The government is considering implementing stringent auditing standards by notifying Section 132 of the Companies Act, 2013, in the wake of the 1.77 billion dollar Punjab National Bank (PNB) fraud.
Government sources told ANI that implementing this section would enable the creation of a National Financial Reporting Authority (NFRA) that would give the government regulatory control over Chartered Accountants (CAs) and audit firms to penalise them for their misconduct.
As per current provisions, CAs and audit firms function as per guidelines issued under the Chartered Accountants Act, 1949. Any case of misconduct or corrupt practices is administered by the Institute of Chartered Accountants of India (ICAI).
During the demonetisation drive, five CAs were found guilty of misconduct, out of which four were suspended for three months and fined Rs. 1 lakh each. However, once Section 132 of Companies Act 2013 gets notified, the government will be able to exercise greater control over matters relating to accounting and auditing standards.
Section 132 provides for a fine of up to ten times the fee received by auditing firms and five times the fee received for CAs. It also has the power to suspend corrupt officials for a period of six months to ten years.
For the unversed, PNB last week detected a 1.77 billion dollar scam in which noted jeweller Nirav Modi had acquired fraudulent letters of undertaking from one of its branches for overseas credit from other Indian lenders.
To this, Finance Minister Arun Jaitley on Tuesday said it was incumbent on the state to chase down those who cheat the banking system, adding that the government gave authority to the bank management to work with autonomy, which must be exercised.
Jaitley also stressed that supervisory agencies need to assess what new systems had to be put in place to find those who were cheating banks.
"What were auditors doing? If both internal and external auditors have looked the other way and failed to detect, then I think CA professionals must introspect. Supervisory agencies also must introspect what are the additional mechanisms they have to put in place," he said.
Meanwhile, the Central Bureau of Investigation (CBI) and Enforcement Directorate (ED) are conducting interrogation and raids of various people and places linked with the aforementioned scam