It has been Five years since the Companies Act, 2013 provided for the creation of a National Financial Reporting Authority (NFRA), and now Government has finally taken steps to implement NFRA.
The Ministry of Corporate Affairs (MCA) vide its notification dated November 13, 2018, has notified National Financial Reporting Authority (NFRA) Rules, 2018, determining the jurisdiction, function and duties of the NFRA, as also its powers. Let’s have a Quick summary of it:
National Financial Reporting Authority (NFRA) is a body proposed in Companies Act 2013 for the establishment and enforcement of accounting and auditing standards and oversight of the work of auditors. The Centre has appointed former IAS officer Rangachari Sridharan as chairperson of NFRA.
The non-performing assets (NPA) situation illustrates all that is wrong with auditing. Even banks are subject to different kinds of Audit (e.g. Concurrent/Branch/Stock audit etc.) yet NPAs are at alarming levels. Also, recently there have been large-scale frauds in banking sectors have forced the government to take the steps on urgent basis. The decision appears to have been prompted by the latest bank scam to have hit the headlines — the ₹12,636 crore Punjab National Bank fraud that went undetected by auditors. IN the wake of currents big banking frauds, the NPA crisis, Tax evasion have played major roles in bringing the NFRA into existence. Also, Most of the major economies of the world have independent audit regulators and therefore, India also needs to match up with them as well.
The Authority shall have power to monitor and enforce compliance with accounting standards and auditing standards, oversee the quality of service or undertake investigation of the auditors of the following class of companies and bodies corporate, namely:-
Above Limits shall be check on as on the 31st March of immediately preceding financial year;
Some Important Points:
Every auditor referred above shall file a return with the Authority on or before 30th April every year in such form as may be specified by the Central Government.
If a company or any officer of a company or an auditor or any other person contravenes any of the provisions of these rules, the company and every officer of the company who is in default or the auditor or such other person shall be punishable as per the provisions of section 450 of the Act.
Recommend Central Govt. w.r.t. AS and SAs and checking the proper compliance for the same, oversee the quality of audit and audit firms.
Investigation of audit firms, summoning and enforcing attendance, Inspection of records etc.
Proprietorship concerns, Firms, LLPs, Charitable Trust, AOP/BOI, Societies, etc. along with Private Companies and Unlisted Public Companies (Apart from that which are covered as under rule) would still be governed by ICAI and ICAI would have the sole discretionary power to provide rules and regulation for them.
The ICAI will continue to retain its regulatory powers in respect of private companies and unlisted public companies below the above-prescribed threshold. Also, the Quality Review Board (QRB) will also be there to continue conducting quality audits in respect of private limited companies, unlisted public companies and such other audit of companies that are delegated by the NFRA.
But any reform steps can’t be successful unless it consists of proper mechanism and there is also acceptance among the stakeholders. But seeing the current situation of autonomous bodies like CBI, RBI and even the Judiciary in the country, only time will tell what and how much it is going to be actually effective. Although, the real success of NFRA would totally depend upon the bureaucracy which would consist in it otherwise it would be simply just giving the power from one Authority to the other which is even more polluted..!!
What do you think about the NFRA rules? In case of any ideas, Suggestions or queries, please do comment below. You can reach me at firstname.lastname@example.org. Thanks. Be Helpful to One Another!