{"id":15174,"date":"2021-05-12T00:00:00","date_gmt":"2021-05-12T00:00:00","guid":{"rendered":"https:\/\/www.nextias.com\/current_affairs\/uncategorized\/12-05-2021\/national-financial-reporting-authority-3\/"},"modified":"2025-07-25T16:54:14","modified_gmt":"2025-07-25T11:24:14","slug":"national-financial-reporting-authority-3","status":"publish","type":"post","link":"https:\/\/www.nextias.com\/ca\/current-affairs\/12-05-2021\/national-financial-reporting-authority-3","title":{"rendered":"National Financial Reporting Authority"},"content":{"rendered":"<p><span style=\"font-size:11pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\"><strong><u>In News<\/u><\/strong><\/span><\/span><\/span><\/p>\n<p><span style=\"font-size:11pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\">Recently, <\/span><\/span><\/span><span style=\"font-size:11pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\"><strong>the National Financial Reporting Authority(<\/strong><\/span><\/span><\/span><span style=\"font-size:11pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\">NFRA ) compiled a provisional database of companies and their auditors.<\/span><\/span><\/span><\/p>\n<p><span style=\"font-size:11pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\"><strong><u>Need<\/u><\/strong><\/span><\/span><\/span><\/p>\n<ul>\n<li style=\"list-style-type:disc\"><span style=\"font-size:11pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\"><strong>Auditing Requires Complete Independence<\/strong><\/span><\/span><\/span>\n<ul>\n<li style=\"list-style-type:circle\"><span style=\"font-size:11pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\">Auditor has been entrusted with the responsibility to ensure the truthfulness and correctness of financial statements before these are presented to its various stakeholders.<\/span><\/span><\/span>\n<ul>\n<li style=\"list-style-type:square\"><span style=\"font-size:11pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\">However, there is an inherent conflict of interest in the auditing process as the auditee company also pays the auditor.\u00a0<\/span><\/span><\/span><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<\/li>\n<li style=\"list-style-type:disc\"><span style=\"font-size:11pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\">\u00a0<\/span><\/span><\/span><span style=\"font-size:11pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\"><strong>An Independent Regulator is needed<\/strong><\/span><\/span><\/span><span style=\"font-size:11pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\">\u00a0<\/span><\/span><\/span>\n<ul>\n<li style=\"list-style-type:circle\"><span style=\"font-size:11pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\">The need for establishing NFRA has arisen in the wake of<\/span><\/span><\/span><span style=\"font-size:11pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\"><strong> accounting scams like PNB scam and other financial scams and frauds in the country, therefore,<\/strong><\/span><\/span><\/span><span style=\"font-size:11pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\"> it was proposed to <\/span><\/span><\/span><span style=\"font-size:11pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\"><strong>establish independent regulators <\/strong><\/span><\/span><\/span><span style=\"font-size:11pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\">for enforcement of auditing standards and ensuring the quality of audits to strengthen the i<\/span><\/span><\/span><span style=\"font-size:11pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\"><strong>ndependence of audit firms,<\/strong><\/span><\/span><\/span><span style=\"font-size:11pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\"> <\/span><\/span><\/span><span style=\"font-size:11pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\"><strong>quality of audits.<\/strong><\/span><\/span><\/span><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<p><span style=\"font-size:11pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\"><strong><u>National Financial Reporting Authority<\/u><\/strong><\/span><\/span><\/span><\/p>\n<ul>\n<li style=\"list-style-type:disc\"><span style=\"font-size:11pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\">It is a regulatory body <\/span><\/span><\/span><span style=\"font-size:11pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\"><strong>constituted on 01st October 2018<\/strong><\/span><\/span><\/span><span style=\"font-size:11pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\"> by the Government of India under <\/span><\/span><\/span><span style=\"font-size:11pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\"><strong>Sub Section (1) of section 132 of the Companies Act, 2013 <\/strong><\/span><\/span><\/span><span style=\"font-size:11pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\">to oversee <\/span><\/span><\/span><span style=\"font-size:11pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\"><strong>compliance with Accounting and Auditing Standards <\/strong><\/span><\/span><\/span><span style=\"font-size:11pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\">by companies that can be described as <\/span><\/span><\/span><span style=\"font-size:11pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\"><strong>Public Interest Entities (PIEs).<\/strong><\/span><\/span><\/span><span style=\"font-size:11pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\">\u00a0<\/span><\/span><\/span><\/li>\n<\/ul>\n<p><span style=\"font-size:11pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\"><strong>Composition of the NFRA<\/strong><\/span><\/span><\/span><\/p>\n<ul>\n<li style=\"list-style-type:disc\"><span style=\"font-size:11pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\">The Companies Act requires the NFRA to have a <\/span><\/span><\/span><span style=\"font-size:11pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\"><strong>chairperson<\/strong><\/span><\/span><\/span><span style=\"font-size:11pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\"> who will be appointed by the Central Government and a <\/span><\/span><\/span><span style=\"font-size:11pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\"><strong>maximum of 15 members.<\/strong><\/span><\/span><\/span><\/li>\n<\/ul>\n<p><span style=\"font-size:11pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\"><strong>Functions and Duties<\/strong><\/span><\/span><\/span><\/p>\n<ul>\n<li style=\"list-style-type:disc\"><span style=\"font-size:11pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\">Recommend a<\/span><\/span><\/span><span style=\"font-size:11pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\"><strong>ccounting and auditing policie<\/strong><\/span><\/span><\/span><span style=\"font-size:11pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\">s and standards to be adopted by companies for approval by the Central Government;<\/span><\/span><\/span><\/li>\n<li style=\"list-style-type:disc\"><span style=\"font-size:11pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\"><strong>Monitor and enforce complianc<\/strong><\/span><\/span><\/span><span style=\"font-size:11pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\">e with accounting standards and auditing standards;<\/span><\/span><\/span><\/li>\n<li style=\"list-style-type:disc\"><span style=\"font-size:11pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\"><strong>Oversee the quality of service<\/strong><\/span><\/span><\/span><span style=\"font-size:11pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\"> of the professions associated with ensuring compliance with such standards and suggest measures for improvement in the quality of service;<\/span><\/span><\/span><\/li>\n<\/ul>\n<ul>\n<li style=\"list-style-type:disc\"><span style=\"font-size:11pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\">Protect the<\/span><\/span><\/span><span style=\"font-size:11pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\"><strong> public interest and the interests of investors, creditors<\/strong><\/span><\/span><\/span><span style=\"font-size:11pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\"> and others associated with the companies or bodies.<\/span><\/span><\/span><\/li>\n<\/ul>\n<p><span style=\"font-size:11pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\"><strong>Jurisdiction of NFRA<\/strong><\/span><\/span><\/span><\/p>\n<ul>\n<li style=\"list-style-type:disc\"><span style=\"font-size:11pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\">The jurisdiction of NFRA for investigation of Chartered Accountants and their firms under section 132 of the Act would extend to listed <\/span><\/span><\/span><span style=\"font-size:11pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\"><strong>companies and large unlisted public companies<\/strong><\/span><\/span><\/span>\n<ul>\n<li style=\"list-style-type:circle\"><span style=\"font-size:11pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\">The NFRA is tasked to investigate audit of <\/span><\/span><\/span><span style=\"font-size:11pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\"><strong>Listed Companies and Unlisted companies<\/strong><\/span><\/span><\/span><span style=\"font-size:11pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\"> with net worth not less than Rs 500 crore or paid-up capital of not less than Rs 500 crore or annual turnover not less than Rs 1,000 crore as on March 31 of immediately preceding financial year, and companies having securities listed outside India.\u00a0<\/span><\/span><\/span><\/li>\n<li style=\"list-style-type:circle\"><span style=\"font-size:11pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\">The Centre further has the power to refer the entities for investigation where public interest would be involved. The rest are regulated by ICAI.<\/span><\/span><\/span><\/li>\n<li style=\"list-style-type:circle\"><span style=\"font-size:11pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\">The inherent regulatory role of <\/span><\/span><\/span><span style=\"font-size:11pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\"><strong>ICAI<\/strong><\/span><\/span><\/span><span style=\"font-size:11pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\"> as provided for in the Chartered <\/span><\/span><\/span><span style=\"font-size:11pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\"><strong>Accountants Act, 1949<\/strong><\/span><\/span><\/span><span style=\"font-size:11pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\"> shall continue in respect of its members in general and specifically with <\/span><\/span><\/span><span style=\"font-size:11pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\"><strong>respect to audits<\/strong><\/span><\/span><\/span><span style=\"font-size:11pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\"> pertaining to private limited companies, and public unlisted companies .<\/span><\/span><\/span><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<p><span style=\"font-size:11pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\"><strong>Significance<\/strong><\/span><\/span><\/span><span style=\"font-size:11pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\">\u00a0<\/span><\/span><\/span><\/p>\n<ul>\n<li style=\"list-style-type:disc\"><span style=\"font-size:11pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\">With the constitution of NFRA, India is now eligible to become a member of the <\/span><\/span><\/span><span style=\"font-size:11pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\"><strong>International Forum of Independent Audit Regulators (IFIAR),<\/strong><\/span><\/span><\/span><span style=\"font-size:11pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\"> which was denied until now for want of an independent audit oversight body in the country<\/span><\/span><\/span><\/li>\n<li style=\"list-style-type:disc\"><span style=\"font-size:11pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\">It will attract foreign\/domestic investments and enhance economic growth.<\/span><\/span><\/span><\/li>\n<\/ul>\n<div>\n<table cellspacing=\"0\" style=\"border-collapse:collapse; border:none; table-layout:fixed; width:624px\">\n<tbody>\n<tr>\n<td style=\"background-color:#fff2cc; border-bottom:1px solid #000000; border-left:1px solid #000000; border-right:1px solid #000000; border-top:1px solid #000000; vertical-align:top\">\n<p><span style=\"font-size:11pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\"><strong><u>International Forum of Independent Audit Regulators (IFIAR)<\/u><\/strong><\/span><\/span><\/span><\/p>\n<ul>\n<li style=\"list-style-type:disc\"><span style=\"font-size:11pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\">Established in Paris in 2006 by independent audit regulators from 18 jurisdictions, IFIAR has grown to 54 Members around the world.<\/span><\/span><\/span><\/li>\n<li style=\"list-style-type:disc\"><span style=\"font-size:11pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\">IFIAR\u2019s mission is to serve the public interest, including investors, by enhancing audit oversight globally.\u00a0<\/span><\/span><\/span><\/li>\n<li style=\"list-style-type:disc\"><span style=\"font-size:11pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\">The overall objective is to:<\/span><\/span><\/span>\n<ul>\n<li style=\"list-style-type:circle\"><span style=\"font-size:11pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\">Share knowledge of the evolving audit environment and the practical experience of independent audit regulatory activity.<\/span><\/span><\/span><\/li>\n<li style=\"list-style-type:circle\"><span style=\"font-size:11pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\">Promote collaboration and consistency in regulatory activity.<\/span><\/span><\/span><\/li>\n<li style=\"list-style-type:circle\"><span style=\"font-size:11pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\">Provide a platform for dialogue with other international organizations interested in audit quality.<\/span><\/span><\/span><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<p><span style=\"font-size:11pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\"><strong><u>Listed Company<\/u><\/strong><\/span><\/span><\/span><\/p>\n<ul>\n<li style=\"list-style-type:disc\"><span style=\"font-size:11pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\">A company whose shares are traded on an official stock exchange. It must adhere to the listing requirements of that exchange, which may include how many shares are listed and a minimum earnings level.<\/span><\/span><\/span><\/li>\n<\/ul>\n<p><span style=\"font-size:11pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\">\u00a0<\/span><\/span><\/span><span style=\"font-size:11pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\"><strong><u>Unlisted Compan<\/u><\/strong><\/span><\/span><\/span><span style=\"font-size:11pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\"><strong>y<\/strong><\/span><\/span><\/span><\/p>\n<ul>\n<li style=\"list-style-type:disc\"><span style=\"font-size:11pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\">These are companies that are not listed on the stock exchange, so they are privately owned. Since they are not on the list, they do not have the opportunity to raise funds.<\/span><\/span><\/span><\/li>\n<\/ul>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/div>\n<p><a href=\"https:\/\/pib.gov.in\/PressReleaseIframePage.aspx?PRID=1716834\" style=\"text-decoration:none\" target=\"_blank\" rel=\"noopener\"><span style=\"font-size:11pt\"><span style=\"font-family:Arial\"><span style=\"color:#1155cc\"><u>Source: PIB<\/u><\/span><\/span><\/span><\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>In News Recently, the National Financial Reporting Authority(NFRA ) compiled a provisional database of companies and their auditors. Need Auditing Requires Complete Independence Auditor has been entrusted with the responsibility to ensure the truthfulness and correctness of financial statements before these are presented to its various stakeholders. However, there is an inherent conflict of interest [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":15175,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[21],"tags":[26,46],"class_list":["post-15174","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-current-affairs","tag-gs-3","tag-indian-economy-related-issues"],"acf":[],"jetpack_featured_media_url":"https:\/\/wp-images.nextias.com\/cdn-cgi\/image\/format=auto\/ca\/uploads\/2023\/07\/5168843current-affairs.jpg","_links":{"self":[{"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/posts\/15174","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/comments?post=15174"}],"version-history":[{"count":1,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/posts\/15174\/revisions"}],"predecessor-version":[{"id":49236,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/posts\/15174\/revisions\/49236"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/media\/15175"}],"wp:attachment":[{"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/media?parent=15174"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/categories?post=15174"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/tags?post=15174"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}