NFRA-ICAI turf war intensifies further; govt's intervention sought

Friction between the two regulatory bodies of the accounting profession — the National Financial Reporting Authority (NFRA) and the Institute of Chartered Accountants of India (ICAI) — has intensified, creating a situation that calls for new Corporate Affairs Minister Nirmala Sitharaman’s intervention.

The NFRA has alleged it is not getting from the ICAI the details of auditing firms and professionals it has asked for. In a letter to Corporate Affairs Secretary Injeti Srinivas and ICAI President Prafulla P Chhajed, NFRA Secretary Vivek Narayan said: “The authority, as well as the Ministry of Corporate Affairs, has written five letters and emails between January and May 2019, to the ICAI, requesting the said data. However, the ICAI, far from providing the data, has not even cared to reply to the communication.”

An email sent to the ICAI got no response. The ICAI has moved court against the government on setting up the NFRA. It said the latter was unconstitutional because the Chartered Accountants Act, which is a special Act, had not been repealed.

The NFRA will take over from the ICAI the powers to investigate accounting professionals of listed companies. While the NFRA will look into cases of listed companies, the ICAI’s role will be confined to private limited or unlisted public companies below a threshold — something yet to be decided.

The ICAI will remain an institution that will give certificates to accounting professionals. Further, the ICAI will continue to play an advisory role with respect to accounting and auditing standards as well as policies, by making its recommendations to the NFRA.

To instil accountability, the NFRA can recommend penal action against auditors if they are found non-compliant or if there are lapses in their duties. 

If the authority finds or has reasons to believe that an auditor has violated any law or accounting standard, it may decide on investigation or enforcing action.

The tussle between the two bodies goes back to the time when an expert committee was set up to assess the need for an independent regulator for the auditing profession.

The ICAI’s position is that India does not have the competent personnel to oversee the functioning of auditors. It said setting up such a regulator would be costly.

The government’s argument is that it will not be right for the ICAI to self-regulate. It was also noted that the ICAI’s functioning as regulator was passive and it did not focus much on investigation.

In more than 50 jurisdictions, independent regulators oversee the work of auditors.

Case file

• NFRA was set up to regulate auditing firms, look into cases of listed companies

• ICAI’s role confined to private limited or unlisted public companies below a threshold 

• Tussle between the two bodies goes back to the time when an expert committee was set up to assess the need for an independent regulator 

• More than 50 jurisdictions have independent auditing regulators