Request to oppose NFRA - A threat to CA fraternity

Dear All,

Pasted below is the copy of email sent to selected Council members.

Awaiting their response on this.......

Dear Sir,

I, Mrs. Archana Surendra Yadav, Chartered Accountant, from Institute of Chartered Accountants of India ( “ICAI”) would draw your kind attention to the fast approaching new amendment of National Financial Reporting Authority of India, (“NFRA”).

As per the recent news from sources , the Bill for NFRA is already passed in Lok Sabha and is placed in Rajya Sabha to be passed by the Members of Parliament (“MP”).

With due respect to opinion of the various Chartered Accountants(“CA”) and my own understanding, I would request you to oppose this NFRA Bill. The reasons which form the base of my request as below:

· As per Clause 132 of Companies Bill,2012 , Central Government may constitute NFRA which will have powers same as Civil Court as per Code of Civil Procedures 1908,to oversee the quality of service and investigate ,impose penalty or also debar a member for such period of time as it deems fit. It can suo-moto or on reference made by Central Government can investigate the professional misconduct done by member/firm registered under Chartered Accountant Act, 1949.

Here, I would like to draw your attention to potential misuse of rights by the NFRA members towards the CA/firm for unreasonable personal benefits. The clause suo-moto can be treated as double-edged sword in the hands of NFRA members which can be used against the CA professionals and their firm.

As per the proviso to Clause 132(4)(a) of Companies Bill, 2012,once the matter will be taken by NFRA, ICAI or any other body will have no say in it . This shows that ICAI will be treated as non-existent during the investigation and CA members will be at the sole mercy of the NFRA members. Also any decision taken by ICAI for its members can be reversed /cancelled or advanced by NFRA.

Every ICAI member will be vulnerable to be charged/ prosecuted by NFRA on complaints made a common person or corporate entity. NFRA can even debar them without waiting for any information from ICAI.

Also let us not forget the undesirable political interventions that will be inevitable in functions of NFRA. There has been several precedence of abuse of authority by the members appointed by Central Government in investigative positions. NFRA will be no different from them.

Quoted below is the extract of Shri N.Venkatram, partner with Deloitte Haskins and Sons published on website www.caclubindia.com

“My fear is that we are over regulating the profession. The question is whether a third party regulator will be fair and fearless. There is some consternation among accounting professionals over the government having greater say in directing and regulating their profession. The new provisions would raise a number of practical issues apart from questioning the validity of the concept that a professional should be judged by his peers”

Also to add, there are chances or overlap of member being prosecuted at the same time by ICAI and NFRA which may result in conflict.

Quoted below is an extract from newspaper website, “thehindubusinessline.com”

“The NFRA can act against all chartered accountants, including auditors and company officials registered under the CA Act, if they fail to perform their duties. The Bill states that where the NFRA has initiated investigation into matters of misconduct, no other institute or body can initiate or continue any proceedings in the matter. As the CA Act also requires the Disciplinary Board/ Committee of the ICAI to deal with professional and other misconduct by members, there is room for overlap, and this should be resolved.”

No need to mention but the fact is, ICAI has been quite transparent in it's working. Once it goes to NFRA, it will not be easy to share the details with members of the profession unless the details are finalized or decided upon.

I therefore carry a strong opinion that the Clause 132(4) will create an undesirable anarchy in the profession leading to downgrade of morale of professional CA’s. To protect the interest of my dear professionals, I request you to strongly protest against the NFRA and have it withdrawn by the Central Government.

· As per Clause 132(2), the NFRA, will be final authority to make, recommend, formulate and enforce the accounting and auditing policies and standards for adoption by companies and auditors. This goes to say that Accounting Standard Board(“ASB”) constituted by ICAI by revised Preface 2004 will stand superseded by Clause 132(2) of Companies Bill ,2012.

This creates a sense of redundancy for CA professionals and other distinguished members of ASB represented by RBI, CII, FICCI and also from IIM. If not, it will lead to sheer duplication of the work within both the authorities.

Will NFRA supersede the ASB completely?

· Also till date as per Preface to ASB, Management of the enterprise were responsible for ensuring compliance with the accounting standards, however clause 132(2)(b) says that NFRA will monitor and enforce the compliance of accounting and auditing standards. Is this not a defiant of the current practice followed?



· Also to draw your attention to various interviews by Shri Sachin Pilot , MP , floating in the media, the main intention of bringing in NFRA is to restrict the nexus between the auditors and company management.

To quote Shri Sachin Pilot on website www.rediff.com , he said in an interview to PTI “Sometimes, auditors get into too cosy a relationship with the management, which creates a lot of problems” which he related to M/s Satyam Computers in which there was multi-million accounting fraud. However till date neither Central Bureau of Investigation(“CBI”) , SEBI nor any other investigating audthourity have been able to prove that there was nexus between auditors and management. They are still in evaluating phase. Auditors though were treated as guilty of gross negligence.

Also to add to this, there has been a PIL filed by Shri Kirit Somaiya, MP, wherein State Govt., Union Govt., SEBI, the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE) have been made respondents. The PIL said “‘despite existence of market regulator Securities and Exchange Board of India (SEBI) and a plethora of laws, rules and regulations, efforts to safeguard the interests of investors in shares and securities have not been successful. Unlike other scams, this one (Satyam) is ominous for the country. Satyam’s board and auditors are guilty of negligence, breach of duty, trust and fraud”

Just to reiterate, along with various investigating authorities NFRA will also be just an additional authority and will hardly add any value to the profession.

If Govt. is really serious of restricting the fraud, it can do so by giving additional authority to its representatives already sitting in Central Council which form 50% of the total members.

· There has been various scandals and scams in government sector from decades on, with recent one being 2G,Coalgate, Commonwealth, UP NRHM Scam, Karnataka Wakf board and the list is endless. The representative of government have not been able to penalize any of them. The quality of investigation itself is questioned most of the time. NFRA will only add to the same.

With this I reiterate that,

ICAI is an autonomous body and the council is independent to make decision regarding its CA members, their professional conduct and also to penalize them. If ICAI has no say in the investigation of its members, it becomes totally dependent on NFRA for the future of its members.

Therefore I am unable to understand “ How a CA can be an independent auditor of any enterprise when its own Institute is dependent on any other authority which is represented by Central Govt.”

With this, I sincerely with full faith request you to oppose the NFRA Bill.

Waiting for your response on this letter.

Thanks & Regards,

CA Archana S.Yadav
Mumbai