Disciplining Orders Under the National Financial Reporting Authority Framework: Stepping into a Strict Liability Regime

IIM Ahmedabad Working Paper (WP 2023-05-02) May 2023

25 Pages Posted: 15 Jun 2023

See all articles by M. P. Ram Mohan

M. P. Ram Mohan

Indian Institute of Management Ahmedabad

Vishakha Raj

Indian Institute of Management Ahmedabad

Date Written: May 31, 2023

Abstract

The National Financial Reporting Authority (NFRA) was established to fill a gap in the oversight of auditors by independent regulatory bodies. Prior to the establishment of the NFRA, only the Institute of Chartered Accountants of India (ICAI), a self-regulatory body could bar auditors from practicing in the event that they had engaged in professional misconduct. This regime began to change as auditors engaged with public firms, bringing the securities regulator into the mix as well. The decisions of ICAI and SEBI have not followed a consistent approach. A finding of misconduct is often accompanied by a finding of gross negligence and the latter does not have a uniform definition. The NFRA, being a nascent authority has only begun to issue orders against auditors over whom it has jurisdiction. Its orders are based on the same substantive law relating to professional misconduct of auditors as the ICAI, however, NFRA orders have shown more consistency in their approach and outcome. This paper examines the decisions of the NFRA from 2020 till December 2022 and posits that the consistency in its approach has been achieved by developing a no-fault regime for auditors.

Keywords: Professional misconduct, auditors, National Financial Reporting Authority, Strict Liability

Suggested Citation

M. P., Ram Mohan and Raj, Vishakha, Disciplining Orders Under the National Financial Reporting Authority Framework: Stepping into a Strict Liability Regime (May 31, 2023). IIM Ahmedabad Working Paper (WP 2023-05-02) May 2023, Available at SSRN: https://ssrn.com/abstract=4470405 or http://dx.doi.org/10.2139/ssrn.4470405

Ram Mohan M. P. (Contact Author)

Indian Institute of Management Ahmedabad ( email )

Vastrapur
Ahmedabad, Gujarat 380015
India

Vishakha Raj

Indian Institute of Management Ahmedabad ( email )

Vastraour
Ahmedabad, 380015
India

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