National Financial Reporting Authority- Background, Formation and Key Functions

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National Financial Reporting Authority- Relevance for UPSC Exam

GS Paper 2: Indian Constitution– Statutory, regulatory and various quasi-judicial bodies.

Recently, the National Financial Reporting Authority (NFRA) has rapped ‘EY group firm’ SRBC & Co. LLP for failing to detect several problems in the IL&FS group’s transport venture while undertaking its statutory audit in 2017-18.

Background: Various corporate scams in the Indian financial system (for exa. Punjab National Bank) put the scanner on the role of the auditors and the Institute of Chartered Accountants of India.
- This led to the formation of the National Financial Reporting Authority by the government as an independent audit regulator.
Formation: NFRA (the audit regulator of India) was constituted in 2018 by the Government of India under section 132 (1) of the Companies Act, 2013.
Composition National Financial Reporting Authority: It is composed of one Chairperson, three full-time Members, and one Secretary.
- The chairperson shall be a person of eminence and having expertise in accountancy, auditing, finance or law to be appointed by the Central Government.
Key Jurisdiction: Jurisdiction of NFRA would extend to large public companies that are not listed (threshold prescribed in the rules) and listed companies.
- The central government has the discretion to refer such other entities to NFRA for investigation, involving public interest.

Recommendatory Role: NFRA Recommends accounting and auditing policies and standards to be adopted by companies for approval by the Central Government.
Monitoring and Compliance: NFRA is responsible for monitoring and enforcing compliance with accounting standards and auditing standards.
Ensure Quality and Professionalism: NFRA is entrusted with overseeing the quality of service of the professions associated with ensuring compliance with such standards and suggest measures for improvement in the quality of service.
Ensuring Prevalence of Public Interest: One of the key duties and responsibilities is to protect the public interest.