The Union Cabinet on March 1 approved setting up of the National Financial Reporting Authority (NFRA), which will be an independent regulator for the auditing profession. The decision comes against the backdrop of various auditing lapses in the banking sector, including the Rs 12,700 crore fraud at Punjab National Bank.
What is NFRA?
As per the Companies Act, 2013 the NFRA is tasked with the job of recommending accounting and auditing standards, ensuring compliance with them and overseeing the quality of service of the accounting and audit professions. It has also been given the power to investigate matters of professional misconduct by chartered accountants or CA firms, impose penalty and debar the CA or firm for up to 10 years.
Institute of Chartered Accountants of India (ICAI) will continue to have monopoly on training and qualifying chartered accountants, giving them licence to practice and regulating them including scrutinising audit quality. It cam exercise these powers over small companies. NFRA is not meant to replace the disciplinary jurisdiction of the ICAI.
The Companies Act, 2013, says that “no other institute or body shall initiate or continue any proceedings in such matters of misconduct where the National Financial Reporting Authority has initiated an investigation.” NFRA shall: (a) have the power to investigate, either suo motu or on a reference made to it by the Central Government, for such class of bodies corporate or persons, in such manner as may be prescribed into the matters of professional or other misconduct committed by any member or firm of chartered accountants, registered under the Chartered Accountants Act, 1949; and (b) have the same powers as are vested in a civil court under the Code of Civil Procedure, 1908, while trying a suit.