National Financial Reporting Authority — NFRA (Section 132)

# National Financial Reporting Authority (NFRA) — Section 132

NFRA is constituted by the Central Government to oversee matters relating to accounting and auditing standards.

## 1. Functions & Duties of NFRA

NFRA protects interests of the public, investors, creditors & others by establishing accounting & auditing standards and effective oversight:

• Recommend AS and Standards on Auditing (SA) for approval by CG.
• Maintain details of auditors of companies and bodies corporate governed by NFRA.
• Promote awareness of compliance with AS and SA.
• Monitor & enforce compliance with AS & SA (may direct for further information).
• Oversee quality of service of professionals — suggest measures for improvement.
• Cooperate with national & international independent audit regulators.
• Perform any other functions as may be necessary.

## 2. Applicability — Class of Companies Governed by NFRA

NFRA applies to:

• Companies whose securities are listed in India or outside India.
• Unlisted public company having (at end of preceding FY):
• Paid-up capital ≥ ₹500 crores, OR
• Turnover ≥ ₹1,000 crores, OR
• Outstanding loans, debentures & deposits ≥ ₹500 crores.
• Insurance, Banking, Electricity company, or company governed by a special Act.
• Body corporate incorporated outside India that is a subsidiary/associate of an Indian NFRA-company, where its income or net worth > 20% of the consolidated income or net worth of the Indian company.
• Any other person referred to NFRA by CG in public interest.

> Continuity rule: NFRA continues to apply to a company/body corporate for 3 years after it ceases to meet the criteria.

## 3. Composition

• Chairperson + other members ≤ 15 (part-time or full-time), appointed by CG.
• Executive body = Chairperson + full-time members; responsible for efficient discharge.
• Chairperson & full-time members shall NOT be associated with any audit firm — during appointment AND for 2 years after ceasing.
• Chairperson & all members must declare to CG no conflict of interest or lack of independence.

### Part-time members include:

• Ex-officio member of MCA (≥ Joint Secretary rank).
• Ex-officio CAG member (≥ Accountant General / Principal Director rank).
• Ex-officio members of RBI and SEBI (≥ Executive Director rank).
• President of ICAI (ex-officio).
• Chairperson of Accounting Standards Board, ICAI (ex-officio).
• Chairperson of Auditing and Assurance Standards Board, ICAI (ex-officio).
• 2 experts from accountancy, auditing, finance or law.

## 4. Power to Investigate

• Investigate misconduct of CA member/firm — suo motu or on reference by CG.
• No other institute/body (e.g., ICAI) shall initiate or continue proceedings on a matter where NFRA has commenced investigation.

## 5. Powers of a Civil Court

While trying a suit, NFRA has the same powers as a civil court regarding:

• Discovery and production of BOA and documents (at place/time specified).
• Summoning, attendance and examination of persons on oath.
• Inspection of books, registers and documents of summoned persons.
• Issuing commissions for examination of witnesses or documents.

## 6. Penalties on Proof of Misconduct

Debarment: From acting as auditor, internal auditor, or performing valuation for 6 months to 10 years.

Appeal: A person aggrieved may appeal to the NCLAT (Appellate Tribunal).

## 7. Books, Audit, Reporting

• NFRA shall maintain books in a manner CG prescribes (in consultation with CAG).
• Accounts audited by CAG at intervals specified by him.
• Accounts with audit report forwarded annually to CG.
• NFRA prepares annual report of activities and forwards to CG, who lays it (with audit report) before each House of Parliament.

## 8. Punishment for Contravention of NFRA Rules

If any company, officer, auditor or any person contravenes NFRA Rules → punishable under Section 450 of the Companies Act, 2013.