House panel seeks curbs on NFRA powers, softer audit rules in Bill
Panaji, Aug 3, 2026
Panel recommends a risk-based approach to restrictions on non-audit services and cooling-off norms, while cautioning against expanding NFRA's powers at the cost of ICAI's autonomy
A parliamentary committee examining the Companies Bill has urged the Centre to curb the proposed expansion of the National Financial Reporting Authority’s (NFRA’s) powers and adopt a risk-based approach to key audit reforms, including the proposed ban on non-audit services and a three-year post-audit cooling-off period.
In its report tabled in the Lok Sabha on Monday, the committee also backed a more flexible buyback regime allowing companies to undertake two buybacks a year. However, it asked the government to clearly define the reckoning of a year for determining the two buybacks and computing the mandatory six-month gap.
Flagging concerns over excessive delegation of powers to NFRA, the panel recommended that the Centre retain the power to appoint the secretary and other employees. “This will address the concerns that allowing a regulatory body completely unchecked administrative hiring power can negatively impact accountability checks and general oversight,” the committee said.
The panel, headed by MP Sudheer Gupta, also recommended deleting the proposed provision for imprisonment for failure to comply with NFRA’s orders, saying it was not in consonance with the government's broader objective of decriminalisation.
It also asked the Ministry of Corporate Affairs (MCA) to ensure that amendments to the Companies Act do not dilute or override the statutory autonomy of the Institute of Chartered Accountants of India (ICAI).
While noting that the proposed powers relating to registration, investigation, regulation-making and body corporate status would broaden NFRA’s role beyond its original oversight function, the committee said this could overlap with ICAI’s statutory functions.
“This may result in regulatory duplication, institutional fragmentation, increased compliance burden, and uncertainty regarding jurisdictional boundaries,” the report said.
The MCA had told the committee that the proposed provisions were consistent with those available to regulators such as Sebi, the Competition Commission of India (CCI) and the Insolvency and Bankruptcy Board of India (IBBI), and were intended to establish NFRA as an independent audit regulator with comprehensive supervisory and enforcement powers.
The committee, however, said substantive matters such as investigations and recovery of penalties should be governed through rules framed by the Central Government, subject to parliamentary oversight, rather than through regulations framed by NFRA, to avoid excessive delegation and preserve legislative accountability.
Risk-based approach for auditors
The committee described the proposed three-year cooling-off period for auditors as onerous, particularly in cases involving group companies, joint audits, mid-term resignations and non-reappointment of auditors.
It also criticised the blanket ban on non-audit services by statutory auditors, saying it could unnecessarily restrict legitimate low-risk professional services, particularly for MSMEs, while creating uncertainty over the services covered by the prohibition.
The panel recommended inserting the words "as may be prescribed" after the words “any non-audit services” to clearly define the scope of the prohibition and prevent inconsistent interpretation.
It further recommended that the enhanced restrictions on non-audit services be limited to specified high-risk entities or public interest entities, shielding small companies, MSMEs and smaller audit firms from disproportionate compliance burdens.
The committee also criticised the provision requiring every partner in an audit firm to be registered with a statutory institute or body established under Indian law, calling it “unnecessary and counterproductive”.
It said the requirement would prevent domain experts such as IT specialists, MBAs, forensic analysts and foreign-qualified professionals, who may not be registered with an Indian statutory body, from forming multidisciplinary partnerships.
On the conversion of Alternative Investment Funds (AIFs) into Limited Liability Partnerships (LLPs), the committee recommended carving out an exemption for specified trusts regulated by Sebi or the International Financial Services Centres Authority (IFSCA) that operate multiple schemes, as the proposed framework is intended primarily for specified trusts with a single scheme.
It also recommended bringing investors and managers, and not just trustees, within the conversion framework as they are the real economic stakeholders.
[The Business Standard]
