The National Financial Reporting Authority (NFRA) will examine the suggestion of its technical advisory committee (TAC) to introduce a policy on settlement of disciplinary matters against auditors.

This is reflected in the consultation paper on ‘Enhancing Engagement with Stakeholders: Report of Technical Advisory Committee’ issued by the NFRA. Stakeholder comments have been sought on this consultation paper by July 10.

It may be recalled that the TAC had submitted a comprehensive report of its review of NFRA’s engagement with stakeholders.

Developing action plan

NFRA is in the process of evaluating the recommendations of the TAC and developing an action plan for implementing them in a phased manner, taking into consideration their relevance to fulfilling its mandate, time, and resource constraints.

Among its several recommendations, TAC has recommended that the NFRA examine the desirability and feasibility of a policy on settlement of disciplinary matters.

NFRA has the power to impose monetary penalty and debar an auditor or the audit firm in case of misconduct. This requires the determination of misconduct by the auditor or the firm after investigation and adjudication. Currently, there is no provision for settlement of disciplinary matters in the Act or the rules without such determination.

The TAC has highlighted that disciplinary proceedings take time, effort and resources. Litigation of disciplinary orders before courts and the national company law appellate tribunal (NCLAT) not only cost time, effort and resources but also causes uncertainty, the TAC said.

It highlighted that settlement of disciplinary matters would expedite enforcement action. The PCAOB and the FRC have settlement of disciplinary cases prior to adjudication. In India, the SEBI has procedures for settlement of proceedings under the securities laws. The NFRA may consider taking up the matter with the government, the TAC has suggested.

NFRA’a preliminary views

In its preliminary views, NFRA said that it appreciated the reasoning behind the recommendation of the TAC. NFRA, however, pointed out that settlement procedures require statutory backing and that the authority will examine the matter further and take it up with the government appropriately, if found warranted.

NFRA looks at a likely statutory settlement process as one element of a comprehensive stand-alone legislation that, ideally, should cover all aspects of the France functioning. This is the pattern that has been followed in the case of other regulators as well. Any such proposed legislation should provide adequately for the institutional, functional and financial autonomy of NFRA and provide for all the procedural safeguards necessary as far as the regulated entities are concerned, NFRA has said.

The law should also empower NFRA to fill out the operational details and requirements within its overall framework. NFRA will work on the draft of such a law, it added.

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