Day 1 – Q 4. The government has recently decided to operationalise the National Financial Regulatory Authority(NFRA). What would be the functions of this organisation and why is it needed? Discuss.
4. The government has recently decided to operationalise the National Financial Regulatory Authority (NFRA). What would be the functions of this organisation and why is it needed? Discuss.
4. सरकार ने हाल ही में राष्ट्रीय वित्तीय नियामक प्राधिकरण (एनएफआरए) को कार्यान्वित करने का फैसला किया है। इस संगठन के कार्य क्या होंगे और इसकी आवश्यकता क्यों है? चर्चा करेंI
Approach:
- The main body will have two parts- functions of NFRA and its need.
- Introduction and conclusion is any answer is must.
- Relating the answer with recent turn of events (especially PNB scam) is must- to explain why the government has decided to operationalise the NFRA after the delay.
Answer:
Introduction:
The Companies Act, 2013 proposed setting up of an independent audit regulator. However, the Union Cabinet has only recently approved the proposal for establishment of the National Financial Regulatory Authority (NFRA).
Main Body:
Functions of the organisation:
- Powers includes its ability to investigate, impose penalty and banning operations of auditors and audit firms.
- Setting the rules and regulations governing the audit sector.
- The NFRA will have the power to debar erring auditors or audit firm for up to 10 years and impose significant fines on them.
The jurisdiction of NFRA for investigation of Chartered Accountants and their firms would extend to listed companies and large unlisted public companies.
Need:
- The decision appears to have been prompted by the latest bank scam, the Punjab National Bank fraud, that went undetected by auditors.
- Loopholes in exisitng regulatory mechanism. Institue of Chartered Accountant (ICAI) has been inefficient in tackling corruption and/or negligence shown by the auditors.
- Global coherence- Most of the major economies of the world have independent audit regulators and umbrella bodies have come up that have provided an element of cohesion to these regulators.
Impact:
The decision is expected to result in-
- Improved foreign/domestic investments and enhancement of economic growth.
- Supporting the globalisation of business by meeting international practices.
- Assist in further development of audit profession.
Conclusion:
Operationalisation of NFRA is a step in the right direction and will help in reinstating the confidence of stakeholders and regulators. However, for its success it must be ensured that the body remains operationally independent, its decisions are subject to scrutiny and are transparent and its members maintain highest level of independence and prohibit conflicts of interest.
Best answer: Deadpool
