What is NFRA?
The Union Cabinet on March 1
approved setting up of the National Financial Reporting Authority (NFRA), which
will be an independent regulator for the auditing profession. The decision
comes against the backdrop of various auditing lapses in the banking sector,
including the Rs 12,700 crore fraud at Punjab National Bank.
"The NFRA will act as an
independent regulator for the auditing profession which was one of the key
changes brought in by the Companies Act, 2013," Corporate Affairs Minister
Arun Jaitley said. NFRA would be an oversight body for auditors and its
jurisdiction would extend to all listed companies as well as large unlisted
public companies. National Financial Reporting Authority (NFRA) is a body
proposed in Companies Act 2013 for the establishment and enforcement of
accounting and auditing standards and oversight of the work of
auditors.
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 institutionalized.
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 policies to be adopted by companies and auditors;
monitor and enforce such standards and policies, and oversee the 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.
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.
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ICAI, Finance, CA, Company Act 2013