ICAI expresses disappointment with Centre over dismissive stance on NFRA

The chartered accountant’s body - The Institute of Chartered Accountants of India (ICAI) - has expressed displeasure with the government for not including it in discussions to frame rules for the National Financial Reporting Authority (NFRA), a body recently set up for regulating auditors. 

There are fears that the role of the ICAI will significantly diminish once NFRA rules are framed. 

In a letter to the Ministry of Corporate Affairs, the ICAI had stated that even the appointment of the chairman of the NFRA came to its knowledge from media reports.

The letter, which Business Standard has reviewed, says the ICAI is unhappy that the government, despite assurances that it will be included in discussions on NFRA, has been dismissive.  

Recently, a former bureaucrat - Rangachari Sridharan - was appointed NFRA chairman. The appointment was made after a search committee rejected all the 200 candidates who were in the fray, sources said. 

NFRA will take over from the ICAI powers to investigate accounting professionals of listed companies. While 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, which is yet to be decided.

The ICAI will also remain an institution that will give away 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 NFRA.

To instil accountability, NFRA can recommend penal action against auditors if they are found non-compliant or there are lapses in their duties. If the authority finds or has reason to believe that any law or accounting standards has been violated by an auditor, it may decide on the further course of investigation or enforcement action.

In March this year, the Union Cabinet had approved the authority. As the government sets up the authority, the Infrastructure Leasing & Financial Services (IL&FS) is the first case to be investigated by it. The ICAI is also looking into the IL&FS crisis.