NFRA (Syllabus: GS Paper 3 – Economy)

Context: The National Financial Reporting Authority (NFRA) has decided to directly engage with companies, not just auditors, in cases where it finds issues with financial statements.

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.
• 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.
• Functions and Duties

oPolicy Recommendations: NFRA recommends accounting and auditing policies and standards for approval by the Central Government.

oCompliance Monitoring: It monitors and enforces compliance with accounting and auditing standards.

oQuality Oversight: NFRA oversees the quality of service of professions associated with ensuring compliance and suggests measures for improvement.

oPublic Interest Protection: One of its primary roles is to protect the public interest in financial matters.

• Powers of NFRA

oInvestigation 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.

oPenalty 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.