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National Financial Reporting Authority (NFRA)
Context:
The National Financial Reporting Authority is set to conduct its inaugural annual inspection of eight audit firms, including the Big Five, with findings expected by October or November.
More on News:
This inspection will focus on auditors’ processes and standards, aiming to strengthen India’s audit and accounting ecosystem in the face of corporate fraud and to safeguard shareholders’ interests in a rapidly growing economy.
About NFRA:
It was constituted on 1st October 2018 under Section 132(1) of the Companies Act, 2013 by the Government of India.
- It is owned by the Ministry of Corporate Affairs.
- Objective: To continuously improve corporate financial reporting across all types of Public Interest Entities (PIEs) and all size categories of audit firms in India.
- Governing Body: Composed of one Chairperson, three full-time Members, and one Secretary.
- Functions and Duties:
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- Recommend accounting and auditing policies and standards for approval by the Central Government.
- Monitor and enforce compliance with these standards.
- Oversee the quality of services provided by auditors and suggest improvements.
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- Investigate and take disciplinary action against auditors and audit firms in case of non-compliance.
Companies and Bodies Corporate Governed by the Authority
As per rule 3 of the NFRA rules,2018, NFRA has the power to monitor and enforce compliance with accounting and auditing standards for the following companies and bodies corporate:
- Listed Companies: Any company whose securities are listed on a stock exchange in India or abroad.
- Large Unlisted Public Companies: Companies that meet at least one of the following criteria on the previous financial year’s March 31st:
- Paid-up capital of at least ₹500 crore.
- Annual turnover of at least ₹1,000 crore.
- Total outstanding loans, debentures, and deposits of at least ₹500 crore.
- Specific Industries: Insurance companies, Banking companies, Electricity generation or supply companies, Companies governed by special Acts, Bodies corporate incorporated by an Act.
- Companies Referred by the Government: Any company, body corporate, or person (or a class thereof) that the Central Government refers to the NFRA in public interest.
- Foreign Subsidiaries/Associates: A body corporate, company, or person registered outside India that is a subsidiary or associate company of a company or body corporate registered in India.