The Union Cabinet chaired by the Prime Minister approved the proposal for 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 decision aims at 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 world over more than 50 countries have moved away from self-regulatory professional accountant bodies and created independent audit regulators. The Public Company Accounting Oversight Board (PCAOB) in the US and the Financial Reporting Council (FRC) in the UK are examples of effective outside regulation. In India, the move to set up a new oversight body for the accounting and audit professions was approved by a parliamentary panel nearly eight years ago.
The decision will have far reaching impact on the profession especially since there is a general tendency to blame the profession.
The cabinet expects the decision will improve foreign/domestic investments, enhance economic growth, support the globalisation of business by meeting international practices, and assist in further development of audit profession.
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 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 prescribed threshold and also with respect to 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.