The Central Government may, by notification, shall constitute a “National Financial Reporting Authority / NFRA”, an independent Regulator for auditors. (Section132). NFRA, a quasi – judicial regulator will replace the National Advisory Committee on Accounting Standards (Section 210A of the Companies Act, 1956).
Functions – In Brief
1. To 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;
2. To monitor and enforce the compliance with accounting standards and auditing standards;
3. To oversee quality of service of the professions associated with ensuring compliance with such standards & suggest measures as required.
4. Perform such other functions relating to above mentioned functions as may be prescribed.
Constitution of NFRA
The NFRA will be headed by a person of eminence and having the expertise in accountancy, auditing, finance or law and will be appointed by the Central Government.
There will be up to fifteen part-time and full time members.
The Chairperson and members, who are all full-time employment with NFRA shall not associated with any audit form (including related consultancy forms) during the course of their appointment and two years after ceasing to hold such appointment (sub-section (3) of Section 132).Online GST Certification Course by TaxGuru & MSME- Click here to Join
Action against professional misconduct
The NFRA has been empowered to investigate, either suo motu or on a reference to it by the Central Government into the matters of professional & other misconduct committed by any member of ICAI.
NFRA is also empowered to impose specified penalty including debarring the professional from the practice for a minimum period of six months or for such higher period not exceeding ten years as may be decided by the NFRA.
Further, if NFRA initiates proceedings, no other institute or body can initiate or continue proceedings in the same matter (Sub-section (4) of Section 132).
Action against Audit Firm
Earlier on account of professional or other misconduct, ICAI was empowered to suspend individual partners of the audit firm but not an audit firm. For instance, in Satyam Accounting fraud, it was only the partners who signed the accounts & two employees were booked. The Audit firms that prepared the company’s accounts were never booked. To plug this loophole NFRA has been empowered to act against audit firm (Sub-section (4) of Section 132).
Appeal to the Appellate Authority
Any person aggrieved by any order of the NFRA for taking action against professional or other misconduct may prefer an appeal before the Appellate Authority.
The Central Government may, by notification, constitute an Appellate Authority consisting of a Chairperson and not more than two other members, to be appointed by the Central Government, for hearing the appeals (Sub-section (5) of Section 132).
Meetings of NFRA
The NFRA 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 (Sub-section (10) of Section 132).
Head office – NFRA
The head office of the NFRA shall be at New Delhi and the National Financial Reporting Authority may, meet at such other places in India as it deems fit (Sub-section (12) of Section 132).
Accounts of NFRA
The accounts of the NFRA shall be audited by the Comptroller and Auditor-General of India at such intervals as may be specified (Sub-section (14) of Section 132).
The Author is a budding Tax Law Professional & may be reached @ email@example.com