The Supreme Court of India has allowed the National Financial Reporting Authority (NFRA) to proceed with disciplinary proceedings against chartered accountants and audit firms.
This development comes amidst ongoing cases where audit quality review reports have not been finalised.
However, the apex court has instructed NFRA not to issue any final orders in these cases for the time being, and any existing final orders will not be enforced.
The order was issued during a hearing regarding NFRA’s appeal against a decision by the Delhi High Court.
A bench consisting of Chief Justice Sanjiv Khanna and Justice Sanjay Kumar examined the case after the regulator challenged the high court’s concerns about the structure of the authority’s operations.
The High Court specifically criticised the absence of distinct divisions within NFRA to separately handle audit quality reviews and disciplinary actions.
Before the Supreme Court, NFRA contended that the Delhi High Court’s decision was at odds with earlier judgments from the National Company Law Appellate Tribunal and the Supreme Court itself.
The Supreme Court’s interim order permits NFRA to carry on with its investigations while placing a hold on final verdicts.
The Big Five audit firms in India have recently expressed apprehension about NFRA’s operational practices, suggesting potential non-compliance with the Companies Act 2013.
Auditors are now raising concerns about Section 132 of the Companies Act and the NFRA Rules 2018, which they interpret as implying a separation of powers between investigation and disciplinary actions.
