NFRA Declares ICAI Standards Illegal & Void | Latest CA News | Neeraj Arora

Summary

This video discusses a legal conflict between the Institute of Chartered Accountants of India (ICAI) and the National Financial Reporting Authority (NFRA) regarding the implementation of new auditing standards, SQM 1 and SQM 2. The ICAI launched these standards without following the required legal process, leading to NFRA's objections that the standards are illegal and void. The video delves into the legal framework, highlighting the importance of proper government notification and consultation with NFRA before standards can be enforced. The speaker emphasizes the impact of this dispute on auditing professionals and the ongoing tension between ICAI and NFRA.

Takeaways

• 😀 NFRA has raised legal objections to ICAI's implementation of the SQM standards, calling them 'illegal' and 'void ab initio'.
• 😀 ICAI released the SQM-1 and SQM-2 standards without following the prescribed legal process, violating Section 143(10) of the Companies Act.
• 😀 According to Section 143(10), auditing standards must be reviewed and approved by NFRA before the government can prescribe them.
• 😀 The main conflict revolves around whether ICAI or the government should have the final say in implementing auditing standards.
• 😀 NFRA aims to ensure that auditing practices in India align with international best practices, especially with the global shift from quality control to quality management.
• 😀 ICAI's decision to introduce the SQM standards without NFRA's review has caused confusion among chartered accountants about which standards to follow.
• 😀 The confusion surrounding the standards could lead to professional misconduct if auditors are unsure which guidelines to adhere to.
• 😀 ICAI was urged by NFRA to align with global standards and submit drafts of the SQM standards for review before releasing them publicly.
• 😀 NFRA has emphasized that government notification is essential for the SQM standards to have any legal value and become enforceable.
• 😀 This issue highlights a lack of coordination between ICAI and NFRA, which may cause further disruptions in the auditing profession in India.

Q & A

What is the main issue discussed in the video?

The main issue discussed is the controversy between the Institute of Chartered Accountants of India (ICAI) and the National Financial Reporting Authority (NFRA) regarding the legality and process of implementing new auditing standards, specifically the Standard on Quality Management (SQM).

What is the role of NFRA in the auditing standard process in India?

NFRA's role is to examine, consult, and provide recommendations on auditing standards proposed by ICAI before they are prescribed by the government. NFRA ensures that the standards align with global best practices and are legally compliant.

What legal requirement is mentioned for implementing auditing standards in India?

The legal requirement is that any auditing standard must be notified and prescribed by the central government under Section 143(10) of the Companies Act. NFRA must review and recommend the standards before they are prescribed.

Why has NFRA raised objections against ICAI's actions?

NFRA raised objections because ICAI issued the Standard on Quality Management (SQM) without following the legal process of consultation and approval. NFRA argues that these standards cannot be considered valid without government notification.

What is the controversy surrounding ICAI and the implementation of SQM standards?

The controversy arises from ICAI releasing the SQM standards (SQM-1 and SQM-2) without consulting NFRA and obtaining the necessary government approval. This has led to NFRA calling the actions illegal and void, as they did not follow the prescribed legal procedure.

What is the difference between the roles of ICAI and NFRA in setting auditing standards?

ICAI proposes auditing standards, while NFRA examines and consults on those proposals. NFRA also ensures that the standards align with global best practices. Ultimately, the government is responsible for notifying and enforcing the standards.

What are the global trends in auditing standards, and how is India aligning with them?

Globally, auditing standards are shifting from a focus on 'Quality Control' to 'Quality Management.' ICAI has been asked by NFRA to follow this shift and update its standards accordingly. ICAI has already released drafts of SQM to align with global practices.

What is the significance of Section 143(10) of the Companies Act in the context of auditing standards?

Section 143(10) outlines the process for prescribing auditing standards in India. It requires that ICAI's proposed standards be reviewed and approved by NFRA before being notified by the central government, ensuring legal validity and alignment with global standards.

Why does NFRA insist on reviewing ICAI's standards before government notification?

NFRA insists on reviewing ICAI's standards to ensure that they are in line with legal requirements and global best practices. Without NFRA's consultation and government notification, the standards would not have the legal force required for implementation.

What could be the impact of ICAI's actions on practicing chartered accountants in India?

Practicing chartered accountants may face confusion and potential legal issues if they are caught between conflicting standards from ICAI and government regulations. NFRA’s objections suggest that without proper legal backing, ICAI’s standards could lead to complications in professional conduct.