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National Financial Reporting Authority

Date posted: Friday 4 September 2015
Laws:

Introduction

The Companies Act, 2013 (“CA 2013”) has introduced a new body by the name of National Financial Reporting Authority (“NFRA”) for matters relating to accounting and auditing standards under CA 2013. This body shall be constituted by the Central Government. Though the nomenclature for such a body may be different, but the concept is not new. Under Companies Act, 1956 (“CA 1956”), a similar body by the name of National Advisory Committee on Accounting Standards (“NACAS”) existed. NACAS was an advisory body on accounting standards. The newly introduced concept of NFRA is expected to cover not just advisory, but also regulatory matters on not just accounting, but also on auditing and financial reporting. NFRA has been introduced through Section 132 of the CA 2013. This article will provide an overview of NFRA.

Functions of NFRA

The NRFA shall

  1. Make recommendations to the Central Government on the formulation and laying down, for adoption by companies or class of companies or their auditors, of
    1. Accounting policies and standards
    2. Auditing policies and standards.
  2. Monitor and enforce the compliance with accounting standards and auditing standards.
  3. 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.
  4. Perform such other functions relating to the above points.

Constitution of NFRA

  1. No. of members <= 15
  2. Members may be part time or full time.
  3. Chairperson, to be appointed by the Central Government, shall be a person of eminence & having expertise in accountancy, auditing, finance, business administration, business law, economics or similar disciplines.
  4. A declaration of no conflict of interest or lack of independence in respect of his or their appointment shall be submitted by the Chairperson and members to the Central Government.
  5. Chairperson and members, who are in full-time employment with NFRA shall not be associated with any audit firm (including related consultancy firms) during the course of their appointment and 2 years after ceasing to hold such appointment.

Powers of NFRA

The NRA shall have the following powers:

  1. Power to investigate into the matters of professional or other misconduct committed by any member or firm of chartered accountants.
    1. Such investigation can be made either suo motu or on a reference made to it by the Central Government.
    2. No other institute or body shall initiate or continue any proceedings in such matters of misconduct where the NFRA has initiated an investigation.
  2. 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:
    1. Discovery and production of books of account and other documents, at such place and at such time as may be specified.
    2. Summoning and enforcing the attendance of persons and examining them on oath.
    3. Inspection of any books, registers and other documents of any person referred to in point 2 above at any place.
    4. Issuing commissions for examination of witnesses or documents.
  3. where professional or other misconduct is proved, have the power to make order for—
    1. Imposing the following penalty
      1. In case of individuals, penalty >= Rs 1,00,000/- but which may extend to 5 times of the fees received and
      2. In case of firms, penalty >= Rs 10,00,000/- but which may extend to 10 times of the fees received.
    2. Debarring the member or the firm from engaging in practice as member of the ICAI for a period >= 6 months or for such higher period <= 10 years as may be decided.

Appeal against order of NFRA

  1. Any person aggrieved by any order of NFRA may prefer an appeal before the Appellate Authority.
  2. Such Appellate Authority shall be constituted by the Central Government.
  3. Constitution of Appellate Authority
    1. A chairperson
    2. No. of members <= 2
  4. Fees for filing such an appeal shall be such as may be prescribed.
  5. The officer authorized by the Appellate Authority shall prepare its annual report giving a full account of its activities.
    1. It shall forward a copy of such an annual report to the Central Government.
    2. The Central Government shall cause the annual report to be laid before each House of Parliament.

Time and Number of Meetings

The NFRA shall meet at such times and places and shall observe such rules of procedure in regard to the transaction of business at its meetings in such manner as may be prescribed.

Secretary and other Employees

  1. A secretary and such other employees as it may be considered necessary for the efficient functioning of NFRA shall be appointed by the Central Government.
  2. The terms and conditions of service of the secretary and employees shall be such as may be prescribed.

Head Office

The head office of the NFRA shall be at New Delhi and it may, meet at such other places in India as it deems fit.

Books of Accounts & Reporting

  1. NFRA shall maintain such books of account and other books in relation to its accounts in such form and in such manner as the Central Government may, in consultation with the Comptroller and Auditor-General of India (“C&AG”) prescribe.
  2. The accounts of the NFRA shall be audited and certified by the C&AG.
  3. Such accounts together with the audit report thereon shall be forwarded annually to the Central Government by NFRA.
  4. The NFRA shall prepare its annual report, for each financial year, giving a full account of its activities during the year and forward a copy thereof to the Central Government.
  5. The Central Government shall cause the annual report and the audit report given by the Comptroller and Auditor-General of India to be laid before each House of Parliament.

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