As per power given under Section 132 of the Companies Act, 2013 Central Government (CG) has introduced a new regulatory authority for Financial Reporting known as National Financial Reporting Authority (NFRA). National Financial Reporting Authority (NFRA) shall recommend, enforce, and monitor the compliance of accounting and auditing standards. The Companies Act, 1956 empowers the Central Government to form a Committee for recommendations on Accounting Standards which is the National Advisory Committee on Accounting Standards (NACAS). NACAS is now renamed as National Financial Reporting Authority (NFRA) with enhanced independent oversight powers and authority.
NFRA is responsible for monitoring and enforcing the compliance of standards on auditing (SAs) and accounting standards (ASs) and for that purpose, oversees the quality of professions associated with ensuring such compliances. The Authority will investigate professional and other misconduct committed by Chartered Accountancy members and firms.
The National Financial Reporting Authority (NFRA) shall be a body to regulate matters related to accounting and auditing. With the increasing demand for non-financial reporting, it may be referred to as the National level Reporting Authority to regulate standards of financial as well as non-financial, by the companies in the future.
National Financial Reporting Authority (NFRA) shall give its recommendations on accounting standards and auditing standards to the Central Government (CG) who shall prescribe such standards.
Constitution of NFRA
The constitution of National Financial Reporting Authority(NFRA), which is supposed to be constituted as an oversight regulatory body to recommend accounting and auditing standards
- NFRA shall consist of a chairperson, who shall be a person having expertise in accountancy, auditing, finance, business administration, business law, economics, or similar disciplines, it shall be nominated by Central Government(CG), and such other members not exceeding 15.
- Chairperson and all members of the authority shall make a declaration about no conflict of interest or lack of independence in respect of their appointment. The chairperson of the authority and all full-time members shall not be associated with any audit firm or related consultancy firm during their appointment and 2 years after ceasing to be a member of the authority.
- Head office of National Financial Reporting Authority (NFRA) shall be at New Delhi and it may meet at such other places in India, as it deems fit.
- Books of accounts of the authority shall be audited by Comptroller and Auditor General of India (CAG) and such accounts as certified by CAG with the audit report, and it shall be forwarded to the Central Government (CG) on an annual basis.
Objectives of National Financial Reporting Authority (NFRA)
The objectives of National Financial Reporting Authority are as follows:
- NFRA shall make recommendations on the formulation of accounting and auditing policies and standards for adoption by companies or their auditors.
- NFRA shall monitor and enforce compliance with accounting standards and auditing standards.
- NFRA shall oversee the quality of service of professionals associated with ensuring compliance with such standards and suggest measures required for improvement in the quality of service.
- NFRA shall perform such other functions as may be prescribed about the aforementioned objectives.
These objectives simply bring chartered accountants, cost accountants, management accountants, company secretaries as well as independent directors and members of audit committees under the jurisdiction of NFRA.