1. What is NFRA?
The constitution of NFRA is enshrined in the section 132 of the Companies Act, 2013. NFRA stands for National Financial Reporting Authority (NFRA), The NFRA will act as an independent regulator for the auditing profession which was one of the key changes brought in by the Companies Act 2013.
2. What is the Composition of NFRA
The regulator would have a chairperson and three full-time members. Besides, there would be a secretary.
NFRA would be an oversight body for an oversight body for auditors and its jurisdiction would extent to all listed companies as well as large as unlisted public companies.
As said by Corporate Affairs Minister Arun Jaitley “The NFRA will act as an independent regulator for the auditing profession which was one of the key changes brought in by the Companies Act 2013.”
3. What are the Functions of NFRA
i. To provide recommendations to the Central Government on the formulation and laying down of accounting and auditing policies and standards
ii. monitor and enforce the compliance with accounting standards and auditing standards
iii. 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
4. What are the Power of NFRA
1. Will notify accounting standards to the government which audit companies need to monitor as will as adhere to.
2. Enforce such policies and standards into practices by auditors and companies.
3. Assess the service quality of the auditing profession and their compliance with the laid down policies and standards.
4. Also, in case of disciplinary misconduct by CA professionals the body will have the authority to either penalize then of debar CA or the firm for upto 10 years.
5. The regulating body shell be entrusted with the same powers as are vested with a civil court of law.
6. The body can issues summons and examine the concern on oath.
7. Can cell inspection in respect of any book, documents registers of any of the professional firm being probed.
The thresholds for large unlisted public companies under the jurisdiction of the NFRA has not yet been announced, However, as per the draft National Reporting Authority rules, unlisted companies with net worth not less than Rs. 500 crores or paid-up capital not less than Rs. 500 crores or annual turnover not less than Rs. 1,000 crores as on 31st March of immediately preceding financial year and companies having securities listed outside India will be under the jurisdiction of NFRA
5. Do NFRA not meant to replace the disciplinary jurisdiction of the ICAI?
In a bid to crack down upon auditors who fail to spot the PNB-like frauds, the government introduce a new regulatory body called National Financial Reporting Authority, to snatch some of the powers of the Institute of Chartered Accountants of India (ICAI) that is currently entrusted with the task of taking disciplinary action against the financial auditors.
However, ICAI would continue to monitor its members in general and specifically with respect to audits pertaining to private limited companies, and public unlisted companies below the threshold limit to be notified in the rules. It will also continue to make recommendations on accounting and auditing standards and policies to the NFRA.
6. What is the need for NFRA?
The decision comes against the backdrop of various auditing lapses in the banking sector, including the Rs. 12,700 crore fraud at Punjab National Bank.
Cabinet approves establishment of National Financial Reporting Authority:
The need felt across various jurisdictions in the world, in the wake of accounting scams, to establish independent regulators, independent from those it regulates, for enforcement of audits to strengthen the independence of audit firms, quality of audits and, therefore, enhance investor and public confidence in financial disclosures of companies.
7. What are the Impact of NFRA?
NFRA would help in improving foreign and domestic investments as well as support globalisation of business by meeting international practices. The decision is expected to result in improved foreign/domestic investments, enhancement of economic growth, supporting the globalization of business by meeting international practices, and assist in further development of audit profession