Auditing Current Affairs
The Union Cabinet approved establishment of National Financial Reporting Authority (NFRA) as an independent regulator for the auditing profession. It aims to tighten regulatory oversight over auditors and plug loopholes. It will be independent from those it regulates for enforcement of auditing standards and ensuring quality of audits.
National Financial Reporting Authority (NFRA)
NFRA will independent regulator under Companies Act, 2013. Its mandate is for establishment and enforcement of accounting and auditing standards and oversight of work of auditors. It will ensure quality of audits to strengthen independence of audit firms and therefore, enhance investor and public confidence in financial disclosures of companies.
Composition: NFRA will be 15 members body, consisting of Chairperson, three full-time Members and one Secretary.
Functions: It will overarching watchdog for auditing profession. It can debar an erring auditor or auditing firm for up to 10 years besides it can also slap heavy penalties. Even powers of Institute of Chartered Accountants of India (ICAI) to act against erring chartered accountants will be vested with NFRA.
Jurisdiction: It extends investigation of Chartered Accountants and their firms to all listed companies as well as large unlisted public companies. Government will prescribe thresholds in the rules. Government can also refer other entities for investigation where public interest is involved. However, inherent regulatory role of existing ICAI will continue in respect of its members and specifically to audits pertaining to private limited companies and public unlisted companies below threshold limit notified in rules. Further, ICAI will continue to play its advisory role with respect to accounting and auditing standards and policies by making its recommendations to NFRA.
Impact: Establishment of NFRA will improve foreign/domestic investments, enhance of economic growth, support globalisation of business by meeting international practices and assist in further development of audit profession.
NFRA and Quality Review Board (QRB): QRB will continue its quality audit in respect of private limited companies, public unlisted companies below prescribed threshold and also with respect to audit of companies delegated by NFRA.
The need for establishing NFRA was in wake of accounting scams and to establish independent regulator independent from those it regulates for enforcement of auditing standards. Its establishment is in line with key changes brought in by the Companies Act, 2013 which was on specific recommendations of Standing Committee on Finance (in its 21st report).
Meghalaya became first state in country to operationalize The Meghalaya Community Participation and Public Services Social Audit Act, 2017, a law that makes social audit of government programmes and schemes a part of government practice. It was launched by Chief Minister Mukul Sangma at a national convention in Shillong.
Prior to enacting this law, social audits of government programmes were done at the initiative of civil society organisations. These social audits had no official legal sanction. The first of its kind social audit law in country was passed by Meghalaya state assembly in April 2017 and was followed by pilot social audits for 26 schemes in 18 villages of northeastern state. At present, it is applicable to 11 departments and 21 schemes in Meghalaya.
The law mandates appointment of social audit facilitators to conduct social audit directly with people. The facilitator will present findings to Gram Sabha, who will add inputs and result will finally go to autonomous auditors.
Significance of social audit law
The law makes social audits part of the system as earlier it was civil society initiative rather than government-mandated. The social audit will make easier to correct course of scheme rolling along. It will give people direct say in how money will be spent and fills information gap for officers as they are directly in touch with ground.
The first of its kind social audit law provides legal framework for allowing citizens’ participation in the planning of development, selection of beneficiaries, concurrent monitoring of programmes, redress of grievances, and audit of works, services, and programmes on an annual basis.
Social audit is considered as grassroots method of auditing and stems from people themselves. It will make auditing more meaningful. It is considered as an extension of larger accountability framework. It will further lead to institutionalisation of participatory democratic governance.