NATIONAL FINANCIAL REPORTING AUTHORITY - SERIES 400
NATIONAL FINANCIAL
REPORTING AUTHORITY
MCA
vide its notification dated 13th November 2018 notified National Financial
Reporting Authority (NFRA) Rules 2018. This is step Narendra Modi
administration attempts to strengthen the country’s financial system hit by Rs
12,700-crore fraud.
As per the
Companies Act, 2013 the NFRA is tasked with the job of recommending accounting
and auditing standards, ensuring compliance with them and overseeing the
quality of service of the accounting and audit professions.
It has also been given the power to
investigate matters of professional misconduct by chartered accountants or CA
firms, impose penalty and debar the CA or firm for up to 10 years.
The ICAI will
continue to exercise these powers over small companies. The NFRA will have
jurisdiction over listed companies and large, unlisted companies.
NFRA is not meant to
replace the disciplinary
Jurisdiction of the
ICAI. Therefore in all the routine cases,
Which will be the
bulk of cases, the ICAI will perform its function.
A. Applicability:
As per Rule 3
the Authority shall have power to, monitor and enforce;
Ø Compliance with accounting standards and
Ø Auditing Standards,
Ø Oversee the Quality of Service
Under sub-section (2) of section 132
or undertake investigation under sub-section (4) of such section of the
auditors of the following class of companies and bodies corporate, name:
a) All
Listed Companies/ Listed Body Corporate;
b)
Unlisted Companies with
- Paid
up Capital or Loans > = INR 500 crores OR
- Turnover
> = INR 1000 crores OR
- Outstanding
Loan, Debentures and Deposit >= INR 500 crores
**Above
Limits shall be check on as on the 31st March of immediately
preceding financial year;
c) All Banks/
Insurance/ Electricity Companies.
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) Certain specific foreign
Subsidiaries/Associates of Indian Companies
**NOTE: Once a Company falls under the above limits under NFRA, will be covered
by NFRA for 3 More years.
EVEN IF LIMITS ARE
REDUCED/ LISTED STATUS CHANGES.
***NOTE: Every Body Corporate other then
Company as defined u/s 2(20) formed in India and governed under this rule
shall, within fifteen days of appointment of an auditor under sub-section (1)
of section 139, inform the Authority in Form NFRA-1, the particulars of the
auditor appointed by such body corporate:
B. Functions and
duties of the Authority:
Ø maintain details of particulars of
auditors appointed in the companies and bodies corporate specified in rule 3;
Ø recommend accounting standards and
auditing standards for approval by the Central Government;
Ø monitor and enforce compliance with accounting
standards and auditing standards;
Ø 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;
Ø promote awareness in relation to the
compliance of accounting standards and auditing standards;
Ø co-operate with national and
international organisations of independent audit regulators in establishing and
overseeing adherence to accounting standards and auditing standards; and
Ø perform such other functions and
duties as may be necessary or incidental to the aforesaid functions and duties.
C. Filing of Return
by Auditor:
Every auditor referred above shall file a return with the Authority on or
before 30th April every year in such form as may be specified by the
Central Government.
D. Powers and
Responsibilities of NFRA
a.
Notifying Accounting Standards & Auditing
Standards –
“ICAI Recommend —— NFRA
will check —— Recommend CG for Notifying it”
b.
Monitoring Compliance of AS –
For AS compliance, NFRA may review FS of such Companies and ask
for further Information, seek additional information, initiate for penal
proceeding if any wrongdoing.
c.
Monitoring Compliance of SA –
For SA Compliance, NFRA may review Auditor Working papers, check
Sufficiency of Quality System within the Audit Firm, Supervise or Test the
audit.
Note – Means for Big Companies, Peer Reviewing Powers are now with NFRA
and not with ICAI.
E.
Punishment in case of non-compliance.- If a company or any officer of a
company or an auditor or any other person contravenes any of the provisions of
these rules, the company and every officer of the company who is in default or
the auditor or such other person shall be punishable as per the provisions of
section 450 of the Act.
F.
Monitoring and
Regulating Powers –
Recommend CG w.r.t. AS and
SAs and checking proper compliance of the same, oversee quality of audit firms.
G.
Investigating and Summoning Powers –
Investigation of audit
firms, summoning and enforcing attendance, Inspection of records.
Conclusion
I would encourage the profession in India to welcome the NFRA as a golden
opportunity to enhance standards, audit quality and above all value of the
audit attestation
(Author – CS Divesh Goyal, GOYAL DIVESH & ASSOCIATES
Company Secretary in Practice from Delhi and can be contacted at csdiveshgoyal@gmail.com). Disclaimer:
The
entire contents of this document have been prepared on the basis of relevant
provisions and as per the information existing at the time of the preparation.
Although care has been taken to ensure the accuracy, completeness and
reliability of the information provided, I assume no responsibility therefore.
Users of this information are expected to refer to the relevant existing
provisions of applicable Laws. The user of the information agrees that the
information is not a professional advice and is subject to change without
notice. I assume no responsibility for the consequences of use of such
information. IN NO EVENT SHALL I SHALL BE LIABLE FOR ANY DIRECT, INDIRECT,
SPECIAL OR INCIDENTAL DAMAGE RESULTING FROM, ARISING OUT OF OR IN CONNECTION
WITH THE USE OF THE INFORMATION
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