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National Financial Reporting Authority : MCA vide its notification dated 13th November 2018 notified National Financial Reporting Authority (NFRA) Rules 2018. This is step Narendra Modi administration attempts to strengthen the countrys financial system hit by Rs 12,700-crore fraud.
As per the Companies Act, 2013 the NFRA is tasked with the job of recommending accounting and auditing standards, ensuring compliance with them and overseeing the quality of service of the accounting and audit professions.
It has also been given the power to investigate matters of professional misconduct by chartered accountants or CA firms, impose penalty and debar the CA or firm for up to 10 years.
The ICAI will continue to exercise these powers over small companies. The NFRA will have jurisdiction over listed companies and large, unlisted companies.

NFRA is not meant to replace the disciplinary
Jurisdiction of the ICAI. Therefore in all the routine cases,
Which will be the bulk of cases, the ICAI will perform its function.

National Financial Reporting Authority

Applicability

As per Rule 3 the Authority shall have power to, monitor and enforce;

• Compliance with accounting standards and
• Auditing Standards,
• Oversee the Quality of Service

Under sub-section (2) of section 132 or undertake investigation under sub-section (4) of such section of the auditors of the following class of companies and bodies corporate, name:

a) All Listed Companies/ Listed Body Corporate;

b) Unlisted Companies with

– Paid up Capital or Loans > = INR 500 crores OR

– Turnover > = INR 1000 crores OR

– Outstanding Loan, Debentures and Deposit >= INR 500 crores

**Above Limits shall be check on as on the 31st March of immediately preceding financial year;

c) All Banks/ Insurance/ Electricity Companies.

Companies Governed by any special Act for the time being in force OR bodies corporate incorporated by an Act in accordance with clauses (b), (c), (d), (e) and (f) of sub-section (4) of section 1 of the Act;

d) Certain specific foreign Subsidiaries/Associates of Indian Companies

**NOTE: Once a Company falls under the above limits under NFRA, will be covered by NFRA for 3 More years.

EVEN IF LIMITS ARE REDUCED/ LISTED STATUS CHANGES.

***NOTE: Every Body Corporate other then Company as defined u/s 2(20) formed in India and governed under this rule shall, within fifteen days of appointment of an auditor under sub-section (1) of section 139, inform the Authority in Form NFRA-1, the particulars of the auditor appointed by such body corporate:

B. Functions and duties of the Authority

• maintain details of particulars of auditors appointed in the companies and bodies corporate specified in rule 3;
• recommend accounting standards and auditing standards 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;
• promote awareness in relation to the compliance of accounting standards and auditing standards;
• co-operate with national and international organisations of independent audit regulators in establishing and overseeing adherence to accounting standards and auditing standards; and
• perform such other functions and duties as may be necessary or incidental to the aforesaid functions and duties.

C. Filing of Return by Auditor

Every auditor referred above shall file a return with the Authority on or before 30th April every year in such form as may be specified by the Central Government.

D. Powers and Responsibilities of NFRA

a. Notifying Accounting Standards & Auditing Standards

ICAI Recommend NFRA will check Recommend CG for Notifying it

b. Monitoring Compliance of AS

For AS compliance, NFRA may review FS of such Companies and ask for further Information, seek additional information, initiate for penal proceeding if any wrongdoing.

c. Monitoring Compliance of SA

For SA Compliance, NFRA may review Auditor Working papers, check Sufficiency of Quality System within the Audit Firm, Supervise or Test the audit.
Note Means for Big Companies, Peer Reviewing Powers are now with NFRA and not with ICAI.

E. Punishment in case of non-compliance

If a company or any officer of a company or an auditor or any other person contravenes any of the provisions of these rules, the company and every officer of the company who is in default or the auditor or such other person shall be punishable as per the provisions of section 450 of the Act.

F. Monitoring and Regulating Powers

Recommend CG w.r.t. AS and SAs and checking proper compliance of the same, oversee quality of audit firms.

G. Investigating and Summoning Powers

Investigation of audit firms, summoning and enforcing attendance, Inspection of records.

Conclusion

I would encourage the profession in India to welcome the NFRA as a golden opportunity to enhance standards, audit quality and above all value of the audit attestation
(Author CS Divesh Goyal, GOYAL DIVESH & ASSOCIATES Company Secretary in Practice from Delhi and can be contacted at [email protected]).
Disclaimer: The entire contents of this document have been prepared on the basis of relevant provisions and as per the information existing at the time of the preparation. Although care has been taken to ensure the accuracy, completeness and reliability of the information provided, I assume no responsibility therefore. Users of this information are expected to refer to the relevant existing provisions of applicable Laws. The user of the information agrees that the information is not a professional advice and is subject to change without notice. I assume no responsibility for the consequences of use of such information. IN NO EVENT SHALL I SHALL BE LIABLE FOR ANY DIRECT, INDIRECT, SPECIAL OR INCIDENTAL DAMAGE RESULTING FROM, ARISING OUT OF OR IN CONNECTION WITH THE USE OF THE INFORMATION

Powers of NFRA which will be used against Chartered Accountants