For many years, chartered accountants of India have been consistent in opposing the regulator that was proposed in the Companies Act, 2013 because they think that the regulator will encroach on its turf. However, the more serious fear is the new regulatory authority, National Financial Reporting Authority (NFRA) that will have dictatorial investigative and punitive powers.
Recently, it has become all too obvious that the new regulator will become a reality. According to Prime Minister Narendra Modi, the regulator will crack down on erring chartered accountants. This was the veiled warning issued when he spoke before the Institute of Chartered Accountants (ICA) on their foundation day last July 1.
The association was subjected to criticism when PM Modi said that only 25 rogue auditors have faced action in the last 10 years and about 1,400 cases are still pending. The methods of disciplinary action harnessed by the chartered accountants are under question. The new regulator which is expected to be constituted soon will address the concerns of PM Modi.
Among the powers of the regulator will be the enforcement of compliance of accounting standards and punishment for violations. With the presence of the new regulator, the role of ICA will be reduced to conducting examinations for chartered accountants. The new regulator will also have the power to make recommendations to the government on accounting and auditing policies and standards.
NFRA will also have the power to investigate into matters of professional or other misconduct that has been committed by a member of a firm of chartered accountants registered under the Chartered Accountants Act, 1949. The regulator can order the production of books of accounts and other documents or summon and enforce the attendance of persons so that they can be examined under oath. It can also debar any member of the firm from engaging in practice as a chartered accountant.
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