National Financial Reporting Authority (NFRA)

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Overview:

The National Financial Reporting Authority (NFRA) is going to inspect the Big Four audit firms as well as other top auditors of large listed entities in 2024.

About National Financial Reporting Authority (NFRA)

  • It is a statutory body constituted under Section 132 of the Companies Act, 2013.
  • It was established as an independent authority to regulate the auditing profession and accounting standards in India.
  • Its goal is to enhance the country's financial statement quality and consistency and to guarantee that businesses and financial institutions report accurate and fair information.
  • 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:
  • They should be having an expertise in accountancy, auditing, finance, or law.
  • 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.
  • 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.
  • The NFRA has the following responsibilities:
    • Make recommendations on the foundation and laying down of accounting and auditing policies and standards;
    • Monitor and enforce the compliance of the accounting standards and auditing standards:
    • Oversee the quality of service of the professionals (such as auditors, CFOs, etc.) and suggest measures required for improvement in the quality of service;
    • Perform other functions related to the above.
  • Powers:
    • NFRA has the power to investigate, either suo moto or on a reference made to it by the Central Government, into the matters of professional or other misconduct committed by any member or firm of chartered accountants registered under the Chartered Accountants Act, 1949.
    • It has the same powers as are vested in a civil court under the Code of Civil Procedure, 1908, while trying a suit.
    • Where professional or other misconduct is proved, it shall have the power to impose punishment.
    • Any person who is not satisfied with the order of the NFRA can then make an appeal to the Appellate Authority.
  • Jurisdiction of NFRA:
    • The jurisdiction of the NFRA for the investigation of Chartered Accountants and their firms would extend to listed companies and large unlisted public companies, the thresholds for which shall be prescribed in the Rules.
    • The Central Government can also refer such other entities for investigation where public interest would be involved.
  • Head Office: New Delhi

Q1) What is an audit?

An audit is the examination of the financial report of an organisation - as presented in the annual report - by someone independent of that organisation. The financial report includes a balance sheet, an income statement, a statement of changes in equity, a cash flow statement, and notes comprising a summary of significant accounting policies and other explanatory notes.

Source: NFRA to inspect Big 4, others in 2024 too