The Chartered Accountants Act, 1949 (Act) provides for imposition of penalties on members of the Institute of Charted Accountants of India (ICAI).
The ICAI had submitted a proposal to the Government for amendment to the Act to, inter alia, provide for registration of audit firms, procedure for taking necessary disciplinary action against audit firms (on the lines of such procedure for individual members) and imposition of penalties on audit firms. Section 132 of the Companies Act, 2013 provides for constitution of the National Financial Reporting Authority (NFRA) and sub- section (4) thereof confers powers on NFRA, for imposition of penalties on audit firms. This was stated by Shri P.P. Chaudhary, Minister of State for Corporate Affairs and Law & Justice in the Rajya Sabha today.
Extract of Section 132 of Companies Act, 2013 is as follows :-
Constitution of National Financial Reporting Authority.
132. (1) The Central Government may, by notification, constitute a National Financial Reporting Authority to provide for matters relating to accounting and auditing standards under this Act.
(2) Notwithstanding anything contained in any other law for the time being in force, the National Financial Reporting Authority shall—
(a) make recommendations to the Central Government on the formulation and laying down of accounting and auditing policies and standards for adoption by companies or class of companies or their auditors, as the case may be;
(b) monitor and enforce the compliance with accounting standards and auditing standards in such manner as may be prescribed;
(c) oversee the quality of service of the professions associated with ensuring compliance with such standards, and suggest measures required for improvement in quality of service and such other related matters as may be prescribed; and
(d) perform such other functions relating to clauses (a), (b) and (c) as may be prescribed.
(3) The National Financial Reporting Authority shall consist of a chairperson, who shall be a person of eminence and having expertise in accountancy, auditing, finance or law to be appointed by the Central Government and such other members not exceeding fifteen consisting of part-time and full-time members as may be prescribed:
Provided that the terms and conditions and the manner of appointment of the chairperson and members shall be such as may be prescribed:
Provided further that the chairperson and members shall make a declaration to the Central Government in the prescribed form regarding no conflict of interest or lack of independence in respect of his or their appointment:
Provided also that the chairperson and members, who are in full-time employment with National Financial Reporting Authority shall not be associated with any audit firm (including related consultancy firms) during the course of their appointment and two years after ceasing to hold such appointment.