National Financial Reporting Authority: A Regulator for the auditing person

National Financial Reporting Authority (NFRA) is an independent regulator that deals with enforcement of auditing standards and ensuring the quality of audits so as to enhance investor and public confidence in financial disclosures of companies.

NFRA was established on 1st October, 2018 under Section 132 (1) of the Companies Act, 2013 by the Government of India.

The main task of the NFRA is to recommend the standards of accounting and auditing, it ensures compliance with them as well as inspect their quality of service.

Composition

As per the Companies Act, NFRA can have a chairperson who will be appointed by the Central Government and maximum of 15 members, the appellate body can have two members other than the chairman

Current Chairman/ Chairperson of NFRA: Rangachari Sridharan

Other Members of NFRA:

• Prasenjit Mukherjee
• Vivek Narayan
• Venkateswarlu Peri
• Lekhan Thakkar
• Arun Kumar
• Jai Krishan

The NFRA will consist, one Chairperson, three full-time Members, and one Secretary.

Power of NFRA

• NFRA can investigate the professional misconduct by Chartered Accountants or members of Institute of Chartered Accountants of India (ICAI), they not only impose the penalty but also ban the CA or firm for up to 10 years.
• It can probe listed as well as unlisted public companies having paid-up capital at least Rs 500 crore or annual turnover at least Rs 1,000 crore.
• In Case of individuals: The fine can be imposed not less than one lakh rupees which may extend up to five times of the fees received.
• In Case of firms: The fine can be imposed not less than ten lakh rupees which may extend up to ten times of the fees received.

Need for NFRA

• In the wake of accounting scams, a need to establish an independent regulator for enforcement of auditing standards and ensuring the quality of audits was felt so as to enhance investor and public confidence in financial disclosures of companies
• NFRA was needed to strengthen the Financial System of India and to bring back the trust in Indian Auditors, which has been stained by recent events.
• The government has taken a decision to declare the NFRA immediate after the fraud of Punjab National Bank where billionaire Nirav Modi and his firms allegedly taken fraudulent guarantees to get short-term loans overseas. This fraudulent case of Rs12,636 crore at PNB was the final verge that pushed the government to approve NFRA. 

Functions

• NFRA will recommend accounting and auditing policies and standards to be adopted by companies for approval by the Central Government
• It will monitor and enforce compliance with accounting standards and auditing standards
• It will oversee the quality of service of the professions associated with ensuring compliance with such standards and suggest measures for improvement in the quality of service
• It will perform such other functions and duties as may be necessary or incidental to the aforesaid functions and duties

Impact

• The positive impact of National Financial Reporting Authority (NFRA) is that, It has improved domestic as well as international financial investment of India
• India is now eligible for membership of International Forum of Independent Audit Regulators (IFIAR) due to this.
• It is not only supporting the International Businesses of India in the global market but is also also enhancing growth of our economy supporting the development of auditors.

Recent Update

 

• National Financial Reporting Authority (NFRA) has constituted Technical Advisory Committee (TAC) under the chairmanship of R Narayanaswamy (IIM Bengaluru)
• It is a 7 members committee including the chairman
• The committee will aid and advise the Executive Body of the NFRA on issues related to the drafts of accounting and auditing standards
• It will provide inputs from the perspectives of users, preparers and auditors of financial statements.

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