NFRA is the boss of the auditors. The regulatory body was set up in 2018. In 2009, the vision of the independent regulatory body was proposed. The bill from 2009 led to the formation of the advisory committee. The National Financial Reporting Authority was to enhance the quality of the financial reporting of different sectors in India. NFRA has charged 22 penal orders in the last 30 months. Auditors are under watch in disciplinary matters, investigations and standard setting. The blog reveals the difference between ICAI and NFRA, job roles in NFRA, recent cases of NFRA and the five-year service of NFRA.
Difference between ICAI and NFRA:
- ICAI is the professional body creating auditors for the auditing standards in India.
- NFRA is similar in the operations of US based regulatory body public company accounting oversight board and UK based financial reporting council.
- ICAI regulates the auditors of small-scale industries and private companies.
- NFRA monitors and regulates the working of the auditing process in the public interest entities.
- ICAI has powers to make changes in the syllabus, difficulty level of the examination, pass percentage and job opportunities.
- NFRA make changes in the professional ethics and auditing process. NFRA has more powers than ICAI.
- The disciplinary committee of ICAI submit a report regarding the misconduct to the council and recommend punishment to the high court. ICAI recommend the standards that suit the auditing profession to NFRA.
- NFRA has the power to investigate the auditors. If NFRA is involved in the case, no other professional institution has the right to intervene in the process. NFRA recommend the auditing standards to the central government.
- ICAI focuses on the learning side of the auditors. NFRA focuses on the working side of the auditors. Both the regulatory bodies contribute to the growth of the auditing profession in India.
- ICAI has completed 75 years of service. NFRA has completed 5 years of service.
Responsibilities of NFRA chairman and members:
Dr Ajay Bhushan Prasad Pandey is the chairperson of NFRA. Sh Shyam V Tonk is the executive director of NFRA. Sh Praveen Kumar Tiwari and Ms Smita Jhingran are members of NFRA. The NFRA chairman worked for five years tenure. The age limit is sixty. After completing the tenure he is eligible for the re-appointment. The responsibilities of NFRA authorities are as follows:
The chairperson of NFRA is appointed by the central government. Candidates from accountancy, auditing, law and finance are eligible for the post of chairman. The member and chairman of NFRA should not have contact with any audit firm during the service. And they should remain independent even after the service for two years. The employee structure in NFRA goes as follows: accounting member, auditing member, enforcement member, MCA representative, RBI representative, SEBI representative, high court representative and ICAI president.
- The chairperson recommends the policies and standards for the auditing and accounting department.
- Monitor the working of the standards.
- Analyse the quality of the auditing professionals. Suggest guidelines to improve the quality of CFOs and auditors.
- NFRA investigate cases referred by the central government. NFRA also investigate CA firms and CA’s based on suo moto.
- NFRA has powers to debar the member or firm from practice for a period of six months to ten years.
- NFRA has the power to check the quality of listed companies in India. NFRA also deal with companies with the following characteristics: unlisted companies with a network of equal or less than 500 crores, unlisted companies with a paid-up capital of equal or less than that of 500 crores, unlisted companies with an annual turnover of equal or less than that of 1000 crore and companies listed out of India.
Recent cases of NFRA:
NFRA charged an amount of one lakh to 18 auditors of DHFL. The charges with the auditors are for misconduct in the management of branch audits. NCLT is the legal body that reaffirmed the judgement of NFRA. The company directors failed to monitor the fraud activity of 31,000 crore rupees with directors and 4,000 crore rupees with banks. The NCLT asked ICAI and NFRA to publish rules about statutory audits and branch audits. The auditors of DHFL argued that the dealings were before the establishment of NFRA. NCLT said that NFRA has powers to investigate auditing before the formation. NCLT concluded that the statutory audit and branch audits have the same standards. The regulatory body also said that it is mandatory to follow the accounting and auditing standards. NFRA is independently watching the auditors for economic development.
Another case with a notification from SEBI is the Man industries case. In this case, NFRA charged the auditors with a year’s ban and a five lakh fine. Nilesh Chheda is the engagement partner of Man Industries. He takes care of the statutory audit. SEBI also mentioned that the company has financial irregularities. The auditors of the company argued that the consolidated financial statements were fair and true. The auditors failed to consolidate the subsidiary Merino Shelters PVT Ltd. NFRA released the statement that the subsidiary company has around 19.20 per cent of liabilities and 28.96 per cent of assets in MIIL. The auditors are also not accurate in the disclosure of loan particulars of the company. The trade receivables are not as per the compliances. NFRA said the auditor lacks the skills required for efficient auditing. The auditor is not focused on audit strategy, analytical procedures, planning, ROMM, materiality determination and internal control. The auditor’s lack of skills is the reason for the misrepresentation of consolidation and loan details.
Five years of service in NFRA created a positive pathway to the auditing profession. Five years of service recreated a workable solution to the auditing profession. The young auditing regulatory body suggests the best auditing compliances to the world through its service.