Section 132 Of Companies Act 2013: National Financial Reporting Authority (NFRA)
Updated: Oct 4, 2022
What is NFRA?
The National Financial Reporting Authority (NFRA) is an independent organization constituted under Section 132 of the Companies Act of 2013. This authority was brought into effect on October 1, 2018, and it has been in operation since then.
It also has the authority to investigate allegations of professional misconduct by chartered accountants or CA firms, issue a penalty, and restrict the CA or firm from practicing for up to ten years.
"No other institute or organization shall commence or continue any procedures in such situations of misbehavior when the National Financial Reporting Authority has initiated an investigation," according to the Act.
The NFRA's operation is projected to result in increased domestic and international investments, increased economic growth, help in the development of the audit profession, and encourage the globalization of business by adhering to international standards.
Section 132: Constitution of National Financial Reporting Authority
The Central Government may, by notification, constitute a National Financial Reporting Authority to provide for matters relating to accounting and auditing standards under this Act.
Members of NFRA
According to the Companies Act, the NFRA must have a chairperson selected by the Central Government, as well as a maximum of 15 members. The following qualities must be met before such a chairperson and members are appointed:
Accountancy, auditing, finance, or law should be their specialties.
They must declare to the Central Government that their appointment does not include any conflicts of interest or lack of independence.
During their tenure of office and for two years afterward, all full-time members, including the chairperson, should not be associated with any audit firm (including related consultancy firms).
Jurisdiction of NFRA
The NFRA's jurisdiction to investigate CAs and their enterprises under Section 132 of the Companies Act will be expanded to include both large public companies that are not listed (as defined in the guidelines) and listed companies.
The Central Government has the authority to refer such other entities for examination if there is a public interest.
The essential role of the ICAI (Institute of Chartered Accountants of India) will continue in respect of its members in general and specifically concerning audits of private limited companies and public unlisted companies below the threshold limit to be notified in the rules, as provided by the Chartered Accountant Act of 1949.
Through recommendations to the NFRA, the ICAI would continue to serve as an advisor on accounting and auditing standards and policies.
The Quality Review Board (QRB) would continue to conduct quality audits of public firms that are not listed and are below the required threshold, as well as private companies that are listed and those companies delegated by the NFRA (QRB).
Functions of NFRA
Make recommendations to the Central Government (CG) on accounting and auditing rules and standards.
Monitoring and enforcing compliance with accounting and auditing standards.
Oversee the service quality of related professions, ensuring adherence to such standards and, if necessary, offering improvement strategies.
Performing other functions that are linked to the aforementioned functions.
Powers of NFRA
Investigating professional/other wrongdoing committed by any member/firm of Chartered Accountants (Suo moto or on CG's referral).
Under the CrPC, 1908, a criminal court has the same powers as a civil court when it comes to trying a case in the following areas: Books of Accounts/other documents are discovered and produced.
Summoning and requiring the presence of a person, as well as questioning them under oath. Inspection of any books, records, or other papers belonging to the individuals listed above.
Penalty Imposed by NFRA
When professional or other wrongdoing is proved, the NFRA has the following authority:
Levying a fine
Individual Professional - Minimum of one lakh rupees, maximum of five times the professional fee earned.
Firm – a minimum of 5 lakh rupees and a maximum of ten times the fee received.
For a minimum of 6 months but up to 10 years, the member or company is barred from engaging in CA practice.
India gains IFIAR (International Forum of Independent Audit Regulators) eligibility, which was previously rejected, boosting foreign and domestic investor trust and strengthening India's worldwide standing.
An increase in the number of foreign and domestic investors.
IFIAR accreditation validates our worldwide business standards, promoting globalization.
The profession of auditing will continue to develop.
The creation of NFRA will free up resources for the ICAI to focus on creating new and complicated skills that are required in today's uncertain technological world.
As a result, the ICAI's regulatory powers will continue to apply to private firms and unlisted public corporations that fall below the above-mentioned threshold. The Quality Review Board will continue to perform quality audits of private limited firms, unlisted public corporations, and other companies to which the NFRA has delegated authority.