A few days ago, the Cabinet approved the National Financial Reporting Authority (NFRA). As reported in the media, it will have an oversight over the audit of listed and big private companies and the Institute of Chartered Accountants of India (ICAI) will have a jurisdiction over the rest.
Now we have a few questions: Will the formation of an institution like the NFRA stop financial fraud in the country? A bigger question: Will, by doing this, the government, including the bureaucracy, stop blaming chartered accountants for their wrongdoings?
We already have many agencies like the SFIO (Serious Fraud Investigation Organisation), Central Bureau of Investigation (CBI), Enforcement Directorate (ED), Directorate of Revenue Intelligence of Income Tax and many more. To pass the NFRA, the PNB fraud was very cleverly termed as ‘accounting fraud’, which it was not. For the past one year, chartered accountants were blamed in a very planned and systematic manner for the failure of everything from demonetisation to black money to GST issues to Nirav Modi and other similar matters. Even if we ignore these things, the question will remain the same: Will this NFRA stop financial frauds? The answer is a big ‘no’. This has many reasons.
The NFRA has been constituted taking a cue from the United States where structural changes in the system were made after the Lehman Brothers fallout. We have completely ignored the Indian perspective. PriceWaterhouseCoopers (PWC) or Ernst & Young (EY) or any of the four big firms is much bigger than the ICAI.
After all, the NFRA will be run by people who are either from administrative services or they otherwise have a great knowledge of what a CA is doing today. Probably, we are in a process of creating another ‘very honest’ organisation like the income tax, custom etc!
To function as per the mandate, are we seriously to provide such a big infrastructure to the NFRA? It is important to note that, to date, we are yet to provide the requisite infrastructure to our judiciary system or the SFIO or CBI.
Creating an agency does not mean resolution of an issue. This agency is getting created to give the government a temporary relief.
What is the solution then? It would be better if we can do the following.
- Revisit the CA Act and make changes there. Give some teeth to the toothless tiger
- Sack the whole ‘central council’ team of the ICAI for a proper functioning of CAs
- Make mandatory the allotment of bank audit by the Reserve Bank; companies’ audit by the Registrar of Companies and many more.
Nobody in history has ever challenged or passed a CA exam by fraudulent means.
The answer to the second question is ‘never’. We live in such a society where blaming others for one’s own wrongdoing is quite natural. It becomes a more attractive proposition when a section of the population become a vote bank. While authority comes with responsibility, there is no point making one responsible without giving him the authority. We need to change our mindset.
When the income tax authority writes something to a taxpayer, it is called a notice or an order. When the taxpayer answers or writes something, it is termed a petition, submission or appeal.
The most important word used in income tax is ‘satisfaction’ of the concerned authority like Section 145(3) authorising an assessing officer to assess income like an ex parte order under Section 144 if he is not “satisfied” by the correctness and completeness of the accounts of the assessee.
A government that seeks pride in being of the people, run by the people, for the people has no moral right to create a law with the premise that the politicians and bureaucrats are honest and the ordinary citizens are fraud. This attitude must change.