New Delhi : The Ministry of Corporate Affairs has amended the audit rules, rationalizing the penal provision for certain violations with a view to encourage compliance, showed an official order.
The National Financial Reporting Authority (NFRA) Amendment Rules 2022 brought in by the Ministry of Corporate Affairs says non-compliance will attract penalty 5,000 and where the contravention continues, a further fine 500 per day during the period of contravention. This applies to offenses for which punishment is not specified elsewhere in the law.
The rule has been amended to remove the reference to section 450 of the Companies Act, which specifies a limit of 200,000 in the case of a company and 50,000 in default for an officer or any other person for the offense which continues.
While the reference to the upper limit for continuing offense has been removed, the fine specified in the new rules for the first instance of a violation and for each day of continuous offense is less than what is permitted by law. Section 450 of the Companies Act allows maximum 10,000 more in the first 1000 for every day during the period the violation continues.
Industry executives welcomed the rationalization of penal provisions but said audit professionals should not deviate from professional standards and compliance requirements. “Auditors are responsible for protecting the public interest and their compliance with professional standards and regulatory requirements is paramount. The need to make use of the penalty provisions,” said Vijay Kapoor, former director of the Institute of Chartered Accountants of India (ICAI). should arise only in the rarest of rare cases.”
The move comes at a time when the government is looking to give more powers to the NFRA to enhance compliance in the audit industry. The ministry had recently issued a discussion paper to make a case for more restrictions on engagement of audit firms with certain clients.
Last year, the NFRA revealed the names of over a thousand statutory auditors—who account for a large part of the auditing profession in the country—who have not filed their annual returns. In the case of some entities linked to Infrastructure Leasing and Financial Services Limited, the audit watchdog had taken strict action.