The Centre's new body to regulate accounting and audit professionals, the National Financial Regulatory Authority (NFRA), will not have any representation from chartered or cost accountants and could essentially be a body run by retired bureaucrats. This is mainly aimed to ensure that regulation is not marred by any conflict of interest.
Officials said if a practising chartered accountant (CA) became part of NFRA, he or she would have to surrender practising licence and leave the profession. The rules are being framed to maintain absolute transparency and fair play in investigations. This would be unlike the Institute of Chartered Accountants of India (ICAI), which, while regulating the profession of CAs, is itself headed by a CA.
The idea was to have an independent regulator like the Competition Commission of India (CCI) which would have to prove itself as well, the officials added. "ICAI does not have to prove itself. Its job is to regulate its own members. It may or may not want to take action against members of the institute. But if a third person is seated to regulate, he will be forced to take action, if necessary."
Further, NFRA will also regulate audit firms, not just individual professionals. At present, all audit is done by a firm, not an individual, so taking action becomes impossible despite a number of audit lapses taking place, explained the official quoted above. He added that with NFRA in place, audit firms would have to be careful, as they could be investigated.
NFRA will regulate accountants of listed companies and big unlisted ones. The Ministry of Corporate Affairs (MCA) will define the latter entities. Small unlisted companies will be regulated by ICAI. The Union Cabinet has already cleared a proposal under Section 132 of the Companies Act to set up NFRA to regulate CAs.
The rules for NFRA will be notified soon, while the establishment of the actual authority will take some time, said people in the know. It is felt that ICAI has failed to satisfactorily regulate CAs.
The proposed authority will have a chairperson and 15 members and oversee the quality of service of professionals associated with ensuring compliance, monitoring and enforcing the compliance with accounting standards, and making recommendations to the central government on the formulation of accounting and auditing policies.
According to the Companies Act, NFRA will have the same powers as vested with a 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. Parliament’s standing committee on finance had in 2012 specified the need for a quasi regulatory body to supervise audit quality.