NFRA Under Companies Act, 2013

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This discussion is constructive appraisal of Accountancy in India and Accountancy Bodies have on the business. The focus will be from point of view of public interest and other stakeholders. Members are expected to discuss from point of view of current legislation prevailing in India and also contrast with international practises.

This is a open forum. Please share your opinion in professional manner or else face moderation.

NFRA Under Companies Act, 2013

Postby bvprabhakar on Sun Oct 20, 2013 4:34 pm

The concept of having a body such as National Financial Reporting Authority is not new as such. The Institute of Chartered Accountants of India already has many of these powers. In the Companies (Amendment) Act, 1999, new sub-sections (3A), (3B) and (3C) were inserted in section 211, which required that the every balance sheet and profit & loss account of the Company shall comply with the accounting standards, as may be prescribed by the Central Government in consultation with the National Advisory Committee on Accounting Standards (NACAS). Therefore, section 210A was enacted to constitute an Advisory Committee to be called “National Advisory Committee on Accounting Standards” to advise the Central Government on the formulation and lying down of accounting policies and accounting standards for adoption by companies or class of companies under this Act.

In Companies Act, 2013, the nomenclature of National Advisory Committee on Accounting Standards (NACAS) has been changed as National Financial Reporting Authority (NFRA) and unlike NACAS it will not merely be an advisory body but a regulatory authority for auditing, accounting and financial reporting. The role of the Authority has been extended to advice on matters related to Auditing Standards in addition to Accounting Standards and also to act as a regulatory body for accountancy profession.


Introduction

Through Section 132 of the Companies Act, 2013, the Central Government has introduced a new regulatory authority named as National Authority for Financial Reporting known as National Financial Reporting Authority (NFRA) with wide powers to recommended, enforce and monitor the compliance of accounting and auditing standards. The present Companies Act, 1956 empowers the Central Government to form a Committee for recommendations on Accounting Standards which is National Advisory Committee on Accounting Standards (NACAS). This is now being renamed with enhanced powers and authority as National Financial Reporting Authority (NFRA).

NFRA shall be responsible for monitoring and enforcing compliance of auditing and accounting standards and for that purpose, oversee the quality of professions associated with ensuring such compliances. The Authority shall investigate professional and other misconducts which may be committed by Chartered Accountancy members and firms. There is also a provision for appellate authority.

The National Financial Reporting Authority shall be a quasi – judicial body to regulate matters related to accounting and auditing. With increasing demand of non – financial reporting, it may be referred to as a National level business Reporting Authority to regulate standards of all kind of reporting- financial as well as non – financial, by the companies in future.

The Authority will also change the way of notifying of Accounting and Auditing Standards as is evident from provisions of Clauses 133 and 143 of the Companies Act, 2013.

Constitution of NFRA

The constitution of National Financial Reporting Authority, which is supposed to be constituted as an oversight regulatory body to recommend accounting and auditing standards , shall be governed by sub Section (3) and (4) of Section 132. Accordingly,

i) It shall consist of a chairperson, who shall be a person of eminence & having expertise in accountancy, auditing, finance, business administration, business law, economics or similar disciplines, to be nominated by Central Government, and such other prescribed members not exceeding 15.

ii) The chairperson and all members shall make a declaration in prescribed form about no conflict of interest or lack of independence in respect of their appointment. The chairperson and all full – time members shall not be associated with any audit firm or related consultancy firm during course of their appointment and two years after ceasing to hold such appointment.

iii) The head office of National Financial Reporting Authority shall be at New Delhi and it may, meet at such other places in India, as it deems fit.

iv) Its accounts shall be audited by Comptroller and Auditor General of India (CAG) and such accounts as certified by CAG, together with audit report, shall be forwarded annually to the Central Government.

For the constitution of National Financial Reporting Authority, the Act doesn’t prescribe for nomination of members from MCA, ICSI, ICAI, ICWAI, as opposed to what was prescribed under the Companies Act, 1956 in respect of constitution of National Advisory Committee on Accounting Standards. The same shall be prescribed by Central Government so far as terms, conditions and manner of appointment is concerned. Members appointed could be full time members or part time members.


Objectives of NFRA

The objectives of National Financial Reporting Authority inter alia shall be as follows:
1.Make recommendations on formulation of accounting and auditing policies and standards for adoption by companies, class of companies or their auditors;
2.Monitor and enforce the compliance with accounting standards, monitor and enforce the compliance with auditing standards;
3.Oversee the quality of service of professionals associated with ensuring compliance with such standards and suggest measures required for improvement in quality of service, and
4.Perform such other functions as may be prescribed in relation to aforementioned objectives.

These objectives simply bring chartered accountants, cost accountants, management accountants, company secretaries as well as independent directors/ members audit committees under jurisdiction of NFRA.

http://taxguru.in/corporate-law/national-financial-reporting-authority-nfra-companies-act-2013.html
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Re: NFRA Under Companies Act, 2013

Postby vvrsankar on Mon Oct 21, 2013 7:57 pm

http://aishmghrana.me/2013/02/15/national-financial-reporting-authority/


National Financial Reporting Authority would be a body blow for the present accounting and auditing regulator (Institute of Chartered Accountants of India), which faces the prospect of losing regulatory hold over its members. This is also a warning for other professional regulators particularly, Institute of Company Secretaries of India and Institute of Cost Accountants of India to work hard to keep their regulatory function to themselves
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Re: NFRA Under Companies Act, 2013

Postby supthaeshuThigazh on Mon Oct 21, 2013 9:50 pm

I for one believe that ICAI-Old,ICAI-CMA and ICSI should be educational service providers and accounting and auditing regulator should be independant such as NFRA this is there in the Australia South Africa and UK as well as the NASBA in the USA we need to separate professional politics from education to bring in more qulaity in the field of education and allow all the professionals to practice based on the skills which means a member of both the institute should be entitled for all the auditing areas after meeting IPD requirements.
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Will NFRA facilitate forming another accounting body.

Postby RVR on Wed Oct 23, 2013 8:17 am

By bringing NFRA in the New Companies Act, there is every possibility that a new Accounting Body will emerge in the future. So far ICAI (old) had the authority to prescribe standards for Financial Accounting practices. By depriving this authority, there is every possibility that an entirely new Accounting body can emerge. There are multiple accounting bodies in UK, Australia etc.

Imagine a situation where the Universities in India introduce post graduate courses in "Professional Accounting". After completion of the course, the students can join the new accounting body probably in the name of "Certified Public Accountants of India". They may be treated equally under various laws in the "Auditing" frame work. More and more students will prefer University courses than the present "bonded labour" environment. Just like Medical, legal, architect and other professions, universities will turn out few lakh qualified accounting professionals every year resulting in heavy competition and only the fittest can survive.

I earnestly feel that the Government is moving in the above direction and may promote competition in the accounting profession. There is already a feeling that the accounting profession is a "closed club" in India which may vanish in the future. Establishing independent NFRA is the first step to curb the monopoly in the accounting profession.
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Re: NFRA Under Companies Act, 2013

Postby supthaeshuThigazh on Wed Oct 23, 2013 8:35 am

@ RVR
It is a good proposition but is this country ready for that, see for instance the draft rules for NFRA the constitution of members it is going to be headed by a chartered Accountant and more chartered accountants in the team no Cost Accountant is a member of the team not a company secretary.
Sec132(2) is dangerously penetrating its powers into unintended zones of NFRA with not representation in the team of other professionals.
Sec 143 (11)/(12) (10) with application of the provisions of NFRA mutatis mutandis to cost accountant and company secretary without representation in the NFRA team as franed in the draft rules shows how much CAs have entrenched themselves in the rule making.
Sec 148 notwithstanding we may be answerable to NFRA.
Accounting politicians are skewed into the CAs to continue to make other professionals subservient.
The best thing now one should do is to give maximum comments on the NFRA rules in the MCA websites since we have no leaders in our profession who are true to the cause, when the king is lame,the cortiers are hyp.then the peasent has to fight his battle-Chanakya neethi.
Last edited by supthaeshuThigazh on Wed Oct 23, 2013 9:00 am, edited 1 time in total.
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Re: NFRA Under Companies Act, 2013

Postby cma28321 on Wed Oct 23, 2013 3:03 pm

ational Financial Reporting Authority would be a body blow for the present accounting and auditing regulator (Institute of Chartered Accountants of India), which faces the prospect of losing regulatory hold over its members. This is also a warning for other professional regulators particularly, Institute of Company Secretaries of India and Institute of Cost Accountants of India to work hard to keep their regulatory function to themselves



First of all, I doubt if the chartered accountants institute ever had such regulatory prowess like SEBI or RBI, which it always boasted of, or imagined to have.

Then we never had such imagined regulatory prowess like the chartered accountants institute, which was good in one way and bad in an another way, because we always viewed ourselves in a very low self-esteem - right from the CC to the common member down below.

Thirdly, If the chartered accountants institute is losing its self-proclaimed importance that is in one way or an other a good thing to happen to itself. Now with NFRA, at least chartered accountants institute will not have the only onus on reporting and standards related issues.

So, I view it as a win - win for GoI and icai (old).

Apart from this coming to our own regulatory powers - can any one tell me one instance where such powers were used/enforced/ flaunted/ displayed??

At least does any common man in this country or at least the nationla media know of the powers of ICAI (NEW)??
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Re: NFRA Under Companies Act, 2013

Postby himalendubose on Wed Oct 23, 2013 5:18 pm

Look at the other side of the development.

NFRA is an extended branch of ICAI. It's an eyewash for the general public.
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Re: NFRA Under Companies Act, 2013

Postby supthaeshuThigazh on Wed Oct 23, 2013 7:36 pm

This should be re-nomenclatured as NFRA-ICAI old.
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Re: NFRA Under Companies Act, 2013

Postby RVR on Wed Oct 23, 2013 8:39 pm

Few years back Law Degree was awarded only by Government controlled universities. But a private university fought with the government and won the battle not only to award legal degree but also got recognition from Bar council for affiliation.

http://law.sastra.edu/

Let us not degrade NFRA at this point as it is a new institution created by law. MCA has been empowered to frame rules but the same could be changed/modified without the need to go to Parliament regularly. I will not be surprised if nominees from CAG will fill NFRA in the future along with nominees of SEBI, RBI, Tax departments etc.

Right now ICAI Old has been deprived of framing accounting standards and NFRA is the only designated statutory authority.

The private university lobby is also a very strong with enough muscle power and definitely they will ensure emerging of a new accounting body with all the statutory powers like ICAI old. Competition in the accounting profession will be good for everybody including trade associations, lending institutions and general public investors.

The new Company law has treated all the three Institutes equally throughout the entire sections except their domain knowledge areas such as Financial Audit, Cost Audit and Secretarial Audit.

It is a question of time before an entirely new accounting body emerges in our country. Let us all pray for early birth of such an Institution.
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Re: NFRA Under Companies Act, 2013

Postby supthaeshuThigazh on Wed Oct 23, 2013 8:48 pm

RVR wrote:Few years back Law Degree was awarded only by Government controlled universities. But a private university fought with the government and won the battle not only to award legal degree but also got recognition from Bar council for affiliation.

http://law.sastra.edu/

Let us not degrade NFRA at this point as it is a new institution created by law. MCA has been empowered to frame rules but the same could be changed/modified without the need to go to Parliament regularly. I will not be surprised if nominees from CAG will fill NFRA in the future along with nominees of SEBI, RBI, Tax departments etc.

Right now ICAI Old has been deprived of framing accounting standards and NFRA is the only designated statutory authority.

The private university lobby is also a very strong with enough muscle power and definitely they will ensure emerging of a new accounting body with all the statutory powers like ICAI old. Competition in the accounting profession will be good for everybody including trade associations, lending institutions and general public investors.

The new Company law has treated all the three Institutes equally throughout the entire sections except their domain knowledge areas such as Financial Audit, Cost Audit and Secretarial Audit.

It is a question of time before an entirely new accounting body emerges in our country. Let us all pray for early birth of such an Institution.


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