National Financial Reporting Authority (NFRA) is a body proposed
in Companies Act 2013 for the establishment and enforcement of accounting and
auditing standards and oversight of the work of auditors.
The concept and composition of the National Financial Reporting
Authority (NFRA) was originally introduced by the Companies Act, 2013. The
Union Cabinet on 1st March, 2018 approved the proposal for establishing the
National Financial Reporting Authority (NFRA). The establishment of NFRA as an
independent regulator for the auditing profession will improve the transparency
and reliability of financial statements and information presented by listed
companies and large unlisted companies in India.
Structure of the Authority
Committee on
Accounting Standards,
Committee on
Auditing Standards,
Committee on
Enforcement.
Composition of the National Financial Reporting Authority (NFRA)
- The NFRA will consist of one Chairperson, three posts of full time Members and one post of Secretary.
- The Chairperson of NFRA will be appointed by the Central Government from time to time and would be someone having expertise in accountancy, auditing, finance or law.
- The Chairperson and members of the NFRA are required to make a declaration to the Central Government regarding no conflict of interest or lack of independence in respect of his or their appointment.
- The Chairperson and members of the NFRA cannot be associated with any audit firm (including related consultancy firms) during the course of their appointment and two years after ceasing to hold such appointment.
Role of the National Financial Reporting Authority (NFRA)
The Companies Act, 2013 provides the following roles and responsibilities
for the NFRA
- Make recommendations to the Central Government on the formulation and laying down of accounting and auditing policies and standards for adoption by companies or class of companies or their auditors, as the case may be.
- Monitorand enforce the compliance with accounting standards and auditing standards in such manner as may be prescribed.
- Oversee the quality of service of the professions associated with ensuring compliance with such standards, and suggest measures required for improvement in quality of service and such other related matters as may be prescribed.
Powers of the National
Financial Reporting Authority (NFRA)
The National Financial Reporting Authority has the following powers
to execute its roles and responsibilities
- Power to investigate, either suo motu or on a reference made to it by the Central Government, for such class of bodies corporate or persons, in such manner as may be
- prescribed into the matters of professional or other misconduct committed by any member or firm of Chartered Accountants, registered under the Chartered Accountants Act, 1949.
- Provided that no other institute or body shall initiate or continue any proceedings in such matters of misconduct where the National Financial Reporting Authority has initiated an investigation under this section.
- Imposing penalty of not less than one lakh rupees, but which may extend to five times of the fees received, in case of individuals. Imposing penalty of not less than ten lakh rupees, but which may extend to ten times of the fees received, in case of firms.
- Debarring the member or the firm from engaging himself or itself from practice as member of the Institute of Chartered Accountant of India for a minimum period of six months or for such higher period not exceeding ten years as may be decided by the National Financial Reporting Authority.
- The newly set up National Financial Reporting Authority (NFRA) is empowered to impose penalties on erring audit firms, The power to impose penalties on audit firms has been conferred on NFRA under the Companies Act 2013,
- It was also specified that the jurisdiction of NFRA for investigation of CAs and their firms would extend to all listed companies and large unlisted companies, the thresholds for which shall be prescribed in the rules.
- NFRA will have the power to investigate not only chartered accountants who audited a firm but also firms of chartered accountants and can impose a penalty of up to five times the fee received in case of misconduct by individuals and ten times the fees received in case of firms. It can also debar an auditor for up to ten years.
Functions of the Authority
The Authority shall
- Receive recommendations from the Committee on Accounting Standards and Committee on Auditing Standards;
- Consider and review the recommendations;
- Give an opportunity of being heard to the Committee on any clarification that may be sought;
- Make amendments as may be required;
- Recommend the standards to the Central Government for being considered and notified.