Off-late, everyone seems to be talking about National Financial Reporting Authority or rather by its abbreviated name NFRA. The foundation for the constitution of 'National Financial Reporting Authority' (NFRA), was laid down in the Companies Act, 2013. Under Section 132 of the Companies Act, 2013, the Central Government has been empowered to constitute NFRA, by way of a notification.
The Union Cabinet has already approved the proposal to constitute NFRA on 1st March 2018, and it is only a matter of time now, when the official notification in this regards, will be issued.
NFRA is being perceived as an Independent Regulatory Body, and an Oversight Body, over and above the autonomous body of the Institute of Chartered Accountants of India (ICAI), to monitor and supervise regulatory functions w.r.t. the listed and big unlisted corporate entities and it is fully empowered to penalize the members and CA Firms, found guilty of any professional misconduct. However, the day-to-day, regulatory functions, will continue to be undertaken by the ICAI.
The creation of such a super-regulatory body of NFRA, over and above the existing regulatory body of ICAI, will definitely not make any difference to an honest, sincere and diligent member of ICAI. But yes, the negative perception being created about the image of the noble profession of Chartered Accountancy, by a few quarters, and the consequential lack of trust, are definitely, a cause of worry and must be appropriately addressed by the Government at the earliest.
It is being said that the very recent Nirav Modi/Mehul Choksi scam, perpetrated in one of the Mumbai branch of Punjab National Bank, has acted as a catalyst in expediting the constitution of NFRA. It is also being spread that there is a trust deficit being shown by the Government, against ICAI and the Chartered Accountants Fraternity.
However, the adverse impact of this imaginary negative perception on the minds of millions of young and enthusiastic students pursuing Chartered Accountancy curriculum as their chosen career path, must be understood in all its objectivity and rationality and must be taken seriously by all the stakeholders including the Government.
No doubt that scams like these, do indicate that a more cautious and vigilant audit approach is required and expected from the auditors. However, at the same time, spreading negative perception about the constitution of NFRA as an outcome of attributing the occurrence of such a scam, to the role of the auditor, will be highly irrational, illogical and unjustified.
Scams like these are classic examples of opportunists spreading falsehoods about the comparatively soft and vulnerable targets, and unfortunately, in this case, the ICAI and the entire CA fraternity, has also become that vulnerable and soft target.
It is really very convenient to blame the auditor for not detecting such a scam or fraud, but that will be highly simplistic and superficial approach. The fact of the matter is that given the present framework of practical limitations on the scope of audit coupled with the limited time frame, it is practically very difficult, if not impossible, to be able to detect and report, such a well knitted and carefully schemed arrangement devised with the help of collusion of the banking officials themselves. It is practically impossible to examine any irregularity, (which in this case was unauthorized issue of Letter of Undertakings (LOUs), not backed by any collaterals), especially when it is not at all reflecting in the Core Banking System (CBS) of a bank, and the entire scheme of things was executed, by a unique and peculiar method of SWIFT, operating entirely outside the CBS. The lacunae and inherent weaknesses in the banking system were fully capitalized and exploited by the perpetrators of the said scam, who were fully aware and informed of such inherent lacunae.
It needs to be appreciated that in every agency, institution or profession, be it Banks, Political Parties, Beurocracy, Taxation Authorities and Professions like Chartered Accountancy, Company Secretaries, Legal and Medical, the presence of a few corrupt personnel/officials/practitioners, is an unfortunate but undeniable fact. But will it be fair and justifiable to simply generalize that all such agencies, institutions and professions are corrupt?
In Banking System, even a super regulatory body like RBI could not prevent the occurrence of such a massive scam in PNB. No-body can deny that the primary responsibility for this scam lies with the few banking officials of the PNB (who directly issued or indirectly facilitated issue of unauthorized LOUs without any collaterals, via SWIFT, as well as few colliding officials of overseas branches of other Banks, who, blindly and blatantly, honoured such unauthorized LOUs, without doing the due diligence of KYC norms and credentials and creditworthiness of the defaulter and facilitated perpetration of this schematic scam. Also, the non-accomplishment of the expected positive results from Demonetization can also be attributed to vested interests of a few banking officials.
Talking about Political System and Bureaucracy, nobody can deny the nexus of a few corrupt politicians and bureaucrats, in facilitating and enabling the perpetration of this schematic scam. Otherwise also, the widely prevalent corruption in funding of all political parties is an open but unsaid truth.
Similarly, the unreasonable and high-handed approach being granted to a common man, by a few officials in Taxation Authorities be it Income Tax Department, Sales Tax/GST Department/ Customs & Excise Department, for want of fulfillment of their vested interests, is an unfortunate but universal truth.
Talking about Legal Profession, the very same Nirav Modi, Mehul Choksi, who have been declared as absconded fraudsters, are being represented by Lawyers, but obviously, nobody can and infact should not question their integrity, as they are doing it as a part of their profession.
The progressive measures, being undertaken by the Government in curbing corruption, have always been taken in positive spirit by honest and diligent members of ICAI, and as such the constitution of NFRA, will infact reinforce and reinstate the perception about the dignity and integrity of the noble profession of Chartered Accountancy. However, having said that, the Government must not be selective in its sincere endeavors of curbing corruption, and as such the need of the hour is to constitute and create similar regulatory bodies(like NFRA) for Nationalized Banks, Bureaucracy, Political Parties, Taxation Authorities and even Medical, Legal and Companies Secretary Professions. Then only the Government's Objective of 'Sabka Saath Sabka Vikas, without any Discrimination' will be achieved and accomplished, in true spirit.
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