July 24, 2017

Chartered accountants (CAs), for many years, have been opposing a regulator proposed in the Companies Act, 2013. The Institute of Chartered Accountants of India (ICAI) thinks the body would encroach on its own turf.

But the real fear is that the new regulatory authority, National Financial Reporting Authority (NFRA), will have harsh investigative and punitive powers.

It became obvious that the new regulator will not only become a reality soon but also crack down on errant CAs when Prime Minister Narendra Modi issued a veiled warning during his speech on July 1 on the foundation day of ICAI.

Criticising ICAI's disciplinary record, PM Modi said just 25 rogue auditors had faced action in over a decade and around 1,400 cases were pending.

The new regulator, which may soon be constituted, will very much address PM Modi's concern. It will have wide powers to enforce compliance of accounting standards and punish violations. With the new regulator, it is possible that ICAI's role will be reduced to mainly conducting examinations for CAs.

Apart from making recommendations to the government on accounting and auditing policies and standards, the new regulator will have enough scope and powers to bring the rogue accountants to book.

NFRA will have the power to investigate, either suo motu or on a reference made to it by the Central government, into the matters of professional or other misconduct committed by any member or firm of chartered accountants registered under the Chartered Accountants Act, 1949.

It will have the same powers as are vested in a civil court under the Code of Civil Procedure while trying a suit. For exmaple, it can order discovery and production of books of account and other documents. It can summon and enforce attendance of persons and examine them on oath.

If NFRA finds professional or other misconduct, it can impose a minimum penalty on individuals of Rs 1 lakh which can extend to five times the fees received by a CA. In case of firms, the minimum penalty will be Rs 10 lakh which can extend to ten times of the fees received.

It can also debar the member or the firm from engaging himself or itself from practice as an ICAI member for six months to 10 years.

There will be an appellate authority to appeal against the NFRA orders.

[The Economic Times]