MCA vide Notification dated dated November 13, 2018 notified the National Financial Reporting Authority Rules, 2018 (“NFRA Rules, 2018”) notified by the Ministry vide Notification dated November 13, 2018, effective from November 13, 2018 to establish an independent regulator to strengthen the audit profession and to provide for matters relating to accounting and auditing standards.
Applicability of the Rules (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, namely:-
a. Companies whose securities are listed on any stock exchange in India or outside India;
b. Unlisted public companies fulfilling any of the following criteria as on the 31st March of immediately preceding Financial Year:
- having paid-up capital of not less than Rs. 500 crores or;
- having annual turnover of not less than Rs. 1000 crores or;
- having, in aggregate, outstanding loans, debentures and deposits of not less than Rs. 500 crores.
c. Insurance companies, banking companies, companies engaged in the generation or supply of electricity, 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. Any body corporate or company or person, or any class of bodies corporate or companies or persons, on a reference made to the Authority by the Central Government in public interest; and
e. Body Corporate which is:
- Incorporated or registered outside India, which is a subsidiary company or associate company of the company or body corporate registered in India as referred in point (1) to (4) above; and
- Income or net worth exceeds 20% of the consolidated income or consolidated net worth of such company or the body corporate.
A company or a body corporate other than a company governed under this rule shall continue to be governed by the Authority for a period of three years after it ceases to be listed or its paid-up capital or turnover or aggregate of loans, debentures and deposits falls below the limit stated therein.[Rule 3(4)]
Non-Applicability of Rules
- Private Companies;
- Unlisted public companies with paid-up capital or turnover or aggregate of loans, debentures and deposits below the limit stated in Rule 3(1) and
- Limited Liability Partnership (LLP)
Every existing body corporate governed by these rules (excluding companies as defined under section 2(20), which are not required to file this form) shall inform the Authority within thirty days of the commencement of these rules, in *Form NFRA-1, the particulars of the auditor as on the date of commencement of these rules.
*MCA wide its general circular no. 12/2018 dated 13/12/2018 has extended the date of filing form NFRA-1 and according to circular, form NFRA-1 will be filed within 30 days from the deployment of this form on the website of MCA/NFRA.
3. Every body corporate (excluding companies as defined under section 2(20), which are not required to file this form) 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:
Provided that a body corporate governed under clause (e) of sub-rule (1) shall provide details of appointment of its auditor in Form NFRA-1.
Accordingly, the filing requirements as per the Rules has been summarized below:
Initial or one time disclosure on the commencement of the Rules
Body corporates, excluding companies, shall within 30 days from the date of deployment of this form on the website, shall inform the Authority about the particulars of the auditors, in form NFRA-1;
Note: Cos. covered by the Rules are not required to file any form.
Disclosures on the appointment of the Auditors
Every body corporate shall within 15 days of appointment of an auditor, inform the Authority about the particulars of the auditors appointed by the body corporate, in form NFRA-1;
Note: Companies as defined under section 2(20) are not required to file any form.
Filling of Annual Return by the auditors
Every auditor referred to in rule 3 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.
Note: Auditor means auditor appointed under section 139 of the Act. Hence, Internal Auditors (S. 138), Cost Auditors (S. 148) and Secretarial Auditors (S. 204) of the Company or body corporate are not subject to NFRA.
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.
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