As it seeks to enhance engagement with stakeholders, the National Financial Reporting Authority (NFRA) will set up a single stakeholders’ advisory group as well as a research cell to support the group while on-site inspection is not a priority for the nearly three-year-old watchdog at this stage.
Besides, NFRA — an independent regulator for accounting and auditing in India — is of the view that introduction of a “settlement mechanism” for cases is only one aspect of many changes that need to be brought about in the law to more properly define its remit.
These conclusions based on comments received on a consultation paper issued by the watchdog in June 2021.
The paper was on the basis of recommendations of NFRA’s Technical Advisory Committee (TAC) on the regulator’s engagement with the stakeholders.
“Respondents’ support for formation of a single advisory group is noted. NFRA will form a single stakeholders advisory group to start with… NFRA will form a research cell that will, inter alia, support the stakeholder advisory group,” the regulator said.
According to the regulator, a large majority of the respondents have expressed the urgent need for a settlement mechanism rather than a prolonged stand-alone law making process.
Taking into consideration the views, the watchdog said the “introduction of a settlement mechanism is only one aspect of a whole raft of changes that need to be brought about in the law, to more properly define NFRA’s remit, and to provide it with the requisite functional, financial, and administrative autonomy for being an effective regulator”.
“NFRA needs to be positioned as a regulator for the entire gamut of financial reporting, covering all processes and participants in the financial reporting chain,” it said, adding that NFRA has requested the TAC to come up with draft proposals in this regard.
The regulator pointed out that it is of the opinion that the provisions, including on publication and confidentiality, are, on an objective assessment, fully compliant with the principles of natural justice, and are designed to serve the public interest.
Suggestion by industry bodies and audit firms to withhold information before ‘final’ (not clear what this means) determination of such matters in a court of law is “entirely self-serving and unknown to any system of jurisprudence”, it noted.
“Acceptance of these demands would completely destroy any chances of effectiveness of financial reporting regulation,” NFRA emphasised in a document detailing its conclusions on the consultation paper.
According to NFRA, on-site inspections will be considered at a later stage when the NFRA builds up adequate human resources to enable the same, and if it is found advantageous to do so.
“In fact, remote working (or so called Work from Home) concept has gained acceptability in recent times as a new normal. Therefore, on-site inspection is not a priority at this stage,” the regulator said in the document.
Further, the watchdog will consider engaging universities providing researchers with a forum to present their research and universities could also be requested to undertake empirical research in areas that will be relevant to decide matters like need for carve-outs in Indian Accounting Standards.
“To facilitate research, the MCA Corporate Filings website should be patterned after the US SEC website (https://www.sec.gov/) so that users can quickly access the data that they need,” it noted.
According to NFRA, building regulatory capacity is a critical step to delivering its mandate of protecting public interest in time-bound manner. Some of the aspects relating to recruitment and remuneration of high-quality staff will require deliberation and discussion with MCA (Ministry of Corporate Affairs), which will be initiated, it added.
The NFRA, set up in October 2018, noted that overall, stakeholders have expressed support for its proposals to pro-actively promote stakeholder engagement.
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