National Financial Reporting Authority

  • Constitution The National Financial Reporting Authority (NFRA) was constituted on 01st October,2018 by the Government of India under Sub Section (1) of section 132 of the Companies Act, 2013.


  • Functions and Duties As per Sub Section (2) of Section 132 of the Companies Act, 2013, the duties of the NFRA are to:


  • Recommend accounting and auditing policies and standards to be adopted by companies for approval by the Central Government;


  • Monitor and enforce compliance with accounting standards and auditing standards;


  • Oversee the quality of service of the professions associated with ensuring compliance with such standards and suggest measures for improvement in the quality of service;


  • Perform such other functions and duties as may be necessary or incidental to the aforesaid functions and duties.


  • Sub Rule (1) of Rule 4 of the NFRA Rules, 2018 , provides that the Authority shall protect the public interest and the interests of investors, creditors and others associated with the companies or bodies corporate governed under Rule 3 by establishing high quality standards of accounting and auditing and exercising effective oversight of accounting functions performed by the companies and bodies corporate and auditing functions performed by auditors.


Companies and Bodies Corporate Governed by the Authority

  • As per rule 3 of the NFRA rules,2018,The Authority shall have power to monitor and enforce compliance with accounting standards and auditing standards, oversee the quality of service under sub-section (2) of section 132 or undertake investigation under sub-section (4) of such section of the auditors of the following class of companies and bodies corporate, namely:-


  • (a) Companies whose securities are listed on any stock exchange in India or outside India;


  • (b) Unlisted public companies having paid-up capital of not less than rupees five hundred crores or having annual turnover of not less than rupees one thousand crores or having, in aggregate, outstanding loans, debentures and deposits of not less than rupees five hundred crores as on the 31st March of immediately preceding financial year;


  • (c) Insurance companies, banking companies, companies engaged in the generation or supply of electricity, companies governed by any special Act for the time being in force or bodies corporate incorporated by an Act in accordance with clauses (b), (c), (d), (e) and (f) of sub-section (4) of section 1 of the Act;


  • (d) Any body corporate or company or person, or any class of bodies corporate or companies or persons, on a reference made to the Authority by the Central Government in public interest; and


  • (e) A body corporate incorporated or registered outside India, which is a subsidiary or associate company of any company or body corporate incorporated or registered in India as referred to in clauses (a) to (d), if the income or networth of such subsidiary or associate company exceeds twenty per cent. of the consolidated income or consolidated networth of such company or the body corporate, as the case may be, referred to in clauses (a) to (d).


NFRA Charter

  • The objective of the National Financial Reporting Authority (NFRA) is to continuously improve the quality of all corporate financial reporting in India. The quality of corporate financial reporting will be measured and evaluated essentially by its compliance with the law and the statutorily notified accounting standards and auditing standards.


  • NFRA will strive for continuous improvement of corporate financial reporting across all types of Public Interest Entities (PIEs) and across all size categories of audit firms.


  • NFRA aims to be an organization noted for integrity, industry, and competence.


  • Persons who work for NFRA will adhere to the highest standards of uncompromising integrity, possess a vision of transforming the quality of corporate financial reporting, and display high levels of initiative and an unflagging drive for their work.


  • NFRA aspires to known for:


  • Objectivity - No subjective action from either members or staff, openness to all facts/views/opinions without any pre-conceived conclusions or pre-judging any matter.


  • Integrity – Across cases/persons/firms, absence of multiple standards, uniform treatment of all those identically/similarly placed.


  • Impartiality – Discharge of its functions without fear or favour.


  • Independence – Equidistant from all stakeholders.


  • Fairness – Not imposing unfair burdens especially with the benefit of hindsight


  • Transparency– Fair and open processes.


  • NFRA’s functioning will at all times be mindful of the need to promote the ease and speed of doing business, and will be guided always by the overall public interest, with all its actions being strictly anchored by and lying within,its legal mandate.


NFRA to introduce Annual Transparency Report by the Audit Firms Posted On: 16 JAN 2023 5:09PM by PIB Delhi

  • As a step towards enhancing the transparency about management and governance of audit firms and their internal policy framework to ensure high quality audits and preventing conflict of interest by maintaining independence, the National Financial Reporting Authority (NFRA) has published draft requirements regarding preparation and publication of Annual Transparency Report (ATR) by auditors/audit firms.


  • These ATR requirements are on the lines of the contemporary international best practices implemented by certain prominent Independent Audit Regulators in other jurisdictions.


  • Rule 8(2) of the NFRA Rules 2018 empowers the NFRA to require an auditor to report on its governance practices and internal processes designed to promote audit quality, protect its reputation and reduce risks including risk of failure of the auditor and may take such action on the report as may be necessary.


  • Indian companies have become significant constituents of the global economy and India has evolved as a global centre of excellence in the delivery of financial reporting and audit services to a large number of multi-national corporations raising expectations for sound and high quality codes and practices comparable to global benchmarks.


  • In accordance with Rule 8(2) of the NFRA Rule 2018, NFRA intends prescribing publication of Annual Transparency Report containing certain critical information about the auditor’s operational activities, management, governance and ownership structures, and policies and procedures necessary to deliver high-quality audits etc.


  • The information contained in the ATR will be useful to the Investors, Audit Committees, Independent Directors and public at large.


  • The ATR requirements are proposed to be implemented in a gradual manner for PIEs starting with Statutory Auditors of Top 1000 Listed Companies (by market capitalisation) with effect from the financial year ending on 31 March 2023. The ATR has to be published within three months from the end of each financial year.