For most of its existence, the National Financial Reporting Authority has been a regulator with a slightly awkward gap between its reputation and its actual machinery. Since 2018, NFRA has had the power to investigate auditors of listed companies and other public interest entities, and it has issued a string of headline-making orders — against the auditors of IL&FS group entities, Reliance Capital, Religare Finvest, and others. But structurally, it’s been operating without corporate status, without an independent fund, without dedicated rule-making power, and — as a Delhi High Court order in early 2025 pointed out — without a clean separation between its investigation and adjudication functions. That’s about to change, and the change is significant enough that auditors, audit committees, and the companies they serve all need to pay attention.
From enforcement gaps to a real regulatory architecture
The Corporate Laws (Amendment) Bill, 2026, introduced in the Lok Sabha in March 2026 and currently before a Joint Parliamentary Committee, proposes to restructure Section 132 of the Companies Act and insert a whole new set of provisions — Sections 132A through 132K — that together turn NFRA into something structurally closer to SEBI: a statutory body with corporate personality, its own fund, independent rule-making authority, fee-levying power, tiered enforcement, and parliamentary accountability. That’s a meaningful upgrade from a body that could investigate and penalise but couldn’t really function as an independent institution in the way markets expect a regulator to.
Practically, three changes stand out.
Mandatory registration and disclosure before appointment. A new Section 132A requires auditors — individuals or firms — to intimate their ICAI registration details to NFRA before they can be appointed as auditors of companies that fall within NFRA’s jurisdiction. This isn’t a one-time formality either; auditors will need to file periodic returns and information with NFRA in a prescribed form and manner. Miss this and the penalties are real: Rs 25,000 plus Rs 500 for every day of continuing default, capped at Rs 25 lakh for simple non-compliance. If an auditor furnishes false information, omits material facts, or tampers with required documents, the starting penalty jumps to Rs 50,000 with Rs 1,000 per day, capped at Rs 50 lakh.
Restrictions on non-audit services. Certain classes of prescribed auditors will be barred from providing non-audit services to the company they audit — or to its holding or subsidiary companies — for three years following the end of their audit tenure. This is a direct response to long-standing independence concerns: an auditor who’s been quietly earning substantial consulting fees from the same corporate group they’re supposed to be scrutinising creates an obvious conflict, and regulators globally have been tightening this exact loophole.
Criminal consequences for defiance. Perhaps the most striking shift is that the amendment introduces imprisonment for failure to comply with NFRA’s orders. Until now, NFRA’s teeth were financial — penalties and debarment. Adding criminal consequences for non-compliance with its directions changes the calculus for any auditor tempted to simply ignore or slow-walk an NFRA order while pursuing endless procedural challenges.
Why the timing matters
This restructuring isn’t happening in a vacuum. NFRA had a rough patch through 2025: the Delhi High Court found procedural problems with how it was combining investigation and disciplinary functions in the same process, and the Supreme Court subsequently restored some of NFRA’s authority on appeal but stayed final orders pending further review. Only one disciplinary order was issued through all of calendar 2025 as a result. NFRA has responded by internally splitting its investigation and disciplinary functions into separate units — a structural fix that the 2026 bill is expected to formalise in statute rather than leave to internal reorganisation. In other words, the expanded jurisdiction isn’t just about NFRA getting more powerful; it’s also about NFRA becoming more procedurally defensible, which should mean fewer orders getting struck down on technical grounds going forward.
What audit firms need to do now
If your firm audits listed companies or other entities within NFRA’s jurisdiction — large unlisted public companies, banks, insurers, and companies above prescribed size thresholds — start treating NFRA registration and disclosure obligations as a standing compliance function, not an annual afterthought. That means designating someone within the firm responsible for tracking filing deadlines and keeping ICAI registration details current with NFRA, well before the Bill’s provisions come into force.
Firms should also start reviewing their non-audit service relationships with existing and prospective audit clients now, rather than waiting for the final notified rules to specify exactly which classes of auditors the restriction covers. If you’re currently providing both audit and advisory services to a group and its subsidiaries, map out what a three-year post-tenure cooling-off period would actually mean for your revenue mix and client relationships — this is not a change you want to discover the practical implications of after the fact.
What it means for companies and audit committees
For companies, the more immediate obligation is on disclosure. Annual reports will need to disclose the composition of the audit committee and flag any independence concerns relating to the statutory auditor — which means audit committees need to actively review auditor independence arrangements rather than treating it as a rubber-stamp agenda item at the annual audit committee meeting. If your statutory auditor has been quietly picking up consulting mandates from a group subsidiary, now is the time to have that conversation, well ahead of any formal rule taking effect.
The direction of travel
Whatever the final shape of the provisions coming out of the Joint Parliamentary Committee, the direction is unmistakable: light-touch audit oversight, where the primary line of accountability ran through ICAI’s disciplinary process, is ending for auditors of listed and public interest entities. NFRA is being built into a genuinely independent, well-resourced regulator with criminal teeth. For audit firms serving this segment of the market, that changes what “compliance” means — it’s no longer just about getting the audit opinion right, but about maintaining a continuous, documented, and defensible relationship with a much more assertive regulator.
This article summarises provisions of the Corporate Laws (Amendment) Bill, 2026, which was before a Joint Parliamentary Committee at the time of writing and may be revised before enactment. Firms should consult their professional advisors and track the Bill’s final notified form.
