National Financial Reporting Authority (NFRA)
Every company has to maintain financial records to measure its growth after regular intervals. A company prepares financial statements for this purpose. The financial statements include a profit and loss account and a balance sheet for a particular financial year. All companies in India have to uniformly represent their financial statements as prescribed by the company law of India unless they are governed by any specified laws. The way of recording business transactions in these financial statements is prescribed in the accounting standards.
A company is bound to stick to these accounting standards while maintaining its financial records. Whether a company is following valid accounting methods, accounting standards, and representing its financial statements in a true and fairway can be ensured when these financial records are audited by qualified professionals (i.e CAs). On scrutiny of the financial records, they provide their opinions, and hence the stakeholders of a company can know whether the company’s affairs were carried on fairly or not.
Owing to the changing dynamics in India for doing business, framing such accounting and auditing standards that are at par with the prevailing market practices is always needed. For this, the Government has to either repeal, review, amend the earlier standards or make new ones.
The Government has thus empowered a body under the Indian company law to recommend and ensure enforcement of the accounting and auditing standards. It is called the National Financial Reporting Authority.
We shall learn ahead about the object of NFRA, its composition, jurisdiction, and powers.
1) Objective of NFRA
(i) Making recommendations for formulating accounting standards, auditing standards, and accounting policies to be adopted by companies or a certain class of companies or its auditors.
(ii) To monitor and enforce compliance with both accounting and auditing standards.
(iii) To keep a check on the quality of service provided by professionals engaged in compliances and providing suggestions on improving the quality of service provided.
(iv) Performing other functions related to the above objectives in the prescribed manner.
Professionals such as chartered accountants, company secretaries, and cost accountants are brought under its jurisdiction, by way of the above objectives.
2) Composition of NFRA:
NFRA shall be composed of the following persons:
(i) A chairperson possessing knowledge and expertise in the field of accounting, finance, business administration, law, economics, and similar disciplines.
(ii) Other members of the NFRA which shall not exceed 15. The members of NFRA may be full time and part-time.
(iii) A declaration of his independence in the prescribed form should be made by the chairperson and there should be no conflict of interest involved in his appointment.
Neither the chairperson nor the full-time members shall be associated with any audit firm while being part of NFRA. On ceasing to hold such positions, they shall not be allowed to be associated with any audit firm for a period of 2 years.
(iv) The head office of NFRA shall be located in New Delhi. However, it can conduct its meetings at any place in India as it may deem fit.
(v) The accounts of the NFRA are audited by the Comptroller and Auditor General. CAG’s audit report along with the accounts is further sent to the Central Government annually.
The persons holding memberships of ICAI, ICSI, ICMAI, and MCA shall not be nominated to any of the posts of NFRA.
3) Powers and Jurisdiction of NFRA:
(i) The NFRA shall have the jurisdictional powers over bodies corporate and persons on the matters of professional misconduct committed by any member of the firm of Chartered Accountants under the Chartered Accountants Act, 1949.
(ii) No professional body, institute, or any other body can initiate legal proceedings on matters of professional misconduct if the NFRA has initiated an investigation against a person.
(iii) The NFRA shall possess the same powers as that of a Civil Court on the following matters as provided to it under the Civil Procedure Code of 1908. They are,
(iv) The NFRA shall have the power of imposing penalties for professional misconduct on individuals as well as firms. It also has powers to debar members or the firms from taking up the practice from 6 months to ten years.
Any person aggrieved with the order of the NFRA may prefer an appeal to the Appellate Authority.
Conclusion:
NFRA is thus a regulatory body ensuring the compliance of accounting and auditing standards applicable to various companies and bodies corporate. It can only recommend bringing the required changes in accounting and auditing standards, whereas the final call to implement them would be of the Central Government. As finance professionals under NFRA’s scanner, it would help in creating an environment of independence and unbiasedness while rendering their services to the corporates thereby promoting fair business practices.
This Article Does Not Intend To Hurt The Sentiments Of Any Individual Community, Sect, Or Religion Etcetera. This Article Is Based Purely On The Authors Personal Views And Opinions In The Exercise Of The Fundamental Right Guaranteed Under Article 19(1)(A) And Other Related Laws Being Force In India, For The Time Being. Further, despite all efforts that have been made to ensure the accuracy and correctness of the information published, White Code Legal and Tax shall not be responsible for any errors caused due to human error or otherwise.
