ICAI & NFRA
Institute of Chartered Accountants of India (ICAI)
The Institute of Chartered Accountants of India (ICAI) is the national professional accounting body of India. It was established to regulate the profession of Accountancy. It is the only licensing cum regulating body of the financial audit and accountancy profession in India. It recommends the accounting standards to be followed by companies in India to National Advisory Committee on Accounting Standards (NACAS).
Companies Act, 1913 passed in pre-independent India prescribed various books which had to be maintained by a Company registered under that Act.
It also provided for the appointment of a formal Auditor with prescribed qualifications to audit such records. In order to act as an auditor a person had to acquire a restricted certificate from the local government upon such conditions as may be prescribed.
The expert committee appointed in 1947, recommended that a separate autonomous association of accountants should be formed to regulate the profession.
Government of India accepted the recommendation and passed the Chartered Accountants Act in 1949.
Under Section 3 of the said Act, ICAI is established as a statutory body.
It functions under the administrative control of the Ministry of Corporate Affairs, Government of India.Affairs of the ICAI are managed with the provisions of the Chartered Accountants Act, 1949 and the Chartered Accountants Regulations, 1988.
ICAI is one of the founder members of the International Federation of Accountants (IFAC, 1977), South Asian Federation of Accountants (SAFA, 1984), and Confederation of Asian and Pacific Accountants (CAPA, 1957).
ICAI Council: Affairs of the Institute is undertaken by a Council constituted under the Chartered Accountants Act, 1949.
The Council consists of 32 elected fellow members and up to 8 members nominated by the Government of India.
The elected members of the council are elected under the single transferable vote system by the members of the institute.
The Council functions through its 4 Standing Committees and 37 Non-Standing Committees.
Membership: Members of the Institute are known as Chartered Accountants (CA). Becoming a member requires passing the prescribed examinations, three years of practical training and meeting other requirements under the Act and Regulations. Functions of CA are following:
Chartered Accountants enjoy a statutory monopoly in audit of financial statements under the Companies Act, 2013, Income Tax Act, 1961
Areas of expertise include Financial Reporting, Auditing and Assurance, Corporate Finance, Investment Banking, Financial Modelling, Equity Research. Fund Management, Credit Analysis, Capital Markets, Arbitration, Risk Management, Economics, Strategic/Management Consultancy, Management Accounting, Information Systems Audit, Corporate Law, Direct Tax, Indirect Tax and valuation of businesses.
Accounting Research Foundation (ARF): ICAI Accounting Research Foundation (ICAI ARF) has undertaken and completed various basic and applied research projects. It also provides financial assistance to researchers / scholars for undertaking basic research projects of contemporary national/ international significance in the aforesaid areas.
ICAI provides technical advice and necessary inputs on matters of economic relevance and alike to various Ministries such as Ministry of Corporate Affairs, Ministry of Commerce & Industry, Ministry of Finance, Ministry of Railways etc.
ICAI also provides technical advice to various bodies such as – Comptroller and Auditor General of India, Controller General of Accounts, Reserve Bank of India, Securities and Exchange Board of India, Central Board of Direct Taxes, Central Board of Excise & Customs, GST Council, Insurance Regulatory & Development Authority etc.
It has provided comprehensive suggestions at each stage of GST implementation, be it Constitutional Amendment Bill, Model GST Law, Revised Model GST Law, Draft GST Rule or Post implementation of GST.
Indian Institute of Insolvency Professionals of ICAI (IIIPI), a wholly owned subsidiary of the ICAI, is a Section 8 Public Company established to enrol and regulate insolvency professionals as its members in accordance with the Insolvency and Bankruptcy Code, 2016 read with regulations and rules incidental thereto.
Quality Review Board: Under Section 28A of the Chartered Accountants Act, 1949, as inserted by the Chartered Accountants (Amendment) Act, 2006, the Central Government is empowered to constitute a Quality Review Board consisting of a Chairperson and ten other members.
The Board reviews and recommends to the Council of the ICAI with regard to the quality of services provided by the members of Institute including audit services.
Disciplinary Mechanism: The Disciplinary Directorate, the Board of Discipline, and the Disciplinary Committee form the foundation of the disciplinary process of the ICAI. These entities are quasi-judicial and have substantial powers like that of a Civil Court to summon and enforce attendance or require discovery and production of documents on affidavit or otherwise.
International Affairs: The International Affairs Committee of ICAI has the multi fold objective of positioning brand Indian CA at the global level by establishing Qualification Recognition Arrangements with accounting bodies (like The Institute of Chartered Accountants in England and Wales(ICAEW), Certified Public Accountants of Australia(CPA Australia) etc.).
National Financial Regulatory Authority (NFRA)
NFRA is an Indian body provided in Companies Act 2013 for the establishment and enforcement of accounting and auditing standards and oversight of the work of auditors.
As per the Companies Act, 2013 the NFRA is tasked with the job of recommending accounting and auditing standards, ensuring compliance with them and overseeing the quality of service of the accounting and audit professions.
It has also been given the power to investigate matters of professional misconduct by chartered accountants or CA firms, impose penalty and debar the CA or firm for up to 10 years.
Evolution of NFRA
The world over more than 50 countries have moved away from self-regulatory professional accountant bodies (like ICAI) and created independent audit regulators (like NFRA).
In India, the move to set up a new oversight body for the accounting and audit professions was approved by a parliamentary panel. After the Satyam scandal took place in 2009, the Standing Committee on Finance proposed the concept of the National Financial Reporting Authority (NFRA) for the first time.
Indian Parliament passed The Company Act 2013 (amendment) with inclusion of NFRA (section 132).
Act states that “no other institute or body shall initiate or continue any proceedings in such matters of misconduct where the NFRA has initiated an investigation.”
ICAI, a self-regulatory body, has had the monopoly on training and qualifying chartered accountants, giving them license to practice and regulating them including scrutinising audit quality. Establishment of NFRA was a case of departing of powers from ICAI.
Opposition by the ICAI has been a key reason why the government has delayed notifying the NFRA rules.