The Companies Act, 2013, Section 132 empowered the Central government to establish an authority named National Financial Reporting Authority (NFRA).
The cabinet in a meeting on 1st March 2018 approve draft rules to decide on NFRA’s jurisdiction and function.
Role of NFRA: As per companies Act 2013, section 132(2):
- NFRA shall make recommendations to the Central Government on the formulation and laying down of accounting and auditing policies and standards for adoption by companies or class of companies (large unlisted companies).
- NFRA shall monitor and enforce the compliance with accounting standards and auditing standards
- NFRA shall oversee the quality of service of the professions associated with ensuring compliance with such standards and suggest measures required for improvement in the quality of service and such other related matters as may be prescribed.
Powers of NFRA: As per companies Act 2013, Section 132(4):
NFRA have the power to investigate, for listed companies and large unlisted companies or persons, the matters of professional or other misconduct committed by any member or firm of chartered accountants, registered under the Chartered Accountants Act, 1949.
Provided that no other institute (ICAI) or body shall initiate or continue any proceedings in such matters of misconduct where the National Financial Reporting Authority has initiated an investigation under this section.
Where professional or other misconduct is proved, NFRA has the power to make an order for imposing penalty of -
- not less than 1,00,000/- rupees, but which may extend to five times of the fees received, in case of individuals; and
- not less than 5,00,000/- rupees, but which may extend to ten times of the fees received, in case of firms.
NFRA also have the power to debar the member or the firm from engaging himself or itself from practice as member of the Institute of Chartered Accountant of India, for a minimum period of six months or for such higher period not exceeding ten years as may be decided by the National Financial Reporting Authority.
The government said the inherent regulatory role of the Institute of Chartered Accountants of India (ICAI) will continue "in respect of its members in general and specifically with respect to audits pertaining to private limited companies, and public unlisted companies below the threshold limit to be notified in the rules."
Further, ICAI shall continue to play its advisory role with respect to accounting and auditing standards and policies by making its recommendations to NFRA.
'We do not want to interfere in the professional autonomy of the institute or its functioning. The routine matters will stay there with the institute,' said Arun Jaitley.
NFRA will have the power to investigate not only chartered accountants who audited a firm but also firms of chartered accountants and can impose a penalty of up to five times the fee received in case of misconduct by individuals and ten times the fees received in case of firms. It can also debar an auditor for up to ten years.
The author can also be reached at ca.raunakgarg@gmail.com
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