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The National Financial Reporting Authority (NFRA) has got a boost to its powers with the Supreme Court allowing the audit regulator to decide on a dispute over its powers to penalize professionals guiding statutory auditors, showed an order from the apex court.
The Supreme Court on 7 March allowed NFRA to pass an order on the matter and disposed of a Delhi High Court order in January that had ruled that NFRA had no powers to penalize these professionals – called ‘engagement quality control reviewers’ (EQCR).
On NFRA’s appeal against the High Court ruling, the apex court said that a professional who was issued show cause notice by NFRA can file their objections to the regulator and if these are filed, NFRA must consider them on both jurisdictional issues and other aspects before passing a well-reasoned order, showed the apex court order seen by Mint.
Audit ‘engagement quality control reviewers' are experienced professionals within an audit firm or from outside, who evaluate an audit report, the significant judgments and the conclusions in it, before it is issued by the auditor. This can also be done by a team under a chartered accountant.
Given their role in the statutory audit of companies and thus on the accuracy of financial reporting, NFRA wants to have its regulatory oversight over them. The Delhi High Court order on 30 January, however, had said an EQCR partner would not fall within the definition of a statutory auditor and that the regulator’s rules deal with powers to penalize auditors and not any other professional.
“The Delhi High Court had stayed NFRA’s proceedings against some engagement quality control review partners. NFRA challenged one of those orders in the Supreme Court. The apex court ruling in March in effect told the professionals to reply to NFRA’s show cause notice on all matters including the regulator’s jurisdiction. This ruling also indicates that the apex court was not in favour of challenging the regulator’s show cause notices in courts, while it is understandable to move court against the final order of the regulator,” said a person informed about the development.
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