NFRA to mandate Annual Transparency Reports

Why in news?

• The National Financial Reporting Authority (NFRA) has proposed introducing Annual Transparency Reports (ATR) requirements for audit firms.

More about the News:

• The effort is aimed at enhancing the transparency about management and governance of audit firms and their internal policy framework to ensure high-quality audits and prevent conflict of interest by maintaining independence.

About National Financial Reporting Authority (NFRA):

• It is an audit regulator constituted in 2018 by the Government of India under section 132(1) of the Companies Act, 2013.
• The regulator will have 15 members including a chairperson, three full-time members and others as part-time members.
• NFRA recommend accounting and auditing policies and standards to be adopted by companies for approval by the Central Government;
• Monitor and enforce compliance with accounting standards and auditing standards;
• 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.

Powers:

• It can undertake investigation and impose penalties related to the following class of companies and bodies corporate namely:
  • Companies whose securities are listed on any stock exchange in India or outside India.
  • Unlisted public companies having paid-up capital of not less than Rs. 500 crores or having annual turnover of not less than Rs. 1,000 crores.
  • Insurance companies, banking companies and companies engaged in the generation or supply of electricity.

About Annual Transparency Reports (ATR):

• The ATR requirements are proposed to be implemented in a gradual manner for PIEs (Public Interest Entities) starting with statutory auditors of top 1,000 listed companies (by market capitalization) with effect from the financial year ending on 31 March 2023.
• An audit firm will have to publish the ATR within three months from the end of each financial year.
• The ATR report will provide certain critical information about the auditor’s operational activities, management, governance and ownership structures, and policies and procedures necessary to deliver high-quality audits etc.
• The information contained in the ATR will be useful to the investors, audit committees, independent directors and the public at large.

PRACTICE QUESTION:

Consider the following statements regarding ‘National Financial Reporting Authority (NFRA)’:

1.  It was established under the Companies Act, 2013.

2.  Its account is monitored by the Comptroller and Auditor General of India.

Which of the statements given above is/are correct?

(a) 1 only

(b) 2 only

(c) Both 1 and 2

(d) Neither 1 nor 2

Answer