Module: | Statutory Audit, NFRA & ICAI Standards
Q66: Consider the following statements regarding the proposed Section 132A under the Corporate Laws (Amendment) Bill, 2026 concerning the National Financial Reporting Authority (NFRA):
1. The proposed section shifts NFRA's regulatory framework from a post-facto supervisory model to a proactive vetting model before an auditor assumes an assignment.
2. Audit firms will be required to file their ICAI registration details and other ongoing compliance information with the NFRA prior to being appointed by specified companies.
3. The bill introduces severe penalties for auditors furnishing false information to the NFRA, reaching a maximum cap of Rupees 50 Lakhs.
Which of the above statements is/are correct?
2. Audit firms will be required to file their ICAI registration details and other ongoing compliance information with the NFRA prior to being appointed by specified companies.
3. The bill introduces severe penalties for auditors furnishing false information to the NFRA, reaching a maximum cap of Rupees 50 Lakhs.
Which of the above statements is/are correct?
✅ Correct Answer: D
🎯 Quick Answer:
D. All statements 1, 2, and 3 are correct.Structural Breakdown: Statement 1 is correct; it represents a major regulatory shift, giving NFRA front-end visibility into who is auditing whom.
Statement 2 is correct; pre-intimation of registration and network details is the core mandate of the amendment.
Statement 3 is correct; the penalty framework aggressively targets deception, capping at Rs 50 Lakhs for false information with continuing default penalties.
Historical/Related Context: Historically, NFRA could only intervene and penalize auditors after a corporate fraud had already occurred and the audit was complete.
Influenced by global models like the US PCAOB, the government seeks to intercept high-risk audit appointments before they result in compromised financial statements.
Causal Reasoning: By requiring upfront disclosures regarding an audit firm's disciplinary history and network arrangements, the NFRA can ensure that systemically important companies are not being audited by firms lacking the competence or independence to do so.