National Financial Reporting Authority (NFRA)

The National Financial Reporting Authority (NFRA) was constituted on 1^st October, 2018 by the Government of India under section 132 (1) of the Companies Act, 2013.

Context:–

National Financial Reporting Authority (NFRA) Chairperson has pitched for a ‘standalone legislation’ for the regulator in the interests of autonomy. He also demanded that all necessary penal provisions relating to financial reporting should be consolidated and vested with it.

Why this is necessary?

Currently, the NFRA may take action against auditors for professional misconduct but when it came to other functionaries of a company who have the responsibility for financial reporting, penal powers continue to be vested with the Centre. A standalone legislation will allow for integrated regulation of all participants in the financial reporting system.

About National Financial Reporting Authority (NFRA):

The NFRA was constituted on 01st October 2018 by the Government of India under the Companies Act, 2013.
It is an independent regulator to oversee the auditing profession and accounting standards in India.
Objective: To continuously improve the quality of all corporate financial reporting in India.
Functions and Duties:
- Recommend accounting and auditing policies and standards to be adopted by companies for approval by the Central Government;
- Monitor and enforce compliance with accounting standards and auditing standards;
- Oversee the quality of service of the professions associated with ensuring compliance with such standards and suggest measures for improvement in the quality of service;

Composition: It consists of a chairperson, who shall be a person of eminence and having expertise in accountancy, auditing, finance, or law to be appointed by the Central Government and such other members not exceeding fifteen consisting of part-time and full-time members.

National Financial Reporting Authority (NFRA) Jurisdiction

The jurisdiction of NFRA for investigation of CAs and their firms under Section 132 of the Companies Act would extend to large public companies that are not listed (threshold prescribed in the rules) and listed companies.

It is at the discretion of the Central Government to refer such other entities for investigation, involving public interest.
Under the provision of the Chartered Accountant Act of 1949, the essential role of ICAI (Institute of Chartered Accountants of India) will continue in respect of its members in general and explicitly concerning audits about private limited companies, and public unlisted companies below the threshold limit to be notified in the rules.
ICAI would continue playing the advisory role with respect to accounting and auditing standards and policies through recommendations to the NFRA.
Quality audit with respect to public companies that are not listed and are below the prescribed threshold, private companies that are listed and those companies delegated by the NFRA would be continued to be done by the Quality Review Board (QRB).

NFRA Benefits

The expected benefits of having the NFRA are listed below.

India gains eligibility for IFIAR (International Forum of Independent Audit Regulators), which was denied earlier, resulting in enhancing the confidence of Foreign/Domestic investors and India’s position on a global scale.
Increase in foreign/domestic investors.
Economic growth. (Learn about economic growth and development in the linked article.)
IFIAR eligibility proves our international standards of business, further supporting globalization.
Further development of the auditing profession.
Establishment of NFRA will free resources for the ICAI to work on developing new and complex skills needed in the uncertain world of technology.

Functions and Duties

Recommend accounting and auditing policies and standards to be adopted by companies for approval by the Central Government;
Monitor and enforce compliance with accounting standards and auditing standards;
Oversee the quality of service of the professions associated with ensuring compliance with such standards and suggest measures for improvement in the quality of service;
Perform such other functions and duties as may be necessary or incidental to the aforesaid functions and duties.

Powers

It can probe listed companies and those unlisted public companies having paid-up capital of no less than Rs 500 crore or annual turnover of no less than Rs 1,000 crore.
It can investigate professional misconduct committed by members of the Institute of Chartered Accountants of India (ICAI) for prescribed class of body corporate or persons.

Conclusion

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.

Read more: national financial reporting authority, companies act, nfra, the institute of chartered accountants of india