• Deepak Sharma

The National Financial Reporting Authority (NFRA) : Applicability, Functions and Duties


The National Financial Reporting Authority (NFRA) is a body constituted by the central government under the provisions of Section 132 of the Companies Act, 2013. The Ministry of corporate affairs notified the constitution of this authority with effect from 1st October 2018.


The Ministry also notified the sub section (1) and (12) of section 132 with effect from 1st October 2018.


In a separate notification the MCA appoints the 24th October, 2018 as the date on which the sub-sections (2), (4), (5), (10), (13), (14) and (15) of section 132 of the said Act shall come into force.


The Ministry also notified the National Financial Reporting Authority Rules, 2018 on 14th November, 2018.


There are two basic objective of central government behind constitution of NFRA :


1. Independent Authority: NFRA is a independent regulatory body to oversight the absolute enforcement of accounting and audit laws.

2. Transparency in Reporting: NFRA will Oversee the quality of financial reporting of corporate entities to improve transparency of financial information in such reporting.


Applicability of NFRA: Rule 3 of NFRA Rules,2018


(A.) The Authority (NFRA) shall have power to monitor and enforce compliance with accounting standards and auditing standards, oversee the quality of service or undertake investigation of the auditors of the following class of companies and bodies corporate, namely:-


1. Companies listed in India or outside India;

2. Unlisted public companies having

  • Paid-up capital of not less than rupees five hundred crores (500 cr) or

  • Annual turnover of not less than rupees one thousand crores (1,000 cr) or

  • In aggregate, outstanding loans, debentures and deposits of not less than rupees five hundred crores (500 cr)

(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 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;


4. 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


5. 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 networth of such company.


(B) 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.


(C) Every body corporate, other than a company formed in India and governed under this rule shall, within fifteen days of appointment of an auditor under sub-section (1) of section 139, inform the Authority in Form NFRA-1, the particulars of the auditor appointed by such body corporate:


Provided that a body corporate governed under clause (e) of sub-rule (1) shall provide details of appointment of its auditor in Form NFRA-1.


(4) 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.


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.


Functions and duties of the Authority.


(1) The NFRA shall protect the public interest and the interests of investors, creditors and others associated with the companies or bodies corporate governed under rule 3 by establishing high quality standards of accounting and auditing and exercising effective oversight of accounting functions performed by the companies and bodies corporate and auditing functions performed by auditors.


(2) In particular, and without prejudice to the generality of the foregoing, the Authority shall:

  • Maintain details of particulars of auditors appointed in the companies and bodies corporate specified in rule 3;

  • Recommend accounting standards and auditing standards for approval by the Central Government;

  • Monitor and enforce compliance with accounting standards and auditing standards;

  • Oversee the quality of service of the professions associated with ensuring compliance with such standards and suggest measures for improvement in the quality of service;

  • Promote awareness in relation to the compliance of accounting standards and auditing standards;

  • Co-operate with national and international organisations of independent audit regulators in establishing and overseeing adherence to accounting standards and auditing standards; and

  • Perform such other functions and duties as may be necessary or incidental to the aforesaid functions and duties.

Punishment in case of non-compliance.-

If a company or any officer of a company or an auditor or any other person contravenes any of the provisions of these rules, the company and every officer of the company who is in default or the auditor or such other person shall be punishable as per the provisions of section 450 of the Act.


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