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Exercising effective control over accounting and auditing policies is crucial for an economy. The presence of a regulatory body to oversee these policies is, therefore, quintessential. Just as the Reserve bank of India oversees the movement of money and its effects on the economy, the National Financial Reporting Authority (NFRA) is the regulatory body that administers accounting and auditing policies.
Read on to know more about the role of NFRA.
Section 132 of the Companies Act, 2013, provisions the existence of NFRA and validates its functioning since 2018. Through this regulatory body, the Central bank aims to make an independent body that assists in formulating and enforcing legislation around accounting and auditing.
The NFRA also acts as a protective body that improves investor and public confidence during financial reporting. Experts believe that this authority is aimed at reducing incidences of fraudulent activities in the financial sector. NFRA’s roles and responsibilities are advisory, non-enforcing or enforcing.
The NFRA lays down certain regulations in the auditing and accounting standards. Before the formation of NFRA, the Institute of Chartered Accountants of India (ICAI) recommended accounting standards to the concerned parties. The role of the National Financial Reporting Authority can be summarised below:
The NFRA functions under the jurisdiction of the Companies Act, requiring them to have a Chairperson to head the institution. They must also have 15 members who possess certain qualities for selection. Qualities of the members of NFRA are as below:
Apart from these rules, the NFRA should comprise the following individuals:
In accordance with the policies developed by the central government, the financial reporting authority can exercise certain powers, which are as below:
The jurisdiction of NFRA extends to all Indian companies, unlisted companies with net capital/paid-up capital exceeding Rs. 500 crores or an annual turnover of Rs. 1000 crore.
The jurisdiction of NFRA extends to all Indian companies, unlisted companies with net capital/paid-up capital exceeding Rs. 500 crores or an annual turnover of Rs. 1000 crore.
According to the central government's guidelines, NFRA cannot enter into a legal alliance or contract with any organisation that can limit its growth. In such contractual arrangements, they must maintain complete confidentiality and information security.
According to the central government's guidelines, NFRA cannot enter into a legal alliance or contract with any organisation that can limit its growth. In such contractual arrangements, they must maintain complete confidentiality and information security.