GS Paper 2
Topics Covered: Statutory, regulatory and various quasi-judicial bodies.
National Financial Reporting Authority (NFRA) Chairperson has pitched for a ‘standalone legislation’ for the regulator in the interests of autonomy.
- He also demanded that all necessary penal provisions relating to financial reporting should be consolidated and vested with it.
Why this is necessary?
Currently, the NFRA may take action against auditors for professional misconduct but when it came to other functionaries of a company who have the responsibility for financial reporting, penal powers continue to be vested with the Centre. A standalone legislation will allow for integrated regulation of all participants in the financial reporting system.
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.
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:
- Recommend 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;
- Perform such other functions and duties as may be necessary or incidental to the aforesaid functions and duties.
- 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.
Did you know that NFRA’s accounts shall be audited by the Comptroller and Auditor-General of India (CAG)? Know more about CAG audits here.
- Provisions under which NFRA was constituted?
- About ICAI.
- Composition of NFRA.
- Companies Act 2013- key provisions.
Discuss the key functions of NFRA and write a note on its significance.
Sources: the Hindu.