- The National Financial Reporting Authority (NFRA) was constituted in 2018 under the Companies Act, 2013.
- NFRA is an independent regulator overseeing the auditing profession in the country.
- It has taken over all the powers of the Institute of Chartered Accountants of India (ICAI) regarding regulation of auditors.
- NFRA functions under the aegis of the Ministry of Corporate Affairs.
Functions and powers of NFRA
- Recommend accounting and auditing policies and standards to be adopted by companies;
- Monitor and enforce compliance with accounting standards and auditing standards. NFRA has also been given powers to investigate professional misconduct committed by members of the ICAI for prescribed class of body corporate or persons.
- NFRA is empowered to oversee the quality of audit service and undertake investigation of companies whose securities are listed on any stock exchange in India or abroad.
- Also, it can probe unlisted public companies having paid-up capital of no less than Rs 500 crore or annual turnover of no less than Rs 1,000 crore.
Why in News?
- National Financial Reporting Authority Chairperson R. Sridharan recently suggested a ‘standalone legislation’ for the regulator in the interests of autonomy, and emphasized all necessary penal provisions relating to financial reporting should be consolidated and vested with it.
- The regulator was constituted under the Section 132 of the Companies Act, 2013 in 2018.
- The NFRA may take action against auditors for professional misconduct but when it comes to other functionaries of a company who have the responsibility for financial reporting, penal powers continue to be vested with the Centre.
- He said that to enhance the effectiveness of the implementation of the law it is necessary to consolidate penal provisions relating to financial reporting and to vest them in NFRA. This will allow for integrated regulation of all participants in the financial reporting system.
- He added that the NFRA operates under a single section of the Companies Act. The section does not provide comprehensive coverage of all the functions and powers that are required to constitute the NFRA as a “corporate financial reporting regulator”.