News Excerpt
The audit regulator, National Financial Reporting Authority (NFRA), has constituted a Technical Advisory Committee (TAC) under the Chairmanship of R. Narayanaswamy, Professor, IIM, Bengaluru.

Pre-Connect
•    The NFRA was constituted in 2018 by the central government under sec. 132(1) of the Companies Act, 2013.
•    It keeps vigil on the listed and unlisted entities having paid-up capital of no less than 500 crore or annual turnover of no less than Rs 1,000 crore.  
•    It is a regulating agency for the enforcement of auditing standards and ensuring the quality of audits so as to enhance investor and public confidence in financial disclosures of companies.
•    It can even investigate professional misconduct committed by members of the Institute of Chartered Accountants of India (ICAI) for prescribed class of body corporate or persons.
•    The Technical Advisory Committee, which comprises seven members, including the Chairman, would, among other things, aid and advise the Executive Body of the NFRA on issues related to the drafts of accounting standards and auditing standards.
•    The TAC will also provide inputs from the perspectives of users, preparers and auditors of financial statements.
•    The terms of reference of TAC include advise on development of measures of audit quality; advise on suitable methods for promoting awareness:
i.    relating to compliance with accounting and auditing standards.
ii.    of the role of the NFRA in protecting investors through independent auditor regulation.

Functions and Duties:
As per sec. 132(2) of the Companies Act, 2013, the duties of the NFRA are to:
o    Recommend accounting and auditing policies and standards to be adopted by companies for approval by the central government;
o    Monitor and enforce compliance with accounting standards and auditing standards;
o    Oversee the quality of service of the professions associated with ensuring compliance with such standards and suggest measures for improvement in the quality of service;
o    Perform such other functions and duties as may be necessary or incidental to the aforesaid functions and duties.
o    Rule 4(1) of the NFRA rules, 2018, provides that the authority shall protect the public interest and the interests of investors, creditors and others associated with the companies or bodies corporate governed.

Companies and bodies governed by NFRA
As per rule 3, NFRA shall have power to monitor and enforce compliance with accounting and auditing standards, oversee the quality of service under sec. 132(2) or undertake investigation under sec. 132(4) of the auditors of the following class of companies and bodies corporate, namely:-
a.    Companies whose securities are listed on any stock exchange in India or outside India;
b.    Unlisted public companies having paid-up capital of not less than ₹five hundred crores or having annual turnover of not less than ₹ 1000 crores or having, outstanding loans, debentures and deposits of not less than ₹ 500 crores as on the 31st March of immediately preceding financial year;
c.    Insurance companies, banking companies, companies engaged in the generation or supply of electricity, companies governed by any special Act for the time being in force or bodies incorporated by an Act in accordance with clauses (b), (c), (d), (e) and (f) of sec. 1(4) of the Act;
d.    Any class of bodies, corporate or companies or persons, on a reference made to the NFRA by central government in public interest; and
e.    A body incorporated or registered outside India, which is a subsidiary or associate company of any company or body incorporated or registered in India as referred to in clauses (a) to (d), if the income or net worth of such subsidiary or associate company exceeds 20% of the consolidated income or net worth of such company or the body corporate, as the case may be, referred to in clauses (a) to (d).

Highlights
    The government is quite clear that the need for such a body is all the more important after several financial accounting scams, the most recent of which was the IL&FS scam.
    The idea for an NFRA came following the Satyam Scam in 2009, following which the Standing Committee on Finance recommended the creation of an audit regulator.
    Most of the major economies of the world have independent audit regulators, and over the last decade or so, umbrella bodies have come up that have provided an element of cohesion to these regulators.
    The International Forum of Independent Audit Regulators (IFIAR) was set up in 2006, and now it has more than 52 independent audit regulators worldwide as members.
    While many provisions of the Companies Act, 2013 came into force on April 1, 2014, the setting up of the NFRA, a key recommendation, was delayed.
    The decision appears to had been prompted by the ₹12,636 crore Punjab National Bank fraud that went undetected by auditors.
    The Institute of Chartered Accountants of India (ICAI) had initially voiced its discontent with the idea of a regulator for the sector, saying the existing structure was adequate.
    The government had clarified that the roles of the new regulator and those of the ICAI will not overlap.
    While announcing the decision to create the body, the then Finance Minister Late ArunJaitley said that the NFRA would cover all listed companies and large unlisted companies and the small unlisted companies would continue to be audited by the ICAI.

Conclusion
While the ICAI had voiced its reservations about an independent regulator, several individual accountants have said such a regulator is a good idea. The audit profession had become very complacent in the idea that there would be no oversight. This is not to say that there is always wrongdoing, but a lot of the bending of the rules that used to happen is now hopefully become more difficult.