# Section 132 – National Financial Reporting Authority (NFRA)
## 1. Constitution
The Central Government shall constitute the National Financial Reporting Authority (NFRA) by notification.
## 2. Functions of NFRA
1. Recommend accounting and auditing policies and standards to the Central Government for adoption.
2. Monitor and enforce compliance with accounting standards and auditing standards.
3. Oversee the quality of service of professions associated with ensuring compliance and suggest improvements.
4. Perform such other functions as may be prescribed (e.g., inspection of auditors of large companies).
## 3. Composition
| Position | Particulars |
|---|---|
| Chairperson | Person of eminence and having expertise in accountancy, auditing, finance or law |
| Members | Such number as prescribed; can be full-time or part-time |
Declaration by Chairperson and Members:
- They must give a declaration regarding no conflict of interest and lack of independence.
- They shall not be associated with any audit firm (including related consultancy firms) during the period of appointment and for 2 years after ceasing to hold office.
## 4. Powers of NFRA (Quasi-judicial)
- Has the same powers as a Civil Court under the Code of Civil Procedure for:
- Discovery and production of documents
- Inspection of books and registers at any place
- Enforcing attendance and examination on oath
- Once NFRA initiates an investigation, no other authority can initiate or proceed with parallel action on the same matter.
## 5. Penalty for Professional or Other Misconduct
Where professional or other misconduct is proved:
| Person | Minimum | Maximum |
|---|---|---|
| Individual | ₹1,00,000 | 5 × fees received |
| Firm | ₹10,00,000 | 10 × fees received |
Debarment of the member or firm from:
- Being appointed as auditor, internal auditor or undertaking audit/valuation
- Performing any other statutory function
for a period of 6 months to 10 years.
## 6. Rule 3 of NFRA Rules, 2018 – Class of Companies Covered
NFRA has jurisdiction over auditors of:
1. Companies whose securities are listed in India or outside India.
2. Unlisted public companies having:
- Paid-up capital ≥ ₹500 crore, OR
- Annual turnover ≥ ₹1,000 crore, OR
- Aggregate outstanding loans/debentures/deposits ≥ ₹500 crore (as on 31st March of preceding FY).
3. Insurance, Banking, Electricity companies and other companies governed by special Acts.
4. Body corporates / companies registered outside India that are subsidiaries or associates of any Indian company above, if income/net worth of such subsidiary/associate exceeds 20% of the consolidated income or net worth of such Indian company.
5. Any body corporate or company referred to NFRA by Central Government in public interest.
## 7. Investigation – Rule 9 (Place)
NFRA may undertake investigation or audit quality review at the office of the auditor or any other place in India or outside India.