National Financial Reporting Authority (NFRA)

Q  Why is it in News ? 

A Audit regulator National Financial Reporting Authority (NFRA) wants to be positioned as a regulator for the entire gamut of financial reporting, covering all processes and participants in the financial reporting chain.

Q What is NFRA?

A 

• NFRA is an independent regulator to oversee the auditing profession and accounting standards in India under Companies Act 2013.
• It came into existence in October 2018.
• 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 21st report.
• Companies Act, 2013 then gave the regulatory framework for its composition and constitution.

Q What are its Functions ? 

A 

• NFRA works to improve the transparency and reliability of financial statements and information presented by listed companies and large unlisted companies in India.
• NFRA is responsible for recommending accounting and auditing policies and standards in the country.
• It may undertake investigations, and impose sanctions against defaulting auditors and audit firms in the form of monetary penalties and debarment from practice for up to 10 years.
• Since 2018, the powers of the NFRA were extended to include the governing of auditors of companies listed in any stock exchange, in India or outside of India, unlisted public companies above certain thresholds.
• Recommends accounting and auditing policies and standards to be adopted by companies for approval by the Central Government.
• Monitor and enforce compliance with accounting standards and auditing standards.
• Oversee the quality of service of the professions associated with ensuring compliance with such standards and suggest measures for improvement in the quality of service.
• Protect the public interest.

Q What are its Powers ? 

A 

• It can undertake investigation related to the following class of companies and bodies corporate called Public Interest Entities:
  • Companies whose securities are listed on any stock exchange in India or outside India.
  • Unlisted public companies having paid-up capital of not less than Rs. 500 crores or having annual turnover of not less than Rs. 1,000 crores or having, in aggregate, outstanding loans, debentures and deposits of not less than Rs. 500 crores as on the 31st March of immediately preceding financial year.
  • Insurance companies, banking companies, companies engaged in the generation or supply of electricity.
• Where professional or other misconduct is proved, it has the power to make order for imposing penalty of—
  • not less than one lakh rupees, but which may extend to five times of the fees received, in case of individuals; and
  • not less than ten lakh rupees, but which may extend to ten times of the fees received, in case of firms.