New Delhi (ABC Live): The National Financial Reporting Authority (NFRA) has recently intensified its reform drive by launching audit practice toolkits, conducting capacity-building programmes for small and medium practitioners, and expanding audit quality reviews. These initiatives mark a clear shift from being a purely enforcement authority to becoming a developmental institution that promotes consistent audit quality across India.

At the same time, debates have resurfaced on whether the Institute of Chartered Accountants of India (ICAI) — established under the Chartered Accountants Act, 1949 — still holds relevance in this transformed regulatory environment. Therefore, ABC Live is publishing this explainer now to clarify ICAI’s continuing importance in India’s audit and accounting ecosystem.

There are several reasons behind this timing. First, NFRA’s outreach represents a significant policy inflection point, redefining the relationship between statutory oversight and professional self-regulation. Second, the question of audit quality and corporate governance has become integral to India’s economic stability and investor confidence. Third, the public narrative often frames ICAI and NFRA as institutional rivals, whereas they actually function as complementary pillars of the same system. Finally, there is a need for an evidence-based understanding of how this dual-pillar model enhances professional accountability and institutional integrity.

Unlike many quick commentaries, ABC Live’s analysis merges verified legal sources, institutional history, and policy insight. It draws parallels with international systems such as the PCAOB–AICPA (United States) and FRC–ICAEW (United Kingdom). Thus, it presents NFRA–ICAI collaboration not as a turf war, but as the evolution of a modern governance architecture designed for a globalised financial economy.

Introduction

The creation of NFRA under Section 132 of the Companies Act, 2013, fundamentally reshaped India’s audit regulation framework. As the country’s first independent audit oversight body, NFRA was given statutory powers to monitor, enforce, and discipline auditors of large and listed entities. Many initially believed that this would overshadow the Institute of Chartered Accountants of India (ICAI). However, despite NFRA’s emergence, ICAI continues to play a pivotal role in shaping audit education, ethics, and professional practice.

This report explains why ICAI still matters, how its statutory authority complements NFRA’s public oversight, and why India’s new model depends on the effective coexistence of both institutions.

ICAI’s Statutory Mandate and Continuing Role

The ICAI was established under the Chartered Accountants Act, 1949 (Act No. 38 of 1949) to regulate and develop the profession of chartered accountancy in India¹. It functions under the Ministry of Corporate Affairs (MCA) and continues to serve as the backbone of professional education, ethics, and quality assurance for over 4 lakh members and 8 lakh students.

Moreover, ICAI performs several critical functions that sustain its relevance:

1. Education and Training:
   It conducts the CA Foundation, Intermediate, and Final examinations, prescribes curricula, and provides continuing professional education. In doing so, it builds the intellectual foundation of India’s accounting profession.
2. Standard-Setting and Guidance:
   ICAI drafts Accounting Standards (AS) and Standards on Auditing (SAs) and provides technical guidance notes and interpretations that practitioners rely on². Although NFRA now approves and notifies standards, ICAI remains the professional body that shapes their substance and applicability.
3. Peer and Quality Reviews:
   Through its Quality Review Board (QRB), ICAI reviews audits of entities not directly under NFRA’s jurisdiction ³. These reviews help strengthen audit consistency at the grassroots level.
4. Ethics and Discipline:
   ICAI enforces a Code of Ethics, investigates misconduct, and educates members on independence, integrity, and professional skepticism. Consequently, it ensures that ethical competence matches technical expertise.

Together, these functions make ICAI indispensable to India’s accounting ecosystem.

NFRA’s Oversight Powers and Scope

NFRA was formally established on 13 November 2018 through Notification S.O. 5098(E) ⁴. Its mandate, as outlined in Section 132 of the Companies Act, 2013, is further elaborated in the NFRA Rules, 2018 ⁵.

Specifically, NFRA is empowered to:

• Recommend accounting and auditing standards;

• Monitor and enforce compliance with such standards;

• Oversee the quality of audit services; and

• Investigate professional or other misconduct of auditors.

Its jurisdiction includes all listed companies, large unlisted public companies, banks, insurers, and other public-interest entities ⁶.
In addition, NFRA can impose penalties up to ₹25 lakh and debar erring auditors for up to ten years ⁷.

Thus, NFRA represents India’s transition from self-regulation to independent public oversight, similar to systems in advanced economies.

How ICAI and NFRA Complement Each Other

Rather than being competitors, ICAI and NFRA perform distinct yet interlocking roles. While NFRA enforces audit quality through external regulation, ICAI builds it through professional development and discipline.

This balance allows India to combine professional expertise with regulatory credibility.

Why ICAI Still Matters

1. Extensive Reach and Local Presence:
   ICAI’s wide network of regional councils and branches connects directly with practitioners across India. Because NFRA’s jurisdiction is limited to major entities, ICAI ensures that smaller firms adhere to evolving best practices.
2. Ethical and Professional Foundation:
   NFRA can enforce compliance, but ICAI instils ethics. Through education and continuous learning, ICAI builds integrity from the training stage onwards.
3. Technical Guidance and Policy Input:
   ICAI’s technical boards develop interpretative materials, guidance notes, and sector-specific advisories that inform NFRA’s and MCA’s decisions. Therefore, ICAI serves as the profession’s knowledge bridge between law and practice.
4. Global Integration and Innovation:
   As an active member of IFAC and SAFA, ICAI facilitates convergence with global standards. Furthermore, its initiatives in digital auditing, forensic accounting, and sustainability assurance ensure India stays future-ready.
5. Public-Interest Partnership:
   Audit quality relies on both competence and accountability. NFRA enforces discipline; ICAI cultivates skill. Hence, the system works only when both sides collaborate.

Challenges and Friction Points

While the intent is cooperative, certain challenges remain.
For example, ICAI has questioned NFRA’s unilateral revisions to SA 600, claiming they could burden smaller firms ⁸.
Similarly, there are interpretational differences on “management services” under Section 144 of the Companies Act ⁹.

Moreover, the perception of rivalry persists in media discourse. In reality, both institutions serve distinct mandates within the same legal ecosystem. Therefore, stronger coordination mechanisms and regular consultation frameworks are essential to harmonize enforcement with education.

Implications for Practitioners

For small and medium audit practitioners, the dual regulatory structure carries clear expectations.
They must now align their internal procedures with both ICAI’s guidance and NFRA’s audit toolkits. In practice, this means:

• Following ICAI’s Code of Ethics and quality review standards;

• Adopting NFRA’s risk-based audit strategy frameworks;

• Enhancing documentation, independence, and transparency; and

• Investing in technology and continuous learning.

By doing so, firms not only ensure compliance but also demonstrate professional maturity in an increasingly data-driven audit environment.

Conclusion

The NFRA notification did not diminish ICAI’s relevance; instead, it redefined it.
India now operates under a dual-pillar model that unites NFRA’s independence with ICAI’s professional foundation.

In essence, NFRA ensures public trust through oversight, while ICAI ensures professional excellence through education and ethics. The future of India’s audit system depends on synergy, not rivalry. As financial complexity deepens and global scrutiny intensifies, the collaboration between NFRA’s authority and ICAI’s competence will remain vital to safeguarding the integrity of India’s financial reporting ecosystem.

Verified References

1. Chartered Accountants Act, 1949 – India Code PDF
2. ICAI Statutory Framework
3. Quality Review Board – ICAI
4. MCA Notification S.O. 5098(E)
5. Companies Act, 2013 – Section 132 (NFRA)
6. NFRA Overview
7. NFRA Orders under Section 132(4)
8. ICAI–NFRA Audit Standards Debate – The Accountant Online
9. Auditor Independence – AZB & Partners

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