Accounting scams prompt Union govt to set up regulatory body to oversee auditors
New Delhi, Mar 3 (IBNS): The Union Cabinet approving the proposal to set up a National Financial Reporting Authority (NFRA) has been partly prompted by the auditing lapses which allowed wealthy merchants like Nirav Modi to commit large-scale frauds.
According to the Central government, the need for establishing NFRA has arisen on account of the need felt across various jurisdictions in the world, in the wake of accounting scams, to establish independent regulators, independent from those it regulates, for enforcement of auditing standards and ensuring the quality of audits to strengthen the independence of audit firms, quality of audits and, therefore, enhance investor and public confidence in financial disclosures of companies.
On Thursday, the Union Cabinet chaired by Prime Minister approved the proposal for establishment of National Financial Reporting Authority and creation of one post of Chairperson, three posts of full-time Members and one post of Secretary for NFRA.
According to the Ministry, the decision aims at establishment of NFRA as an independent regulator for the auditing profession which is one of the key changes brought in by the Companies Act, 2013.
The inclusion of the provision in the Act was on the specific recommendations of the Standing Committee on Finance (in its 21st report).
The jurisdiction of NFRA for investigation of Chartered Accountants and their firms under section 132 of the Act will extend to listed companies and large unlisted public companies, the thresholds for which shall be prescribed in the Rules.
The Central Government can also refer such other entities for investigation where public interest would be involved.
The Ministry said that the inherent regulatory role of ICAI as provided for in the Chartered Accountants Act, 1949 shall 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.
The Quality Review Board (QRB) will also continue quality audit in respect of private limited companies, public unlisted companies below prescribed threshold and also with respect to audit of those companies that may be delegated to QRB by NFRA.
Further, ICAI shall continue to play its advisory role with respect to accounting and auditing standards and policies by making its recommendations to NFRA.
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