Accounting standards
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This article is written by Ranojoy Middya, pursuing a Diploma in Business Laws for In House Counsels from Lawsikho.

Introduction

The legislation with respect to company laws has always been particular with its prerogatives of maintaining the required standards on accounting arrangements within companies. Given the said prospect, the Companies Act, 1956 had its provision set in the form of Section 210A which solely refers to the ‘Constitution of National Advisory Committee on Accounting Standards’. As per the given provision, the Central Government keeping in mind the needs for formulating and laying down the accounting policies and standards for adoption by companies or class of companies had constituted this National Advisory Committee for advising the Central Government on diverse Accounting Standards. With the advent of the 2013 amendment of the Companies Act, such regulations with respect to accounting and auditing standards have become way more comprehensive as well as exhaustive by way of the Central Government constituting a new national body, known as National Financial Reporting Authority under Section 132 of Companies Act, 2013 to provide for matters in relation to the above specific concerns.  

All about accounting standards

Keeping in mind such advancements with respect to Accounting Standards in Companies Act, financial statements emerged as an important element for both internal and external stakeholders of companies. These standards usually set out the requirements for the recognition, measurement, presentation, and disclosure of transactions and events that are important to the financial statements. The Accounting Standards being more of a policy document majorly focus upon bringing forth transparency, reliability, consistency, and comparability of the financial statements. As a result of which there has been a uniform threshold of Accounting Standards that eventually standardize the accounting policy as well as principles of a nation/company. However, as per Section 133 of the Companies Act 2013, the onus of issuing such standard measures with respect to company accounts lies on the Government directly along with the recommendation made by an accounting body or a regulatory board such as the Institute of Chartered Accountants of India (ICAI)

Accounting has often been considered as the language of business as it conveys the financial position of the company to others. Just like the way every language has certain syntax and grammar rules to be adhered to, every accounting measure in companies similarly have uniform Accounting Standards to formulate their rules and regulations for accounting and reporting in a country. Given the said accounting exposures, the following objectives of Accounting Standards are required to be considered;

  • Reliability of financial statements: The financial statements being of utmost significance must be regulated as per the framework provided by the Accounting Standards so that such statements don’t constitute any misleading information and the users following such standards can easily rely on them. 
  • Comparability: Companies being compliant with uniform Accounting Standards further enable themselves for intra-firm and inter-firm comparison which in the long run helps the users of financial statements to analyze and compare the financial progress of various firms and their position in the market.
  • Uniform accounting policy: Such accounting policies being uniform in nature provide rules for standard treatment and recording of transactions in order to constitute a standard format for financial statements which also include the necessary disclosure requirements as well as the valuation methods with respect to such financial transactions that take place on a daily basis in various entities. 

Accounting standards with respect to financial statements under Companies Act, 2013

In consideration of the discussed essence of Accounting Standards, this article focuses on the five major Accounting Standards in relation to the completion of the financial statements under the legislation of Companies Act 2013. Before dwelling into the concerned area of discussion, it is pertinent to mention that the above-mentioned area of discussion falls under Chapter IX and Schedule III of Companies Act 2013.

Meaning of financial statement

Financial Statements as defined in clause (40) of section 2 in its literal undertone as specified under Section 129 (1) of the Companies Act 2013 is recognized as collective records of various reports such as balance sheet (showing assets, liabilities and equity), income statement, cash flow statement, and equity statement (showing changes in equity) of any company. These statements are mostly governed by local laws, regulations, and standards such as Indian Accounting Standards. However, companies must comply with this mandatory obligation to prepare their financial statements at the end of every financial year and such statements may further be kept in an electronic form provided they are complete and unaltered. The Board of Directors, on the other end, decide upon the fact whether such statements or books are being preserved at the companies registered office or any other place as they think fit.   

Referring to the landmark judgment of J & K Industries Ltd v. Union of India& Ors; Appeal (civil) 3761 of 2007 in which the Court emphasized the overall concept of annual financial statement is to reflect an overall fair view through avoiding misleading information or impression. Given the context, the balance sheet and Profit & Loss a/c must be an absolute mirror to the relevant information so that the financial position and working results of the company must be shown as they are. Therefore, it can neither be an overstatement now an understatement. The Court has further added that such information in order to be disclosed must be in conformity with the fundamental accounting assumptions and commonly accepted accounting policies. 

  1. Requirement of the financial statement

Financial Statements being the by-product of various accounting principles that forms the basis of Accounting Standards to formulate rules relating to recognition, measurement, and disclosures among all the enterprises must be compared in conformity with its true, fair, and transparent parameters. However, these accounting principles mostly seek to arrive at true accounting income. One of such principles is the matching principle and the other one is a fair view principle. Given the landmark judgment of J & K Industry v. Union of India (supra), the Apex Court had considered this fair view principle to be further delineated by the following three requirements which are quintessential from the point of disclosure of corporate accounts such as financial statements.  

True & fair view

The requirement for corporate accounts to disclose a true and fair view must be ensured by the auditors who have to certify that such accounts are prepared in terms of providing a true and fair view of the state of affairs of the company. The Auditor and Accountant are the only ones to have undertaken the said responsibility on behalf of the Institute. As per the statutory requirement laid down in Section 211 of the 1956 Act and subsequently Section 133 of the 2013 Act, the preparation of true and fair view of the financial statements would not be satisfied unless such statements are made keeping in mind the Accounting Standards. However, prior to 1988, the requirement contemplated by the Companies Act was the disclosure of ‘true and correct view’ as compared to the recent principle of ‘true and fair view’. The above-mentioned deliberate change from ‘true and correct view’ to ‘true and fair view’ by the legislature was a mere gesture to welcome a wider perspective into the equation since the former one mostly revolved around the legal liability for tax and making a provision accordingly. Such a requirement of true and fair view concept, however, produces an overriding effect to all other statutory requirements with respect to the matters to be included in the corporate accounts. The procedure for ensuring a true and fair view never necessitates providing information that is additional to the one needed to comply with all other statutory requirements or even to depart from compliance with one or the other requirements. Therefore, departure of any kind, must be disclosed in a Note to the Financial Statements giving reasons for such departure and its effects. Given the said context, the concept of true and fair view rather seems dynamic in nature as it continues to evolve according to the changes in the requirements of the economy. 

Accrual basis of accounting

The Institute in the issuance of Guidance Note on Accrual Basis of Accounting in 1988 with the introduction of Section 209, which had further been substituted by Section 128 of Companies Act 2013, mandated all companies to maintain their proper books of accounts on the accrual basis of accounting. The relevant expressions relating to the accrual basis of accounting including recognition of revenue and expenses, assets and liabilities had properly been explained in the said Guidance Note on Accrual Basis of Accounting which inter alia laid down the matching principle of recognizing costs against revenue or against the relevant time period to determine the periodic income. In the said context, sub-clause 3 of Section 209 delineated that the proper books of accounts cannot be deemed to be kept unless such books of account give true and fair accounts. In case, such books fail to explain its transaction on the account of keeping the accrual basis of accounting, such books must be rejected for not giving a true and fair view of the state of affairs of the company. This is the position which has later on been reflected in Section 133 of the 2013 Act as well as Section 211 of 1956 Act. In consideration with that of the scheme of Companies Act, two requirements namely the accrual system of accounting and true and fair view must be satisfied with regards to each other. The accrual basis of accounting must be applied for the presentation of true and fair accounts as in order to present a true and fair view of the account precedes the requirement for accrual accounting. Given the context, the requirement to present true and fair accounts is wider than the requirement of accrual accounting. Therefore, in the said context, it is possible that accounts prepared on the accrual basis may not present a true and fair view because of certain deficiencies, however, it is not possible for accounts to be true and fair unless they are prepared on the accrual basis.

Principle of prudence

The accountant while preparing the financial statement, often comes across uncertainties with regards to making estimation of assets or income earned and the liabilities or expenses incurred. Given these estimations, caution in the exercise of the judgment is indispensable on the account of the accountant in order to ensure that such assets or income earned are not overstated and the liabilities or expenses incurred are not understated. This amount of caution given by the accountant while making such estimation is known as the principle of prudence. The said principle works in favor of uncertainties that are attached to future events. Profits cannot merely be anticipated rather they can be recognized only when they are realized. Following the said principle, Provisions had also been made for all known liabilities and expenses knowing the fact that the amount cannot be determined in the said context with certainty. The Provision, therefore, dwelled upon the calculation of estimation in the light of available information.

  1. Board approval

Section 217 of the 1956 Act read with Sub Section 1 of Section 134 of the 2013 Act hereby defines a corporate practice that mandates the companies to conduct board meetings for the approval of the financial statements, including consolidated financial statements of the company by the Board of Directors of the Company before submitting the said statements to the auditors of the Company for audit. The power of the Board in the given perspective is very essential in keeping the essence of such corporate practice alive. In the said context, the Board can no way delegate this power of approval of financials to any committee of Directors or Managing Directors or Manager or any principal officer of the Company, rather such power must be exercised by convening and conducting a valid Board Meeting only. 

In addition, such Board Meeting in accordance with rule 4 of the Companies (Meetings of Board and its Powers) Rules, 2014, cannot be held through video conferencing or any other audio-visual means. Keeping in mind the COVID-19 situation prevalent in our country, the Ministry of Corporate Affairs (MCA) released its notification vide dated March 18, 2020 followed by the Companies (Meetings of Board and its Powers) Amendment Rules, 2020 dated March 19, 2020, whereby a new sub rule under rule 4 of the Companies (Meetings of Board and its Powers) Rule, 2014 was inserted for ensuring board meetings of directors to be held through video conferencing or other audio-visual means from March 19, 2020 until 30th June, 2020.  However, on June 23, 2020, MCA had issued the Companies (Meetings of Boards and its Powers) Second Amendment Rules, 2020 to further amend the Companies (Meetings of Boards and its Powers) Rules, 2014. Due to the said amendment, sub clause 2 of rule 4 under the Companies (Meeting of Boards and its Powers) Rules, 2014 now entails that the meetings beginning from the commencement of the Companies (Meetings of Board and its Powers) Amendment Rules, 2020 to the ending on September 30, 2020, may be held through video conferencing or other audio-visual means. 

Such approved financial statements usually get signed on behalf of the company by the following:

  1. The chairperson who is authorized by the Board of the Company or by any two directors among which one shall be managing director and the other would be Chief Executive Officer, given that he is a director in the very company.
  2. the Chief Financial Officer, regardless of the place where he is appointed.
  3. the Company Secretary of the company, irrespective of where he is appointed.

In the context of One Person Company (OPC), such statements are mandated to be signed only by one Director. Other than that, the ground rule perspectives ensure that the signing of the financial statements must be done in consideration with a distinct recognition for the chairperson of the company being compared with the chairperson of the meeting. The chairperson of the company is usually recognized as one who may sign the financial statements after authorization by the Board irrespective of whether he is the chairperson of the meeting or not. In case, the company doesn’t have any Chief Financial Officer and Company Secretary, the signing of financials by a duly authorized chairman may suffice. In addition, if the company has no chairperson or chairperson not authorized by the board may resort to the signing of financial statements by two directors out of which one shall be managing director and the other being the Chief Executive Officer. Above all, if the company does not even have any managing director and Chief Executive Officer, any two directors, given the circumstances, may sign the financial statements.

On its subsequent part, such a financial statement once being approved and signed may be sent to the Auditor for its report thereon. Auditors, in the given scenarios, are appointed in the Annual General Meeting (AGM) of the Company for the succeeding financial year in order to conduct audit activities throughout the financial year. Post completion of such Audits by the Auditors, the meeting of the Board for the approval of the draft financials by the Boards must be undertaken. As soon as the approval of the draft financials by the Boards is received, the draft gets forwarded to the Auditors for their approval and signing. 

Further, on an attempt to change the position of CEO for signing the financial statement and by dispensing with the condition of his being a director for signing, the Companies (Amendment) Bill, 2016 proposes to substitute the sub-section (1) of section 134 which pertains to the omission of the earlier requirement of a CEO to be a director for validating his sign on the report. This was indeed a call of the hour with respect to the governance of corporate parlance. Now for a company who is having no managing director for the management of the company, the Chief Executive Officer of that company, irrespective of the fact that he is a director or not, being a KMP can now be responsible for the overall management of the company; therefore he should be mandated to sign the financial statement as well. 

  1. Reopening of accounts 

Legislation, in relation to the Company’s Act 1956, had seen several instances of falsification of books of accounts which were untouched then due to the paucity of the corresponding section under the erstwhile act. Such instances of falsification despite being untouched from the perspective of legislative advancement did fall under the radar of various department circulars dealing with the issues of reopening of accounts while their adoption by members in the general meeting was already executed. On the basis of these department circulars, companies, if approved by the shareholders in the general meeting, can be directed to re-open its books of account even if it is a technical requirement or requirement emanated from any specific law.

In order to overcome this menace, the Companies Act 2013 has come up with several measures in its rescue. Despite having no such recommendation by the Standing Committee for enforcement of any section for re-opening or recasting of the financial statement by the companies, Bill 2011 did introduce the new provision under the Companies Act. As a result of such, Section 130 of the Companies Act 2013 has come into existence by the acceptance of the Ministry on 1st June 2016 where the section was first notified under the Companies Act 2013. Given the context, the occurrence of the Satyam case in India has been the stepping stone for mandating the recasting of accounts in the first place. The Committee report, with respect to the given case, indicated the need for the procedural requirements in respect of revision in accounts in certain cases. The 2013 Act had been silent on the aspects of reopening or re-casting of accounts but in cases of fraud, there had always been the need for reopening or re-casting of accounts in order to reflect the true and fair view of such accounts. In Satyam’s case, such order in relation to recasting was set in motion by the court itself as the same was later mandated by the provisions of the Bill as well. In other situations, the re-opening of the account is executed through the order of the Tribunal with adequate safeguards.

In accordance with Section 130 of the Companies Act 2013, such measures in relation to reopening or recasting of accounts can be enforced by an order of any Court or National Company Law Tribunal (NCLT) based on an application made by any authority. For better reference, we must consider the first instance of the regulatory recasting of financial statements by the NCLT, Mumbai in its IL&FS judgment on Union of India, MCA v. Infrastructure Leasing & Financial Services Ltd & Ors. On a bare reading of Section 130 of the Companies Act 2013, the NCLT, Mumbai, in this matter, was of the opinion that the order under Section 130 could only be passed for recasting the financial statements of the company that too after issuing notices to the Central Government, Income Tax Authorities, SEBI or other statutory Regulatory Body or authority concerned. In addition, NCLT in defining the basis of Section 130 enunciated that in order to pass any order under this section, it was not necessary to hold that the accounts were prepared in a fraudulent manner. Instead, the reference had been put forth to Section 130(1) (i) & (ii) which further laid down the following precondition for passing an order for recasting and re-opening the accounts of a company: 

(i) If any relevant earlier accounts of the company turn out to be prepared in a fraudulent manner; or 

(ii) If the affairs of the company deem to be mismanaged during any relevant period on the basis of doubtful reliability of financial statements.

In this case, the Serious Fraud Investigation Office (SFIO) and Institute of Chartered Accountants of India (ICAI) under the provision of Section 212 of the Companies Act 2013, initiated investigation against the Company. This provision of the 2013 act, inter alia, provides that SFIO shall investigate the affairs of the company if only the Government opines that the affairs of the company are required to be investigated. According to the matter in question-related to Company IL&FS, the Government had directed SFIO to investigate the affairs of the Company. On the basis of which, SFIO provided its report to the Government. 

In the given matter, the Government analyzed the reports received from SFIO and ICAI respectively and on the basis of such analysis, the Government found it mandatory to order for re-opening IL&FS accounts and also the accounts of its two listed companies i.e. ITNL and IL&FS Financial Services. However, the Government didn’t show its conformity towards the fact that the auditors of the Company and the directors were involved in the mismanagement of the accounts of the Company, hence for the time being ordered for re-opening of the accounts. In addition, the Government didn’t receive any objections from all the authorities to whom notices were served for the purpose of reopening of accounts. Given the clear context, NCLT moved with its direction towards appointing an independent chartered accountant in order to restate the accounts and revise the balance sheets.

  1. Revision of accounts and reports

In case, the Directors of the companies find out that the financial statement or board report doesn’t comply with the relevant provisions of law (i.e. Section 129 & Section 134) or are prepared with some error or incorrect information that require correction, he or she as directors can apply to Tribunal under Section 131 of the Companies Act 2013 for its permission to revise the statements. However, such a revision of financial statements by the company can only be done once in a financial year.

The Company on receiving the affirmative order passed by the Tribunal may proceed to file the revised statement attached with a copy of such order to the Registrar of Companies (ROC). It is pertinent to mention that the copy of such order must be instrumental to the fact that the company, after receipt of such order, can revise the financial statement of any of the preceding three financial years. Given the context, a detailed reason for such revision must also be shown in the board’s report of such a relevant financial year in which the revision is being sought for. In addition, the Tribunal, if in case, receives any representation by the Central Government or any Income Tax Authorities shall give notice to such Government or Authorities before passing any order in this regard.

Procedural aspects

  • Notice of board meeting: As far as the procedural aspects are concerned, such voluntary revision must be initiated with the motion of issuing notice as well as furnishing agenda of the Board Meeting under Section 173 (3) of the Companies Act, 2013 & Secretarial Standard (SS-1). Such an agenda usually revolves around considering principal approval for revision of financial statement or Board Report of the Company and authorizing Company Secretary in practice/ practicing Chartered Accountant/ Practising Cost Accountant to enter appearance. The Directors of the company after holding the Board Meeting and passing all the resolutions mentioned in the Agenda shall fill the form NCLT-1 within 14 days of the decision taken by the Board. 
  • Advertisement of petition: In addition, the advertisement of a petition by the company must be complied with as per Rule 35 of NCLT Rules, 2016. This advertisement being furnished in form NCLT-3A in 14 days prior to the hearing must appear twice in the newspaper, once in a vernacular newspaper in the principal vernacular language of the district in which the registered office of the Company is situated and the other one in the English language in an English newspaper circulating in that district. Such advertisement along with all the requisite details must incorporate a statement to the effect that any person with his interest being affected by the proposed petition or having intentions with regards to either oppose or support the petition or reference at the hearing shall proceed with a notice, indicating the nature of interest and grounds of his opposition to the concerned Bench as well as the petitioner or his authorized representative, if any, aiming to reach him before two days prior to the day fixed for hearing.

An affidavit, in addition to the same, shall be filed to the Tribunal, before three days of the date fixed for original hearing at the Tribunal. Given the context, such affidavit must be instrumental to the petition that has been advertised in accordance with this rule and to any notices that have been duly served upon the persons required to be served. At the same time. It is equally important to keep in mind that such an affidavit must be accompanied by such proof of advertisement or of the service, as may be available.

  • Issuance of notice to auditor: As per Rule 77(5) of NCLT Rule 2016, the Tribunal while finding out that the present auditor is different and after considering the application and hearing the auditor and any other person as the Tribunal may deem fit, may pass appropriate order in the form of issuing notice and hearing the auditor of the original financial statement. 
  • On receipt of NCLT order: As per Rule 77(6) of NCLT Rule 2016, the Company after receiving the order from NCLT must file a certified copy of the order of the Tribunal to the ROC within 30 days of the date of receipt of the certified copy e-form INC-28. 

As per Rule 77(7) of NCLT Rules, 2016, a general meeting may be called and a notice of such general meeting along with reasons for the change in financial statements may be published in newspapers in both English as well as in vernacular languages.

  • General meeting: As per Rule 77(8) of NCLT Rules, 2016, a general meeting must be put up in consideration with the revised financial statements coupled with statements of directors as well as auditors for taking decisions on adoption of the revised financial statements.
  • Filing of INC-28: As per Rule 77(9) of NCLT Rules, 2016, the revised financial statements along with the statement of auditors or revised report of the Board, on approval of the general meeting, shall be filed with the Registrar of Companies within 30 days of the date of approval by the general meeting.

National Financial Reporting Authority under Companies Act, 2013

The establishment of National Financial Reporting Authority (NFRA) on 1st March 2018 by the approval of the Union Cabinet and capital market regulator, Securities Exchange Board of India (SEBI) as per the provision of Section 132 (1) of the 2013 Act has undoubtedly been a successful attempt towards quality enhancement in relation to the accounting and auditing standards within the corporate governance. Subsequently, the Ministry of Corporate Affairs (MCA) through its notification dated 21st March 2018, approved the establishment and functioning of the National Financial Reporting Authority (NFRA) under Section 132 of Companies Act 2013. As a result of which, the Authority functioning gets governed by National Financial Reporting Authority (Manner of Appointment and other terms and conditions of service of chairperson and members) Rules 2018. (hereinafter “NFRA Rules, 2018”).

Need for NFRA

Given the context, the exposure of the Satyam Case had been a wake-up call for the entire corporate governance to have an urgent requirement for an authority to cater to the interest of investors and ensure them with a true and fair view of financial statements of companies. In addition, all the recent financial scams and defaults on account of the debt of big market players worked as a fuel to the fire in that aspect. Apart from that, SEBI also suspended scripts of 132 listed companies under the Additional Surveillance Measure List for abnormal price rise and not supported by the fundamentals of the companies. Therefore, reiterating the need for an independent audit regulator had become the call of the hour.

Legal presence of NFRA & its powers & functions

As per Section 132 (2) of the Companies Act 2013, NFRA apart from recommending the Central Government on the formulation and laying down of accounting and auditing policies and standards for adoption by companies also monitors and enforces compliance with accounting standards and auditing standards. In addition, overseeing the quality of service in relation to the professions associated with ensuring compliance with such standards, and suggesting measures required for improvement in the quality of service shall also be governed by such authority. Moreover, as per Section 132 (4)(a) of the Companies Act 2013, NFRA has also been equipped with the power to investigate, either suo motu or based on any reference made to it by the Central Government in relation to the specified class of bodies corporate or persons, into matters with regards to professional or other misconduct committed by any member or firm of chartered accountants.

Composition of authority 

NFRA Rules, 2018 deal with the composition of such Authority being in conformity with Section 132 (3) of the Companies Act 2013. Given the said Rules, this Authority can have a maximum of fifteen members at a time which shall consist of the following members:

  1. A Chairperson who shall be the man of eminence, ability, integrity, must be equipped with the expertise and experience of not less than 25 years in the field of accountancy, auditing, finance, and law. 
  2. Three full-time members who shall possess the ability, integrity, and standing, must be equipped with expertise and experience not less than twenty years in the same field as the Chairperson.
  3. Nine part-time members who must not possess any such financial or other interest that can affect them prejudicially towards their functions as part-time members in the Authority. 

Penalty mechanism

In case, any professionals’ misconduct is proved, the authority as per the provision laid down in Section 132 (4) (c) of the 2013 Act, can pass an order for:

  1. Imposing the penalty of not less than one lakh rupees which may further increase five times to the fees received by the individuals and not more than ten lakh rupees which may further increase ten times of the fees received in case of firms. 
  2. Debarring the members or the firm from engaging himself or herself as practicing members of the Institute of Chartered Accountant of India (ICAI) for a period of minimum six months or a maximum period of ten years as decided by the Authority.  

Institute of Chartered Accountant of India (ICAI) vs. Ministry of Corporate Affairs (MCA)

Dissenting views, in this regard, have been expressed by the Institute of Chartered Accountant of India (ICAI) against the Ministry of Corporate Affairs (MCA) on the constitution of the National Financial Reporting Authority (NFRA). The major concern on such constitution delineated by ICAI in its Standing Committee depends upon the following three major pillars;

First of all, the establishment of NFRA in presence of ICAI would result in having two regulatory bodies governing the same audit profession causing duplication of efforts in the longer run. 

Secondly, the constitution of NFRA would indeed be a costly affair. On the other hand, the major purpose for constituting NFRA is to regulate audit quality and protect the public interest to a greater extent whereas ICAI has already been serving the public with the same purpose and objectives that too being the world-class regulator. Therefore, investing resources in constituting NFRA is definitely not a feasible option. 

Thirdly, the auditing standards that ICAI, as a world-class regulator provides, are more aligned to the needs of the market, and NFRA regulatory provision being new to the public must be examined properly for greater needs. Apart from that, ICAI also possesses sufficient regulatory, supervisory, organizational, and budgetary independence with respect to its audit profession. 

On the contrary, the MCA while reiterating its views on the subject matter enunciated that there exist inherent weaknesses with respect to the disciplining and enforcement concerns of the self-regulatory mechanism of ICAI. It, being on the longer run, deviates the MCA towards the need of establishing an independent regulator in the form of NFRA to serve in different jurisdictions. As far as the overlapping of jurisdictions is concerned, the MCA had cleared the air with the help of Section 132 (4) of the 2013 Act which, inter alia, defines that irrespective of any other law for the time being in force, the NFRA shall be empowered to investigate the matters of professional misconduct in terms of the body corporate or persons. It further goes on saying that once NFRA initiates action, no other institute or body shall initiate any proceedings in such matters of misconduct.

Conclusion

In consideration of the recent development in this regard, the National Financial Reporting Authority has emerged as an oversight body equipped with quasi-judicial authority to oversee matters with respect to professional misconducts of Auditors and Chartered Accountants. As compared to the other oversight bodies abroad such as the Financial Services Authority (FSA) in the United Kingdom and the Public Company Accounting Oversight Board (PCAOB) in the United States, NFRA is pretty similar in application. However, considering the issues relating to conflict of mandate with regard to disciplinary matters between the NFRA and ICAI, the introduction of NFRA seems to be an important step towards building a transparent mechanism for accounting, auditing, and financial reporting. Unlike the earlier advisory body, National Advisory Committee on Accounting Standards (NACAS), NFRA has rather been empowered to regulate the accounting standards and auditing policies in terms of investigating certain matters related to professional misconduct by chartered accountants in corporate bodies, if the necessity arises for the same. Therefore, with the vision of financial reporting for effective corporate governance, the constitution of the National Financial Reporting Authority (NFRA) appears to play an important role. 


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