National Financial Reporting Authority (NFRA) Explained

What Is NFRA?

The National Financial Reporting Authority (NFRA) is an independent regulatory body tasked with overseeing the auditing profession and the implementation of Indian Accounting Standards. Established under the Companies Act 2013, NFRA commenced its operations in October 2018.

Responsibilities of NFRA

• Recommending accounting and auditing policies to enhance standards in India.
• Investigating the conduct of auditors and audit firms.
• Imposing sanctions, including monetary penalties and a ban on auditors from practice for up to 10 years.

Scope of Authority

NFRA governs auditors of companies listed on stock exchanges, both within India and internationally. Additionally, it oversees unlisted public companies that meet specific financial thresholds, along with other designated firms.

Regulatory Powers

• Monitoring the activities of accounting and auditing professionals for compliance.
• Mandating that companies disclose information about their auditors to NFRA through Form NFRA-1.

The establishment of NFRA signifies a robust step towards enhancing the integrity of financial reporting in India. By enforcing stringent regulations and standards, it aims to bolster public trust in financial statements and the auditing process.

Frequently Asked Questions (FAQs)

Q1. What is the main function of the NFRA?
Answer: The main function of the NFRA is to oversee the auditing profession and enforce compliance with Indian Accounting Standards, ensuring transparency and accountability in financial reporting.

Q2. How does NFRA impose sanctions on auditors?
Answer: NFRA can impose sanctions such as monetary penalties or bans on auditors from practicing for up to ten years, based on their investigations into misconduct or non-compliance.

Q3. Which companies are governed by NFRA?
Answer: NFRA governs auditors of companies listed on stock exchanges, both in India and abroad, as well as unlisted public companies that exceed certain financial thresholds.

Q4. When was NFRA established?
Answer: The National Financial Reporting Authority was established in 2018 under the Companies Act 2013 to enhance the regulation of the auditing profession in India.

Q5. What must companies disclose to NFRA?
Answer: Companies are required to disclose information about their auditors to NFRA using Form NFRA-1, which helps maintain oversight and accountability.

UPSC Practice MCQs

Question 1: What is the establishment year of NFRA?
A) 2010
B) 2013
C) 2018
D) 2020
Correct Answer: C

Question 2: Under which act was NFRA established?
A) Companies Act 2000
B) Companies Act 2013
C) Financial Reporting Act 2015
D) Corporate Governance Act 2018
Correct Answer: B

Question 3: Which of the following is a responsibility of NFRA?
A) Approving financial statements
B) Conducting audits
C) Investigating auditors and audit firms
D) Providing financial advice
Correct Answer: C