Simple Analysis on National Financial Reporting Authority (NFRA) Reporting By CS Annu Sharma

MCA vide its notification dated 13th November 2018 gives us again a challenging opportunity to make compliances more transparent as they notified National Financial Reporting Authority (NFRA) Rules 2018 changes are necessary and changes are good these new changes in financial reporting will enhance the credibility of corporate bodies.

National Financial Reporting Authority is a body proposed in Companies Act 2013 for the establishment and enforcement of accounting and auditing standards and oversight of the work of auditors. Key aspects specified by the NFRA rules are Classes of companies and bodies corporate governed by the NFRA Authority, Functions and duties of the NFRA Authority, Annual return, Recommending accounting standards and auditing standards, Monitoring and enforcing compliance with accounting standards and  auditing standards,  Overseeing the quality of Audit service and suggesting measures for improvement, Power to investigate, . Disciplinary proceedings, Manner of enforcement of orders passed in disciplinary proceedings, Punishment in case of non-compliance etc., Very first information which a Corporate/Professional needs is that in which way these rules are applicable on us.


NFRA will monitor Following Companies –

  1. ALL Listed Companies/ Body Corporate.
  2. Unlisted Companies with Paid up Capital or Loans > = INR 500 Crores OR Turnover > = INR 1000 Crores
  3. ALL Banks/Insurance/Electricity Companies.
  4. Certain specific foreign Subsidiaries/Associates of Indian Companies.

  1. For auditor of these Companies, ICAI does not have any investigation role.
  2. company/auditor once governed by NFRA will be covered by NFRA for 3 more years even if limits are reduced/ listed status changes.
  3. For Other Companies, ICAI will have the power to initiate disciplinary proceedings.
Rule: 3 The Authority shall have the 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 an 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 having paid-up capital of not less than rupees five hundred crores or having an annual turnover of not less than rupees one thousand crores or having, in aggregate, outstanding loans, debentures and deposits of not less than rupees five hundred crores as on the 31st March of immediately preceding financial year;

(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) anybody 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) a body corporate incorporated or registered outside India, which is a subsidiary or associate company of any company or body corporate incorporated or registered in India as referred to in clauses (a) to (d) if the income or net worth of such subsidiary or associate company exceeds twenty percent. of the consolidated income or consolidated net worth of such company or the body corporate, as the case may be, referred to in clauses (a) to (d).

Filings with NFRA

  1. Every auditor referred to in rule 3 shall file a return with the Authority on or before 3oth April every year in such form as may be specified by the Central Government. Auditor of Big Companies required to file ANNUAL RETURN to NFRA till 30th April every year.
  2. Filing of Form NFRA-1: NFRA -1 is going to be most popular terminology in professional communities as we all are to be Indulging Notice to the authority by Body Corporate (other than Companies stated in Rule 3) regarding Auditor – Form NFRA -1
The particulars of the auditor as on the date of commencement of these rules:

Every existing body corporate other than a company governed by these rules shall inform the NFRA 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.

The particulars of the auditor appointed by body corporate:

Everybody corporate, other than a company, formed in India and governed under this rule shall, within fifteen days of appointment of an auditor under sub-section (1) of section ‘t39, inform the NFRA 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.

Powers under Section 132 of the Companies Act, 2013

Monitoring and Regulating Powers –

Recommend CG w.r.t. AS and SAs and checking proper compliance of the same, oversee the quality of audit firms.

Investigating and Summoning Powers –

Investigation of audit firms, summoning and enforcing attendance, Inspection of records.

Penalizing Powers –

Individual Auditors (INR 1 Lakh to 5 times of Fees), Firm of Auditors (INR 5 Lakhs to 10 times of Fees).

Debarring Powers

Debarring from Practice as a member of ICAI for a period of 6 months to 10 years.

However, ICAI would continue to monitor 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. It will also continue to make recommendations on accounting and auditing standards and policies to the NFRA.

# At last in my professional viewpoint as in present scenario NFRA would help in improving foreign and domestic investments as well as support globalization of business by meeting international practices. The decision is expected to result in improved foreign/domestic investments, enhancement of economic growth, supporting the globalization of business by meeting international practices, and assist in the further development of the audit profession.
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