A Joint Parliamentary Committee (JPC) reviewing the Corporate Laws (Amendment) Bill, 2026 has recommended that the Ministry of Corporate Affairs (MCA) ensure proposed amendments to the Companies Act do not unintentionally expand the powers of the National Financial Reporting Authority (NFRA) in a manner that weakens the statutory role of the Institute of Chartered Accountants of India (ICAI).
The committee emphasized that the legislative framework should preserve a harmonious coexistence between the two institutions, allowing NFRA to continue its corporate financial oversight role while leaving professional development, standard-setting foundations, and core professional matters within ICAI’s statutory mandate under the Chartered Accountants Act, 1949.
Concern Over Expanded NFRA Jurisdiction
According to the committee, NFRA was originally established as an oversight regulator for accounting and auditing standards applicable to public interest entities. However, the proposed amendments could significantly broaden its authority through provisions relating to:
- Registration of auditors
- Investigation and enforcement powers
- Delegated regulation-making authority
- Proposed body corporate status
The panel warned that these changes could create overlapping jurisdiction with ICAI, resulting in regulatory duplication, institutional fragmentation, increased compliance burdens, and uncertainty over regulatory responsibilities.
Panel Calls for Safeguards in NFRA Rule-Making
The committee also examined Clause 41 of the Bill, which proposes the insertion of Section 132K in the Companies Act to introduce transparency and periodic review in NFRA’s regulation-making process.
Stakeholders suggested that draft regulations should remain open for at least 30 days of public consultation, except in urgent situations. The panel agreed that sufficient procedural safeguards should be incorporated to prevent misuse of regulation-making powers.
Recommendation on Non-Audit Services
The Corporate Laws (Amendment) Bill proposes a three-year cooling-off period restricting auditors from providing non-audit services to their audit clients, including holding and subsidiary companies, after completing an audit engagement.
The parliamentary committee has recommended reducing this cooling-off period to one year, stating that a three-year restriction could be excessively burdensome, particularly in cases involving:
- Group companies
- Joint audits
- Mid-term resignations
- Non-reappointment of auditors
The recommendation aims to balance auditor independence with practical business considerations.
SA-600 Remains a Key Area of Debate
The report also highlights continuing differences over the revised SA-600 auditing standard, which governs the responsibilities of group auditors overseeing subsidiary audits.
While NFRA supports a framework aligned with international standards that increases accountability for principal auditors, ICAI and several small and mid-sized audit firms have raised concerns that stricter requirements may concentrate audit assignments among large firms, limiting opportunities for smaller practices.
Why It Matters
The committee’s recommendations underscore Parliament’s effort to strike a balance between stronger financial reporting oversight and preserving the statutory independence of India’s accounting profession.
If accepted by the government, the recommendations could influence the final shape of the Corporate Laws (Amendment) Bill, 2026, particularly provisions affecting auditor regulation, NFRA’s powers, and ICAI’s role in professional governance.
Source: Moneycontrol; PRS Legislative Research.
