Module: | Statutory Audit, NFRA & ICAI Standards
Q53: Consider the following statements regarding the disciplinary powers and penalty framework of the National Financial Reporting Authority (NFRA):
1. NFRA has the power to impose a monetary penalty of up to ten times the fees received for the audit on an audit firm found guilty of professional misconduct.
2. NFRA can debar an individual auditor or an audit firm from practicing as an auditor for a minimum period of six months and a maximum period of ten years.
3. Appeals against the disciplinary orders passed by NFRA must be filed directly with the Supreme Court of India.
Which of the above statements is/are correct?
2. NFRA can debar an individual auditor or an audit firm from practicing as an auditor for a minimum period of six months and a maximum period of ten years.
3. Appeals against the disciplinary orders passed by NFRA must be filed directly with the Supreme Court of India.
Which of the above statements is/are correct?
✅ Correct Answer: A
🎯 Quick Answer:
A. Only 1 and 2 are correct.Structural Breakdown: Statement 1 is correct; the penalty for firms ranges from a minimum of Rs 5 Lakhs up to 10 times the audit fees.
Statement 2 is correct; the debarment period is statutorily capped between 6 months and 10 years.
Statement 3 is incorrect; appeals against NFRA orders lie with the National Company Law Appellate Tribunal (NCLAT), not directly with the Supreme Court.
Historical/Related Context: Before NFRA was operationalized, disciplinary actions against auditors were handled internally by the ICAI, which was often criticized for being too lenient and slow.
NFRA was given draconian penalty powers to establish a strong deterrent.
Causal Reasoning: Tying the maximum financial penalty directly to a multiple of the audit fees ensures that the punishment scales dynamically.
Mega-firms conducting lucrative audits face massive fines that actually impact their bottom line, rather than absorbing flat fees as a mere cost of doing business.