NFRA is an independent regulator to oversee the auditing profession and accounting standards in India under the Companies Act, 2013. Section 132 of Companies Act, 2013 which deals with provisions relating to NFRA. It came into existence in October 2018 and having its offices at New Delhi. The present chairperson of it is Mr. Ashok Kumar Gupta.
Section-132: Constitution of National Financial Reporting Authority
The Central Government may, by notification, constitute a National Financial Reporting Authority to provide for matters relating to accounting and auditing standards under this Act.
Head office of NFRA
The head office of the National Financial Reporting Authority shall be at New Delhi and the National Financial Reporting Authority may, meet at such other places in India as it deems fit.
Functions of the NFRA
The National Financial Reporting Authority shall perform its functions through such divisions, which are as follows:-
1. The Authority shall protect the public interest and the interests of investors, creditors and others associated with the companies or bodies corporate governed under rule 3 by establishing high quality standards of accounting and auditing and exercising effective oversight of accounting functions performed by the companies and bodies corporate and auditing functions performed by auditors.
2. In particular, and without prejudice to the generality of the foregoing, the Authority shall:-
(a) maintain details of particulars of auditors appointed in the companies and bodies corporate specified in rule 3;
(b) recommend accounting standards and auditing standards for approval by the Central Government;
(c) monitor and enforce compliance with accounting standards and auditing standards;
(d) 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;
(e) promote awareness in relation to the compliance of accounting standards and auditing standards;
(f) co-operate with national and international organisations of independent audit regulators in establishing and overseeing adherence to accounting standards and auditing standards; and
(g) perform such other functions and duties as may be necessary or incidental to the aforesaid functions and duties.
3. The Central Government may, by notification, and subject to such conditions, limitations and restrictions as may be specified therein delegate any of its powers or functions under the Act, other than the power to make rules, to the Authority.
Duties of NFRA:
The National Financial Reporting Authority shall—
i. make recommendations to the Central Government on the formulation and laying down of accounting and auditing policies and standards for adoption by companies or class of companies or their auditors, as the case may be;
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 and such other related matters; and
iv. perform such other functions relating to clauses (a), (b) and (c), which are as follows:-
Overseeing the quality of service and suggesting measures for improvement.
(1) On the basis of its review, the Authority may direct an auditor to take measures for improvement of audit quality including changes in their audit processes, quality control, and audit reports and specify a detailed plan with time-limits.
(2) It shall be the duty of the auditor to make the required improvements and send a report to the Authority explaining how it has complied with the directions made by the Authority.
(3) The Authority shall monitor the improvements made by the auditor and take such action as it deems fit depending on the progress made by the auditor.
(4) The Authority may refer cases with regard to overseeing the quality of service of auditors of companies or bodies corporate referred to in rule 3 to the Quality Review Board constituted under the Chartered Accountants Act, 1949 (38 of 1949) or call for any report or information in respect of such auditors or companies or bodies corporate from such Board as it may deem appropriate.
(5) The Authority may take the assistance of experts for its oversight and monitoring activities.
Composition of NFRA
(3) The National Financial Reporting Authority shall consist 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 which may be as follows:
Manner of appointment
(1) The Central Government shall appoint the chairperson and a full time member referred to in rule 3 on the recommendation of a search-cum-selection committee consisting of –
(a) Cabinet Secretary-Chairperson;
(b) Additional Principal Secretary to the Prime Minister – Member;
(c) Secretary – Ministry of Corporate Affairs– Member;
(d) Chairperson, National Financial Reporting Authority (for selection of full-time members) – Member;
(e) three experts of repute from a panel of experts in the field of accountancy, auditing, finance, law (to be nominated by the Central Government) – Members
(2) The Secretary, Ministry of Corporate Affairs shall be the convener of the search-cum-selection committee.
(3) The search-cum-selection committee shall determine its procedure for making its recommendation.
(4) No appointment of chairperson or a full time member shall be invalid merely by reason of any vacancy or absence in the search-cum-selection committee.
(5) The search-cum-selection committee shall make its recommendations in regard to appointment of chairperson or the members, as the case may be, to the Central Government within a period not exceeding one hundred and twenty days from the date of reference made to it by the Central Government.
(6) The following persons shall be appointed as part time members of the Authority namely:-
(i) one member to represent the Ministry of Corporate Affairs, who shall be an officer not below the rank of Joint Secretary, ex-officio;
(ii) one member to represent the Comptroller and Auditor General of India, who shall be an officer not below the rank of Accountant General or Principal Director, ex-officio;
(iii) one member to represent the Reserve Bank of India, who shall be an officer not below the rank of Executive Director, ex-officio;
(iv) one member to represent the Securities and Exchange Board of India, who shall be an officer not below the rank of Executive Director, ex-officio;
(v) President, Institute of Chartered Accountants of India, ex-officio;
(vi) Chairperson, Accounting Standards Board, Institute of Chartered Accountants of India, ex-officio;
(vii) Chairperson, Auditing and Assurance Standards Board, Institute of Chartered Accountants of India, ex-officio; and
(viii) two experts from the field of accountancy, auditing, finance or law.
Presiding of division of NFRA:
Each division of the National Financial Reporting Authority shall be presided over by the Chairperson or a full-time Member authorised by the Chairperson.
Executive Body of NFRA:
- There shall be an executive body of the National Financial Reporting Authority consisting of the Chairperson and full-time Members of such Authority for efficient discharge of its functions.
- The terms and conditions and the manner of appointment of the chairperson and membersshall be such as may be prescribed.
- The chairperson and membersshall make a declaration to the Central Government in the prescribed form regarding no conflict of interest or lack of independence in respect of his or their appointment.
- The chairperson and members, who are in full-time employment with National Financial Reporting Authority shall not be associated with any audit firm (including related consultancy firms) during the course of their appointment and two years after ceasing to hold such appointment.
Powers of NFRA:
The National Financial Reporting Authority shall—
(a) have the power to investigate, either suo moto or on a reference made to it by the Central Government, for such class of bodies corporate or persons, in such manner as may be prescribed into the matters of professional or other misconduct committed by any member or firm of chartered accountants, registered under the Chartered Accountants Act, 1949:
Provided that no other institute or body shall initiate or continue any proceedings in such matters of misconduct where the National Financial Reporting Authority has initiated an investigation under this section;
(b) have the same powers as are vested in a civil court under the Code of Civil Procedure, 1908, while trying a suit, in respect of the following matters, namely:-
(i) discovery and production of books of account and other documents, at such place and at such time as may be specified by the National Financial Reporting Authority;
(ii) summoning and enforcing the attendance of persons and examining them on oath;
(iii) inspection of any books, registers and other documents of any person referred to in clause (b) at any place;
(iv) issuing commissions for examination of witnesses or documents;
(c) where professional or other misconduct is proved, have the power to make order for—
(A) imposing penalty of—(I) not less than one lakh rupees, but which may extend to five times of the fees received, in case of individuals; and not less than [five lakh rupees], but which may extend to ten times of the fees received, in case of firms;
(B) debarring the member or the firm from—
I. being appointed as an auditor or internal auditor or undertaking any audit in respect of financial statements or internal audit of the functions and activities of any companyor body corporate; or
II. performing any valuation as provided under section 247, for a minimum period of six months or such higher period not exceeding ten years as may be determined by the National Financial Reporting Authority.]
Appeal against the order of NFRA:
Any person aggrieved by any order of the National Financial Reporting Authority may prefer an appeal before the Appellate Tribunal in such manner and on payment of such fee as may be prescribed].
Meeting of NFRA:
The National Financial Reporting Authority shall meet at such times and places and shall observe such rules of procedure in regard to the transaction of business at its meetings in such manner as may be prescribed.
Appointment of secretary and such other employees:
The Central Government may appoint a secretary and such other employees as it may consider necessary for the efficient performance of functions by the National Financial Reporting Authority under this Act and the terms and conditions of service of the secretary and employees shall be such as may be prescribed.
Preparation of Books of accounts:
The National Financial Reporting Authority shall cause to be maintained such books of account and other books in relation to its accounts in such form and in such manner as the Central Government may, in consultation with the Comptroller and Auditor-General of India prescribe.
Audit of Books of Accounts of NFRA:
The accounts of the National Financial Reporting Authority shall be audited by the Comptroller and Auditor-General of India at such intervals as may be specified by him and such accounts as certified by the Comptroller and Auditor-General of India together with the audit report thereon shall be forwarded annually to the Central Government by the National Financial Reporting Authority.
The National Financial Reporting Authority shall prepare in such form and at such time for each financial year as may be prescribed its annual report giving a full account of its activities during the financial year and forward a copy thereof to the Central Government and the Central Government shall cause the annual report and the audit report given by the Comptroller and Auditor-General of India to be laid before each House of Parliament.
Author Bio
I am a retired officer from CAG of India and presently doing tax practice.
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SHIV AVTAR AGARWAL
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