National Financial Reporting Authority may not be legally valid, says auditor body

NEW DELHI: The Institute of Chartered Accountants of India (ICAI) has said that the National Financial Reporting Authority (NFRA) to discipline CAs and firms auditing listed and large companies may not be in line with the current regulations and suggested that the task should be left to the self-regulating body.

“We are willing to implement any reform. We have been honestly discharging our duties under supervision by the government and with government nominees being integral part of the disciplinary process,” ICAI president Naveen Gupta told reporters on Monday.

The statement came months after the government set up NFRA, citing ICAI’s poor track record at disciplining errant auditors. While the new agency has been set up five years after it was provided for in the Companies Act, a CA recently petitioned against the move in the Delhi High Court, which has made ICAI a party.


Gupta said legal opinion from advocate Mukul Rohatgi suggested that the establishment of NFRA is not constitutionally valid and it encroaches upon the powers of ICAI. The former attorney general has said the CA Act does have precedence over provisions of the Companies Act 2013.

ICAI, which had so far refrained from sharing data on disciplinary actions, released numbers on Monday to suggest that the pace had picked up in 2017-18 (see chart) and it would have been maintained but government’s decision to appoint Rangachari Sridharan, its nominee on disciplinary committee as the first NFRA chief, has slowed down the run rate.

It has flagged the concern to the ministry of corporate affairs and suggested that in at least 35 cases, the final outcome of the disciplinary proceedings will have to be started afresh and will delay the entire process.

While around 1,300 cases were currently pending disciplinary action, including 135 complaints filed by government agencies, Gupta said the speed has picked up in recent years. “We have been fastest in taking action, acknowledging what’s happening and most of the times, acting suo motu,” he said, adding that cases, that were pending for nearly 15 years, have also been decided. The government is, however, not fully satisfied with the agency’s response and is cut up with it for trying to scuttle the establishment of NFRA.