In a significant development impacting India’s audit and accounting sector, the Supreme Court (SC) has allowed the National Financial Reporting Authority (NFRA) to proceed with disciplinary cases against chartered accountants (CAs) and audit firms, even in instances where Audit Quality Review Reports (AQRRs) have not been prepared and final orders have not yet been passed.
A bench including Chief Justice Sanjiv Khanna and Justice Sanjay Kumar asked that NFRA should not issue a final order in these matters for now. Also, any final orders already passed shall not be provided effect till any other directives from the court have been issued.
Case Between NFRA Vs. Delhi HC
The judgment of the SC arrived in answer to the NFRA appeal against a Delhi High Court (HC) order by Justices Yashwant Varma and Dharmesh Sharma, which raised concerns about the NFRA’s absence of structural divisions to separate audit quality reviews from disciplinary actions. The high court had asked for a fresh evaluation in 11 cases questioning the approach of NFRA.
But NFRA argued in the Apex court that the Delhi HC judgment had opposed previous judgments by the National Company Law Appellate Tribunal (NCLAT) and the SC itself.
DHFL Auditor Proceedings
NFRA quoted the ruling of the Apex court in the case of T.K. Harish, a branch auditor of Dewan Housing Finance Corporation Ltd. (DHFL), where a huge financial fraud was under analysis. Authorities are investigating an alleged siphoning of Rs 31000 crore in public funds and a bank fraud of ₹3,700 crore.
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In its appeal concerning auditor Snehal N. Muzoomdar, NFRA said that the Delhi HC order had made an aberration. While the SC had kept proceedings against one branch auditor of DHFL, the Delhi HC quashed proceedings against an engagement partner of another branch auditor of the same company.
What Will Take Place Next?
The interim relief of the Apex court permits the NFRA to carry out its investigation, upholding the final decision on hold. The judgment in this matter is anticipated to specify a significant precedent on audit regulation, oversight, and accountability in the financial system of India.
With the move of the statutory proceedings, all people are anticipating the final judgment of SC which can reshape the powers of NFRA and the compliance structure for the chartered accountants and audit firms.
