The Introduction of NFRA

          Our beloved Institute of Chartered Accountants of India(ICAI) is  the world’s 2nd biggest accounting body and the one with constitutional powers of framing & governing accounting practices in India.

Ministry of Corporate Affairs with its new proposal of NFRA has plans to take away the two big powers of ICAI i.e,

•  To set Accounting Standards.

•  To take disciplinary action against its 2,20,000+ members  who fail to comply with the standards  set by the institute.

           NFRA stands for National Financial Reporting Authority which is proposed to be set up under the new Companies Bill (i.e, Companies Bill of 2011). Though the new Company Bill doesn’t state anything specifically  about superseding ICAI’s powers . But  in the matter of Audit Accountability given under Clause 5 (vi) (c) of Schedule VII {as given in page no. 296 of Bill No. 121 of 2011}of the new Bill it proposes to set up NFRA, the clause is as follows: 

           “National Advisory Committee on Accounting and Auditing Standards (NACAS) proposed to be renamed as National Financial Reporting Authority (NFRA) with a mandate to ensure monitoring and compliance of accounting and auditing standards and to oversee quality of service of professionals associated with compliance”

  

            The reading of the Accounting Professionals is that the NFRA will supersede ICAI and ICAI is surely not happy with about the government encroaching on its territory. ICAI President Shri . Jaydeep Narendra Shah is has not responded on the issue till date.

            

            However Shri. Sachin Pilot , Minister of Corporate Affairs drew up by stating that “ICAI and NFRA will co-exist. NFRA will be an overarching authority, with a larger canvas to operate. NFRA will be a nodal agency for financial reporting with quasi-judicial powers and the powers to suspend auditors. The division of work between ICAI & NFRA  will be spelt out once the bill is passed in Rajya Sabha.”

  

            The most famous multimillion accounting fraud of Satyam Computer  highlighted that the power of ICAI to take a disciplinary action is limited just to individual auditors and doesn’t extended to audit firms. NFRA if comes into force, will have the power to act against audit firms is well.

The bill also says that NFRA will be headed by a person “of eminence and having expertise in accountancy, auditing, finance or law” and will be appointed by the Central government ;  there will be up to 15 full-time and part-time members.

             Stating his view on the same  Shri. N Venkatram, Partner with Deloitte Haskins and Sons “My fear is that we are overregulating the profession. The question is whether a third-party regulator will be fair and fearless. There is some consternation among accounting professionals over the government having a greater say in directing and regulating their profession. The new provisions would raise a number of practical issues apart from questioning the validity of the concept that a professional should be judged by his peers,”