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The Centre has notified the much-awaited National Financial Reporting Authority (NFRA) rules, taking away the CA Institute’s monitoring and disciplinary powers over auditors of listed entities and large unlisted companies besides banks and insurance companies.
With the latest Corporate Affairs Ministry move, the NFRA — the newly set up independent regulator of the audit profession — has become the all-powerful body when it comes to disciplining auditors and overseeing the quality of service rendered by chartered accountants at large entities.
It may be recalled that the Centre recently appointed former IAS officer Rangachari Sridharan as Chairperson of the NFRA. The Union Cabinet had on March 1 approved the setting up of independent regulator NFRA that will have sweeping powers to act against erring auditors and auditing firms.
New rules
As per the newly notified rules, the NFRA will have the power to monitor and enforce compliance with accounting standards and auditing standards, oversee the quality of service and undertake investigation of the auditors of listed entities; unlisted entities with paid-up capital of not less than ₹500 crore or annual turnover of over ₹1,000 crore or those having aggregate loans, debentures or deposits of not less than ₹500 crore as of March 31 of the preceding financial year.
The NFRA will also have oversight over auditors of banks, insurers, electricity firms and also those body corporates referred to it by the Centre.
The NFRA will maintain details of particulars of auditors appointed by companies; recommend accounting and auditing standards for approval by the Central government; monitor and enforce compliance with accounting standards and auditing standards. This authority will also oversee the quality of service of the professions associated with ensuring compliance with such standards and suggest measures for improvement in quality of service.
The NFRA will cooperate with national and international organisations of independent audit regulators in establishing and overseeing adherence to accounting standards and auditing standards, said the latest rules.
The rules also provide for a detailed procedure on disciplinary proceedings that will be undertaken by the NFRA. It has mandated time-bound disposal (90 days) of the show cause notice through a summary procedure.
The order disposing of a show cause notice may provide for no action; caution and action of imposing penalty on auditor or debarring the auditor from engaging in the profession.
Experts’ take
Amarjit Chopra, former Chairman of NACAS, said: “After this, the Quality Review Board (QRB) will become redundant. I had expected that QRB would continue to have a role and the NFRA would use the QRB. That is not to be, going by the latest NFRA rules and it’s clear that the NFRA itself will also look into the quality of service rendered by auditors.”
Ashok Haldia, former Secretary, ICAI, told BusinessLine : “The NFRA has an uphill task of creating a structure and processes for effectively delivering on the complete range of functions — standards setting, professional development, quality monitoring and disciplining of medium and large-size audit firms.”
“Disposal of disciplinary cases in 90 days, and that too, through summary proceedings, is going to be onerous and challenging,” Haldia added.
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