With the aims of making recommendations to the Central Government on the formulation and laying down of accounting and auditing policies and standards, monitor and enforce the compliance of these policies and standards and oversee the quality of service of the professions associated with ensuring compliance with such standards, MCA vide Notification dated 1st October, 2018 appointed that date as the date of constitution of National Financial Reporting Authority (“NFRA” or the “Authority”) and also notified sub-sections (1) and (12) of Section 132 of the Companies Act, 2013. Subsequent to this, MCA vide Notification dated 13th November, 2018 notified National Financial Reporting Authority Rules, 2018 (“NFRA Rules, 2018”) with an effective date of 14th November, 2018.
According to Sub-Rule (1) of Rule 3 of the “NFRA Rules, 2018”, the following entities and their auditors will be governed by the Authority:
(a) companies whose securities are listed on any stock exchange in India or outside India;
(b) unlisted public companies having paid-up capital of not less than rupees five hundred crores or having annual turnover of not less than rupees one thousand crores or having, in aggregate, outstanding loans, debentures and deposits of not less than rupees five hundred crores as on the 31st March of immediately preceding financial year;
(c) insurance companies, banking companies, companies engaged in the generation or supply of electricity, companies governed by any special Act for the time being in force or bodies corporate incorporated by an Act in accordance with clauses (b), (c), (d), (e) and (f) of sub-section (4) of section 1 of the Act;
(d) any body corporate or company or person, or any class of bodies corporate or companies or persons, on a reference made to the Authority by the Central Government in public interest; and
(e) a body corporate incorporated or registered outside India, which is a subsidiary or associate company of any company or body corporate incorporated or registered in India as referred to in clauses (a) to (d), if the income or networth of such subsidiary or associate company exceeds twenty per cent. of the consolidated income or consolidated networth of such company or the body corporate, as the case may be, referred to in clauses (a) to (d).
According to Sub-Rule (4) of Rule 3 of the “NFRA Rules, 2018”, a company or a body corporate other than a company governed under this rule shall continue to be governed by the Authority for a period of three years after it ceases to be listed or its paid-up capital or turnover or aggregate of loans, debentures and deposits falls below the limit stated therein.
Every auditor governed by Rule 3 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.
(The Form has been made available on 2nd July, 2019 and last date of filing is 31st July, 2019)
Sub-Rule (2) of Rule 3 prescribe that every existing body corporate other than a company governed by these rules, shall inform the Authority within thirty days of the commencement of these rules (subsequently extended till 30 days from the date of deployment), in Form NFRA-1, the particulars of the auditor as on the date of commencement of these rules.
Sub-Rule (3) of Rule 3 Every body corporate, other than a company as defined in clause (20) of section 2, formed in India and governed under this rule shall, within fifteen days of appointment of an auditor under sub-section (1) of section 139, inform the Authority in Form NFRA-1, the particulars of the auditor appointed by such body corporate.
Provided that a body corporate governed under clause (e) of sub-rule (1) shall provide details of appointment of its auditor in Form NFRA-1.
The Circular exempted Companies as defined in Sub-Section 20 of Section 2 of the Act from filing Form NFRA-1 . All other Body Corporate governed by these rules are required to file the Form latest by 31st July, 2019.
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