The new watchdog for auditors :
India approved the draft rules for establishing a new body to oversee auditing and accounting standards in India.
The National Financial Reporting Authority will comprise a chairman and up to 15 members, and will cover listed and large unlisted companies.
Finance Minister Arun Jaitley said in a media briefing.
The existing self-regulatory body, Institute of Chartered Accountants in India, will continue to govern the auditing of other smaller companies.
The Existing ICAI Powers Limited to Smaller Companies.
All Large Listed and Unlisted Companies Will take Care by National Financial Reporting Authority.
Officials said if a practising chartered accountant (CA) became part of NFRA, he or she would have to surrender practising licence and leave the profession.
The rules are being framed to maintain absolute transparency and fair play in investigations.
Presently, the chartered accountants are being monitored by the Institute of Chartered Accountants of India (ICAI) which is headed by a CA.
The idea was to have an independent regulator like the Competition Commission of India (CCI) which would have to prove itself as well, the officials added.
“ICAI does not have to prove itself. Its job is to regulate its own members.
ICAI may not take action against members of the institute.
But if a third person is seated to regulate, he will be forced to take action, if necessary.
“Further, NFRA will also regulate audit firms, not just individual professionals.
At present, all audit is done by a firm, not an individual, so taking action becomes impossible despite a number of audit lapses taking place, explained the official quoted above.
He added that with NFRA in place, audit firms would have to be careful, as they could be investigated.
Under the provisions of the Companies Act, 1956, the Centre was to prescribe accounting standards prepared by ICAI in consultation with the National Advisory Committee on Accounting Standards (NACAS).
Such powers are to be transferred to NFRA under the 2013 Act. Consequently, NFRA would have taken away several powers that are currently vested with ICAI.
There were rumors that several chartered accountants had successfully lobbied with the government to block the notification.
The issue had been on the back burner for the last few years but is now simmering again after Prime Minister Narendra Modi publicly aired his criticism over ICAI’s disciplinary record -a charge that the institute is now trying to cope with.
At the CA Day event on July 1, Modi had said that just around 25 auditors had faced action in over a decade and around 1,400 cases were pending.
ICAI is expected to fix the issue shortly, but that has not stopped the government from reopening the case for NFRA.
The law provides for NFRA to look into matters of professional or other misconduct and also suspend CAs and firms from practising for six months to 10 years.