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Putting its weight behind newly set up NFRA, a Government appointed expert panel has recommended measures to further strengthen the operation of National Financial Reporting Authority (NFRA) to address contemporary challenges in relation to auditors, audit firms and networks operating in India.
This three-member expert panel—set up by the Corporate Affairs Ministry in response to Supreme Court directive—has also found the establishment of NFRA as a “necessary institutional reform” which would align the Indian audit landscape with the global position.
The expert panel’s report—now submitted to the Government—has highlighted the global trend indicating a clear shift from self-regulation to independent regulatory structure in the domain of audit regulation due to the failure of self-regulatory model.
The Supreme Court had in February directed the Centre to set up a three-member expert panel to decide whether and to what extent the current legal framework needs revisit so as to appropriately discipline and regulate multinational audit firms for violation of code of ethics and reciprocity provisions of the Chartered Accountants Act.
Based on the apex court’s directive, the Corporate Affairs Ministry had on April 20 set up three member expert panel. The panel comprised Anurag Agarwal, Joint Secretary, MCA; Sudhanshu Pandey, Additional Secretary, Department of Commerce and Ravinder, Joint Secretary, Department of Industrial Policy and Promotion.
The latest recommendation to further strengthen NFRA is seen as blow for the CA Institute, which has been working to get NFRA scrapped on the back of its contention that the new body was “unconstitutional” and also ultra-vires of the provisions of the Chartered Accountants Act.
SUPREME COURT
In a 75-page landmark judgment, the apex court Bench of Justices AK Goel and UU Lalit had earlier this year also ruled that the expert committee may consider the need for an appropriate legislation for the oversight of profession of auditors.
The law could be patterned on the Sarbanes Oxley Act 2002 and the Dodd Frank Wall Street Reform and Consumer Protection Act 2010 in US or any other appropriate mechanism, the Bench suggested disposing of two petitions -- an appeal against a Karnataka High Court order and a writ petition filed by a NGO, Centre for Public Interest Litigation.
The Bench also said that accounting firms could not be left to self-regulate themselves and the issue of separate oversight body for auditing work and updating the existing legal framework appear to be necessary.
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