The new watchdog for auditors, the National Financial Regulatory Authority (NFRA) has been approved by the union cabinet last week following the Punjab National Bank Fraud.
It is learnt that the 15-member body to regulate accounting and audit professionals will not have any representation from chartered or cost accountants and could essentially be a body run by retired bureaucrats. As per a report published by Business Standard, this is mainly aimed to ensure that regulation is not marred by any conflict of interest.
Officials said if a practising chartered accountant (CA) became part of NFRA, he or she would have to surrender practising licence and leave the profession. The rules are being framed to maintain absolute transparency and fair play in investigations.
Presently, the chartered accountants are being monitored by the Institute of Chartered Accountants of India (ICAI) which is headed by a CA.
The idea was to have an independent regulator like the Competition Commission of India (CCI) which would have to prove itself as well, the officials added. “ICAI does not have to prove itself. Its job is to regulate its own members. It may or may not want to take action against members of the institute. But if a third person is seated to regulate, he will be forced to take action, if necessary. “Further, NFRA will also regulate audit firms, not just individual professionals.
At present, all audit is done by a firm, not an individual, so taking action becomes impossible despite a number of audit lapses taking place, explained the official quoted above. He added that with NFRA in place, audit firms would have to be careful, as they could be investigated. NFRA will regulate accountants of listed companies and big unlisted ones. The Ministry of Corporate Affairs (MCA) will define the latter entities. Small unlisted companies will be regulated by ICAI.
Presently, the NFRA will regulate all listed companies and unlisted large companies. For others, the existing disciplinary mechanism under the Institute of Chartered Accountants of India (ICAI) will continue. Amended rules in this regard is yet to be notified.
