The Central Government, today notified the rules relating to appointment of chairperson and members of National Financial Reporting Authority (NFRA) with effect from 21.03.2018.
The establishment of National Financial Reporting Authority (NFRA) and creation of one post of Chairperson, three posts of full-time Members and one post of Secretary for NFRA.
The provision will initially apply to all listed companies and unlisted large companies. For others, the existing disciplinary mechanism under the Institute of Chartered Accountants of India (ICAI) will continue.
Section 132 of the Companies Act, 2013 provides for the establishment of National Financial Reporting Authority. However, the provision has not been notified yet. Under the provisions of the Companies Act, 1956, the Centre was to prescribe accounting standards prepared by ICAI in consultation with the National Advisory Committee on Accounting Standards (NACAS).
Such powers are to be transferred to NFRA under the Companies 2013 Act. Consequently, NFRA would have taken away several powers that are currently vested with ICAI.
The decision aims at the establishment of NFRA as an independent regulator for the auditing profession which is one of the key changes brought in by the Companies Act, 2013. The inclusion of the provision in the Act was on the specific recommendations of the Standing Committee on Finance (in its 21st report).
The jurisdiction of NFRA for investigation of Chartered Accountants and their firms under section 132 of the Act would extend to listed companies and large unlisted public companies, the thresholds for which shall be prescribed in the Rules. The Central Government can also refer such other entities for investigation where the public interest would be involved.
The inherent regulatory role of ICAI as provided for in the Chartered Accountants Act, 1949 shall 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.
The Quality Review Board (QRB) will also continue quality audit in respect of private limited companies, public unlisted companies below the prescribed threshold and also with respect to the audit of those companies that may be delegated to QRB by NFRA. Further, ICAI shall continue to play its advisory role with respect to accounting and auditing standards and policies by making its recommendations to NFRA.
The need for establishing NFRA has arisen on account of the need felt across various jurisdictions in the world, 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, quality of audits and, therefore, enhance investor and public confidence in financial disclosures of companies.
Subscribe Taxscan Premium to view the Judgment
