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NFRA — Standard Recommendation Process, Books of Accounts, and Administrative Provisions

# NFRA — Standard Recommendation, Books of Accounts, and Miscellaneous Provisions

## Process for Recommending Accounting Standards (AS) and Auditing Standards (SA)

For recommending AS or SA for approval by the Central Government, NFRA shall follow this process:

### Step 1: Receive Recommendations

NFRA shall receive recommendations from the ICAI on proposals for:

New AS or SA; OR
Amendments to existing AS or SA.

### Step 2: Seek Additional Information (Optional)

NFRA may seek additional information from the ICAI on the recommendations received, if required.

### Step 3: Consider and Recommend

NFRA shall consider the recommendations and additional information in such manner as it deems fit, before making recommendations to the Central Government.

### The Chain

```

ICAI → NFRA (consider, optionally seek info) → Central Government (prescribes)

```

## NFRA's Books of Accounts and Annual Report

### 1. Books to be Maintained

NFRA shall maintain such books of account and other books in relation to its accounts in such form and manner as the Central Government may prescribe in consultation with the Comptroller and Auditor-General of India (CAG).

### 2. Audit by CAG

The accounts of NFRA shall be audited by the CAG of India at such intervals as may be specified by him.
Accounts certified by CAG, together with the audit report, shall be forwarded annually to the Central Government by NFRA.

### 3. Annual Report

NFRA shall prepare its annual report in such form and at such time for each financial year as may be prescribed.
The annual report shall give a full account of its activities during the financial year.
A copy is forwarded to the Central Government.
The Central Government shall lay the annual report AND the audit report given by the CAG before each House of Parliament.

## Miscellaneous Provisions

### Head Office and Meeting Places

Head office: NEW DELHI.
NFRA may meet at such other places in India as it deems fit.

### Meetings and Procedure

NFRA shall meet at such times and places, and shall observe such rules of procedure in regard to transaction of business at its meetings, in such manner as may be prescribed.

### Secretary and Employees

The Central Government may appoint a Secretary and such other employees as it may consider necessary for the efficient performance of functions by NFRA.
Terms and conditions of service shall be such as may be prescribed.

## Memory Aid

Standards Chain: ICAI → NFRA → CG (with CAG auditing NFRA's own accounts)
HQ: New Delhi
Auditor of NFRA: CAG of India
Annual Report Goes to: CG → laid before both Houses of Parliament

Worked example

### Example 1

Example 1: ICAI sends a proposal for a new Auditing Standard on fraud detection to NFRA. NFRA finds the proposal incomplete on certain aspects. What can NFRA do?

Answer: NFRA may seek additional information from the ICAI on the recommendation. After receiving the additional information, NFRA shall consider both the original recommendation and the additional information, and then make its own recommendation to the Central Government.

### Example 2

Example 2: Who audits the accounts of NFRA itself?

Answer: The Comptroller and Auditor-General of India (CAG) audits NFRA's accounts. The CAG specifies the intervals of audit, and the certified accounts along with the audit report are forwarded annually to the Central Government and laid before both Houses of Parliament.

### Example 3

Example 3: NFRA wishes to hold a meeting in Mumbai instead of its headquarters. Is this permissible?

Answer: Yes. The head office of NFRA is at New Delhi, but NFRA may meet at such other places in India as it deems fit. So a meeting in Mumbai is permissible.

⚠️ Common exam mistakes

Believing NFRA can independently formulate accounting standards — it can only consider ICAI's recommendations and forward them to the Central Government.
Confusing the auditor of NFRA — NFRA's accounts are audited by the CAG, not by a private auditor or by ICAI.
Forgetting that the annual report AND the CAG audit report must both be laid before each House of Parliament.
Missing the location of the head office — it is New Delhi.
Assuming NFRA can directly hire its Secretary — the Central Government appoints the Secretary and employees.

Bare-Act text Section 132 read with NFRA Rules, 2018 · The Companies Act, 2013 · click to expand

For the purpose of recommending AS or SA for approval by the Central Government, the NFRA: a) Shall receive recommendations from the ICAI on proposals for new AS or SA or for amendments to existing AS or SA; b) May seek additional information from the ICAI on the recommendations received under clause (a), if required. The NFRA shall consider the recommendations and additional information in such manner as it deems fit before making recommendations to the Central Government. NFRA to maintain proper Books of Accounts: 1. The NFRA shall maintain such books of account and other books in relation to its accounts in such form and in such manner as the Central Government may, in consultation with the Comptroller and Auditor-General of India prescribe. 2. The accounts of the NFRA shall be audited by the Comptroller and Auditor-General of India at such intervals as may be specified by him and such accounts as certified by the CAG of India together with the audit report thereon shall be forwarded annually to the Central Government by NFRA. 3. The NFRA shall prepare in such form and at such time for each financial year as may be prescribed its annual report giving a full account of its activities during the financial year and forward a copy thereof to the Central Government and the Central Government shall lay the annual report and the audit report given by the CAG of India before each House of Parliament. Miscellaneous: 1. The head office of NFRA shall be at New Delhi and the NFRA may, meet at such other places in India as it deems fit. 2. The NFRA shall meet at such times and places and shall observe such rules of procedure in regard to the transaction of business at its meetings in such manner as may be prescribed. 3. The Central Government may appoint a secretary and such other employees as it may consider necessary for the efficient performance of functions by NFRA under this Act and the terms and conditions of service of the secretary and employees shall be such as may be prescribed.

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