NFRA will have the power to investigate, either suo motu or if there is a reference made to it by the government, according to the rules released by MCA.
The Ministry of Corporate Affairs (MCA) may concede to the Institute of Chartered Accountants of India’s (ICAI) plea that the proposed regulation of company auditors be initially restricted to listed companies, two sources familiar with the matter told Moneycontrol.
In February this year, the government had approved the setting up of National Financial Reporting Authority (NFRA) to regulate auditors.
ICAI has suggested to the government that the proposals of NFRA be implemented in a phased manner. If the MCA agrees to this, it could be seen as diluting the objectives of NFRA.
“The chartered accountants lobby is opposing the implementation of the NFRA,” said a source, adding there was a possibility that the government may dilute some of the provisions.
NFRA will have the power to investigate, either suo motu or if there is a reference made to it by the government, according to the rules released by MCA. In addition, the authority will have the power to penalise any member or firm of chartered accountants.
In case of individuals, a fine up to Rs 1 lakh can be slapped, and it can be extended to five times of the fees received. For firms, the penalty amount will be Rs 10 lakh, which can be extended to 10 times the fees received.
According to the rules, the authority can debar the firm engaging in practice as member of ICAI, which will continue with its advisory role on accounting and auditing standards by making its recommendations to NFRA.
The Ministry of Corporate Affair is in favour of a single body regulating auditors and has discussed this issue with the Securities and Exchange Board of India (SEBI).
A source close to the development told Moneycontrol, “MCA has supported the Uday Kotak Committee’s proposal for a separate regulator for chartered accountants, following which the government has initiated the NFRA process. It will be the NFRA that will have all powers to regulate chartered accounts individually and firms or auditors.”
Another MCA source said, “Section 132 of the Companies Act, 2013, provides that no other institutes or body shall initiate or continue any proceeding in matters of misconduct where NFRA has initiated an investigation. There will be an overlapping situation in case SEBI investigates auditors or chartered accountants.”
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