NFRA may soon settle disciplinary cases of Auditors
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NFRA’s plan follows a technical advisory panel set up by the audit watchdog making a strong case for such a proposal. The panel said settlement of disciplinary matters by the watchdog will speed up enforcement and reduce time. It also referred to capital market regulator Sebi which has rules in place for settlement of disciplinary issues under securities laws.
The panel said in its recommendations that NFRA should consider the desirability and feasibility of a policy of settlement in disciplinary cases. Currently, NFRA can debar an auditor or impose monetary penalty for misconduct, but it involves investigation and adjudication. This also could lead to litigation. The panel said the US audit watchdog Public Company Accounting Oversight Board and UK’s Financial Reporting Council have provisions for settlement of disciplinary cases prior to adjudication.
NFRA has sought comments from the public until 10 July on the panel’s recommendations, which seeks to grow its engagement experts, auditors and investors among stakeholders.
In its preliminary response to the panel’s recommendation, NFRA said it appreciated the reasoning but pointed out that settlement procedures require statutory backing. “NFRA will examine the matter further and take it up with the government appropriately, if found warranted. NFRA looks at a likely statutory settlement process as one element of a comprehensive stand-alone legislation that, ideally, should cover all aspects of NFRA’s functioning. This is the pattern that has been followed in the case of other regulators as well," the watchdog said.
“NFRA will work on the draft of such a law," the regulator said. NFRA has also sought feedback on a plan to step up its engagement with stakeholders including investors, academics, chief financial officers and auditors.
The move is expected to please the audit services industry which has often complained about an expectation gap between what auditors do and what regulators expect from them when companies they certified faces instances of fraud or genuine financial collapse.
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