Disciplinary body for auditors won't have power to create accounting standard, but can penalise auditors
The Institute of Chartered Accountants of India (ICAI) is set to stop the power of creating Accounting Standard and educational training for auditors from slipping into the hands of National Financial Reporting Authority (NFRA), a new regulatory body formed to tighten the noose around fraudulent auditors.
The Ministry of Corporate Affairs (MCA) called for a meeting on July 18 regarding NFRA final rules, which are likely to be notified this week.
An MCA source told DNA Money that some rules for NFRA will be tweaked, mainly related to accounting standard and educational training.
"After input from ICAI, certain objections are being considered and it would change accordingly. The changes will include "power of creating accounting standard", and "separate educational training programme for auditors," said the source.
However, the MCA was unlikely to give any relaxation in the final rules for disciplinary action.
The draft rules released and circulated by MCA provide for stringent provisions against fraudulent auditing practices. According to the draft rules, seen by DNA Money, an auditor will be banned for three to four years if found guilty of any financial fraud.
Since 2011, ICAI, the self-regulatory body of chartered accountants having the power to investigate CAs' work, has not accepted the idea of NFRA as it feels the latter is invading its domain.
Amarjit Chopra, former president of ICAI and sitting chairman of NACAS, a government advisory body on accounting policies which will replaced by NFRA, said the objective of Section 132 of the Companies Act was to create an oversight body to recommend to government to notify Accounting and Auditing Standards prepared by ICAI. Also, the objective was to control the quality of the audit.
Chopra told DNA Money, "There was no intention to create a parallel regulator for accounting and auditing requiring registration and deregistration of the firms, laying down disqualifications of auditors, entering into relationships with outside accounting bodies, laying down ethical standards, stipulating qualifications in the auditor's report to be filed with NFRA and so on. There is a need that NFRA coordinates with Quality Review Board and Financial Reporting Review Board of ICAI to achieve the quality control of audit."
NACAS was only advisory body until the 2013 amendment of Company Act when it was renamed NFRA, a powerful regulatory agency. The process of implementation of NFRA was started in June 2015, when companies law committee was set up and submitted its report in February 2016 to the standing committee on finance. By that time the role of the auditors came under the question of mounting NPA and banking frauds.
The real trigger point of NFRA was on July 1, 2017, when in his CA day speech, Prime Minister Narendra Modi had raised the question on the ability of the ICAI disciplinary mechanism. "Did only 25 people make a mess? And I have heard that more than 1,400 cases are still pending for many years now. A single case takes years to settle. Tell me my friends, is it a matter of concern or not, for such highly qualified professionals?" the PM had said.
But chartered accountants alleged NFRA of being nothing but trying to find scapegoats for colossal banking fraud and mounting bad debt. "These regulators are diverting the anger of the public and are finding scapegoats in the form of CAs and bankers who are being blamed and branded," Chennai-based chartered accountant and lawyer V Venkata Siva Kumar said. "MCA has given sweeping power to NFRA, which is against the law and I will challenge it in Madras High Court, " he said.
NFRA’S DRAFT POWERS
- Power to create Accounting Standard
- Separate registrations of auditors
- Powerful disciplinary actions
- Educational training to auditors
WHAT’S NFRA?
- NACAS was an advisory body until the 2013 amendment of Company Act when it was renamed NFRA, a powerful regulatory agency
- The process of forming NFRA started in June 2015, when companies law committee was set up
- It submitted its report in February 2016 to the standing committee on finance
- The real trigger point of NFRA was on July 1, 2017, when in his CA day speech, PM Narendra Modi had raised the question on the ability of the ICAI disciplinary mechanism
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