Here ends the wait of 5 long years which kept the entire corporate world, in general and the audit firms, in particular anxious and curious. National Financial Reporting NFRA (NFRA) is constituted with effect from October 1, 2018 and sub-sections (2), (4), (5), (10), (13), (14) and (15) of section 132 dealing with NFRA were commenced w.e.f. October 24, 2018. The Centre has appointed former IAS officer Rangachari Sridharan as chairperson of NFRA which shall protect the public interest and the interests of various stakeholders by establishing high quality standards of accounting and auditing.

The National Financial Reporting NFRA Rules, 2018 were notified by the MCA vide its notification dated 13th November 2018 with immediate effect. Here’s a summary of the must-know information about the NFRA and its rules.

Classes of companies and body corporates governed by the NFRA

  1. Companies listed in India or outside India
  2. Unlisted public companies
    • having paid-up capital of not less than Rs.500 Cr. or
    • having annual turnover of not less than Rs.1000 Cr. or
    • having, in aggregate, outstanding loans, debentures and deposits of not less than Rs.500 crores as on the 31st March of immediately preceding financial Year;
  3. 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.
  4. Any body corporate or company or person, or any class of bodies corporate or companies or persons, on a reference made to the NFRA by the central Government in public interest.
  5. A body corporate incorporated or registered outside India which is a subsidiary or associate company of the above mentioned body corporate(s) / companies if its income or networth exceeds 20 percent of the income or networth of the parent company

Intimation to the NFRA

  • Every existing body corporate other than a company governed under the rules to inform the particulars of the Auditor in Form NFRA-1 within 30 days of the commencement of these rules i.e. within December 13, 2018.
  • Body corporate other than a company defined in Section 2(20), formed in India and governed under the rules to inform the particulars of the Auditor within 15 days of appointment of the Auditor in Form NFRA-1.

Annual Return

Every auditor whose appointment is intimated to the NFRA shall file a return with the NFRA on or before 30th day of April every year in such form as may be specified by the Central Government.

Continuance of Governance

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.

Monitoring and enforcing compliance with Accounting Standards

The NFRA may review the financial statements of any company or body corporate, as the case may be, and may also direct its auditors to provide further information or explanation or relevant documents within reasonable time as specified in the notice. The NFRA may also 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 such review.

Although the NFRA has taken away certain powers from the ICAI, let’s wait and watch as to how effective it is going to be in the near future.