Our Role is circumscribed: Salute NFRA!

I had the occasion to write sometimes back on this website in my articles “Report on Satyam Fiasco” about the fact that we lost an opportunity in Satyam Computers’ fraud case as our report was not relished by the ministry of company affairs as soon as it was made over to them as an officer on condition of anonymity said so at that point of time and as reported in the leading newspaper. ICAI did not book the audit firms. The partner who signed off the accounts and the two employees were booked in respect of Satyam’s fraud case of 2008 involving $1 billion cash being overstated along with $1.1 billion overstating of revenues.

Now again on reading the text of a news item “ICAI Tense Over Move To Set Up New Watch Dog” in The Economic Times of 14^th of January, 2013 my fears have been validated by what the newly passed Companies Bill contains in one of its clauses about the formation of a National Financial Reporting Authority (NFRA) which is going to gobble-up vital powers of the ICAI in respect of matters relating to accounting and accounting standards. This Bill is already passed by Lok Sabha on 18^th of December, 2012 and awaits its passing by the Rajya Sabha. There is certainly a lingering shadow of what had been the role of the auditors in such cases like the Satyam which jeopardized the interests of all the stake holders and one other matter that is adding to the giddiness of the practicing chartered accountants relates to their responsibility towards the banking institutions.

Somewhere the government had been closely watching the role of the statutory body established long ago in 1949 (may not be internal wrangling) in the changed scenario by firstly bringing out NACAAS, a body vested with MCA to which ICAI sends its draft accounting standards for notifying the same by them. The minister of corporate affairs has been quite vociferous about its role when he stated that NFRA will have overarching authority with a larger canvas to operate. NFRA will be a nodal agency for financial reporting and a quasi judicial body and the powers to suspend audit firms, he adds further. NFRA would therefore, be the ultimate body so far as the pronouncements on accounting and auditing standards would be concerned as also the aspect of monitoring and take punitive action. It would investigate complaints against firms. The ICAI can suspend individuals but not the firms. ICAI’s role may stand curtailed and may not remain then be one that of conducting examinations and awarding certificate of practice as is the role of Certified Public Accountants in the US after accounting scandals of WorldCom and Enron. This is not certainly the role our founding fathers have set and wished for.

We have missed opportunities all along the way in regulating ourselves as a force to reckon with more so in recent times and the unsaid reasons speak up. The current dispensation in the companies bill had also not been assailed at the stage of its being in the formative stage. The remedy now appears to be far though, the functioning envisaged of NFRA should be bestowed upon the existing framework of the bodies/institutes and the newly formed authority could become the appellate body for giving its judgment on the actions taken by the body/institution in the matters pertaining to regulatory aspects mitigating the burden litigations on courts on such aspects.      

Contributed By: CA. Vijay Kumar Kalia

BIO- A CA engaged in research work besides direct indirect taxation for past thirty five years.