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Recently, The Union Cabinet had given approval for setting up of independent regulator for auditors of the National Financial Reporting Authority (NFRA). It was found out that, this set up would take several powers which are at present vested with the Institute of Chartered Accountants of India (ICAI). The Supreme Court had proposed the existing law to be revised to separate regulatory regime for the purpose of auditing services as per the Sarbanse Oxley Act enacted in US. The Centre was directed to form a Committee of Experts to look into the functioning of the Multi-national Accounting Firms (MAFs) in India. Added to this, the Cabinet had given approval for three posts of full-time members and one post of Secretary for NFRA, which was given sanction to investigate the Chartered Accountants (CAs) and their Firms as per Section 132 of the Companies Act,2013. The Act permits the NFRA to not only look into the matters of professional misconduct but also gives them the power to impose penalty and debar such professionals for a period of 10 years. The Jurisdiction of NFRA is extended to listed companies and large unlisted public companies. On the other hand, the ICAI would as usually look into matters pertaining to audits only which are related to private and public limited companies. There wouldn't be any hurdles in recommending the accounting standards and policies to the NFRA. It was also made clear that those companies which come under the prescribed threshold after the inspection of the Quality Review Board (QRB) would be delegated to them by NFRA.
The formation was catalysed due to various corporate scams which also includes the biggest banking sector fraud that sums up to Rs. 12,700 crore at Punjab National Bank. The Supreme Court by stating the CPIL case held that it was difficult for the ICAI to take action against the firms using the similar brand names as the real beneficiaries are the Multi-National Accounting Firms. Finally, it was held that revisit of the existing framework would become necessary in order to regulate the MAFs on Code of Ethics.
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