CA Durgesh Kabra
Five years after the Companies Act, 2013 provided for the creation of a National Financial Reporting Authority (NFRA), Government has taken steps to implement NFRA.
Ministry of Corporate Affairs MCA vide its notification dated 13th November 2018 notified National Financial Reporting Authority (NFRA) Rules 2018. This is the step of Shri Narendra Modi administration attempts to strengthen the country’s financial system hit by Rs 12,700-crore fraud. The Rules also provide for submission of the details of the Auditors in Form NFRA-1 within thirty days from the date of implementation of the rules (though e-form is still not made available as on November 16, 2018).
Rules also provide that NFRA shall receive recommendations from the Institute of Chartered Accountants of India (ICAI) on proposals for new accounting standards or auditing standards or for amendments to existing accounting standards or auditing standards. However, it means that the power of ICAI to draft and implement Accounting Standard is now vest with NFRA and ICAI’s role is limited to recommendatory only.
> The NFRA will regulate accounting and audit standards and quality of service of auditors of:
> All companies whose securities are listed in India or outside.
> Unlisted companies with a paid up capital of not less than Rs 500 crore or an annual turnover of not less than Rs 1,000 crore or outstanding loans, debentures and deposits of not less than Rs 500 crore as on March 31 of immediately preceding financial year.
> Insurance companies, banking companies and companies engaged in the generation or supply of electricity
> Large offshore subsidiaries and associates of the above companies if their income or net worth exceeds 20 percent of the income or net worth of the parent company.
> The NFRA Rules authorize NFRA to protect public interest and the interests of investors, creditors and others associated with companies by
> Establishing high quality standards of accounting and auditing.
> Exercising effective oversight of accounting functions performed by companies and auditing functions performed by auditors.
> According to Section 132 of Companies Act 2013, “NFRA is responsible for recommending accounting and auditing policies and standards in the country, undertaking investigations, and imposing sanctions against defaulting auditors and audit firms in the form of monetary penalties and debarment from practice for up to 10 year.
> Due to notification of NFRA, India is now eligible for membership of International Forum of Independent Audit Regulators (IFIAR). Institute of Chartered Accountants of India (ICAI) however, is not open to the establishment of such an authority as it fears reduction in its own powers.
> Establishment of NFRA will improve foreign/domestic investments, enhance of economic growth, support globalization of business by meeting international practices and assist in further development of audit profession.
> NFRA will be 15 members body, consisting of Chairperson, three full-time Members and one Secretary.
> QRB will continue its quality audit in respect of private limited companies, public unlisted companies below prescribed threshold and also with respect to audit of companies delegated by NFRA.
> NFRA shall consist of the following committees:-
1. Accounting Standards Committee,
2. Auditing Standards Committee, and
3. Enforcement Committee.
> To investigate matters relating to professional or other misconduct committed by auditor, individual, firm or an LLP on recommendation by NFRA.
> The Committee on Enforcement shall complete its investigation within a period of 6 months on any matters referred to it. In case of delay, specific time extension has to be sought by providing reasonable justifications to NFRA.
> Every notice or letter issued by the Member Enforcement shall be sent to the member or the firm by registered post with acknowledgement due or by speed post.
> The introduction of NFRA will build a transparent mechanism for accounting, auditing and financial reporting. NFRA will not be just being an advisory body; instead it has been empowered to regulate accounting standards and auditing policies along with powers to investigate certain matters related to professional misconduct by chartered accountants in corporate bodies. It has a huge role to play in the field of financial reporting for effective corporate governance.