The article has been written by Mr. Rishi Kumar Yadav, is a law graduate from University college of Law (MLSU), Udaipur, Rajasthan.

Abstract:

According to the Companies Act of 2013, the National Financial Reporting Authority (NFRA) is responsible for making recommendations in accounting and auditing standards. It also oversees the Quality of Service provided by the accounting and audit professions.

Introduction:

The National Financial Reporting Authority (NFRA) was constituted on 01st October,2018 by the Government of India under Sub Section (1) of section 132 of the Companies Act, 2013. To continuously improve the quality of all corporate financial reporting in India.

National Financial Reporting Authority Members:

The NFRA is composed of one Chairperson, three full-time Members and one Secretary. The chairperson shall be a person of eminence and having expertise in accountancy, auditing, finance or law to be appointed by the Central Government.

Powers of the National Financial Reporting Authority:

The NFRA shall have the following powers

• To investigate the matters of professional or other misconduct committed by a prescribed class of CA firms or CAs. No other authority can initiate or continue proceedings where the NFRA has initiated an investigation. Such an investigation can be initiated either suo moto (by itself) or on a reference made by the central government.
• The same powers as a Civil Court under the Code of Criminal Procedure, 1908, in respect of a suit involving the following matters.
• Discovery and production of books of account and other documents, at such place and time as may be specified by the NFRA.
• Summoning and enforcing the attendance of persons and examining them under oath.
• Inspection of any books, registers, and other documents of any person at any place.
• Issuing commissions for the examination of witnesses or documents

Role of the National Financial Reporting Authority:

The NFRA has the following responsibilities:

• Make recommendations on the foundation and laying down of accounting and auditing policies and standards;
• Monitor and enforce the compliance of the accounting standards and auditing standards:
• Oversee the quality of service of the professionals (such as auditors, CFOs, etc) and suggest measures required for improvement in the quality of service;
• Perform such other functions related to the above.
• Prior to the constitution of this authority, the Central Government would prescribe accounting standards on the recommendation of ICAI. The ICAI would prescribe the same only after consulting with the National Advisory Committee on Accounting Standards who will provide their recommendations.

The ICAI will now have to consult with the NFRA and examine its recommendations in this regard. Thus the National Advisory Committee on Accounting Standards is effectively replaced by the NFRA

Structure of National Financial Reporting Authority:

NFRA shall consist of the following committees:-

1. i)  Accounting Standards Committee,
2. ii) Auditing Standards Committee, and

iii) Enforcement Committee.

Functions of Committee on Accounting Standards:

1. a) To examine matters relating to formulation and laying down accounting standards for consideration by NFRA.
2. b) To recommend any new standard to ICAI which the Committee deems necessary to be examined for formulation.
3. c) To examine recommendations made by ICAI.
4. d) To recommend NFRA on the new or amended standards for its approval and to be forwarded to the Central Government to be notified as a part of accounting standards.
5. e) To scrutinize the financial statements of such companies as decided by the Committee on Accounting Standards or NFRA and to issue such reports to NFRA.

Functions of Committee on Auditing Standards:

Apart from the above similar functions as Committee on Accounting Standards, the Committee on Auditing Standards has to discharge the following functions:-

1. i) To examine matters relating to formulation and laying down auditing standards for consideration by NFRA.
2. ii) The Committee on Auditing Standards shall monitor the compliance of auditors, audit firms and the audit LLPs.

iii) It may investigate or review selected audit engagements including an individual or firm or an LLP.

1. iv) The Committee may evaluate the sufficiency of the quality control system of the auditor and manner of documentation and communication of that system by the auditor.

Functions of the Committee on Enforcement:

1. i) To investigate matters relating to professional or other misconduct committed by auditor, individual, firm or an LLP on recommendation by NFRA.
2. ii) The Committee on Enforcement shall complete its investigation within a period of 6 months on any matters referred to it. In case of delay, specific time extension has to be sought by providing reasonable justifications to NFRA.

National Financial Reporting Authority (NFRA) Jurisdiction:

The jurisdiction of NFRA for investigation of CAs and their firms under Section 132 of the Companies Act would extend to large public companies that are not listed (threshold prescribed in the rules) and listed companies. 

• It is at the discretion of the Central Government to refer such other entities for investigation, involving public interest.
• Under the provision of the Chartered Accountant Act of 1949, the essential role of ICAI (Institute of Chartered Accountants of India) will continue in respect of its members in general and explicitly concerning audits about private limited companies, and public unlisted companies below the threshold limit to be notified in the rules.
• ICAI would continue playing the advisory role with respect to accounting and auditing standards and policies through recommendations to the NFRA.
• Quality audit with respect to public companies that are not listed and are below the prescribed threshold, private companies that are listed and those companies delegated by the NFRA would be continued to be done by the Quality Review Board (QRB).

National Financial Reporting Authority Benefits:

The expected benefits of having the NFRA are listed below.

• India gains eligibility for IFIAR (International Forum of Independent Audit Regulators), which was denied earlier, resulting in enhancing the confidence of Foreign/Domestic investors and India’s position on a global scale.
• Increase in foreign/domestic investors.
• Economic growth.
• IFIAR eligibility proves our international standards of business, further supporting globalization.
• Further development of the auditing profession.
• Establishment of NFRA will free resources for the ICAI to work on developing new and complex skills needed in the uncertain world of technology.

Conclusion:

Thus it can be concluded that the ICAI will continue to retain its regulatory powers in respect of private companies and unlisted public companies below the above-prescribed threshold. The Quality Review Board will also continue conducting quality audits in respect of private limited companies, unlisted public companies and such other audit of companies that are delegated by the NFRA. As per news reports, the president of the Institute of Chartered Accountants of India (ICAI), CA Naveen Gupta, in a statement to the media mentioned that the new regulatory for auditors, i.e, the National Financial Reporting Authority ( NFRA ) is not legally valid.

References:

• https://cleartax.in/s/nfra
• https://nfra.gov.in/

• https://blog.ipleaders.in/powers-and-functions-of-national-financial-reporting-authority-under-companies-act-2013/

• https://especia.co.in/post/nfra/

• https://www.mca.gov.in/content/mca/global/en/about-us/affiliated-offices/nfra.html