National Financial Reporting Authority (NFRA) is the newly created, all powerful, independent regulator for the auditing profession. It is independent in the sense that unlike ICAI or ICSI, it is not composed of those it seeks to regulate.
Why created? In the wake of accounting scams globally, a need was felt to establish independent regulators – independent from those it regulates – to enhance public confidence in institutions. Considering this, the Companies Act 2013 provides for the NFRA to replace the weak and advisory body of NACAS – National Advisory Committee on Accounting Standards – that was set up under Companies act 1956.
Responsibilities and powers: NFRA will set accounting and auditing standards, monitor and enforce compliance with standards, and oversee accounting profession’s record of ensuring compliance. It will take away significant regulatory powers from ICAI (Institute of Chartered Accountants of India). It will undertake auditing of CAs and their firms.
Jurisdiction: NFRA’s jurisdiction covers listed companies, large unlisted public companies, banks, insurers, and those body corporates referred to it by the Centre. ICAI’s regulatory role will continue with respect to private limited companies, and public unlisted companies below a threshold limit. It will also perform advisory function for NFRA.
“The Centre has notified the much-awaited National Financial Reporting Authority (NFRA) rules, taking away the CA Institute’s monitoring and disciplinary powers over auditors of listed entities and large unlisted companies besides banks and insurance companies.”– The Hindu Business Line. November 15, 2018.