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Discounting the stiff opposition of The Institute of Chartered Accountants of India (ICAI), a government panel has recommended the formation of a new regulatory authority, National Financial Reporting Authority (NFRA), as early as possible.
“Major economies of the world have already established such regulatory bodies. The committee by a majority view recommended that NFRA should be established early. Consultation may, however, be carried out with ICAI with regard to the jurisdiction of NFRA and the ICAI representation on NFRA,” said the panel, which recommended changes in 78 Sections of the Companies Act, 2013.
ICAI said it had submitted a letter, dated August 18, 2015, to the panel raising concerns with respect to the constitution of an NFRA. It further said the committee by a majority view has not accepted the recommendations of the ICAI. However, the committee was pleased to state that consultation might be carried out with ICAI with regard to jurisdiction of NFRA and the ICAI representative of NFRA.
Through Section 132 of the Companies Act, 2013, the government was to introduce a new regulatory authority, with wide powers to recommend, enforce and monitor the compliance of accounting standards. Experts say the various objectives of NFRA, as prescribed in the law, are that of ICAI.
Consequently, ICAI submitted a letter dated August 18, 2015 to the panel, wherein ICAI had raised concerns with respect to the constitution of NFRA. “It was stated that the ICAI is already discharging its regulatory functions with regard to discipline through a robust mechanism… the Chartered Accountants profession sees constitution of NFRA as an interference in the functioning of the profession, multiple layers of regulation would lead to delay/duplication of work and therefore suggested for omission of Section 132,” said the panel report.
After ICAI’s submission, the panel deliberated on the matter in detail and said: “In view of the critical nature of responsibilities wherein lapses have been seen to cause serious repercussions, the need for an independent body to oversee the profession is a requirement of the day”. According to Yogesh Sharma, partner, Grant Thornton India LLP, the introduction of NFRA is in line with the international practice (for example the US’ Public Company Accounting Oversight Board) of having an independent regulator, which monitors the auditors.
An accountant from one of the Big Four firms said if NFRA was set up, the role of ICAI would be reduced to conducting exams for chartered accountants and recommending accounting standards to the authority.
When contacted, ICAI said it had submitted a letter, dated 18th August, 2015, to the panel raising concerns with respect to constitution of NFRA.
It further said the Committee by a majority view has not accepted the recommendations of the ICAI. However, the Committee was pleased to state that consultation may be carried out with ICAI with regard to jurisdiction of NFRA and the ICAI representative of NFRA.
Many functions of ICAI would now be replicated by NFRA — overseeing the quality of service of professionals associated with ensuring compliance; monitoring and enforcing the compliance with accounting standards; making recommendations to the central government on the formulation and laying down of accounting and auditing policies.
According to the new Companies Act, NFRA would have the same powers as vested with a civil court under the Code of Civil Procedure. These could be related to discovery and production of books of account and other documents; summoning and enforcing the attendance of persons and examining them on oath; inspection of any books, registers and other documents of any person, etc.
This article was published in the Business Standard, to read please click here.