NFRA Rules 2018 notified by MCA. NFRA shall monitor/enforce compliance with accounting / auditing standards. Auditor to file annual return
The Ministry Of Corporate Affairs (MCA) has notified the National Financial Reporting Authority Rules, 2018.
The NFRA (the Authority) shall have power to monitor and enforce compliance with accounting standards and auditing standards , oversee the quality of service under sub-section (2) of section 132 of the Companies Act, 2013 (the Act) or undertaking investigation under sub-section (4) of such section of the auditors of the following class of companies and bodies corporate , namely :-
(a) companies whose securities are listed on any stock exchange in India or outside India;
(b) 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 ;
(c) 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 ;
(d) 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
(e) 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 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).
It has been also provided that every existing body corporate other than a company governed by these rules, shall inform the Authority within thirty 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.
Every body corporate formed in India and governed under this rule is required to inform NFRA in Form NFRA-1, the particulars of the auditor appointed under sub-section (1) of section 139 of the Act within fifteen days of appointment.
A company or a body corporate other than a company governed under this rule shall continue to be governed by the NFRA 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.
The NFRA shall:-
(a) maintain details of particulars of auditors appointed in the companies and bodies corporate
(b) recommend accounting standards and auditing standards for approval by the Central Government ;
(c) monitor and enforce compliance with accounting standards and auditing standards ;
(d) Observe the quality of service of the professions associated with ensuring compliance with such standards and suggest measures for improvement in the quality of service;
(e) promote awareness in relation to the compliance of accounting standards and auditing standards ;
(f) co-operate with national and international organisations of independent audit regulators in establishing and overseeing adherence to accounting standards and auditing standards.
Under Rule 5, every concerned auditor shall file a return with the Authority on or before 30th April every year in such form as may be specified by the Central
Monitoring and enforcing compliance with accounting standards.
For the purpose of monitoring and enforcing compliance with accounting standards under the Act by companies governed under rules the NFRA may review the financial statements of such company or body corporate, as the case may be, and if so required, direct such company or body corporate or its auditor by a written notice, to provide further information or explanation or any relevant documents relating to such company or body corporate.
The Authority may require the personal presence of the officers of the company or body corporate and its auditor for seeking additional information or explanation in connection with the review of the financial statements of such company or body corporate .
The Authority shall publish its findings relating to non-compliances on its website
Where the Authority finds or has reason to believe that any accounting standard has or may have been violated , it may decide on the further course of investigation or enforcement action through its concerned Division.
Monitoring and enforcing compliance with auditing
The Authority may review working papers (including audit plan and other audit documents) and communications related to the audit. It may evaluate the sufficiency of the quality control system of the auditor and the manner of documentation of the system by the auditor ; and perform such other testing of the audit , supervisory , and quality control procedures of the auditor as may be considered necessary or appropriate.
The Authority may require an auditor to report on its governance practices and internal processes designed to promote audit quality , protect its reputation and reduce risks including risk of failure of the auditor and may take such action on the report as may be necessary .
The Authority may seek additional information or may require the personal presence of the auditor for seeking additional information or explanation 1n connection with the conduct of an audit.
The Authority shall also overseeing the quality of service and suggesting measures for improvement.
Disciplinary proceeding- Based on the reference received from the Central Government or findings of its monitoring or enforcement or oversight activities , or on the basis of material otherwise available on record, if the Authority believes that sufficient cause exists to take actions permissible under sub-section of section 132, it shall refer the matter to the concerned division , which shall cause a show-cause notice to be issued to the auditor stating the details of the alleged facts, the evidence, the provisions of the Act , rules or the accounting standards or auditing standards thereunder allegedly violated , or the manner in which the public interest is allegedly affected, the actions that the Authority proposes to take.
The show-cause notice shall be served on the auditor by sending it to the auditor at the address provided by him or provided by the Institute of Chartered Accountants of India (if required by the Authority) by registered post with acknowledgement due; or by an appropriate electronic means to the email address of the auditor provided by him or it or provided by the the Institute of Chartered Accountants of India (if required by the Authority) :
A notice to a firm shall be deemed to be a notice to all the partners or employees of that firm as on the date of service of notice; the notice shall call upon the firm to disclose the name or names of the partner or partners concerned who shall be responsible for answering the allegations. The partner whose name is disclosed by the firm shall be responsible for answering the notice against the firm , and if no partner , whether erstwhile or present , of the firm owns responsibility for the allegations made against the firm , then the firm as a whole shall be responsible for answering the allegations , and all the partners and employees of that firm as on the date of occurrence of alleged misconduct , shall be responsible for answering the allegations .