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The National Financial Reporting Authority (NFRA) Rules,2018

1. Important definitions  of the National Financial Reporting Authority (NFRA) Rules, 2018

• “accounting standards” means the accounting standards as defined in clause (2) of section 2 of the Act;
• “Act” means the Companies Act, 2013 (18 of 2013);
• “auditing standards” means the ‘auditing standards’ as defined in clause (7) of section 2 of the Act;
• “auditor” means an individual or a firm including a limited liability partnership incorporated under the Limited Liability Partnership Act, 2008 (6 of 2009)or any other Act for the time being in force, who has been appointed as an auditor of a company or a body corporate under section 139 of the Act or under any other Act for the time being in force;
• “Authority” means the National Financial Reporting Authority constituted under sub-section (1) of section 132 of the Act;
• “chairperson” means the chairperson of the Authority;
• “Division” means a division established by the Authority for the purpose of organising and carrying out its functions and duties;
• “Form” means the Form annexed to these Rules;
• “full-time member” means a member who has been appointed as such under sub-section (3) of section 132 of the Act;
• “parttime member” means a member of the Authority other than a fulltime member.

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What is Basic Applicability and due dates for National Financial Reporting Authority

The Authority shall have power to monitor and enforce compliance with accounting standards  and auditing standards to the following classes of companies-

companies whose securities are listed on any stock exchange in India or outside India;

• Unlisted public companies having paid-up capital of not less than rupees five hundred crores or having annual turnover of not less than rupees one thousand crores or having, in aggregate, outstanding loans, debentures and deposits of not less than rupees five hundred crores as on the 31st March of immediately preceding financial Year;
• insurance companies, banking companies, companies engaged in the generation or supply of electricity, companies governed by any special Act for the time being in force or bodies corporate incorporated by an Act in accordance with clauses (b), (c), (d), (e) and (f) of sub-section (4) of section 1 of the Act;
• any body corporate or company or person, or any class of bodies corporate or companies or persons, on a reference made to the Authority by the central Government in public interest, and
• a body corporate incorporated or registered outside India, which is a subsidiary or associate company of any company or body corporate incorporated or registered in India as referred to in clauses (a) to (d), if the income or net worth of such subsidiary or associate company exceeds twenty per cent of the consolidated income or consolidated net worth of such company or the body corporate, as the case may be, referred to in clauses (a) to (d).

1. Every existing body corporate other than a company governed by these rules, shall inform the Authority within 30 days of the commencement of these rules, in Form NFRA-1, the particulars of the auditor as on the date of commencement of these rules.
2. Every body corporate, other than a company as defined in clause (20) of section 2, formed in India and governed under this rule shall, within 15 days of appointment of an auditor under sub-section (1) of section ‘t39, inform the Authority in Form NFRA-1 , the particulars of the auditor appointed by such body corporate.
3. A company or a body corporate other than a company governed under this rule shall continue to be governed by the Authority for a period of three years after it ceases to be listed or its paid-up capital or turnover or aggregate of loans, debentures and deposits falls below the limit stated therein.
4. Annual return : Every auditor referred to in rule 3 shall file a return with the Authority on or before 30th April every year in such form as may be specified by the Central Government.

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What is Penalty fine under National Financial Reporting Authority?

National Financial Reporting Authority have below power to impose fine/penalty

1. to debar erring auditors or audit firm for up to 10 years
2. impose a fine of not less than ₹1 lakh, but the amount can extend up to five times of the fees received in case of individuals

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Recommending accounting standards and auditing standards.-

(1) For the purpose of recommending accounting standards or auditing standards for approval by the Central Government, the Authority-

(a) shall receive recommendations from the lnstitute of Chartered Accountants of India on proposals for new accounting standards or auditing standards or for amendments to existing accounting standards or auditing standards;

(b) may seek additional information from the Institute of chartered Accountants of India on the recommendations received under clause (a), if required.

(2) The Authority shall consider the recommendations and additional information in such manner as it deems fit before making recommendations to the Central Government.

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Power to investigate under NFRA.-

(1) Where the Authority has-

(a) received any reference from the Central Government for investigation into any matter of professional or other misconduct under sub-section (4) of section 132 of the Act;

(b) decided to undertake investigation into any matter on the basis of its compliance or oversight activities, or

(c) decided to undertake suo motu investigation into any matter of professional or other misconduct, after recording reasons in writing for this purpose,it shall forward the matter to its Division dealing with enforcement for carrying out investigation and other action.

(2) lf, during the investigation, the Authority has evidence to believe that any company or body corporate has not complied with the requirements under the Act or rules which involves or may involve fraud amounting to rupees one crore or more, it shall report its findings to the Central Government.

(3) On the commencement of these rules-

(a) the action in respect of cases of professional or other misconduct against auditors of companies referred to in rule 3 shall be initiated by Authority and no other institute or body shall initiate any such proceedings against such auditors:

Provided that no other institute or body shall initiate or continue any proceedings in

such matters of misconduct where the Authority has initiated an investigation under

this rule;

(b) the action in respect of cases of professional or other misconduct against auditors of companies or bodies corporate other than those refened to in rule 3 shall continue to be proceeded with by the Institute of Chartered Accountants of India as per provisions of the chartered Accountants Act, 1949 and the regulations made thereunder.

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Role of chairperson and full-time members.-

All matters related to, investigation, monitoring, enforcement and disciplinary proceedings shall be examined and decided by the chairperson or any one or more of the full-time members, acting through one of the Divisions. 

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Download National Financial Reporting Authority (NFRA) Rules, 2018

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