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Showing contexts for: internal auditor in Federation Of Chartered Accountants ... vs Union Of India And Ors. on 7 February, 2025Matching Fragments
ICAI Specific aspects to regulate audit quality include integration of financial statement reporting with Internal Financial Controls, restrictions on auditors rendering conflicting services, audit rotation, audit limits and penalties on the audit profession have been included in the new Act. Similarly entity level discipline is sought to be enhanced by significant controls over related party transactions, acceptance of deposits, code of independent directors, mandatory internal audits for large enterprises, enhanced board responsibility etc. These controls enshrined in the Act, in addition to the efforts of ICAI will enable higher audit quality especially for public interest entities. Incremental benefits by creating NFRA need to be reexamined before notification of Section 132.
132.Constitution In section 132 a) after sub- 132. Constitution of of Natural of the principal section (1), the National Financial Financial Act,-- following sub- Reporting Authority.
Reporting section shall
(i) in sub- (1) The Central
Authority.-- (1) section (4), in be inserted, Government may,
The Central clause (c), in namely-- by notification,
Government may, sub-clause (A), "(1-A) The constitute a National
by notification, in item (II), for National Financial Reporting
constitute a the words Financial Authority to provide
National Financial Reporting for matters relating to
Reporting "ten lakh
Authority shall accounting
Authority to rupees", the
perform its and auditing
provide for matters words "five lakh functions through standards under this
relating to rupees" shall be such divisions as Act.
accounting and substituted; may be (1A)
auditing standards (ii) in sub- The National
under this Act. section (5), for prescribed."; Financial Reporting
the words, Authority shall
brackets and perform its functions
(2) figure "the (b) after sub- through such
Notwithstanding Appellate section (3), the divisions as may be
anything contained Authority following sub- prescribed.]
in any other law for sections shall
the time being in constituted (2) Notwithstanding
be inserted,
force, the National under sub- anything contained in
namely--
section (6) in any other law for the
Financial such manner as "(3-A) Each time being in force,
Reporting may be division of the the National Financial
Authority shall-- prescribed", the National Reporting Authority
Financial
(a) make words shall--
Reporting
recommendations "the Appellate Authority shall be (a) make
to the Central Tribunal in such recommendations to
presided over by
Government on the manner and on the Central
the Chairperson
formulation and payment of such
or a full-time Government on the
laying down of fee as may be formulation and laying
Member
accounting and prescribed" authorised by the down of accounting
auditing policies shall and auditing policies
be Chairperson.
and standards for substituted; and standards for
(3-B) There shall adoption by
adoption by
be an executive companies or class of
companies or class
body of the companies or their
of companies or (iii) sub-
National auditors, as the case
their auditors, as sections (6), (7), Financial may be;
the case may be; (8) and (9) shall
Reporting
be omitted. (b) monitor and
(b) monitor and Authority
enforce the
enforce the consisting of the
compliance with Chairperson and compliance
with accounting
accounting full-time
standards and Members of such standards and auditing
for standards in such
auditing standards Authority
manner as may be
in such efficient
discharge of its prescribed;
manner as may be functions under (c) oversee the quality
prescribed; sub-section (2) of service of the
(c) oversee the [other than clause professions associated
quality of service (a)] and sub- with ensuring
of the professions section (4)."; compliance with such
associated with (c) in sub-section standards, and suggest
ensuring (4), in clause (c), measures required for
sub-clause improvement
compliance with in
for
such standards, and (B), the following quality of service and
suggest measures sub-clause shall such other related
required for be substituted, matters as may be
improvement in namely-- prescribed; and
quality of service "(B) debarring the (d) perform such other
and such other member or the functions relating to
related matters as firm from-- clauses (a), (b) and
may be prescribed; I. being appointed (c) as may be
and as an auditor or prescribed.
(d) perform such internal auditor or (3) The National
other functions undertaking any Financial Reporting
relating to clauses audit in respect of Authority shall consist
(a), (b) and (c) as financial of a chairperson, who
may be prescribed. statements or shall be a person of
internal audit of eminence and having
the functions and expertise in
(3) The National activities of any accountancy, auditing,
Financial company or body finance or law to be
Reporting corporate; or appointed by the
Authority shall Central Government
II. performing any
consist of a and such
valuation as
chairperson, who other members not
provided under
shall be a person exceeding fifteen
Section 247, for a
of eminence and consisting of part-time
minimum period
having expertise in of six months or and full-
accountancy, such higher time members as may
auditing, finance or be prescribed:
period not
law to be appointed exceeding ten [(3A) Each division of
by the Central years as may be the National Financial
Government and determined by the Reporting Authority
such other National shall be presided over
members not Financial by the Chairperson or
exceeding fifteen Reporting a full-time Member
consisting of part- Authority.". authorised by the
time and full-time Chairperson.
members (3B) There shall be an
as may be executive body of the
prescribed: National Financial
Reporting Authority
Provided that the consisting of the
terms and Chairperson and full-
conditions and the time Members of such
manner of Authority for efficient
appointment of the discharge of its
chairperson and functions under sub-
members shall be section (2) [other than
such as may be clause (a)] and sub-
prescribed: section (4).]
Provided further Provided that the
that the chairperson terms and conditions
and members shall and the manner of
make a declaration appointment of the
to the Central chairperson
and members shall be
Government in the
such as may be
prescribed form
prescribed:
regarding no
conflict of interest Provided further that
or lack of the chairperson
independence in and members shall
respect of make a declaration to
the Central
his or their
Government in
appointment:
the prescribed form
Provided also that regarding no conflict
the chairperson and of interest or lack of
members, who are independence in
in full-time respect of his or their
employment with appointment:
National
Provided also that the
Financial chairperson
Reporting and members, who are
Authority shall not in full-time
be associated with employment with
any audit firm National Financial
(including related Reporting Authority
consultancy shall not be associated
firms) during the with any audit firm
course of their (including related
appointment and consultancy firms)
two years after during the course of
ceasing to hold their appointment and
such appointment. two years after ceasing
to hold such
appointment.
(4) (4) Notwithstanding
Notwithstanding anything contained in
anything contained any other law for the
in any other law for time being in force,
the time being in the National Financial
force, the National Reporting Authority
Financial shall--
Reporting (a) have the power to
Authority shall-- investigate, either suo
(a) have the power moto or on a reference
to investigate, made to it by the
either suo motu or Central Government,
on a reference for such class of
made to it by the bodies corporate or
Central persons, in such
manner as may be
Government, for
prescribed into the
such class of
matters of professional
bodies corporate or
or other misconduct
persons, in such
committed by any
manner as may be
member or firm of
prescribed into
chartered accountants,
the matters of registered under the
professional or Chartered Accountants
other misconduct Act, 1949:
committed by any
Provided that no other
member or firm of
institute or body shall
chartered
initiate or continue any
accountants, proceedings in such
registered under the matters of misconduct
Chartered where the National
Accountants Act, Financial Reporting
1949 ( 38 of 1949): Authority has initiated
Provided that no an investigation under
other institute or this section;
body shall initiate (b) have the same
or continue any powers as are vested
proceedings in such in a civil court under
matters the Code of Civil
of misconduct Procedure, 1908,
where the National while trying a suit, in
Financial respect of the
Reporting following matters,
Authority has namely:-
initiated an (i) discovery and
investigation under production of books of
this section; account and
other documents, at
(b) have the same such place and at such
powers as are time as may be
vested in a civil
court under the specified by the
Code of Civil National Financial
Procedure, 1908 ( Reporting Authority;
5 of 1908), while (ii) summoning and
trying a suit, in enforcing the
respect of the attendance of persons
following matters, and examining them
namely:-- on oath;
(i) discovery and (iii) inspection of any
production of books, registers and
books of account other documents of
and other any person referred to
documents, at such in clause (b) at any
place and at place;
such time as may (iv) issuing
be specified by the commissions for
National Financial examination of
Reporting witnesses
Authority; or documents;
(ii) summoning and (c) where professional
enforcing the or other misconduct is
attendance of proved, have the
persons and power to make order
examining them on for--
oath; (A) imposing penalty
(iii) inspection of of--
any books, (I) not less than one
registers and other lakh rupees, but which
documents of any may extend to five
person referred to times of the fees
in received, in case of
clause (b) at any individuals; and not
place; less than 1[five lakh
rupees], but which
(iv) issuing
may extend to ten
commissions for
times of the fees
examination of
received, in case of
witnesses or
firms;
documents;
[(B) debarring the
(c) where
member or the firm
professional or
from--
other misconduct is
proved, have the I. being appointed as
power to make an auditor or internal
order for-- auditor or undertaking
any audit in respect of
(A) imposing
financial statements or
penalty of--
internal audit of the
(I) not less than one functions and
lakh rupees, but activities of
which may extend any company or body
to five times of the corporate; or
fees received,
II. performing any
in case of valuation as provided
individuals; and under section 247, for
(II) not less than a minimum period of
ten lakh rupees, but six months or such
which may extend higher period not
to ten times of the exceeding ten years as
fees received, may be determined by
the National Financial
in case of firms; Reporting Authority.]
(B) debarring the Explanation.-For the
member or the firm purposes of his sub-
from engaging section, the expression
himself or itself "professional or other
from practice as misconduct" shall
member of the have the same
Institute of meaning assigned to it
Chartered under section 22 of the
Accountant of Chartered Accountants
India referred to in Act, 1949.
clause (e) of sub- (5) Any person
section aggrieved by any order
(1) of section 2 of of the National
the Chartered Financial Reporting
Accountants Act, Authority issued under
1949 (38 of 1949) clause (c) of sub-
for a minimum section (4), may prefer
period of six an appeal
before [the Appellate
months or for such Tribunal in such
higher period not manner and on
exceeding ten years payment of such fee as
as may be decided may be prescribed].
by the National
(6)[Omitted]
Financial
Reporting (7)[Omitted]
Authority. (8)[Omitted]
Explanation.--For (9)[Omitted]
the purposes of this (10) The National
sub-section, the Financial Reporting
expression Authority shall meet at
"professional or such times and places
other misconduct" and shall observe such
shall have the same rules of procedure in
meaning assigned regard to the
to it under section transaction of business
22 of the Chartered at its meetings in such
Accountants Act, manner as may be
1949 ( 38 prescribed.
of 1949). (11) The Central
Government may
appoint a secretary and
(5) Any person such other employees
aggrieved by any as it may consider
order of the necessary for the
National Financial efficient performance
Reporting of functions by the
Authority issued National Financial
under Reporting Authority
clause (c) of sub- under this Act and the
section (4), may terms and conditions
prefer an appeal of service of the
before the secretary and
Appellate employees shall be
Authority such as may be
constituted under prescribed.
sub- (12) The head office
section (6) in such of the National
manner as may be Financial Reporting
prescribed. Authority shall be at
New Delhi and the
National Financial
(6) The Central Reporting Authority
Government may, may, meet at such
by notification, other places in India as
constitute, with it deems fit.
effect from such (13) The National
date as may be Financial Reporting
specified therein, Authority shall cause
an Appellate to be maintained
Authority such books of
consisting of a account and other
chairperson and not books in relation to its
more then two accounts in such form
other and in such manner as
the Central
members, to be
Government may, in
appointed by the
consultation with the
Central
Comptroller and
Government, for
Auditor-General of
hearing appeals
India prescribe.
arising out of the
orders of the (14) The accounts of
the National Financial
National Financial
Reporting Authority
Reporting
shall be audited by the
Authority.
Comptroller and
Auditor-General of
(7) The India at such intervals
qualifications for as may be specified by
appointment of the him and such accounts
chairperson and as certified by the
members of the Comptroller and
Appellate Auditor-General of
Authority, India together with the
audit report thereon
the manner of shall be forwarded
selection, the terms annually to the Central
and conditions of Government by the
their service and National Financial
the requirement of Reporting Authority.
the supporting
(15) The National
staff and procedure Financial Reporting
(including places of Authority shall
hearing the prepare in such form
appeals, form and and at such time for
manner in which each financial year as
the appeals shall may be prescribed its
be filed) to be annual report giving a
followed by the full account of its
Appellate activities during
Authority shall be the financial year and
such as may be forward a copy thereof
prescribed. to the Central
Government and the
Central Government
(8) The fee for shall cause the annual
filing the appeal report and the audit
shall be such as report given by the
may be prescribed. Comptroller and
Auditor-General of
India to be laid before
(9) The officer each House of
authorised by the Parliament.
Appellate
Authority shall
prepare in such
form and at such
time as
may be prescribed
its annual report
giving a full
account of its
activities and
forward a copy
thereof to the
Central
Government and
the Central
Government shall
cause the annual
report to be laid
before each
House of
Parliament.
(10) The National
Financial
Reporting
Authority shall
meet at such times
and places and
shall
observe such rules
of procedure in
regard to the
transaction of
business at its
meetings in such
manner as
may be prescribed.
(11) The Central
Government may
appoint a secretary
and such other
employees as it
may consider
necessary for the
efficient
performance of
functions by the
National Financial
Reporting
Authority under
this Act and the
terms and
conditions of
service of the
secretary and
employees shall be
such as may be
prescribed.
(12) The head
office of the
National Financial
Reporting
Authority shall be
at New Delhi and
the
National Financial
Reporting
Authority may,
meet at such other
places in India as it
deems fit.
(13) The National
Financial
Reporting
Authority shall
cause to be
maintained such
books of account
and other books in
relation to its
accounts in such
form and in such
manner as the
Central
Government
may, in
consultation with
the Comptroller
and Auditor-
General of India
prescribe.
(14) The accounts
of the National
Financial
Reporting
Authority shall be
audited by the
Comptroller and
Auditor-General of
India at such
intervals as may be
specified by him
and such accounts
as certified by the
Comptroller and
Auditor-General of
India together with
the audit report
thereon shall be
forwarded annually
to the Central
Government by the
National Financial
Reporting
Authority.
(15) The National
Financial
Reporting
Authority shall
prepare in such
form and at such
time for each
financial year as
may be prescribed
its annual report
giving a full
account of its
activities during the
financial year and
forward a copy
thereof to the
Central
Government and
the Central
Government shall
cause the annual
report and the audit
report given by the
Comptroller and
Auditor-General of
India to be laid
before each House
of Parliament
31. Pursuant to the provisions contained in clauses (2) and (3) of Rule 3, every existing body corporate other than a company governed by that Rule is obliged to furnish the particulars of its auditors in Form NFRA-I.
32. Apart from the various functions and obligations which have been placed upon the NFRA by virtue of Section 132(2), one of its principal statutory responsibilities is to undertake an investigation and inquiry in respect of professional or other misconduct. This power flows from sub-section (4) of Section 132 which empowers the NFRA to undertake disciplinary action against a member or firm of chartered accountants registered under the CA Act. By virtue of the Proviso appended to Section 132(4), no institute or body is entitled to initiate or continue proceedings in respect of misconduct once the NFRA has commenced an investigation in terms of that Section. Section 132(4) thus confers a power upon the NFRA to initiate an investigation either suo moto or on a reference made to it by the Union Government. The penalties which it could impose, in case where professional or other misconduct is proved, is set out in Section 132(4)(c). As is manifest from a reading of that provision, the NFRA stands empowered to impose not just monetary penalties but also debar a member or the firm from being appointed as an auditor, internal auditor or undertaking an audit in respect of financial statements of any company or body corporate for a minimum period of six months or such larger period not exceeding 10 years as may be determined by the NFRA.