N AT I O N A L F I N A N C I A L

R E P O RT I N G
AUTHORITY

Team – 5
133rd BATCH OF ADVANCED
ICITSS MCS COURSE
What made government to notify
section 132 OF Companies act, 2013?
• The PNB Fraud, Satyam Scam, Enron fallout and many more.
• Rs. 13,000 Crore Punjab National Bank fraud perpetrated by certain companies
that surfaced in February,2018 has raised questions about the effectiveness of
auditing in banks.
• The fraud has raised questions regarding the failure of internal and external
auditors to notice the guarantees being issued to Modi entities.
• The rising non-performing assets of banks have also raised questions about the
auditors’ failure to review asset quality carefully and insist on provisions for bad
loans.
BURGLAR ALARM RANG ON 1-7-2017
NATIONAL FINANCIAL REPORTING
AUTHORITY (NFRA)

NFRA is a Quasi Judicial Body An Independent Regulator to

established to regulate aspects regulate the Accounting and
related to accounting and auditing. Auditing Profession.

The idea is inspired by the Sarbanes

NFRA shall have same powers as a Oxley Act, 2002 of the US and is in
civil court under the Code of Civil line with Internationally accepted
Procedure, 1908. global practices like in US, UK and
China.
Regulatory framework governing NFRA:
• Companies Act, 2013 - Section 132 of the Act provides for the constitution
of NFRA by the Central Government to provide for matters relating to
accounting and auditing.
• Companies (Amendment) Act, 2017 notified Sec 132.
• The NFRA (Manner of Appointment and other Terms and Conditions of
Service of Chairperson and Members) Rules, 2018 – Notified on 21st
March 2018.
• National Financial Reporting Authority Rules 2018 – Notified on 13
November 2018.
SECTION 132 OF COMPANIES ACT, 2013
• Who Constitute NAFRA – Central Government
• ROLE OF NFRA :
– (a) make recommendations on the formulation & laying down of
accounting and auditing policies and standards for adoption by:
• companies or
• class of companies or
• their auditors,
– (b) monitor and enforce the compliance with accounting standards and
auditing standards
– (c) Oversee the quality of service of the professions associated with
ensuring compliance with such standards, and suggest measures required
for improvement in quality of service and such other related matters as
may be prescribed.
Powers of NFRA :
The National Financial Reporting Authority shall have the power:
• To investigate, either Suo moto or on a reference made by Central Government, for such
class of bodies corporate or persons, into the matters of professional or other misconduct
committed by any member or firm of chartered accountants, registered under the
Chartered Accountants Act, 1949:
• Powers shall be same like a civil court under the Code of Civil Procedure, 1908, while
trying a suit.
• To make order for (If professional or other misconduct is proved)
Imposing penalty of
– (I) Individual – Minimum Rs. one lakh, which may
extend to five times of the fees received
– (II) Firms – Minimum Rs. five lakh, which may
extend to ten times of the fees received.
• Debarring member / firm from practice as member of the
ICAI referred u/s 2(1)(e) of the Chartered Accountants Act, 1949
for a minimum period of 6 months which may extend up to ten years
as may be decided by the NFRA
– Explanation—"professional or other misconduct" shall have the same meaning assigned
to it under section 22 of the Chartered Accountants Act, 1949.
• Proviso to Sec 4(a) – No other Institute or body shall initiate / continue any proceedings in
such matters of misconduct where the NFRA has initiated an investigation under this
section.
Appeals
• Aggrieved persons may make appeal to the Appellate Authority
constituted by the CG for hearing appeals against any order of
NFRA.
Classes of companies and bodies
corporate governed by NFRA :
• (a) Listed Companies (In India or Outside India)
• (b) Unlisted public companies–
– I. Paid up capital not less than Rs. 500 crores or
– II. annual turnover of not less than Rs. 1,000 Crores
– III. Outstanding loans, debentures and deposits of not less than Rs. 500 crores
• (c) Insurance companies, banking companies, companies engaged in generation or
supply of electricity, companies governed by any special Act .
• (d) any body corporate or company or person, or any class thereof on a
reference made by central Government in public interest.
• (e) a body corporate incorporated or registered outside India, which is
a subsidiary or associate company of any company or body corporate
incorporated or registered in India as referred to in clauses (a) to (d) - if the
income or net worth of such subsidiary or associate company exceeds 20% of
the consolidated income or consolidated net worth.

If any of the Co. / body corporate ceases to be listed or its paid-up

capital or turnover or aggregate of loans, debentures and deposits
falls below the limits – It shall continue to be governed by NFRA for a
period of 3 Years.
 Monitoring and enforcing compliance
with auditing standards
• (1) The Authority may:
– (a) review working papers (including audit plan / audit documents) and
communications related to the audit.
– (b) evaluate the sufficiency of the quality control system of the auditor and
the manner of documentation of the system by the auditor and
– (c) perform such other testing of the audit / supervisory and quality control
procedures of the auditor
• (2) Authority may require an auditor to report on its governance practices and
internal processes designed to promote audit quality, protect its reputation and
reduce risks including risk of failure of the auditor and may take such action on
the report as may be necessary.
• (3) Authority may seek additional information or may require the personal
presence of the auditor for seeking additional information or explanation in
connection with the conduct of an audit.
• (4) Authority shall perform its monitoring & enforcement activities through its
officers or experts with sufficient experience in audit of the relevant industry.
• (5)Authority may send a separate report containing proprietary or confidential
information to Central Govt.
• (6)If the Authority finds that any law or professional or other standard has or
may have been violated by an auditor, it may decide on the further course of
investigation or enforcement action through its concerned Division.
 Overseeing the quality of service and
suggesting measures for improvement
• (1) On the basis of its review, the Authority may direct an auditor
– to take measures for improvement of audit quality including
– changes in their audit processes, quality control, and audit reports
and
– specify a detailed plan with time-limits.
• (2) Auditor is duty bound to do the necessary improvements and send
a report thereon to the Authority.
• (3) Authority shall monitor the improvements made by the auditor and
take such action as it deems fit.
• (4) Authority may take the assistance of experts for its oversight and
monitoring activities.
• (5) Authority may take the assistance of experts for its oversight and
monitoring activities
• (6) Authority may:
– refer cases with regard to overseeing the quality of service of auditors to
the Quality Review Board (QRB) constituted under the Chartered
Accountants Act, 1949 or
– call any report or information in respect of such auditors / companies /
bodies corporate from such Board (QRB).
ICAI’S role post NFRA formation
• ICAI role will continue in general and
specifically with respect to audits
pertaining to:
NFRA is not meant to
replace the disciplinary
jurisdiction of the ICAI

– Private Limited Companies

– Public Listed Companies below
the threshold limit
• ICAI will continue its advisory role
and recommend NFRA on accounting
and auditing standards.
 Future Chartered Accountants

Let’s work responsibly and not invite

NAFRA to our offices.