NFRA is the reporting authority set under the companies act, of 2013. The goal of the authority is to increase the quality of financial reporting. Recently, in 2022, the regulatory authority released the guidelines for inspection. The stakeholders suggest that onsite inspection improves the quality of audit firms. The auditing inspection undertaken by the authority pinpoints the area of focus and opportunities for the audit firms. A blog is here to explain the new guidelines from NFRA. On 1st October 2018, the NFRA was created. The amendments added in 2022 state that a 5000/- penalty has been charged for non-compliance. If the issue of non-compliance arises for the second time, the charge is 500 for each day of infringement. MCA had rationalised the provisions issued by the NFRA. SEBI is taking care of the audit firms of the listed companies. NFRA takes care of the service provided by accounting audit professionals. Both regulatory bodies are in the service of correcting the auditing standards.
What is the role of NFRA?
The audit regulators operating worldwide are associated with IFIAR. Audit regulator from fifty-four countries shares their views here. An audit firm checks the quality control policy, quality reviews, assignments and applicable standards for compliance. PCAOB is the international regulator for auditing standards. In India, NFRA takes care of such a role. In a recent statement, PCAOB said that during the economic downturn, there is a need for vigilant inspection. The risk and fraud activities increase due to the economic surge.
• NFRA check the accounting standards, auditing standards and service of the auditors.
• Suggest changes in the policies related to auditing and accounting.
• NFRA suggest the standards to the central government.
• NFRA has the power to impose penalties and stop the service of a Chartered accountant for the next ten years.
• The objective of checking the audit standard is as follows:
• To check the functioning of the compliance.
• The internal system of the audit firm.
• Identification of risk factors and mitigation of such measures.
NFRA 2022 Amendments:
The Indian government is encouraging the findings of NFRA. To ensure quality, the Indian government is granting more powers to NFRA. The following points explain the latest and the old guidelines from NRFA.
• The non-compliance with contravention cost the owner an amount of 500 every day.
• NFRA form-2 has to be filled out by the audit firm. Clause three and four of NFRA 2 says that it is for statutory audit. It is not for tax audits or quarterly audits.
• Rule 3(!)(e) Of form two ask for the registration details of the engagement quality control partner.
• Clause 4(a)(1)(10) of the audit explains the different services, fees and expenses of the audit company.
• NFRA 2 demands complete information from the past five years.
• The reporting period is the period of the audit report. And not the rotational term of the audit firm.
• The report should contain the details of the person who performed the EQCR. The name and membership details have to be mentioned.
• NFRA perform the functions that are related to clause a, b, and c of the companies act.
• If NFRA is involved in the investigation, other regulatory bodies or institutes have no right to intervene.
• The rule-2(2) of the act has the same meaning for words and expressions.
• Rule-3 (1) of the act states the class of companies examined for auditing. The following companies are monitored for the standards: companies listed inside and outside India, a company with paid-up share capital of not less than five hundred crores, companies with turnover of one thousand crores, companies with outstanding debentures, loans and deposits of five hundred crores, insurance, electricity generation, and banking companies and companies formed under the special act.
• Rule-3(2) emphasises the information about the appointment of an auditor. The companies governed by these rules should inform NFRA through form one fifteen days. The other companies should inform the authority within thirty days.
• Rule-4(1) of the company act states that NFRA protects the interest of the creditors, investors and other bodies associated with the company by setting high standards.
• The authorities mentioned in rule 3 are entitled to submit the return through form NRFA–2 on or before the 30th of November.
• Rule-6(1) explains the recommendations of ICAI for new accounting standards. NFRA accept the recommendations from NFRA.
• The rule-7(3) of the act states that the authority has the power to communicate the findings related to noncompliance on the website of company. It is done for the public interest. In some cases, the authority provides the findings in written form.
• As per rule 8(!) The authority will review the papers like the plan and documents related to the audit.
• Rule-8(3) states that the authority may ask for the personal presence of the auditor to get additional information.
• Rule 8(4) explains the point of appointing an experienced auditor to carry out the auditing activity.
• Rule 8(6) states that confidential and ownership-related information is not published by the authority. It communicates such information if it is necessary.
• The confidential information is sent to the central government for record.
• Rule 9(1) states that the authority instructs the audit firm to make changes to the audit process, reports and quality control.
• Rule 9(2) explains the part of the audit firm to make improvements as directed by the authority.
• Rule 10(2) explains that if the fraud amount is more than one crore, then the report is sent to the central government.
• The notice is provided for the following reasons; no action, for penalty or caution. This is given in rule 11(6).
• Rule 17(1) states that the employees and associated organisations shall keep the information confidential.
• Rule 19(2) explains that the authority may receive assistance from foreign audit regulators.
What is TAC?
TAC is the technical advisory committee. This committee will examine the issues and provide recommendations.
What is the Annual transparency report from NFRA?
Recently the regulatory body NFRA introduced the draft for preparing the annual transparency report. The aim behind this effort is to improve transparency, independence and high-quality standards. The new report is implemented through the top 1,000 listed companies. The statutory auditors of the top listed companies by market capitalisation will prepare the report for the 2023 year. The authority said that the audit firm needs to publish this report within three months of the financial year. The information given in the ATR is useful for making decisions for the investors, the general public, audit committees and independent directors. The draft is open for public comments till February 16. The information listed in the report is as follows: management, operational activities, ownership, governance, policies, structures, and procedures. This report is to make Indian companies as best in the global market.
Final Words:
NFRA initiate the productive reporting system and take Indian companies to global standards. The latest drafts and amendments from NFRA educate the readers about the crucial work of the authority.
