The National Financial Reporting Authority (NFRA) was established on 1st October 2018 by the Government of India under the Companies Act, 2013. The Ministry of Corporate Affairs under the Government of India administers NFRA to regulate the auditing standards in the country.
Composition of the Authority (NFRA)
NFRA should be composed of one Chairperson, three full-time Members, and one Secretary. The chairperson shall have expertise in accountancy, auditing, finance, or law and to be appointed by the Central Government.
The appointment of NFRA and its members are subjected to the following qualifications:
- The member should have expertise in accountancy, auditing, finance or law;
- The member should make a declaration to the Central Government about no conflict of interest or lack of independence in their appointment;
- The members (including Chairperson) who are in full-time employment, need not be associated with an audit firm. At least during or 2 years post their office term.
NFRA composition Terms & Conditions
- The chairperson should be a CA and a person of eminence possessing expertise in auditing, accountancy, finance, or law;
- Member- Accounting
- Member- Auditing
- Member- Enforcement
- One representative from the MCA and not below the rank of Joint Secretary or equivalent;
- High Court’s retired CJI or a person who has been a judge of a high court for more than five years should be nominated by the Central Government;
- President of the ICAI.
Role of NFRA (National Financial Reporting Authority)
- It monitors and enforces compliance of the accounting standards and also auditing standards;
- It makes recommendations on the foundation and laying down accounting and auditing policies and standards;
- It oversees the service quality of professionals and suggests measures for improvement in the quality of the service;
- It performs other functions related to the above.
Powers of NFRA
NFRA can investigate the matters of professionals, also they have the power to investigate other misconduct committed by a prescribed class of CAs or Chartered Accountant firms. No other authority shall initiate any proceedings where NFRA initiates an investigation.
NFRA has the same powers as a civil court under the CrPc, in respect of a suit involving the matters provided below:
- It has the power of summoning & enforcing the attendance of persons and examining them under oath.
- NFRA can Inspect books, registers, and other documents of any person at any place.
- It has the power of discovery & production of documents and books at a place and time as mentioned by the NFRA.
- It has the power to Issue commissions for examining witnesses or documents.
Scope of NFRA in India
The National Financial Reporting Authority has the full power to conduct quality reviews or investigate for a certain prescribed class of companies. While there aren’t any prescriptions for the draft of NFRA rules so far, they would rather go with the following segments of companies.
- Companies that are listed in India
- Unlisted companies whose securities are listed outside India
- Unlisted Companies whose Net worth or Paid-up Capital is 500 crore INR or an annual turnover is Rs.1000 crore (As of 31st March of the preceding financial year).
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