The country has experienced several scams in the past one decade that were primarily caused by the collusion between enterprises and auditing firms, says Rachit Chawla
More than 50 countries in the world have already switched to independent audit regulators from self-regulatory professional accounting bodies. In India, however, the profession was self-regulated and its demerits were quite palpable. The India Inc has experienced many jolts in the last one decade that were primarily caused by the collusion between enterprises and auditing firms. Scams like assessing the wrong worth in the case of Satyam Computers to the issuance of Optionally Fully Convertible Debentures by Sahara India without any prior permission from SEBI, and recently the colossal damage by the celebrity jewellery designer to Indian banking sector reaffirms a strong need of a powerful monitoring authority over the auditing firms. The government’s decision of establishing a new scrutiny body, the National Financial Reporting Authority (NFRA) is an imperative step to curb corruption in corporate boardrooms.
Duties & power
According to the Companies Act, 2013, the prime responsibilities of the NFRA will revolve around recommendation and the establishment of better accounting and auditing standards, ensuring their appropriate implementation and envisaging the quality of service of the accounting and audit professionals to prevent frauds. In addition to the core duties, NFRA is also entrusted with authority to investigate cases of professional misconduct by auditing firms and chartered accountants, and debarring the guilty for up to 10 years.
Decision of distinction
This is a welcome move by the government to introduce a Bill in Parliament for setting up NFRA which will be an independent regulatory authority for auditing firms. Independent regulators have proved useful in other sectors such as stock markets, insurance, telecom and real estate. The self-regulation by ICAI has been exposed to be toothless as evidenced in several big-ticket financial scams beginning with Satyam in 2008 which had Price Waterhouse Coopers, one of the Big4 firms as its auditors. The latest PNB- Nirav Modi scam is perhaps the catalyst for this move by the government, but it is a step in the right direction towards achieving financial transparency.
For a better tomorrow
Here, the formation of NFRA is one commendable step and empowering it as an independent regulator is another praiseworthy decision to ensure the fair and transparent functioning of the institution in purpose. Secondly, the reach of NFRA to all listed entities and unlisted public companies enhance the gamut of the institution in delegating accountability. Furthermore, as finance minister Arun Jaitley has assured that NFRA is not intended to replace the disciplinary jurisdiction of the ICAI. It is expected that in all the routine cases; the bulk of cases will be handled by ICAI, while NFRA will be more focused on the big issues. That’s why a majority of subject matter experts in the industry agrees with the finance minister that NFRA will definitely improve the investment scenario in the country and domestic as well as foreign investors will take more interest in a rather transparent ecosystem.