What is NFRA?

What is NFRA?

The Companies Act, 2013 (henceforth referred to as “the Act”), Section 132, authorizes the Central Government to establish the NFRA in order to address accounting and auditing-related issues. In order to help corporations and their auditors implement accounting and auditing rules and standards, NFRA provides suggestions to the Central Government. Insofar as it may be mandated, NFRA plays a significant role in overseeing and enforcing adherence to accounting and auditing standards. Additionally, NFRA monitors the level of service provided by the professions involved in guaranteeing adherence to these standards. It also recommends actions necessary to enhance the level of service and addresses other relevant issues as may be mandated....

Why is NFRA Needed?

1. Complete Independence Is Required for Auditing: Before financial statements are given to different stakeholders, auditors are tasked with verifying their accuracy and veracity. But since the auditee corporation also pays the auditor, there is an inherent conflict of interest in the auditing process. Therefore, they are subject to regulations, auditing standards, and possible liabilities in order to guarantee that the auditor fulfills his responsibilities to the intended levels.2. There Must be an Independent Regulator: Following the global wave of accounting frauds, other major nations have also adopted a similar approach, with the establishment of independent regulators such as the PCAOB (US) and FRC (UK). India is thus likely to follow suit given that it is one of the greatest economies in the world. The Self-Regulation Model’s Deficits the current democratic system for selecting regulators is rife with compromises and tends to draw in experts who might not be the most qualified for the job. It is not reasonable to expect members or their elected representatives to take self-defense measures. It’s comparable to having pupils mark their own assignments....

Composition of NFRA

The Companies Act mandates that the NFRA have a maximum of 15 members and a chairperson who shall be chosen by the Central Government. The following requirements must be met before such a chairman and members may be appointed:...

Powers of NFRA

The following are the powers that the NFRA will have: looking into cases of professional or other misconduct by a specific class of CA firms or CAs. When the NFRA starts an investigation, no other authority may begin or continue the process. Such an inquiry may be started suo moto, or on its own, or in response to a referral from the Central Government. The same authority as a Civil Court in relation to a lawsuit concerning the following topics as specified by the Code of Criminal Procedure, 1908....

Scope of NFRA

As was previously said, the NFRA has the authority to look into and evaluate the quality of work for a certain set of firms. Although the proposed NFRA Rules have not yet been adopted, if they were, the following class of businesses would be covered:...

Conclusion

A crucial first step in creating an open system for accounting, auditing, and financial reporting is the implementation of NFRA. In contrast to NACAS, NFRA will not only serve as an advising body; rather, it has the authority to control auditing procedures and accounting standards in addition to having the authority to look into specific cases of professional misconduct on the part of chartered accountants in corporate organizations. As a result, it is crucial for good corporate governance in the area of financial reporting....

National Financial Reporting Authority(NFRA)- FAQs

Which act has enforced the provisions of NFRA?...