After the Satyam scandal took place in 2009, the Standing Committee on Finance proposed the concept of the National Financial Reporting Authority (NFRA) for the first time in its report. However, Section 132 of Companies Act, 2013 empowers Central Government to set up NFRA to provide for the matter relating to accounting and auditing standards under the said Act.
The establishment of NFRA as an independent regulator for the auditing profession will improve the accuracy of financial position presented by listed companies and large unlisted companies in India.
The revelation of multi-crore fraud allegedly committed at the Punjab National Bank and the failure of auditors, financial gatekeepers, whose vigilance could have averted the fraud, made it imperative to constitute NFRA.
The Centre approved the proposal for its establishment on 1st March 2018. And finally, it has been constituted by Central Government on 1st October 2018 and subsequently, NFRA Rules has come into force with effect from 14th November 2018.
NFRA shall consist of the following:
Other members not exceeding 15 consisting of part-time and full-time members.
The Chairperson and members who are in full-time employment with NFRA shall not be associated with any audit firm during the course of their employment and two years after ceasing to hold such appointment.
Companies and Body Corporate which are governed by NFRA
To maintain details of particulars of auditors appointed in the companies and body corporates specified in rule 3 of NFRA Rules, 2018;
To recommend accounting standards and auditing standards for approval by the Central Government;
To monitor and enforce compliance with accounting standards and auditing standards;
To oversee the quality of service of the professions associated with and to suggest measures for improvement;
To promote awareness in relation to the compliance of accounting standards and auditing standards;
To co-operate with national and international organizations of independent audit regulators in establishing and overseeing adherence to accounting standards and auditing standards; and
To perform such other functions and duties as may be necessary or incidental to the aforesaid functions and duties.
For Body Corporate:
Rule 3 (2): Every existing body corporate other than a company governed by these rules, shall file Form NFRA-1 within thirty days of the commencement of these rules.
Rule 3 (3): Everybody corporate, other than a company as defined in clause (20) of section 2, formed in India and governed under this rule shall, within fifteen days of the appointment of an auditor under sub-section (1) of section 139, shall file Form NFRA-1. A Body Corporate governed under Rule 3 (1)(e) shall file Form NFRA -1.
Every auditor referred to in rule 3 shall file a return with the Authority on or before 30th April every year.
To investigate, either suo moto or on a reference made to it by the Central Government, for such class of body corporate or persons, in such manner as may be prescribed into the matters of professional or other misconduct committed by any member or firm of chartered accountants, registered under the Chartered Accountants Act, 1949.
Have the same powers as are vested in a civil court under the Code of Civil Procedure, 1908.
Imposing a penalty of—
In the case of individuals: Not less than one lakh rupees, but which may extend to five times of the fees received.
In the case of firms: Not less than five lakh rupees, but which may extend to ten times of the fees received.
Debarring the member or the firm from engaging himself or itself from practice as a 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 NFRA.
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