Source: National Financial Reporting Authority portal
It was constituted in 2018 by the government of India under the Companies Act, 2013.
The Union Cabinet in March 2018 approved the creation of a National Financial Reporting Authority (NFRA), a big step forward in regulating the financial audit of large companies. The NFRA is to be an independent regulator overseeing the auditing profession, and its creation was first recommended by the Standing Committee on Finance in its 21st report.
Functions and duties of NFRA
As per the Companies Act 2013, the duties of NFRA are to;
- 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
Apart from setting the rules and regulations governing the audit sector, the NFRA will have the power to debar erring auditors or audit firm for up to 10 years and impose significant fines on them.
Companies and Bodies Corporate Governed by the authority
As per rule 3 of the NFRA rules, 2018, The Authority shall have the power to monitor and enforce compliance with accounting standards and auditing standards, oversee the quality of service or undertake the investigation of such section of the auditors of the following class of companies and bodies corporate, namely:
- 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 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 the immediately preceding financial year
- 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
- Any body 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
- 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 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.