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.
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. 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 eform is still not made available as on November 16, 2018).
The National Financial Reporting Authority (NFRA) Rules, 2018 also mandated that every auditor 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.
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:
The NFRA Rules authorize NFRA to protect public interest and the interests of investors, creditors and others associated with companies by
The regulator may review financial statements or seek further information from companies and their auditors in order to enforce compliance with accounting and auditing standards.
The Authority shall publish its findings relating to non-compliances on its website and in such other manner as it considers fit, unless it has reasons not to do so in the public interest and it records the reasons in writing.
As specified in the Companies Act, the rules provide that the NFRA may direct auditors to take measures to improve audit quality. It has also been given wide powers of investigation including into professional misconduct.
In the case of professional or other misconduct the NFRA has the power to impose a monetary penalty as well as debar an audit member or a firm. While this has been laid down in the law, the rules specify the processes to be followed.
About Author: CS Jigar Shah is the Founder and Partner at JMJA & Associates LLP. With over 10 years of work experience in various listed companies and conglomerates, CS Jigar Shah has a rich and varied experience in his portfolio.