Why in news?
Union government has approved the proposal to set up the National Financial Reporting Authority (NFRA).
What is the proposal about?
- National Financial Reporting Authority (NFRA) is intended to serve as an independent regulator for the auditing profession.
- Section 132 of the Companies Act, 2013 gives the Centre the power to set up such an authority.
- According to it, NFRA can do the following:
- recommend to the Centre formulation of accounting and auditing standards and polices to be adopted by companies and auditors
- monitor and enforce such standards and policies
- oversee quality of services of the professions associated with the compliance of these standards and policies
What is the role of Companies Act in accounting?
- The Companies Act casts a responsibility on auditors to see that corporate accounts are in order.
- Auditors can choose not to sign the accounts if their concerns are not addressed by the management.
- The Companies Act also allows auditors to report to the Centre if they believe an offence involving fraud is being committed.
- This could be by the company, by its officers or the employees.
What are the powers of NFRA?
- NFRA will comprise a chairperson, three full-time members and a secretary.
- It can investigate into professional matters or misconduct of any member or a firm of chartered accountants.
- It can issue summons and examine on oath.
- It can also inspect any book, registers and documents of any professional/firms probed.
- It may impose penalties, and is even empowered to debar a member of a firm.
What is the need?
- Across the world, there have been instances of scams involving the help of Auditors.
- In India, this situation is worse as there is no reliable audit regulator.
- Union government’s recent move is to fill the reliability gap in audit regulation.
- Setting up the NFRA indicates, to an extent, the lack of trust in ICAI (Institute of Chartered Accountants of India) to effectively address malpractices.
What is the significance of NFRA?
- The NFRA was brought into the Companies Act on the specific recommendations of the Standing Committee on Finance.
- Its jurisdiction will cover investigation of chartered accountants and their firms covering both listed and unlisted public companies.
- The inherent regulatory role of the ICAI as provided for in the Chartered Accountants Act, 1969 will continue but its threshold limits will be modified.
- NFRA could thus significantly help oversee the functioning of the Institute of Chartered Accountants of India (ICAI).
- It will also ensure credibility in financial reporting.
Source: The Hindu
Quick Fact
Institute of Chartered Accountants of India
- The Institute of Chartered Accountants of India (ICAI) is a statutory body.
- It was established by The Chartered Accountants Act, 1949.
- The Institute, functions under the administrative control of the Ministry of Corporate Affairs.
- It is aimed at regulating the profession of Chartered Accountancy in the country.
