National Financial Reporting Authority (NFRA)
What is NFRA?
The Union Cabinet on March 1 approved setting up of the National Financial Reporting Authority (NFRA), which will be an independent regulator for the auditing profession. The decision comes against the backdrop of various auditing lapses in the banking sector, including the Rs 12,700 crore fraud at Punjab National Bank.
“The NFRA will act as an independent regulator for the auditing profession which was one of the key changes brought in by the Companies Act, 2013,” Corporate Affairs Minister Arun Jaitley said. NFRA would be an oversight body for auditors and its jurisdiction would extend to all listed companies as well as large unlisted public companies. National Financial Reporting Authority (NFRA) is a body proposed in Companies Act 2013 for the establishment and enforcement of accounting and auditing standards and oversight of the work of auditors.
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.
Institute of Chartered Accountants of India (ICAI) will continue to have monopoly on training and qualifying chartered accountants, giving them licence to practice and regulating them including scrutinizing audit quality. It cam exercise these powers over small companies. NFRA is not meant to replace the disciplinary jurisdiction of the ICAI.
The Companies Act, 2013, says that “no other institute or body shall initiate or continue any proceedings in such matters of misconduct where the National Financial Reporting Authority has initiated an investigation.” NFRA shall:
(a) have the power to investigate, either suo motu or on a reference made to it by the Central Government, for such class of bodies corporate or persons, in such manner as may be prescribed into the matters of professional or other misconduct committed by any member or firm of chartered accountants, registered under the Chartered Accountants Act, 1949; and
(b) have the same powers as are vested in a civil court under the Code of Civil Procedure, 1908, while trying a suit.
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What is the proposal?
The Center last week approved the proposal to set up the National Financial Reporting Authority (NFRA), intended to serve as an independent regulator for the auditing profession.
The basis for the move:
Section 132 of the Companies Act, 2013 gives the Centre the power to set up such an authority. A Parliamentary Standing Committee had also recommended that the National Advisory Committee on Accounting Standards proposed in the Companies Bill, 2009 be institutionalized.
What does Section 132 say?
It says the NFRA can do, among other things, the following: recommend to the Centre formulation of accounting and auditing standards and polices to be adopted by companies and auditors; monitor and enforce such standards and policies; and oversee quality of services of the professions associated with the compliance of these standards and policies
What are NFRA’s powers?
It can investigate into professional matters or misconduct of any member or a firm of chartered accountants; it can issue summons and examine on oath; it can also inspect any book, registers and documents of any professional/firms probed; it may impose penalties and even powers to debar a member of a firm.
Who is on the NFRA?
It will comprise a chairperson, three full-time members and a secretary.
What is ICAI’s role now?
ICAI’s role will continue in respect of its members, in general, and, specifically, with respect to audits pertaining to private limited companies and public unlisted companies below the threshold limit to be notified in the rules.
ICAI will continue with its advisory role on accounting and auditing standards and policies by making its recommendations to NFRA.
Why bring in NFRA now?
The discovery of the multi-crore fraud allegedly committed at the Punjab National Bank appears to be a trigger. Add to it earlier shenanigans reported in the system — Satyam, Enron, Ketan Parikh etal.
What does the setting up of the Authority imply?
In a way, it indicates a certain lack of trust in ICAI to effectively address malpractices indulged in by recalcitrant members.
How does the community view it?
‘Chartered accountants are watch-dogs, and not blood-hounds,’ goes an argument. Things turn bad when entries are not recorded at all. In such instances, CAs can do very little, it is argued.
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National Financial Reporting Authority (NFRA)
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