As part of the government’s effort to strengthen oversight of the audit profession, the Union Cabinet on Thursday paved the way for an independent regulator, which can now investigate both chartered accountants and their firms.

The move comes nearly five years after the company law provided for such a body to strengthen oversight of the audit profession, which is facing flak for some large financial frauds in corporate and banking sector.

Separately, the Cabinet gave its nod for The Fugitive Economic Offenders Bill, 2018 to re-establish the rule of law with respect to fugitive economic offenders.

Till date, there was no legal framework to punish errant CA firms, but now the National Financial Reporting Authority (NFRA) will fill this legal lacuna.

However, the NFRA’s scope is being limited to cover CAs and CA firms involved in audit of listed companies and certain large unlisted companies.

Dilution of ICAI’s powers

In effect, the Institute of Chartered Accountants of India’s (ICAI) current disciplinary mechanism framework is not being replaced by the NFRA, but only diluted to restrict its jurisdiction to the CAs of small companies and other categories of firms.

Simply put, the oversight of auditors in respect of all public interest entities is being shifted to the NFRA, which will have a Chairman, three full-time members and a Secretary.

“The rules on the NFRA to be issued will prescribe the threshold of large unlisted companies. The NFRA will certainly be an oversight body,” said Finance Minister Arun Jaitley after the Cabinet meeting.

The Centre will also refer to the NFRA such other entities for investigation where public interest would be involved, said a senior government official.

ICAI President Naveen Gupta told BusinessLine that the Institute will wait for the NFRA rules before coming to any conclusion on whether the Institute has lost its oversight powers on its members.

Fugitive economic offenders

The Fugitive Economic Offenders Bill, 2018, according to Jaitley, will be introduced in Parliament in the second leg of the ongoing Budget Session. Its enactment will force fugitive economic offenders to return to India to face trial for scheduled offences.

This would also help banks and other financial institutions achieve higher recovery from financial defaults committed by such fugitive economic offenders.

Cases in which the total value involved in such offences is ₹100 crore or more will come under the purview of this Bill

The Bill will help in laying down measures to deter economic offenders from evading the process of Indian law by remaining outside the jurisdiction of Indian courts..

All cases under this proposed law will be tried under the PMLA Act and the administrator will sell the fugitive’s properties to pay off the lenders. It will override all other legislation, and will lead to confiscation of all the assets (including benami assets) of the fugitive in India.

The Bill provides for application before the Special Court for a declaration that an individual is a fugitive economic offender.