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

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.