The Centre has notified the National Financial Reporting Authority (NFRA) rules, depriving the CA Institute of its regulatory and disciplinary powers over auditors of listed entities and large unlisted companies besides banks and insurance companies.

The Ministry of Corporate Affairs has made NFRA as the independent regulator of the audit profession to take disciplinary actions against auditors and to oversee the quality of service rendered by chartered accountants at large entities.

The Centre had also recently appointed former IAS officer R. Sridharan as the chairperson of the NFRA. The Union Cabinet had approved the setting up of an independent regulator that will have powers to act against erring auditors and auditing firms on March 1.

As per the newly notified rules, the NFRA will have the power to monitor and enforce compliance with accounting standards and auditing standards, oversee the quality of service, and undertake investigations of the auditors of listed entities; unlisted entities with paid-up capital of not less than ₹500cr or annual turnover of over ₹1,000cr or those having aggregate loans, debentures, or deposits of not less than ₹500cr as on March 31 of the preceding financial year.

The NFRA will maintain details of particulars of auditors appointed by companies; recommend accounting and auditing standards for approval by the central government; monitor and enforce compliance with accounting standards and auditing standards. This authority will also oversee the quality of service of professions associated with ensuring compliance with such standards and suggest measures for improvement.

The rules also provide for a detailed procedure on disciplinary proceedings that will be undertaken by the NFRA. It has mandated time-bound disposal (90 days) of the show-cause notice through a summary procedure. 

A former ICAI secretary told that the NFRA has an uphill task of creating a structure and processes for effectively delivering on its complete range of functions — standard setting, professional development, quality monitoring, and disciplining of medium and large-size audit firms. Further, the disposal of disciplinary cases in 90 days, and that too, through summary proceedings, is going to be onerous and challenging.

The current move of the government is in line with the global trend, indicating a paradigm shift from self-regulation to an independent regulatory structure in the domain of audit regulation due to the failure of the self-regulatory model. #casansaar (Source - Indian Infoline News Service)