NFRA may continue Measures Targeting Audit Violations in Pre-2018 Period
Pre-2018 Audit Violations continue to be under NFRA Radar.
NFRA – Audit Violations – Audit – NFRA may continue Measures Targeting Audit Violations – Violations – taxscan
NFRA – Audit Violations – Audit – NFRA may continue Measures Targeting Audit Violations – Violations – taxscan
The National Financial Reporting Authority (NFRA) is set to take additional measures against auditors who defaulted, extending its actions to pre-2018 cases as well, as announced by chairperson Ajay Bhushan Pandey on Tuesday.
This decision comes in the wake of the National Company Law Appellate Tribunal’s (NCLAT) ruling in December, which brought more clarity to the audit regulator's retrospective jurisdiction.
Pandey emphasized that any doubts or confusion within the auditor community have been dispelled by the NCLAT judgment, affirming that the regulator's actions in the current year will not be limited to recent cases but will also encompass past cases.
On December 3, the NCLAT declared that the NFRA possesses "clear and required" retrospective jurisdiction over alleged offenses by chartered accountants predating the establishment of NFRA in 2018.
Read More: NFRA can Check Pre-Formation Audit Misconducts, far Superior than ICAI: NCLAT
Pandey highlighted the well-settled legal principle that "procedural law" is presumed to be retrospective unless explicitly stated otherwise. He pointed to various Supreme Court judgments supporting this principle in civil and criminal proceedings. Accordingly, NFRA has consistently maintained this perspective since its inception, covering audits conducted even before 2018.
The NCLAT ruling, which upheld NFRA's orders against former auditors of Dewan Housing Finance Corporation Ltd (DHFL), included these observations. The case originated from the Enforcement Directorate's 2020 operation against an alleged bank fraud of approximately Rs 3,700 crore by DHFL promoters, with accusations of misappropriation of public funds amounting to around Rs 31,000 crore.
In response to the probe, NFRA initiated an Audit Quality Review (AQR) to investigate the role of DHFL's statutory auditors for 2017-18. During the review, NFRA discovered that 33 engagement partners/branch auditors had signed the 'Independent Branch Auditors' Report' for nearly 250 branches of DHFL.
The NCLAT acknowledged NFRA's role as an independent audit regulator entrusted by Parliament to protect public interest, including that of creditors, by exercising effective oversight over accounting and auditing functions.
The appellate tribunal stated that “Thus, after taking into consideration the background for forming NFRA, the judgment of the Apex Court, proven scams, need to restore shaken confidence of public and investors at large and prevent any adverse impact on Indian economy, we hold that NFRA has clear and required retrospective jurisdiction over the alleged offences by delinquent Chartered Accountants for period prior to formation of NFRA or prior to coming into effect relevant portion of Section 132 of Companies Act, 2013.”
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