New Delhi The National Financial Reporting Authority (NFRA) will get more powers to take action against auditors and company officials if the recommendations of the expert panel reviewing the Companies Act are approved by the government.
According to a person familiar with the discussions in the government, the Company Law Review Committee has recommended that the NFRA’s oversight be expanded to look for certain wrongdoings of senior company officials and omissions of auditors apart from their professional misconduct.
The audit regulator may have powers to seek information from directors, key managerial people and promoters of the company and take action against them when a statutory auditor is being investigated for violations of law, the person mentioned above said anonymity. Said on condition. This means that in case of collective failure or fraud by collusion between the auditor and the company’s top executives, the auditor will not be the only one who will face regulatory action.
An email sent to the Ministry of Corporate Affairs on Sunday seeking comments for the story remained unanswered at the time of publication.
The Institute of Chartered Accountants of India (ICAI), the self-regulator of the accounting and auditing profession, which takes disciplinary action against erring auditors, often finds it difficult to get information from the company’s top executives.
Expanding the regulatory scope of the NFRA to cover such cases would ensure that with a wrongful auditor, the management and major shareholders are held accountable, the person cited above said.
Directors play an important role in preparing the financial statements of the company and maintaining records.
The Company Law Review Committee also recommended giving more powers to the NFRA to make rules with adequate safeguards, as with other regulators such as the Insolvency and Bankruptcy Board of India (IBBI).
The panel was headed by Rajesh Verma, Secretary, Ministry of Corporate Affairs. It included experts like Kotak Mahindra Bank Managing Director and CEO Uday Kotak, former Secretary General of Lok Sabha TK Viswanathan and former ICAI Chairman Amarjit Chopra.
NFRA may get more powers under the Companies Act to deal with auditors’ omissions, which may not qualify as ‘professional or other misconduct’. This would include, for example, failure to file an annual return.
Last October, the NFRA had revealed the names of over a thousand statutory auditors who had not filed their annual returns, painting a grim picture of the auditing profession in India.
The annual return to be filed by an auditor gives many details ranging from his/her registration and PAN number to details of fees received, details of partners and number of employees.
In the NFRA-2 form, the auditor also has to disclose whether the firm has omitted an audit assignment of a company in the last three years or withdrew its audit report on the financial statements or has been required to use its name in the report. has withdrawn its consent. in the last three years.
Vijay Kapur, former director of the Institute of Chartered Accountants of India, said, “Strengthening the audit framework and regulation is important for the corporate sector and for India to be a globally competitive economy.”