PNB scam fallout: Center acts on setting up long-delayed NFRA
The massive PNB scam, India's biggest banking fraud till date, seems to have rattled the authorities. Five years after the approval for creation of the National Financial Reporting Authority (NFRA), the Cabinet will discuss the matter today. The NFRA will be responsible for reviewing, regulating and disciplining auditors, tasks currently handled by the Institute of Chartered Accountants of India (ICAI). More details here.
What is the NFRA? What will it do?
The NFRA was provided for in the Companies Act, 2013. It is entrusted with recommending accounting and auditing policies, monitoring compliance, and overseeing quality of related professional services. It is empowered to investigate, impose penalties and even bar chartered accountants and firms for up to 10 years. The NFRA's accounts will be audited by the Comptroller and Auditor General.
What caused the long delay?
ICAI has actively resisted creation of the NFRA, since then its main responsibilities will be restricted to education and examination duties. "Standard setting and disciplinary mechanism prescribed in the CA Act, 1949, a strong public interest oversight mechanism is inherent in ICAI's structure since eight members on the central council are government-nominated," it has argued. It has instead batted for "strengthening the existing mechanism."
What does the government have to say?
But the government has been vocal in its dissatisfaction with the ICAI. PM Narendra Modi said last July that 1,400 cases were pending with the ICAI, and only 25 auditors had faced action in over 10 years. "There is conflict of interest in the current system, that's why we thought of separating ICAI's functions," said DK Mittal, a former corporate affairs ministry secretary.
SC urges Center to consider committee on regulation of MAFs
The Cabinet will now debate a proposal from the corporate affairs ministry for creation of posts for the NFRA, which will have a chairman and up to 15 members. This comes days after the SC took a serious note of unchecked auditors, urging the Center to consider setting up an expert committee to look into regulation of multinational accounting firms (MAFs).
