Regulators galore

Recently, a committee appointed by the government to simplify the Companies Act 2013 submitted its report. The report made numerous suggestions on various provisions of the Act. We should remember that many of the provisions of the Act were enacted as a reaction to the Satyam and Sahara accounting accidents. Reactions do not tend to last and the provisions and rules of the Act are being amended almost on a daily basis.

If the recommendations of the committee are implemented, the Act would easily set a record for having the most number of amendments within three years of enactment. One of the major provisions of the Act was to form a body called National Financial Reporting Authority (NFRA) which will recommend accounting standards as well as take action against errant auditors and audit firms.

The call for an independent regulator for auditors is not new. In 2010, the Asian Corporate Governance Association (ACGA) called for an independent regulator. It felt that the ICAI was doing a stellar job in training accountants but not in disciplining them.

Section 132 of the Companies Act, 2013 mandates the job responsibilities of the NFRA. Apart from being the go-to authority for accounting and auditing standards, the NFRA can also take action against auditors who have been guilty of professional misconduct.

If the NFRA were also to run a course to train and certify accountants (powers they don’t have as of now), it could emerge as another incarnation of the Institute of Chartered Accountants of India (ICAI).

The ICAI was not in favour of the NFRA taking over its responsibilities to discipline members but the Committee has decided to go ahead with recommending forming the NFRA without diluting any of its powers.

The ICAI is to blame for the situation it finds itself in. It has grown into a large organisation overseeing around 250,000 members and more than a million students. This size has given rise to a certain quantum of slack. Whether it was Satyam, Sahara, NSEL or DDCA, the ICAI has never been proactive in acting against errant members.

By the time the ICAI could wake up to the enormity of the Satyam saga, the CBI and the CID had the perpetrators in judicial custody. Entities had to approach courts to get information on what action the ICAI is taking against the NSEL auditor of NSEL. The only way in which the ICAI can salvage some brownie points is by taking swift and prompt action and letting everyone know about it.

However, the ICAI slack does not justify the need for another regulator.

The Serious Frauds Investigation Office (SFIO) has been set up with the express purpose of investigating major frauds and sentencing the guilty. Invariably, the CBI, CID, RBI, SEBI and IRDA get involved if there are any frauds in their area of operations.

Courts of law are pretty quick to pronounce judgements against the accused. In such a situation, the NFRA would only be replicating the jobs of many other regulators.

All that needs to be done is to ensure that the SFIO is bestowed with the powers of the proposed NFRA. Having a single regulator would be the right thing to do. Having many would only add to the noise.

The writer is a chartered accountant

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