The National Financial Reporting Authority (NFRA), a body responsible for maintaining the quality of audits in India, was established by the Government of India on 1st October, 2018. This move was a response to numerous accounting scandals that rocked the corporate world and the necessity for an independent regulating authority became apparent. This led to the formation of NFRA as per section 132 (1) of the Companies Act, 2013.
Necessity of NFRA Formation
The regulatory body came into existence owing to an increasing number of accounting scams that highlighted the need for an autonomous regulator. The primary aim behind its constitution was to enforce auditing standards and ensure the quality of audits, thereby enhancing both investor and public confidence in the financial declarations made by companies.
Composition of NFRA
As per the requirements outlined in the Companies Act, the NFRA must comprise a chairperson appointed by the Central Government and up to 15 members.
Functions and Duties of NFRA
The NFRA has a multi-faceted role and its key responsibilities include:
1. Recommending accounting and auditing standards for companies, subject to approval by the Central Government.
2. Monitoring and enforcing compliance with accounting and auditing standards.
3. Overseeing quality of service of professions associated with compliance standards and suggesting measures for improvement.
4. Performing other functions or duties incidental to the above mentioned roles.
Powers of NFRA
The NFRA boasts considerable powers within the auditing and accounting landscape in India. It can conduct investigations into listed companies and unlisted public companies which have a minimum paid-up capital of Rs 500 crore or an annual turnover exceeding Rs 1,000 crore. Moreover, it is also empowered to investigate professional misconduct committed by members of the Institute of Chartered Accountants of India (ICAI) for certain classes of body corporate or individuals.
| Facts | Details |
|---|---|
| Date of NFRA’s Inception | 1st October, 2018 |
| Established Under Section | 132 (1) of the Companies Act, 2013 |
| Maximum Members | 15 |
| Investigation Threshold | Companies with paid-up capital of no less than Rs 500 crore or annual turnover of no less than Rs 1,000 crore |
Investigations and Professional Misconduct
With a primary objective to uphold the quality and integrity of audits in India, the NFRA can initiate probes into alleged misconduct by any member of the ICAI. This broad mandate contributes significantly towards improving transparency and accountability in the financial sector, ultimately fortifying the faith of investors and the general public in financial disclosures by companies.
