The
Union cabinet on Thursday March 01,2018 approved a proposal to establish a National
Financial Reporting Authority (NFRA) as an independent regulator for the
auditing profession, in an attempt to tighten the regulatory oversight
over chartered accountants and plug loopholes.
Setting up NFRA was one of the key changes brought about by the Companies Act 2013 but its provisions were not notified for the last five years. However, the recent failure of auditors to spot the Rs12,636 crore PNB fraud, allegedly perpetrated by the group firms of Nirav Modi and Mehul Choksi, seems to have prompted the government to approve the proposal.
NFRA will have powers to investigate chartered accountants and their firms of all listed companies and large unlisted public companies, finance minister Arun Jaitley said in a press briefing after a cabinet meeting, adding the thresholds for unlisted companies will be prescribed in the rules that will be notified shortly. Further, NFRA will also investigate instances referred to it by the central government, Jaitley said.
The cabinet approved the creation of one post of chairperson, three posts of full-time members and one post of secretary for NFRA.
The government said the inherent regulatory role of the Institute of Chartered Accountants of India (ICAI) 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.” Further, ICAI shall continue to play its advisory role with respect to accounting and auditing standards and policies by making its recommendations to NFRA, it said.
“We do not want to interfere in the professional autonomy of the institute or its functioning. The routine matters will stay there with the institute,” said Jaitley.
The need for establishing NFRA has arisen in the wake of accounting scams, to establish independent regulators, independent from those it regulates, for enforcement of auditing standards and ensuring the quality of audits to strengthen the independence of audit firms, the government said.
Setting up NFRA was one of the key changes brought about by the Companies Act 2013 but its provisions were not notified for the last five years. However, the recent failure of auditors to spot the Rs12,636 crore PNB fraud, allegedly perpetrated by the group firms of Nirav Modi and Mehul Choksi, seems to have prompted the government to approve the proposal.
NFRA will have powers to investigate chartered accountants and their firms of all listed companies and large unlisted public companies, finance minister Arun Jaitley said in a press briefing after a cabinet meeting, adding the thresholds for unlisted companies will be prescribed in the rules that will be notified shortly. Further, NFRA will also investigate instances referred to it by the central government, Jaitley said.
The cabinet approved the creation of one post of chairperson, three posts of full-time members and one post of secretary for NFRA.
The government said the inherent regulatory role of the Institute of Chartered Accountants of India (ICAI) 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.” Further, ICAI shall continue to play its advisory role with respect to accounting and auditing standards and policies by making its recommendations to NFRA, it said.
“We do not want to interfere in the professional autonomy of the institute or its functioning. The routine matters will stay there with the institute,” said Jaitley.
The need for establishing NFRA has arisen in the wake of accounting scams, to establish independent regulators, independent from those it regulates, for enforcement of auditing standards and ensuring the quality of audits to strengthen the independence of audit firms, the government said.
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