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Introduction-about-NFRA-and-their-Role

 

Introduction about NFRA and their Role

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Introduction-

As per a notification issued by the Ministry of Corporate Affairs (MCA) last day, the Government appointed the 1st October, 2018 as the date of constitution of National Financial Reporting Authority.

In a separate notification, the Central Government has said that the provisions of sub-sections (1) and (12) of Section 132 of the Companies Act, 2013 shall come into force with effect from 1st October, 2018.

As per section 132(1) of the Act, 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. 

 
Need of NFRA-

Restructuring or introducing new regulating authorities across the globe has been carried out in response to financial scams owing to the feeble regime of corporate governance and weak disclosure requirements in accounting and auditing.

The non-performing assets (NPA) situation illustrates all that is wrong with auditing. Even banks are subject to different kinds of Audit (e.g. Concurrent/Branch/Stock audit etc.) yet NPAs are at alarming levels. Also, recently there have been large-scale frauds in banking sectors have forced the government to take the steps on urgent basis.

The decision appears to have been prompted by the latest bank scam to have hit the headlines — the ₹12,636 crore Punjab National Bank fraud that went undetected by auditors.

IN the wake of currents big banking frauds, the NPA crisis, Tax evasion have played major roles in bringing the NFRA into existence. Also, Most of the major economies of the world have independent audit regulators and therefore, India also needs to match up with them as well.

 
Companies which had covered under NFRA-

The NFRA shall have power to monitor and enforce compliance with accounting standards, auditing standards, oversee the quality of service and undertake investigation 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 lndia;
  • Unlisted Public Companies having
  • Net worth {i.e. Paid up share capital + Revenue reserve (excluding those created as a result of revaluation writing back of deprecation and amalgamation) + Securities premium – Accumulated losses – Deferred and miscellaneous expenditure} is Rs. 500 Crore or More; OR
  • Annual Turnover is Rs. 1000 Crore or More (As on 31st March of the preceding financial year); OR
  • Aggregate of Outstanding Loans, Debentures and Deposit is Rs. 500 Crore or More in immediately preceding financial year.
  • Insurance companies, Banking companies, Companies engaged in the generation of supply of electricity;
  • Companies governed by any special Act like
  • Reserve Bank of India under Reserve Bank of India Act, 1934;
  • State Bank of India under State Bank of India Act, 1955;
  • Life Insurance Corporation of India under incorporated under Life Insurance Corporation Act, 1956;
  • Unit Trust of India under The Unit Trust of India Act, 1963;
  • Foreign Subsidiary/Associated Company of any Indian company, whose income/net worth of such company is more than 20% of the consolidated income/net worth of the aforesaid company/body corporate.
 
Other points-
  • 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 later on.
  • Every existing body corporate other than a company governed by these rules, shall inform the Authority within 30 days of the commencement of these rules, in Form NFRA-1, the particulars of the auditor as on the date of commencement of these rules.
  • 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.

 

Exemption from NFRA-

Companies Covered under NFRA rules (Because they had already filled ADT-1)

Private company or any other company which is not regulated by NFRA. (Because they are completely exempt from NFRA rules)

There is no logic of filing NFRA-1 by all companies appointing auditor because they will have to anyway file e-Form ADT-1 informing the details about the auditor.

 
Functions and Duties of NFRA-
  • Maintain details of particulars of auditors appointed in the companies and bodies corporate specified in rule 3;
  • Recommend accounting standards and auditing standards 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;
  • Promote awareness in relation to the compliance of accounting standards and auditing standards;
  • Co-operate with national and international organizations of independent audit regulators in establishing and overseeing adherence to accounting standards and auditing standards; and
  • Perform such other functions and duties as may be necessary or incidental to the aforesaid functions and duties.
 
Annual return by Auditor-

Every auditor covered under NFRA rules shall file a return with the NFRA on or before 30th April every year in such form as may be specified by the Central Government.

 

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.

 

Role of ICAI

Still, Proprietorship concerns, Firms, LLPs, Charitable Trust, AOP/BOI, Societies, etc. along with Private Companies and Unlisted Public Companies which are not covered under rules would still be governed by ICAI and ICAI would have the sole discretionary power to provide rules and regulation for them.

 



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