National Financial Reporting Authority (NFRA)

Why in news?

• Chairperson of National Financial Reporting Authority (NFRA) pitched for ‘standalone legislation’ for the regulator in the interests of autonomy, and emphasized all necessary penal provisions relating to financial reporting should be consolidated and vested with it.

About National Financial Reporting Authority:

• The National Financial Reporting Authority (NFRA) is a body constituted under the provisions of Section 132 of the Companies Act, 2013.
• It is an independent regulator to oversee the auditing profession and accounting standards in India.
• It also aims at improving investor and public confidence in the financial reporting of an entity.

Background:

• The decision to constitute the NFRA was taken after the role of auditors and the Institute of Chartered Accountants of India (ICAI) came under the scanner for alleged lapses in various corporate scams including that at the Punjab National Bank.

Objectives of NFRA:

• Establishment and enforcement of accounting and auditing standards and oversight of work of auditors.
• Strengthen independence of audit firms and therefore, enhance investor and public confidence in financial disclosures of companies.

Composition

• It consists of a chairperson, who shall be a person of eminence and having expertise in accountancy, auditing, finance or law, appointed by the Central Government and such other members not exceeding 15.

Jurisdiction and functions:

• Investigation of Chartered Accountants and their firms to all listed companies as well as large unlisted public companies.
• Government can also refer other entities for investigation where public interest is involved.
• It subsumes certain powers of the Institute of Chartered Accountants of India (ICAI) to act against erring chartered accountants.
• It can debar an erring auditor or auditing firm for up to 10 years and slap penalties.
• However, the role of existing ICAI will continue in the following respects:
  • Issues associated with its members
  • Audits of private limited companies and public unlisted companies below the threshold limit.
  • Advisory role with respect to accounting and auditing standards.

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