Constitution of NFRA

Source: TaxGuru

MCA Notification dt. 1 Oct. 2018: Section 132(1) & (12) of Companies Act, 2013 to commence from 1 Oct. 2018

S.O. 5098(E).- In exercise of the powers conferred by sub-section (3) of Section 1 of the Companies Act, 2013 (18 of 2013), the Central Government hereby appoints the 1st October, 2018 as the date on which the provisions of sub-sections (1) and (12) of Section 132 of the said Act shall come into force.

The Central Government has notified the constitution of the National Financial Reporting Authority (NFRA), a new regulatory for the auditors in the country. As per a notification issued by the Ministry of Corporate Affairs (MCA) last day, the Government appointed the 1st October, 2018 as the date of constitution of National Financial Reporting Authority.

In a separate notification S.O. 5098(E), the Central Government has said that the provisions of sub-sections (1) and (12) of Section 132 of the Companies Act, 2013 shall come into force with effect from 1st October, 2018.

Previous MCA notification dated 21st March, 2018:-

MCA Notification dt. 21st March 2018: Section 132(3) & (11) of Companies Act, 2013 to commence from 21st March 2018

S.O. (E). In exercise of the powers conferred by sub-section (3) of section 1 of the Companies Act, 2013 (18 of 2013), the Central Government hereby appoints the 21st March 2018 as the date on which the provisions of sub-sections (3) and (11) of section 132 of the said Act shall come into force.

Section 132 of the Companies Act, 2013

Constitution of National Financial Reporting Authority

(1)  The Central Government may, by notification, constitute a National Financial

Reporting Authority to provide for matters relating to accounting and auditing standards under this Act.

(2)  Notwithstanding anything contained in any other law for the time being in force, the National Financial Reporting Authority shall—

(a)  Make recommendations to the Central Government on the formulation and laying down of accounting and auditing policies and standards for adoption by companies or class of companies or their auditors, as the case may be;

(b)  Monitor and enforce the compliance with accounting standards and auditing standards in such manner as may be prescribed;

(c)  Oversee the quality of service of the professions associated with ensuring compliance with such standards, and suggest measures required for improvement in quality of service and such other related matters as may be prescribed; and

(d)  Perform such other functions relating to clauses (a), (b) and (c) as may be prescribed.

(3)  The National Financial Reporting Authority shall consist of a chairperson, who shall be a person of eminence and having expertise in accountancy, auditing, finance or law to be appointed by the Central Government and such other members not exceeding fifteen consisting of part-time and full-time members as may be prescribed:
Provided that the terms and conditions and the manner of appointment of the chairperson and members shall be such as may be prescribed:

Provided further that the chairperson and members shall make a declaration to the Central Government in the prescribed form regarding no conflict of interest or lack of independence in respect of his or their appointment:

Provided also that the chairperson and members, who are in full-time employment with National Financial Reporting Authority shall not be associated with any audit firm (including related consultancy firms) during the course of their appointment and two years after ceasing to hold such appointment.

(4)  Notwithstanding anything contained in any other law for the time being in force, the National Financial Reporting Authority shall—

(a)  Have the power to investigate, either suo motu or on a reference made to it by the Central Government, for such class of bodies corporate or persons, in such manner as may be prescribed into the matters of professional or other misconduct committed by any member or firm of chartered accountants, registered under the Chartered Accountants Act, 1949:

Provided that no other institute or body shall initiate or continue any proceedings in such matters of misconduct where the National Financial Reporting Authority has initiated an investigation under this section;

(b)  Have the same powers as are vested in a civil court under the Code of Civil Procedure, 1908, while trying a suit, in respect of the following matters, namely:—

(i)  Discovery and production of books of account and other documents, at such place and at such time as may be specified by the National Financial Reporting Authority;

(ii)  Summoning and enforcing the attendance of persons and examining them on oath;

(iii)  Inspection of any books, registers and other documents of any person referred to in clause (b) at any place;

(iv)  Issuing commissions for examination of witnesses or documents;

(c)  Where professional or other misconduct is proved, have the power to make order for—

(A)  Imposing penalty of—

(I)  Not less than one lakh rupees, but which may extend to five times of the fees received, in case of individuals; and

(II)  Not less than ten lakh rupees, but which may extend to ten times of the fees received, in case of firms;

(B)  debarring the member or the firm from engaging himself or itself from practice as member of the Institute of Chartered Accountant of India referred to in clause (e) of sub-section (1) of section 2 of the Chartered Accountants Act, 1949 for a minimum period of six months or for such higher period not exceeding ten years as may be decided by the National Financial Reporting Authority.

Explanation: For the purposes of his sub-section, the expression “professional or other misconduct” shall have the same meaning assigned to it under section 22 of the Chartered Accountants Act, 1949.

(5)  Any person aggrieved by any order of the National Financial Reporting Authority issued under clause (c) of sub-section (4), may prefer an appeal before the Appellate Authority constituted under sub-section (6) in such manner as may be prescribed.

(6)  The Central Government may, by notification, constitute, with effect from such date as may be specified therein, an Appellate Authority consisting of a chairperson and not more than two other members, to be appointed by the Central Government, for hearing appeals arising out of the orders of the National Financial Reporting Authority.

(7)  The qualifications for appointment of the chairperson and members of the Appellate Authority, the manner of selection, the terms and conditions of their service and the requirement of the supporting staff and procedure (including places of hearing the appeals, form and manner in which the appeals shall be filed) to be followed by the Appellate Authority shall be such as may be prescribed.

(8)  The fee for filing the appeal shall be such as may be prescribed.

(9)  The officer authorised by the Appellate Authority shall prepare in such form and at such time as may be prescribed its annual report giving a full account of its activities and forward a copy thereof to the Central Government and the Central Government shall cause the annual report to be laid before each House of Parliament.

(10)  The National Financial Reporting Authority 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.

(11)  The Central Government may appoint a secretary and such other employees as it may consider necessary for the efficient performance of functions by the National Financial Reporting Authority under this Act and the terms and conditions of service of the secretary and employees shall be such as may be prescribed.

(12)  The head office of the National Financial Reporting Authority shall be at New Delhi and the National Financial Reporting Authority may, meet at such other places in India as it deems fit.

(13)  The National Financial Reporting Authority shall cause to be maintained 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.

(14)  The accounts of the National Financial Reporting Authority 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 Comptroller and Auditor-General of India together with the audit report thereon shall be forwarded annually to the Central Government by the National Financial Reporting Authority.

(15)  The National Financial Reporting Authority 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 cause the annual report and the audit report given by the Comptroller and Auditor-General of India to be laid before each House of Parliament.

In March, the Union Cabinet chaired by Prime Minister Narendra Modi had approved establishment of the NFRA and creation of one post of chairperson, three posts of full-time members and one post of Secretary.

The Union Cabinet had approved the National Financial Regulatory Authority and clarified that the provision will initially apply to all listed companies and unlisted large companies.

For others, the existing disciplinary mechanism under the Institute of Chartered Accountants of India (ICAI) will continue. Amended rules in this regard will notify later, Arun Jaitley said in March.

Former IAS officer Rangachari Sridharan is appointed as first chief of NFRA and will hold the post of chairperson, NFRA, for three years or till the incumbent attains the age of 65 years, the official order said.

The need for establishing NFRA had arisen in the wake of accounting scams, for enforcement of auditing standards and ensuring the quality of audits to strengthen the independence of audit firms, among others.