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National Financial Reporting Authority (NFRA)

Topics Covered: Statutory, regulatory and various quasi-judicial bodies

National Financial Reporting Authority (NFRA)

Context:

The audit regulator, National Financial Reporting Authority (NFRA), has constituted a Technical Advisory Committee (TAC) under the Chairmanship of R Narayanaswamy, Professor, Indian Institute of Management, Bengaluru.

Composition:

Seven members, including the Chairman.

Functions:

  • Aid and advise the Executive Body of the NFRA on issues related to the drafts of accounting standards and auditing standards.
  • Provide inputs from the perspectives of users, preparers and auditors of financial statements.

About NFRA:

National Financial Reporting Authority (NFRA) was constituted on 1st October, 2018 under section 132 (1) of the Companies Act, 2013.

Why was it needed?

In the wake of accounting scams, a need was felt to establish an independent regulator for enforcement of auditing standards and ensuring the quality of audits so as to enhance investor and public confidence in financial disclosures of companies.

Composition:

The Companies Act requires the NFRA to have a chairperson who will be appointed by the Central Government and a maximum of 15 members.

Functions and Duties:

  1. Recommend accounting and auditing policies and standards to be adopted by companies for approval by the Central Government;
  2. Monitor and enforce compliance with accounting standards and auditing standards;
  3. 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;
  4. Perform such other functions and duties as may be necessary or incidental to the aforesaid functions and duties.

Powers:

  • It can probe listed companies and those unlisted public companies having paid-up capital of no less than Rs 500 crore or annual turnover of no less than Rs 1,000 crore.
  • It can investigate professional misconduct committed by members of the Institute of Chartered Accountants of India (ICAI) for prescribed class of body corporate or persons.

InstaLinks:

Prelims Link:

  1. Provisions under which NFRA was constituted?
  2. About ICAI.
  3. Composition of NFRA.
  4. Companies Act 2013- key provisions.

Mains Link:

Discuss the key functions of NFRA and write a note on its significance.

Sources: the Hindu.