Updated on: Jan 11th, 2022
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8 min read
The National Financial Reporting Authority (NFRA) is a body constituted under the provisions of Section 132 of the Companies Act, 2013. The constitution of this authority is effective from 1st October 2018. The aim of the Central Government in this regard appears to be:
Supposedly, the need for this authority arose as a response to various corporate scams in recent times.
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The Companies Act requires the NFRA to have a chairperson who will be appointed by the Central Government and a maximum of 15 members. The appointment of such chairperson and members are subject to the following qualifications:
The terms and conditions relating to the appointment of the chairperson and members have not yet been prescribed. However, the draft NFRA rules outline the following composition of the authority:
The Chairman may also invite any other person to the meeting to give their expert opinion.
The NFRA has the following responsibilities:
Prior to the constitution of this authority, the Central Government would prescribe accounting standards on the recommendation of ICAI. The ICAI would prescribe the same only after consulting with the National Advisory Committee on Accounting Standards who will provide their recommendations.
The ICAI will now have to consult with the NFRA and examine its recommendations in this regard. Thus the National Advisory Committee on Accounting Standards is effectively replaced by the NFRA.
The NFRA shall have the following powers:
Any person who is not satisfied with the order of the NFRA can then make an appeal to the Appellate Authority.
As discussed earlier, the NFRA has the power to investigate and also conduct quality reviews for a certain prescribed class of companies. While the draft NFRA Rules have not been prescribed yet, they would include the following class of companies if implemented as it is:
The NFRA also holds the power of investigation of a certain class of bodies corporate or persons (auditors) in relation to matters of professional or other misconduct by a member or firm of Chartered Accountants or auditors. In this regard, as per the draft NFRA rules, the auditors or audit firms which conduct the audit of the following category of companies or their branches (including through the network/brand to which it belongs) whether directly or indirectly, are covered:
Note: The above restriction of companies will not apply where :
Thus it can be concluded that the ICAI will continue to retain its regulatory powers in respect of private companies and unlisted public companies below the above-prescribed threshold.The Quality Review Board will also continue conducting quality audits in respect of private limited companies, unlisted public companies and such other audit of companies that are delegated by the NFRA.
As per news reports, the president of the Institute of Chartered Accountants of India (ICAI), CA Naveen Gupta, in a statement to the media mentioned that the new regulatory for auditors, i.e, the National Financial Reporting Authority ( NFRA ) is not legally valid.
NFRA is a regulatory body formed under Companies Act 2013, with aims of enhancing accounting & auditing standards and boosting investor confidence due to recent corporate scandals. NFRA's composition, role, and powers are detailed, including investigation and enforcement capabilities. It impacts ICAI's role in setting accounting standards. It covers specified class of companies for investigation and quality reviews. The NFRA establishes concentration mainly on larger companies and ensures compliance effective October 2018.