National Financial Reporting Authority

[NFRA] – Section 132

By:
CA Kamal Garg
[B. Com (H), FCA, DISA (ICAI)]
Insolvency Professional
 Notwithstanding anything
Constitution of NFRA
contained in any other law for the
time being in force

CG may by Functions of NFRA – S. 132(2)

notification w.e.f. 24.10.2018
constitute NFRA to Recommend CG on formulation
provide for matters of AS and SA
relating to Monitor and enforce
accounting and compliance of AS and SA
auditing standards Oversee quality of services
under this Act – rendered by professionals in
Section 132(1) context of above and suggest
enforced w.e.f. improvement measures
1.10.2018
Other prescribed functions
 Notwithstanding anything
contained in any other law for
the time being in force

Powers of NFRA
Power to investigate – Section 132(4)(a)
When • suo motu or
• on a reference made to it by the CG
Who and How – to such class of bodies corporate or persons, in
be investigated such manner as may be prescribed – NFRA
Rules notified on 13th November, 2018
Matters – to be professional or other misconduct committed by
investigated any member or firm of chartered accountants
Stay no other institute or body shall initiate or
continue any proceedings in such matters of
misconduct where the NFRA has initiated an
investigation under this section
Power to investigate – Section 132(4)(b)
Same powers as • discovery and production of books of account
are vested in a civil and other documents, at such place and at
court such time as may be specified by NFRA;

• summoning and enforcing the attendance of

persons and examining them on oath;

• inspection of any books, registers and other

documents of any person referred above at
any place;

• issuing commissions for examination of

witnesses or documents
Power to investigate – Section 132(4)(c)
Where professional or other misconduct is proved, have the
power to make order for:
Imposing penalty Individuals: > Rs. 1,00,000 < 5 times of fees
received;
Firms: > Rs. 5,00,000 < 10 times of fees
received
Debarring practice > 6 months < 10 years
Appeal – Section Any person aggrieved by any order of the
132(5) NFRA u/s 132(4)(c) may prefer an appeal
before NCLAT
NFRA Rules
 Classes of companies and bodies corporate
governed by the Authority – Rule 3
Listed securities listed on any stock exchange:
Companies • in India; or
• outside India
Unlisted public • Paid-up capital > Rs. 500 crores; or
companies • Turnover > Rs. 1,000 crores; or
• Outstanding Loans, debentures and deposits >
Rs. 500 crores
as at 31st March of immediately preceding F.Y.
Sectoral • Banking Co.;
Companies • Insurance Co.;
• Electricity Co.;
• Special Act Co.
 Classes of companies and bodies corporate
governed by the Authority – Rule 3
CG Reference • Body corporate; or
• Company; or
• Person
on a reference made by CG in public interest
Body corporate Which is a subsidiary or associate company of:
registered • any company or body corporate incorporated or
outside India registered in India as referred above;
 if income or net worth of such subsidiary or
associate company exceeds 20% of the
consolidated income or consolidated net
worth of such company or the body
corporate, as the case may be
 Question: Whether following auditors
are covered for Specified Companies
• Statutory auditor
• Cost Auditor
• Secretarial Auditor
• Internal Auditor
• Tax Auditor
• GST Auditor
• Registered Valuer
• Forensic Auditor
• Certification work carried out by the Statutory Auditors
• Limited Review carried out by the Statutory Auditors
 Auditor – meaning thereof: Rule 1(d) provides that
“auditor” means an individual or a firm including a
limited liability partnership incorporated under the
Limited Liability Partnership Act, 2008 or any other Act
for the time being in force, who has been appointed:

as an auditor of a
company or a body
corporate under section
139 of the Companies
Act, 2013; or
as an auditor of a
company or a body
corporate under any
other Act for the time
being in force
 Compliance Requirements
• Existing body corporate other than a company governed by
these rules – File Form NFRA-1 within 30 days;

• Every body corporate formed in India and governed in these

Rules, other than a company as defined in section 2(20) -
within 15 days of appointment of an auditor, file Form NFRA-1;
• Body corporate specified under Rule 3(1)(e) - provide details of
appointment of its auditor in Form NFRA-1 within 15 days of
appointment;

• Once covered remain covered for 3 years;

• Annual return - Every auditor referred to in rule 3 shall file a

return with the Authority on or before 30th April every year in such
form as may be specified by the Central Government
 Powers under NFRA Rules
• Monitoring and enforcing compliance with AS/ Ind AS [Rule 7]:
– review the financial statements;
– direct such company or body corporate or its auditor to provide
further information or explanation or any relevant documents;
– require the personal presence of the officers of the company or
body corporate and its auditor
– publish its findings relating to non-compliances on its website

• Monitoring and enforcing compliance with SAs [Rule 8]:

– review working papers and communications relating to audit;
– evaluate the sufficiency of the quality control system of the auditor;
– perform such other testing of the audit, supervisory, and quality
control procedures of the auditor as may be considered
necessary;
– not publish proprietary or confidential information, unless it has
reasons to do so in the public interest and it records the reasons in
writing
 Powers under NFRA Rules
• Overseeing the quality of service and suggesting measures for
improvement [Rule 9]:
– direct an auditor to take measures for improvement of audit
quality;
– auditor to make the required improvements and send a report to
the Authority explaining how it has complied with the directions;
– refer cases with regard to overseeing the quality of service of
auditors to the Quality Review Board;
– take the assistance of experts for its oversight and monitoring
activities
 Powers under NFRA Rules
• Power to investigate [Rule 10]:
– If, during the investigation, the Authority has evidence to believe
that any company or body corporate has not complied with the
requirements under the Act or rules which involves or may
involve fraud amounting to rupees one crore or more, it shall
report its findings to the Central Government;
 Disciplinary proceedings
Order shall
be served Default in
on the depositing
auditor of such
and a penalty –
Dispose of copy be the
the SCN Order shall sent to: 10% pre companies
Penalty to
SCN to be within 90 become • CG; deposit cannot
be
served on days of effective • ICAI; required if continue
deposited
the auditor assignmen after 30 • CAG; appeal with this
within 30
– Rule t to the days from • RBI; preferred auditor (+)
days –
11(4); Division – date of its • IRDA; before penalty
• Foreign Rule 12;
subject to issue; NCLAT; under
OBH; Regulat
or; Section
• NFRA’s 450 of the
Website Act
Other Provisions
 Composition of NFRA – Section 132(3)
[enforced w.e.f. 21 March 2018]
Chairperson = 1
• person of eminence and having expertise in accountancy, auditing,
finance or law = minimum 25 years of experience
• to be appointed by CG
Other Members =< 15
• consisting of part-time and full-time members as may be prescribed
• Full time member to have minimum 20 years of experience (rest
same as above for Chairperson)
Common points for Chairperson and Members
• T & C as prescribed by CG
• Shall make a declaration to CG about their independence
• Those who are in full time employment with NFRA shall not
associate with any audit firm (including related consultancy firms)
during the course of their appointment and two years after ceasing
to hold such appointment
Secretary and Employees of NFRA – Section 132(11)
[enforced w.e.f. 21 March, 2018]

The CG may appoint:

a secretary; and such other employees

as it may consider necessary for the efficient performance of

functions by the NFRA under this Act; and

the terms and conditions of service of the secretary and

employees shall be such as may be prescribed
Section 132(6) to (9) Omitted w.e.f. 9.2.2018

Section 132(10) Meetings of NFRA to be in prescribed manner

Section 132(12) H.O at New Delhi
Section 132(13) Maintain books of accounts in prescribed
manner and audit by CAG