NFRA stands for National Financial Reporting Authority, Under the Companies Act 2013, the National Financial Reporting Authority (NFRA) was established as an independent authority to regulate the auditing profession and the Indian Accounting Standards.
It was established in October 2018. Ajay Bhushan Pandey has been the chairperson since March 2022.
The NFRA is the auditing profession's legal watchdog. After the Punjab National Bank scandal, the government made the NFRA the legal leader of the auditing field.
In the past, the ICAI was obligated to keep a watch on erring auditors. Because of this incident, the NFRA was formed, and it is today the regulating organisation of the audit profession in India.
To comprehend the National Financial Reporting Authority's mission and tasks, one must first comprehend its makeup.
This essay will also go over its capabilities and breadth. We shall investigate its role and powers and enlist other professionals' help to execute relevant tasks.
The NFRA is the government entity in charge of establishing accountancy standards in the country.
Its goal is to enhance the country's financial statement quality and consistency and to guarantee that businesses and financial institutions report accurate and fair information.
Fact: The NFRA is a non-political organization whose head is nominated by the Central Government. The NFRA has the authority to investigate both listed and unlisted public firms. Companies must have a paid-up capital of 500 crores and a revenue of 1,000 crores each year.
Overview OF NFRA
Following the Satyam affair in 2009, the Standing Committee on Finance recommended the National Financial Reporting Authority (NFRA) concept for the first time in its 21st report.
[3] The Companies Act of 2013 established the regulatory foundation for the company's formation and constitution.
On March 1, 2018, the Union Cabinet accepted the proposal for its formation.
The establishment of NFRA as an independent regulator for the auditing profession is supposed to increase the openness and reliability of financial statements and information supplied by listed and big unregistered firms in India.
Role Of NFRA
When it comes to the NFRA's role, it is a statutory body established by the Companies Act of 2013. Its major responsibility is ensuring that Auditing and Accounting Standards for Public Interest Entities are followed.
- The NFRA oversees the Quality Review Board. Its primary function will be quality audits of public, listed and private firms. This will allow the NFRA to contribute to the development of legislation governing accounting and auditing.
- The NFRA has the authority to investigate professional misconduct, levy fines, and potentially prevent a CA from practising for 10 years.
- The NFRA, in addition to supervising the auditing profession, advises the Central Government on accounting standards and auditing rules.
- The National Financial Reporting Authority can also investigate misbehaviour, chequebooks, papers, and oaths.
- The NFRA will be tasked with ensuring the quality of its members' services and defining criteria for auditors and auditing companies.
- The NFRA may also organize research groups, advisory committees, and task teams. These organizations are in charge of developing people's awareness of auditing standards, as well as auditor obligations and quality.
- If the auditors commit fraud, the regulator may suspend them for ten years or more. A fine of up to five times the auditor's fees can also be levied.
- The NFRA may also become a member of worldwide or regional groups of independent audit regulators. In addition to these core responsibilities, the NFRA may be in charge of specific financial companies.
- Its role has expanded to encompass the creation of standards that are applicable to all enterprises and professions. The NFRA can also undertake industry studies and enlist the assistance of other specialists.
- The NFRA may also ask additional experts to assist in the creation of accounting principles and other relevant functions. Previously, the Central Government mandated accounting standards based on ICAI recommendations. This body, however, has been superseded by the NFRA.
What is the composition of NFRA?
The Supreme Court of India established the National Financial Reporting Authority to bolster the audit profession's regulatory process.
It will be in charge of enforcing accounting rules and supervising auditors. It is a government organisation whose members include publicly traded firms, securities, and subsidiaries.
A chairperson, three full-time members, and a secretary comprise the authority.
- The maximum number of members should be fifteen. All NFRA members must declare any conflicts of interest.
- The chairman and the other full-time members may not work for an audit or consulting company.
- The other members should not be affiliated with any financial firm while on assignment and should not occupy a comparable role after leaving NFRA.
- The National Financial Reporting Authority shall also keep books of accounts and other accounting information to monitor and regulate the application of accounting standards.
- The Comptroller and Auditor-General of India should audit the NFRA's records. The Auditor-General of India may demand that an organization's accounts be thoroughly audited.
- An authority member should be separate from the government and subject to stringent auditing procedures. It should also be able to refuse written objections or explanations.
- While the ICAI first opposed the NFRA, it eventually realized that it might assist in guaranteeing that standards be consistently followed. It would also aid in the application of current accounting and auditing regulations.
- The NFRA will have authority over both publicly traded and huge unlisted enterprises. The Central Government may also recommend other bodies for inquiry.
- Some requirements for membership in the NFRA include a paid-up capital of 500 crores, annual revenue of at least 1000 crores, and outstanding loans, debentures, and deposits of at least 500 crores.
Powers of NFRA
According to Section 132 of the Companies Act 2013, "NFRA is responsible for recommending accounting and auditing policies and standards in the country, conducting investigations, and imposing sanctions against defaulting auditors and audit firms in the form of monetary penalties and suspension from practice for up to ten years."
The NFRA Rules, 2018 expanded the NFRA's powers to encompass the regulation of auditors of firms listed on any stock market, in India or abroad, unlisted public companies beyond specific criteria, and other companies defined in Rule 3 (1) thereof.
Rules 7 and 8 permits the surveillance of audit and accounting specialists employed by the organizations mentioned in Rule 3. (1).
Companies are required to report information about their auditors to the NFRA via form NFRA-1 under Rules 3 (2) and 3 (3).
Now that you understand what NFRA is let's look at its capabilities. The new powers of the NFRA will supplement those of the ICAI.
The ICAI will continue to be the accounting profession's regulator, with the National Financial Reporting Authority aiding in developing and enforcing laws.
The ICAI voiced concerns about the proposed formation of the NFRA, claiming that it will create two regulatory agencies for a similar profession and waste efforts.
- The NFRA possesses the same authority as the Civil Court. It has the authority to compel the delivery of records of accounts, oaths, and other papers and to question witnesses under oath.
- The National Financial Reporting Authority (NFRA) has the authority to examine any misbehaviour involving members of the designated class of Chartered Accountants.
- It has the authority to launch actions and levy hefty fines on defaulting auditors.
- The NFRA has the jurisdiction to undertake investigations into allegations of wrongdoing involving CAs and Chartered Accountants.
- The NFRA may levy a charge of just not less than one lakh rupees but not more than five times the amount of fees collected. Furthermore, the NFRA has the authority to investigate and prosecute persons who breach professional behavioural guidelines.
- It has the authority to conduct its own investigations as well as those referred to it by the Central Government.
- It can also appoint commissions to investigate witnesses and impose debarment decisions and appeals.
- The NFRA has broad powers, including suspending or preventing an auditing company or member from practising. If NFRA discovers that a member has not been obeying the regulations in their work, it may take immediate action against an audit company or auditor.
- The NFRA may also invite additional experts to conduct comparable duties.
- It has the authority to offer suggestions for modifications to the ICAI's rules and policies. This can help to improve the accounting profession's service quality.
Future of NFRA
The NFRA was created by the Companies Act of 2013 and is overseen by the Ministry of Corporate Affairs.
The decision to alert the NFRA comes in the aftermath of the Punjab National Bank crisis, which featured a millionaire, bogus guarantees, and a flawed accounting system.
These controversies raised concerns about the function of the internal audit function in such circumstances.
The NFRA is a body established by the Companies Act with authority to monitor auditing procedures and accounting standards.
It can also look into individual instances of professional misconduct. It is essential in corporate management and financial reporting.
The NFRA is responsible for the integrity of financial accounts in addition to overseeing the auditing process.
It is in charge of combating fraud, encouraging openness, and guaranteeing that budgetary statements are founded on trustworthy data.
It should be composed of an independent panel of three full-time representatives and a secretary.
The draught NFRA standards in this respect encompass auditors or external auditors that assess the following firms or subsidiaries (mostly through the network/brand to which they belong).
- A total of fewer than 200 enterprises are audited each year.
- Audit of less than 20 listed firms; Company or companies (listed/non-listed) with Net Worth less than 500 crores; Paid-up capital less than 500 crores; Annual turnover less than 1000 crores (as of 31st March of the fiscal year); OR Company/Companies listed outside India
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Conclusion
The authority must keep books of account and other related books and contact the Comptroller and Auditor-General of India for auditing purposes.
The authority's accounts must be audited regularly by the Comptroller and Auditor-General of India and reported to the Central Government.
The NFRA must also be independent of audit companies and allied consulting businesses.
The NFRA will also monitor businesses' and chartered accountants' practises.
Its mandate will be confined to auditing major listed and unlisted firms, and the Centre will refer to it.
FAQs Related to the NFRA
1. Is the NFRA relevant to private businesses?
The NFRA-1 gene Organizations are not authorized to file if they have already submitted ADT-1 at Auditor's time appointment.
2. What exactly is the National Financial Reporting Authority?
Section 132 of the Companies Act of 2013 established the National Financial Reporting Authority (NFRA). It is an independent body established to identify and monitor the practice of accounting and auditing standards in India.
3. Is the NFRA a legal entity?
Yes, the answer is yes. The National Financial Reporting Authority (NFRA), headquartered in New Delhi, is a statutory organization established by Section 132 of the Companies Act of 2013.
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