The National Financial Reporting Authority (NFRA) is a statutory authority which was set up in India under the Companies Act, 2013. As per the Act, the NFRA is entrusted with the primary objective of safeguarding the interests of investors, promotion of fairness and transparency in the Indian securities market and prevention of corporate frauds. The NFRA is responsible for bringing discipline and ensuring orderly growth of the corporate sector in India.
The NFRA is mandated to lay down accounting and auditing standards and investigate offenses related to them. The NFRA can investigate and recommend action against auditors for professional misconduct or violations of any of the accounting and auditing standards in India. In this regard, the NFRA is expected to provide auditors with a clear understanding of their duties by issuing guidelines on audit procedures and interpretations of the relevant standards with regard to auditor-client relationship and other matters.
The NFRA also has the power to investigate into the affairs of entities involved in the violation of any of the accounting and auditing standards prescribed by it. This power of inquiry by the NFRA facilitates accountability and transparency in such cases as it can take into consideration the well-being of stakeholders.
In addition to the audit standards, the NFRA has also prescribed prudential limits on the shareholding of professional accounting firms. The constitution of the NFRA also recommends that the auditors should provide the shareholders with sufficient information regarding the financial condition of the company.
Apart from the responsibilities to monitor and implement accounting and auditing standards, the NFRA also has the power to prescribe preventive and corrective measures against accounting and auditing firms which are in violation of any of the standards.
The NFRA has highlighted some of the key duties of the auditors as prescribed by it, as follows:
- An auditor must be independent and professional at all times in their approach and attitude
- An auditor should constantly monitor their client’s accounts and should not accept any opinion from the client which could be considered as erroneous or misleading
- An auditor should inform their client in a timely manner about any changes in the scope or intention of the audit and also any changes in the status of reports to the NFRA
- An auditor should report any irregularities or suspicious transactions specifically related to a client’s financial position to the NFRA
- An auditor should ensure that any changes in accounting policies and procedures have been applied consistently in compliance with the relevant accounting standards
- An auditor should assess and corroborate the accuracy of documents presented by the entity being audited
- An auditor must take certain steps to ensure that any changes made in the entities’ accounting structure or the related documents are in compliance with the relevant accounting standards
- An auditor should conduct its work diligently and professionally to ensure that all relevant rules are followed in completing the work assigned
- An auditor should report any breaches of laws relating to matters such as insider trading
The National Financial Reporting Authority plays an important role in maintaining the order and fairness in the Indian corporate sector. With the introduction of the NFRA, Auditors are now expected to perform their duties responsibly, maintaining their independence at all times. The NFRA has established accounting and auditing standards which the auditors must comply with while performing any audit. In addition, the NFRA also provides guidance and preventive and corrective measures against non-compliance with these standards. By adhering to these standards, auditors are able to ensure the fidelity of financial information provided to stakeholders and safeguard the interests of investors.
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