporate or persons, into the matters of professional misconduct or other misconduct committed by any member of firm of Chartered Accountants (“CA”), registered under the Chartered Accountants Act, 1949. In such case, if the NFRA has initiated the investigation, then no other institute or body shall initiate or continue any proceedings.
(ii) The NFRA have the same powers as are vested in a civil court under the Code of Civil Procedure, 1908, while trying a suit, in respect of the following matters:
(a) Discovery and production of books of account and other documents;
(b) Summoning and enforcing the attendance of persons and examining them on oath;
(c) Inspection of any books, registers and other documents of any person referred to in point (b); and
(d) Issuing commissions for examination of witnesses or documents.
Accordingly, after notification of NFRA, the power of the Institute of Chartered Accountants of India (ICAI) to investigate into the matter of professional misconduct by its members or CA firms for the listed companies and large unlisted public companies will be vested to NFRA. The inherent regulatory role of ICAI as provided in the Chartered Accountants Act, 1949 shall continue with it in respect of its members in general and specifically with respect to audits pertaining to private limited companies, and other class of public unlisted companies. Further, ICAI shall make recommendations to NFRA with respect to accounting and auditing standards. So, ICAI shall continue to play its advisory role with respect to accounting & auditing standards and policies.
The NFRA has power to impose penalty on CAs and auditing firms if professional misconduct is proved. It can impose penalty:
I. In case of Individuals: Minimum Rs. 1,00,000, which may extend to 5 times of the fees received
II. IN case of firms: Minimum Rs. 5,00,000, which may extend to 10 times of the fees received
III. It may debar the CA or auditing firm from practice as a member of the ICAI for a minimum period of 6 months, which can be extended to 10 years.
Any person or firm aggrieved by the order of the NFRA may file an appeal before the Appellate Tribunal.
(In case of any queries, author can be reached at email@example.com)
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