National Financial Reporting Authority (NFRA)

In Context 

• The National Financial Reporting Authority (NFRA) will set up a single stakeholders’ advisory group and a research cell to support the group. 

Need for setting NFRA

• The decision to constitute NFRA was taken after the role of auditors and the Institute of Chartered Accountants of India came under the scanner for alleged lapses in various corporate scams including that at the Punjab National Bank.
• So, it acts as an audit regulator.

National Financial Reporting Authority(NFRA)

• About:
  •  NFRA was constituted in 2018 by the Government of India under section 132 (1) of the Companies Act, 2013. 
• 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.
• Functions and Duties:
  • As per Sub Section (2) of Section 132 of the Companies Act, 2013, the duties of the NFRA are to:
    • Aid and advise the Executive Body of the NFRA on issues related to the drafts of accounting and auditing standards.
    • Provide inputs from the perspectives of users, preparers and auditors of financial statements. 
    • Recommends accounting and auditing policies and standards to be adopted by companies 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.
    • Protect the public interest.

• Powers:
  • It can undertake investigation related to the following class of companies and bodies corporate called Public Interest Entities:
    • Companies whose securities are listed on any stock exchange in India or outside India.
    • Unlisted public companies having paid-up capital of not less than Rs. 500 crores or having an annual turnover of not less than Rs. 1,000 crores or having, in the aggregate, outstanding loans, debentures and deposits of not less than Rs. 500 crores as on the 31st March of immediately preceding financial year.
    • Insurance companies, banking companies, companies engaged in the generation or supply of electricity.
    • Where professional or other misconduct is proved, it has the power to make an order for imposing a penalty.

Source: TH