NATIONAL FINANCIAL REPORTING AUTHORITY (Syllabus: GS Paper 3 – Economy)
Context: The Supreme Court has dismissed two appeals challenging the National Financial Reporting Authority's (NFRA's) retrospective investigative powers over statutory audits conducted before its establishment in 2018, settling the question of the watchdog's jurisdiction.
National Financial Reporting Authority (NFRA)
- About: NFRA has actively collaborated with the Corporate Data Management (CDM) division of the Ministry of Corporate Affairs (MCA) and three recognized stock exchanges in India.
- Headquarters: New Delhi
- Constitution: NFRA was established in 2018 by the Government of India under section 132(1) of the Companies Act, 2013, serving as an audit regulator.
- Objective: To continuously improve the quality of all corporate financial reporting in India.
- Background and Establishment: The decision to form NFRA was prompted by concerns over the role of auditors and the Institute of Chartered Accountants of India in various corporate scandals, including the one at Punjab National Bank.
- Composition: NFRA comprises a chairperson, appointed by the Central Government, who must be a person of eminence and possess expertise in accountancy, auditing, finance, or law. Additionally, it includes up to 15 other members.
- Powers of NFRA
o Investigation Scope: NFRA can investigate Public Interest Entities, including listed companies, large unlisted public companies, insurance companies, banking companies, and those engaged in electricity generation or supply.
o Penalty Imposition: In cases of professional misconduct, NFRA has the power to impose penalties ranging from one lakh rupees to five times the fees received for individuals and ten lakh rupees to ten times the fees received for firms.
Functions and Duties
- Policy Recommendations: NFRA recommends accounting and auditing policies and standards for approval by the Central Government.
- Compliance Monitoring: It monitors and enforces compliance with accounting and auditing standards.
- Quality Oversight: NFRA oversees the quality of service of professions associated with ensuring compliance and suggests measures for improvement.
- Public Interest Protection: One of its primary roles is to protect the public interest in financial matters.
