Fri. Mar 29th, 2024

The Union cabinet permitted the establishment of a National Financial Reporting Authority (NFRA). The NFRA will act as an independent regulator in the auditing profession. This is believed to be an attempt to regulate the chartered accountants and plug loopholes.

NFRA and its setting up were one of the key changes brought about by the Companies Act 2013. Also, the provisions were kept un-notified for the last five years. The recent failure of auditors to spot the Rs 12,636 crore PNB frauds, executed by the group firms of Nirav Modi and Mehul Choksi.

NFRA has been bestowed with the power to investigate chartered accountants and the firms of all listed and unlisted public companies. This was said by finance minister Arun Jaitley in a press briefing after a cabinet meeting. He added that the threshold for unlisted companies will be prescribed in the rules that will be notified shortly. Further, NFRA will also investigate instances referred to it by the central government, Jaitley said.

The cabinet approved the creation of one post of chairperson, three posts of full-time members and one post of secretary for NFRA.

The government said the inherent regulatory role of the Institute of Chartered Accountants of India (ICAI) 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.” Further, ICAI shall continue to play its advisory role with respect to accounting and auditing standards and policies by making its recommendations to NFRA, it said.

“We do not want to interfere in the professional autonomy of the institute or its functioning. The routine matters will stay there with the institute,” said Jaitley.

Establishing NFRA was catalyzed in the wake of accounting scams, and to establish independent regulators. They will be independent of those it regulates, for enforcement of auditing standards and ensuring the quality of audits to strengthen the independence of audit firms, the government said.

The statement also read, “The decision is expected to result in improved foreign/domestic investments, enhancement of economic growth, supporting the globalisation of business by meeting international practices, and assist in further development of audit profession.”

Jaitley had questioned the role of auditors in their failure to detect the scam that was going on since 2011. Jaitley had said adding that the profession of chartered accountants should start introspecting and take corrective steps.

The NFRA can have up to 15 full-time or part-time members besides its chairman, the appellate body can have two members other than the chairman.

By saket