Cabinet approves setting up of NFRA

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The Union Cabinet on 1^st March 2018 approved the establishment of much awaited NATIONAL FINANCIAL REPORTING AUTHORITY (NFRA). This created one post of Chairperson and three posts of Full Time Members against a provision of 15 members in law and one Secretary for NFRA.  The establishment of NFRA is as per section 132 it’s been five years since the enactment of the Companies Act, 2013 and only a few sections have yet to be notified. Most notable amongst them was the provision to create a National Financial Regulatory Authority – an audit super-regulator of sorts.
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 Section 132 of the Companies Act, 2013 provides for establishment of National Financial Reporting Authority. However, the provision has not been notified yet. Under the provisions of the Companies Act, 1956, the Centre was to prescribe accounting standards prepared by ICAI in consultation with the National Advisory Committee on Accounting Standards (NACAS).
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Such powers are to be transferred to NFRA under the 2013 Act. Consequently, NFRA would have taken away several powers that are currently vested with ICAI. There were rumors that several chartered accountants had successfully lobbied with the government to block the notification.
The issue had been on the backburner for the last few years but is now simmering again after Prime Minister Narendra Modi publicly aired his criticism over ICAI’s disciplinary record -a charge that the institute is now trying to cope with.
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At the CA Day event on July 1, Modi had said that just around 25 auditors had faced action in over a decade and around 1,400 cases were pending. ICAI is expected to fix the issue shortly, but that has not stopped the government from reopening the case for NFRA. The law provides for NFRA to look into matters of professional or other misconduct and also suspend CAs and firms from practising for six months to 10 years.
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This also comes at a time when ICAI is pushing to revise joint audit of Indian companies after its plea for a mechanism was rejected by a committee headed by former Competition Commission of India chairman Ashok Chawla in a report to the Prime Minister’s Office.