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.
3. Other Regulators’ Request: An international consultant was hired by SEBI to review their organizational and structural problems. At the moment, upholding accounting, auditing, and ethical standards falls under the purview of the ICAI. On the other hand, the ICAI’s oversight is primarily passive and pays little attention to ongoing inquiries. Furthermore, the sheer volume of auditors in India (about 15,000 as opposed to 3,000 in the USA) makes monitoring difficult. Long term, we advise SEBI to lead the push for the creation of an independent, stand-alone regulator (NFRA) unrelated to the audit industry.
National Financial Reporting Authority(NFRA): Composition, Powers & Scope
Established according to Section 132 of the Companies Act 2013, the National Financial Reporting Authority (NFRA) is a body constituted under this act. This authority’s constitution came into force on October 1st, 2018. In this sense, the Central Government’s goal seems to be establishing a distinct, independent regulatory organization to support the creation and implementation of laws about accounting, auditing, and enhancing public and investor trust in an entity’s financial reporting. It is stated that the necessity for this authority developed in reaction to several recent business frauds.
Geeky Takeaways:
- Good accounting and auditing practices are essential to business governance.
- The National Financial Reporting Authority (NFRA) came into existence by Section 132 of the Companies Act 2013.
- The Central Government established the National Advisory Committee on Accounting Standards (NACAS) to guide the development and establishment of accounting standards and auditing procedures, as per Section 210A of the Companies Act, 1956.
- The National Financial Reporting Authority (NFRA) will take on the role of NACAS under the 2013 Companies Act.
- The National Financial Reporting Authority (NFRA) is a quasi-judicial organization that oversees many areas of accounting and auditing.
Table of Content
- What is NFRA?
- Why is NFRA Needed?
- Composition of NFRA
- Powers of NFRA
- Scope of NFRA
- Conclusion
- National Financial Reporting Authority(NFRA)- FAQs
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