The concept and composition of the National Financial Reporting Authority (NFRA) was originally introduced by the Companies Act, 2013. The Union Cabinet has now approved the proposal for establishing the National Financial Reporting Authority (NFRA). In this article, we look at the rules, composition and powers of the National Financial Reporting Authority.
The NFRA will consist of one Chairperson, three posts of full-time Members and one post of Secretary. The Chairperson of NFRA will be appointed by the Central Government from time to time and would be someone having expertise in accountancy, auditing, finance or law.
The Chairperson and members of the NFRA are required to make a declaration to the Central Government regarding no conflict of interest or lack of independence in respect of his or their appointment. Further, the Chairperson and members of the NFRA cannot be associated with any audit firm (including related consultancy firms) during the course of their appointment and two years after ceasing to hold such appointment.
The Companies Act, 2013 provides the following roles and responsibilities for the NFRA:
The jurisdiction of the NFRA for investigation of Chartered Accountants and their firms would extend to listed companies and large unlisted public companies. The thresholds for large unlisted public companies under the jurisdiction of the NFRA will be prescribed in the Rules. In addition to listed companies and large unlisted public companies, the Central Government can also refer any other entities for investigation where the public interest would be involved.
Note: As per the draft National Financial Reporting Authority rules, unlisted companies with net worth not less than Rs.500 crores or paid-up capital not less than Rs.500 crores or annual turnover not less than Rs.1,000 crores as on 31st March of immediately preceding financial year and companies having securities listed outside India will be under the jurisdiction of NFRA.
The regulatory role of ICAI as provided for in the Chartered Accountants Act, 1949 will continue with respect to audits pertaining to private limited companies, and public unlisted companies below the threshold limit.
The Quality Review Board (QRB) will also continue quality audit in respect of private limited companies, public unlisted companies below prescribed threshold and also with respect to audit of those companies that may be delegated to QRB by NFRA.
The National Financial Reporting Authority has the following powers to execute its roles and responsibilities:
The head office of the National Financial Reporting Authority will be at New Delhi and the National Financial Reporting Authority can meet at such other places in India as it deems fit.