Context

With an aim of improving the powers of the National Financial Reporting Authority (NFRA), the government has committed to strengthen the mandates of defending the general public interests.

Background

• The decision to constitute the NFRA was taken after the role of auditors and the Institute of Chartered Accountants of India came under the scanner for alleged lapses in various corporate scams including that at the Punjab National Bank.

About

• NFRA was constituted in 2018by the Government of India under section 132 (1) of the Companies Act, 2013. 
• It functions as an audit regulator.
• Its account is monitored by the Comptroller and Auditor-General of India.
• It is headquartered in New Delhi.

Powers of National financial reporting authority:

• NFRA, administered by the Ministry ofCorporate Affairs, regulates the auditing standards in the country.
• It also oversees the Quality of Service provided by the accounting and audit professions.
• According to the Companies Act, 2013 NFRA has following powers;
  • To investigate matters of professional misconduct by chartered accountants or CA firms, impose a penalty and debar the CA or firm for up to 10 years.
  • No other institute or body shall initiate or continue any proceedings in such matters of misconduct where the National Financial Reporting Authority has initiated an investigation.
  • It is expected that the NFRA’s functioning would result in improved domestic and foreign investments, improved economic growth, assistance in the development of the audit profession and supporting the globalisation of business through compliance with international practices.

Important roles played by NFRA

• As an Advisor to the government: It recommends accounting and auditing policies and standards to be adopted by companies for approval by the Central Government.
• As Enforcing Agency: Monitor and enforce compliance with accounting standards and auditing standards.
• Eligible to issue penalty: 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.
• Guardian of Public Interest: Protect the public interest.

What is the need to strengthen NFRA?

• To enable it to discharge its duties effectively as well as strengthen the mandates of protecting the public interests.
• To bring in efficiency at the independent regulatory body.

Benefits

• India gains eligibility for IFIAR (International Forum of Independent Audit Regulators), which was denied earlier, resulting in enhancing the confidence of Foreign/Domestic investors and India’s position on a global scale.
• Increase in foreign/domestic investors.
• Economic growth.
• IFIAR eligibility proves our international standards of business, further supporting globalization.
• Further development of the auditing profession.
• Establishment of NFRA will free resources for the ICAI to work on developing new and complex skills needed in the uncertain world of technology.