Corporate Laws (Amendment) Bill, 2026: Major Changes Impacting Chartered Accountants and Auditors
The Corporate Laws (Amendment) Bill, 2026 introduces a structured and significant shift in the regulatory and compliance framework applicable to Chartered Accountants and auditors. The amendments primarily affect provisions relating to auditor eligibility, independence, reporting responsibilities, penalty framework, and the expanded role of the National Financial Reporting Authority. A careful reading of the Bill reveals that the intention is not only to enhance accountability but also to bring greater formal oversight through a strengthened regulatory mechanism.
This article provides a section-wise analysis of the provisions directly impacting Chartered Accountants and audit professionals.
Sections Applicable to Chartered Accountants and Auditors
The following provisions of the Companies Act, 2013 and the Limited Liability Partnership Act, 2008 have been amended or inserted and are directly relevant to Chartered Accountants:
Section 7, Section 134, Section 139, Section 141, Section 144, Section 147, Section 148, Section 132 along with newly inserted Sections 132A to 132K of the Companies Act, 2013, and Section 11 and newly inserted Section 33A of the LLP Act, 2008.
Incorporation Stage Compliance and Role of Professionals
Under Section 7 of the Companies Act, the Bill now requires a declaration not only from a person named as director, manager or secretary, but also a declaration from an advocate, Chartered Accountant, cost accountant or company secretary in practice, wherever such professionals are engaged in the formation or incorporation of the company. This provision formally strengthens the role of professionals in the incorporation process and ensures that compliance responsibility is explicitly acknowledged.
A similar requirement has been introduced under Section 11 of the LLP Act, where a declaration from a practicing professional is required if such professional has been engaged in the incorporation of a limited liability partnership.
Auditor Reporting and Board Accountability
Section 134 of the Companies Act has been amended to mandate that the Board’s Report shall include explanations or comments on every observation or remark made by the auditor which has an adverse effect on the functioning of the company. Additionally, the Board is required to provide explanations in respect of qualifications, reservations or adverse remarks relating to the maintenance of accounts.
This amendment increases the visibility of audit observations and ensures that management cannot remain silent on audit qualifications. It also indirectly enhances the importance of audit reporting, as such remarks must now be addressed formally in the Board’s Report.
Appointment of Auditors
A new sub-section has been inserted in Section 139 providing that such class or classes of companies as may be prescribed shall not be required to appoint auditors. The exact class of companies will be notified separately, but the provision creates a statutory basis for exemption from audit in specific cases.
Eligibility of Audit Firms
Section 141 has been amended to provide that every partner of an audit firm must be a person who has been registered with a statutory institute or body established under a law in India and having powers of such registration. This strengthens the eligibility criteria and ensures that only duly qualified and registered professionals form part of audit firms.
Restrictions on Non-Audit Services
Section 144 has been amended to extend the restriction on provision of non-audit services by auditors. The restriction now applies to such class or classes of companies as may be prescribed and extends to services provided to the company, its holding company and its subsidiary.
Further, a significant addition is that the restriction shall continue for a period of three years after the completion of the auditor’s term. This provision directly impacts post-audit professional engagements and strengthens the principle of independence.
Penalty Framework for Audit Defaults
Section 147 reflects a shift from a prosecution-based framework to a penalty-based regime. In case of contravention of provisions relating to audit, the company shall be liable to a penalty of one lakh rupees and in case of continuing default, an additional penalty of five hundred rupees per day subject to a maximum of five lakh rupees. Officers in default shall be liable to a penalty of twenty-five thousand rupees and an additional penalty of two hundred rupees per day subject to a maximum of one lakh rupees.
The provision also extends applicability to additional sections, thereby broadening the scope of audit-related defaults covered under the penalty framework.
Cost Audit Provisions
Section 148 has undergone multiple changes. It now provides that a firm may be appointed as cost auditor only if the majority of its partners practicing in India are qualified for such appointment. Additionally, every partner must be registered with a statutory institute or body established under Indian law.
Penalty provisions have also been introduced for non-compliance. In case of contravention by company officers, the penalty is five lakh rupees for listed companies and fifty thousand rupees for other companies. For general defaults, the company is liable to a penalty of ten thousand rupees with an additional penalty of one hundred rupees per day subject to a maximum of two lakh rupees, and officers in default are similarly liable with lower limits.
Expansion of NFRA Framework
Section 132 has been substantially amended to strengthen the structure and powers of the National Financial Reporting Authority. NFRA is now declared to be a body corporate with perpetual succession and powers to acquire, hold and dispose of property and to contract.
The powers of NFRA have been expanded to include issuing advisory, censure or warning, requiring additional professional training, and referring matters to the Central Government for further action. The definition of professional misconduct has also been expanded to include contraventions of the Companies Act and related rules or regulations.
Failure to comply with orders of NFRA attracts penal consequences, including imprisonment up to six months or monetary penalties, depending on whether the defaulting party is an individual or a firm.
Mandatory Registration and Filing with NFRA
A completely new framework has been introduced through Sections 132A to 132K.
Section 132A requires that no individual or firm shall be appointed as auditor unless it intimates its registration details with the Institute of Chartered Accountants of India to NFRA within the prescribed time and manner. Further, auditors are required to file documents, returns or information with NFRA as may be specified.
Non-compliance with filing requirements attracts penalties ranging from twenty-five thousand rupees to twenty-five lakh rupees. Furnishing false information or omission of material facts attracts higher penalties, including daily penalties subject to a maximum of fifty lakh rupees.
Power of NFRA to Issue Directions and Conduct Inquiry
Under Section 132C, NFRA has been empowered to issue directions to auditors in the interest of investors, creditors or the public. Failure to comply with such directions attracts penalties which may extend up to fifty lakh rupees for auditors and one crore rupees for audit firms.
Section 132D provides that NFRA may conduct inquiries, summon persons, and impose penalties. Recovery of penalties is treated as arrears of land revenue, which strengthens enforcement.
Additional Regulatory Provisions under NFRA
Sections 132E to 132K introduce additional structural provisions including exclusion of civil court jurisdiction in matters handled by NFRA, protection for actions taken in good faith, power of the Central Government to issue directions and to supersede NFRA in specified circumstances, power of NFRA to levy fees and make regulations, and requirement of transparency through publication of draft regulations for public comments.
Valuation Requirement under LLP Act
A new Section 33A has been inserted in the LLP Act providing that valuation of contribution of a partner, assets, liabilities or net worth of an LLP shall be carried out in accordance with Section 247 of the Companies Act, which relates to registered valuers. This ensures that valuation work in LLPs is brought under a formal regulatory framework.
Conclusion
The Corporate Laws (Amendment) Bill, 2026 introduces a comprehensive restructuring of the audit and regulatory landscape for Chartered Accountants. The amendments indicate a clear movement towards enhanced regulatory supervision through NFRA, increased transparency in audit reporting, stricter eligibility norms, and a more defined penalty framework. The role of Chartered Accountants is being placed within a more structured and monitored environment, with greater emphasis on accountability, independence and compliance discipline.
For practicing professionals, the amendments necessitate a careful review of existing processes, engagement structures and compliance systems to align with the evolving legal framework.
Click here to read THE CORPORATE LAWS (AMENDMENT) BILL, 2026: https://sansad.in/ls/legislation/bills?
Disclaimer: This material and the information contained herein is intended for clients and other Chartered Accountants to provide updates and is not an exhaustive treatment of such subject. We are not, by means of this material, rendering any professional advice or services. It should not be relied upon as the sole basis for any decision which may affect you or your business.
