Context:
The National Financial Reporting Authority (NFRA) has furthered its legal endeavor by filing a special leave petition in the Supreme Court against the decision of the Delhi High Court to quash 11 showcause notices because of procedural irregularities. The development occurs in light of increasing scrutiny of audit practice and attempts for reinforcing governance in finance.
About National Financial Reporting Authority (NFRA)
National Financial Reporting Authority (NFRA) is the auditing and accounting supervision authority of India. The authority oversees the auditing profession and the Indian Accounting Standards under the Companies Act 2013. It was formed in October 2018. The chairperson since March 2022 is Ajay Bhushan Pandey.
Important Developments
Criticism of NFRA’s Procedure by Delhi High Court
- The Delhi HC upheld the constitutionality of the NFRA but stated that its process lacked neutrality in the IL&FS audits.
- The court stressed the need for a clear distinction of role between:
- Reviewing an audit (fact finding process)
- Beginning disciplinary proceedings (penal action)
NFRA Justification & Supreme Court Appeal
- NFRA asserts that the executive arm has got full power in law to order disciplinary actions under Sec 132(2)(B) of the Companies Act.
- It referred to findings of earlier rulings by NCLAT and Supreme Court whereby its framework on handling audit violations was ruled for the most part to be acceptable.
Further Empowerment of the NFRA: Government’s Next Steps
- Applications for the important leadership roles in NFRA have been opened by the Centre, demonstrating the efforts to strengthen regulatory oversight:
Its restructuring will enhance NFRA credibility in the face of mounting audit failures and financial mismanagement.
