National Financial Reporting Authority

National Financial Reporting Authority

News: The National Financial Reporting Authority (NFRA) will be inspecting the Big Four audit firms as well as other top auditors of large listed entities in 2024.

What is NFRA?
• The National Financial Reporting Authority (NFRA) is an independent regulatory body established by the Indian government on October 1st, 2018, under section 132 (1) of the Companies Act, 2013. It was created to increase investor and public confidence in companies’ financial disclosures.

Composition:
• The Companies Act requires the NFRA to have a chairperson who will be appointed by the Central Government and a maximum of 15 members.
• The appointment of such chairperson and members are subject to the following qualifications:
o They should be having an expertise in accountancy, auditing, finance, or law.
o They are required to make a declaration to the Central Government that there is no conflict of interest or lack of independence in their appointment.
o All the members, including the chairperson, who are in full-time employment, should not be associated with any audit firm (including related consultancy firms) during their term of office and 2 years after their term.

Functions:
• Suggesting changes to accounting and auditing standards under the Companies Act of 2013.
• Monitoring the service quality provided by the accounting and auditing professions.
• Investigating allegations of professional misconduct by chartered accountants or CA firms.
• Imposing penalties and banning offenders from practising for up to ten years.

What are its powers?
• NFRA may investigate either suo-motu or on a reference made by the Central Government in matters of professional misconduct committed by any member or Chartered Accountants firm.
• To make recommendations to the Central Government on formulation and laying down of accounting standards and auditing policies for adoption by companies or their auditors.
• To monitor and implement compliance relating to accounting standards and auditing policies as prescribed.
• To oversee the quality of service of professions associated with compliance of accounting standards and auditing policies and suggest measures for improvement.