{"id":782,"date":"2019-10-23T07:29:23","date_gmt":"2019-10-23T07:29:23","guid":{"rendered":"https:\/\/corpbiz.io\/learning\/?p=782"},"modified":"2020-10-20T18:27:47","modified_gmt":"2020-10-20T12:57:47","slug":"national-financial-reporting-authority","status":"publish","type":"post","link":"https:\/\/corpbiz.io\/learning\/national-financial-reporting-authority\/","title":{"rendered":"National Financial Reporting Authority &#038; It\u2019s Constitution"},"content":{"rendered":"\n<p class=\"has-drop-cap\">National Financial\nReporting Authority (NFRA) was constituted with effect from 1<sup>st<\/sup> day\nof October 2018. Central Government has constituted this body under the\nprovisions of section 132 of Companies Act 2013 to fulfill the following aims\nin this regard: <\/p>\n\n\n\n<ul><li>To set up an independent\nbody for regulating and assisting in the proper enforcement of legislation\nconcerning accounting and audit.<\/li><li>To gain the confidence\nof investors, public and other concerned parties in the financial reporting of\nan entity.<\/li><\/ul>\n\n\n\n<p>Union Cabinet approves the establishment of this regulatory body as a response to various corporate scams that take place most frequently. This body serves as a regulatory body for the auditing profession to assure that information provided in <strong>financial statements<\/strong> is reliable.&nbsp; <\/p>\n\n\n\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_82_2 counter-hierarchy ez-toc-counter ez-toc-grey ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title ez-toc-toggle\" style=\"cursor:pointer\">Page Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" aria-label=\"Toggle Table of Content\"><span class=\"ez-toc-js-icon-con\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/span><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 eztoc-toggle-hide-by-default' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/corpbiz.io\/learning\/national-financial-reporting-authority\/#Composition_of_NFRA\" >Composition of NFRA<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/corpbiz.io\/learning\/national-financial-reporting-authority\/#Role_Responsibilities_of_NFRA\" >Role &amp; Responsibilities of NFRA<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/corpbiz.io\/learning\/national-financial-reporting-authority\/#Applicability_of_NFRA_Rules\" >Applicability of NFRA Rules<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/corpbiz.io\/learning\/national-financial-reporting-authority\/#Non-Applicability_of_NFRA_Rules\" >Non-Applicability of NFRA Rules<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/corpbiz.io\/learning\/national-financial-reporting-authority\/#Powers_of_NFRA\" >Powers of NFRA<\/a><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Composition_of_NFRA\"><\/span>Composition of NFRA<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>NFRA shall have the duly\nqualified chairperson and such other members as prescribed under the Companies\nAct. Following are the terms and conditions for the members and chairperson of such\ncomposition:<\/p>\n\n\n\n<ul><li>The chairperson shall be appointed by Central Government<\/li><li><strong>NFRA<\/strong><sup><a href=\"https:\/\/nfra.gov.in\/\" target=\"_blank\" rel=\"noreferrer noopener\" aria-label=\" (opens in a new tab)\">[1]<\/a><\/sup> shall have a maximum of 15 members other than chairperson.<\/li><li>The chairperson shall be a member of ICAI, i.e. he should be a Chartered Accountant having knowledge and expertise in the subjects of accounting, auditing, company law, finance, etc.<\/li><li>One member with immense expertise in accounting<\/li><li>One member with knowledge in the field of auditing<\/li><li>One member as a representative of the MCA of the rank Joint Secretary or above.<\/li><li>One member is to be nominated by RBI as its representative who shall be the member of the RBI board.<\/li><li>One representative of SEBI being the chairmen or whole-time member of SEBI, nominated by SEBI.<\/li><li>One member to be nominated by Central Government who has been either:<\/li><li>The retired chief justice of the high court<\/li><\/ul>\n\n\n\n<p style=\"text-align:left\">&nbsp;Or<\/p>\n\n\n\n<ul><li>Judge of the high court\nfor more than 5 years.<\/li><li>One member to be the\npresident of ICAI.<\/li><\/ul>\n\n\n\n<p>All the members appointed for the National Financial Reporting Authority  (NFRA) shall have the following qualifications:<\/p>\n\n\n\n<ul><li>Every member shall be\nqualified and experienced in the field of accounting, auditing, finance, etc.<\/li><li>Members shall give the\ndeclaration to the Central Government about no conflict of interest also they\nfulfill the criteria of independence for their appointment.<\/li><li>Every member and\nchairperson shall not be connected with any audit office during the tenure of\ntheir term in office or 2 years thereafter.<\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Role_Responsibilities_of_NFRA\"><\/span>Role &amp; Responsibilities of NFRA<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Before setting up the\nNFRA, the Central Government used to set the accounting policies upon the\nrecommendations of ICAI. ICAI along with the recommendations and suggestions\nfrom National Advisory Committee prescribe the accounting standards. With the\nestablishment of NFRA, ICAI takes the recommendation of such a regulatory body for\nthe formulation of accounting and auditing standards therefore, NFRA replaced\nNational Advisory Committee. Further, it was established by the Central\nGovernment to take up the following additional responsibilities as well:<\/p>\n\n\n\n<ul><li>For recommending the\nfoundation of accounting policies, accounting standards and guidelines for\naudit and audit policies.<\/li><li>They shall monitor that\nsuch accounting &amp; auditing standards are duly complied with.<\/li><li>NFRA oversees and\nmonitors the functioning and quality of work of the professionals such as\nauditors, CFOs, etc and even suggests the measures for improvement, if\nrequired.<\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Applicability_of_NFRA_Rules\"><\/span>Applicability of NFRA Rules<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>NFRA along with its\nother stated roles and responsibilities has the additional powers to\ninvestigate the affairs and working of companies as well body corporate or even\npersons who are the members of ICAI (Audit Firm or Auditors).<\/p>\n\n\n\n<p><strong>Companies:<\/strong><\/p>\n\n\n\n<p>NFRA can conduct quality\nreviews of the following class of companies: <\/p>\n\n\n\n<ul><li>Listed Companies\noperating in India.<\/li><li>Unlisted Companies whose\n<\/li><li>Net Worth exceeds INR\n500 Crore; <\/li><li>Paid-Up Capital exceeds\nINR 500 Crore;<\/li><li>Annual Turnover exceeds\nINR 1000 Crore.<\/li><li>Companies with shares\nlisted abroad.<\/li><\/ul>\n\n\n\n<p><strong>Body Corporate:<\/strong><\/p>\n\n\n\n<p> National Financial Reporting Authority (NFRA) reviews the functioning of Auditors\/Audit Firm who has conducted the audit of the following class of companies:<\/p>\n\n\n\n<ul><li>Has conducted the audit\nfor more than 200 companies in a year<\/li><li>Has conducted an audit\nof more than 20 Listed Companies.<\/li><li>Has conducted the audit\nof the following companies irrespective of they are listed or unlisted:<\/li><li>Companies having Net\nWorth of more than INR 500 Crore, or<\/li><li>Companies having Paid-Up\nCapital of more than INR 500 Crore, or<\/li><li>Companies having a\nturnover of more than INR 1000 Crore.<\/li><li>A company whose shares\nare listed outside India.<\/li><\/ul>\n\n\n\n<div class=\"shadow1\"><strong>Note:<\/strong> Above restrictions need not have adhered in case the NFRA deems fit the investigation or inspection in public interest or it has received the orders from Central Government to conduct such investigation.<\/div>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Non-Applicability_of_NFRA_Rules\"><\/span>Non-Applicability of NFRA Rules<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Scope of NFRA doesn&#8217;t\napply to the following class of companies:<\/p>\n\n\n\n<ul><li>Private Companies<\/li><li><a href=\"https:\/\/corpbiz.io\/llp-registration\"><strong>Limited Liability Partnership<\/strong><\/a><\/li><li>Unlisted Public Companies whose <\/li><li>Net Worth is less than INR 500 Crore; <\/li><li>Paid-Up Capital is less than INR 500 Crore;<\/li><li>Annual Turnover is less than INR 1000 Crore.<\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Powers_of_NFRA\"><\/span>Powers of NFRA<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>NFRA has the following\npowers as conferred upon it by Central Government:<\/p>\n\n\n\n<ul><li>To investigate into the affairs of Auditors or Audit firms in case of any misconduct. Provided that, no other authority can initiate the proceedings against such CA or CA firms where NFRA has initiated its proceeding.<\/li><li> National Financial Reporting Authority (NFRA) can initiate the proceeding on its own or upon the reference made by the Central government.<\/li><li>NFRA shall have the same powers as are vested in the hands of Civil Court under CrPC (Criminal Procedure Code 1908) such as:<\/li><li>To produce the books of accounts and other documents at such place and time as specified by NFRA.<\/li><li>To summon and enforce the attendance of any person<\/li><li>Examining under oath.<\/li><li>To issue a commission for the examination of witnesses or documents.<\/li><li>In case any person is found guilty of any fraud or misconduct, NFRA has the power to impose the following penalty:<\/li><li>In the case of Individual auditor: INR 100000 up to the 5 times of receipt of fees.<\/li><li>In the case of Audit firms: INR 500000 up to 10 times of fees charged.<\/li><li>To debar or suspend from practicing as an ICAI member for a period of 6 months to 10 years.<\/li><li>Any aggrieved person not satisfied with the NFRA order can appeal to the Appellate Authority.<\/li><\/ul>\n\n\n\n<h3 class=\"wp-block-heading\">Expert\u2019s Opinion<\/h3>\n\n\n\n<p>From the above discussion, we can conclude that the role of ICAI has been significantly diluted to the extent that it will continue its role of supervising the audit of private companies and unlisted public companies. However, ICAI will also continue with its advisory role of recommending the audit and accounting standards and policies to the Central Government. <\/p>\n\n\n\n<p>However, as per the sources, the debates concerning the issue was discussed with the public in general and got the reviews in favor of ICAI. The government is continuously defining the terms and conditions of the <strong> <\/strong>NFRA to include secretarial audit, cost audit, including other professionals such as Company Secretaries in practice and cost accountant within its ambit of scope. Thus there will be a greater reform in the corporate sector to see the emergence of NFRA as a single regulatory body for different professionals.\u00a0 <\/p>\n\n\n\n<p class=\"text-left\"><b>Read our article<\/b>:<mark style=\"background: #fffd03 !important;\"><a href=\"https:\/\/corpbiz.io\/learning\/online-nbfc-annual-compliances-prescribed-by-the-rbi\/\">Are you running an NBFC? Get updated about the list of Annual Compliances Prescribed by the RBI<\/a><\/mark><\/p>\n","protected":false},"excerpt":{"rendered":"<p>National Financial Reporting Authority (NFRA) was constituted with effect from 1st day of October 2018. Central Government has constituted this body under the provisions of section 132 of Companies Act 2013 to fulfill the following aims in this regard: To set up an independent body for regulating and assisting in the proper enforcement of legislation [&hellip;]<\/p>\n","protected":false},"author":7,"featured_media":789,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[128],"tags":[127,138],"acf":{"service_id":"230"},"authorName":"Savvy Midha","authorImageUrl":"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2019\/10\/Savvy-Midha.jpg","authorDescription":"Savvy Midha holds the degrees of Bachelor of Commerce(honors), LL.B and Company Secretary. She is an experienced Legal and Financial writer with expertise in research, drafting, and copy-writing.","postViews":6828,"readingTime":4,"_links":{"self":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/782"}],"collection":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/users\/7"}],"replies":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/comments?post=782"}],"version-history":[{"count":21,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/782\/revisions"}],"predecessor-version":[{"id":18223,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/782\/revisions\/18223"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/media\/789"}],"wp:attachment":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/media?parent=782"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/categories?post=782"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/tags?post=782"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}