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.
Composition of the National Financial Reporting Authority (NFRA)
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.
Role of the National Financial Reporting Authority (NFRA)
The Companies Act, 2013 provides the following roles and responsibilities for the NFRA:
Make recommendations to the Central Government on the formulation and laying down of accounting and auditing policies and standards for adoption by companies or class of companies or their auditors, as the case may be.
Monitor and enforce the compliance with accounting standards and auditing standards in such manner as may be prescribed.
Oversee the quality of service of the professions associated with ensuring compliance with such standards, and suggest measures required for improvement in quality of service and such other related matters as may be prescribed.
Jurisdiction of the National Financial Reporting Authority (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.
Exemption for Private and Unlisted Companies
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.
Quality Review Board (QRB)
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.
Powers of the National Financial Reporting Authority (NFRA)
The National Financial Reporting Authority has the following powers to execute its roles and responsibilities:
Power to investigate, either suo motu or on a reference made to it by the Central Government, for such class of bodies corporate or persons, in such manner as may be prescribed into the matters of professional or other misconduct committed by any member or firm of Chartered Accountants, registered under the Chartered Accountants Act, 1949.
Provided that no other institute or body shall initiate or continue any proceedings in such matters of misconduct where the National Financial Reporting Authority has initiated an investigation under this section.
Have the same powers as are vested in a civil court under the Code of Civil Procedure, 1908, while trying a suit, in respect of the following matters, namely:
Discovery and production of books of account and other documents, at such place and at such time as may be specified by the National Financial Reporting Authority;
Summoning and enforcing the attendance of persons and examining them on oath;
Inspection of any books, registers and other documents of any person referred to at any place;
Issuing commissions for the examination of witnesses or documents;
Where professional or other misconduct is proved, the National Financial Reporting Authority (NFRA) has the power to make an order for:
Imposing penalty of not less than one lakh rupees, but which may extend to five times of the fees received, in case of individuals. Imposing penalty of not less than ten lakh rupees, but which may extend to ten times of the fees received, in case of firms.
Debarring the member or the firm from engaging himself or itself from practice as member of the Institute of Chartered Accountant of India for a minimum period of six months or for such higher period not exceeding ten years as may be decided by the National Financial Reporting Authority.
Office of the National Financial Reporting Authority (NFRA)
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.
Draft National Financial Reporting Authority (NFRA) Rules
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