The National Financial Reporting Authority (NFRA), India’s audit regulator, is currently working on establishing a precise and authenticated database of public interest entities (companies) and auditors under its regulatory purview. This initiative involves collaboration with the Corporate Data Management (CDM) division of the Ministry of Corporate Affairs (MCA) and three recognized stock exchanges in India.
Establishment and Composition of NFRA
The Indian Government established the NFRA in 2018 under section 132 (1) of the Companies Act, 2013. The move to set up this body was spurred by the highlighted roles of auditors and the Institute of Chartered Accountants of India in various corporate scams, most notably the Punjab National Bank scam.
The authoritative body comprises a chairperson of eminence, possessing expertise in accountancy, auditing, finance, or law, appointed by the Central Government, and a maximum of 15 other members.
Duties and Functions of NFRA
The NFRA serves various functions, which includes recommending accounting and auditing standards for companies to be approved by the Central Government. The body is also responsible for monitoring and enforcing compliance with these standards, overseeing the service quality of professions associated with these standards, and suggesting measures for quality improvement.
A significant aspect of the NFRA’s mandate is to protect the public interest. This focus helps ensure accountability and transparency in the financial operations of companies, ultimately leading to a more robust and reliable economic setup.
Powers and Authority of NFRA
The authority gives NFRA the power to investigate a particular class of companies and corporate bodies termed Public Interest Entities. This category includes companies whose securities are listed either within or outside India and unlisted public firms having a paid-up capital of not less than Rs. 500 crores or an annual turnover exceeding Rs. 1,000 crores.
Also included are companies that have, in aggregate, outstanding loans, debentures, and deposits of not less than Rs. 500 crores as of the 31st March of the immediate preceding financial year. Businesses in sectors like insurance, banking, and electricity generation or supply also come under this category.
NFRA has the authority to impose penalties in cases of proven professional or other misconduct. For individuals, the penalty starts from one lakh rupees but could extend up to five times of the fees received. For firms, the base penalty amount is ten lakh rupees, which can go up to ten times of the fees received.
Accountability and Location
The Comptroller and Auditor-General of India monitors the accounts of NFRA, ensuring accountability and credibility. The headquarters of NFRA is situated in New Delhi.
Last Modified: February 13, 2024