What is the proposal?
The Centre last week approved the proposal to set up the National Financial Reporting Authority (NFRA), intended to serve as an independent regulator for the auditing profession.
The basis for the move
Section 132 of the Companies Act, 2013 gives the Centre the power to set up such an authority. A Parliamentary Standing Committee had also recommended that the National Advisory Committee on Accounting Standards proposed in the Companies Bill, 2009 be institutionalised.
What does Section 132 say?
It says the NFRA can do, among other things, the following: recommend to the Centre formulation of accounting and auditing standards and polices to be adopted by companies and auditors; monitor and enforce such standards and policies; and oversee quality of services of the professions associated with the compliance of these standards and policies
What are NFRA’s powers?
It can investigate into professional matters or misconduct of any member or a firm of chartered accountants; it can issue summons and examine on oath; it can also inspect any book, registers and documents of any professional/firms probed; it may impose penalties and even powers to debar a member of a firm.
Who is on the NFRA?
It will comprise a chairperson, three full-time members and a secretary.
What is ICAI’s role now?
ICAI’s role will 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.
ICAI will continue with its advisory role on accounting and auditing standards and policies by making its recommendations to NFRA.
Why bring in NFRA now?
The discovery of the multi-crore fraud allegedly committed at the Punjab National Bank appears to be a trigger. Add to it earlier shenanigans reported in the system — Satyam, Enron, Ketan Parikh et al.
What does the setting up of the Authority imply?
In a way, it indicates a certain lack of trust in ICAI to effectively address malpractices indulged in by recalcitrant members.