Section 210A was enacted to constitute NACAS to advise the Central Government on the formulation and lying down of accounting policies and standards for adoption by companies or class of companies under this Act.
In the Companies Act, 2013, the nomenclature of the National Advisory Committee on Accounting Standards (NACAS) has been changed as National Financial Reporting Authority (NFRA) under section 132 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 advise on matters related to Auditing Standards in addition to Accounting Standards and also to act as a regulatory body for the accountancy profession. Auditing standards will be prescribed by the Central Government after the recommendation of ICAI and in consultation by the National Financial Reporting Authority.
Composition of NFRA
Central Government will appoint maximum 15 members, excluding the Chairperson whether whole time or part-time. The chairperson should possess expertise in accounting, auditing, finance, or law. The Central Government can also appoint a secretary and other employees for the efficient performance of the functions of NFRA. Members and chairpersons who are in full-time employment should not be associated with any audit firm including any related consultancy firms during their tenure and two years after ceasing to be a member of NFRA. They are also required to make a declaration to the Central Government regarding no conflict of interest or lack of independence. The head office of the NFRA will be in New Delhi. However, meetings can be held at other places in India. Central Government shall lay down rules regarding place and frequency of meetings along with the manner of transacting businesses.
Central Government in consultation with Comptroller & Auditor General of India shall prescribe the form and manner in which books of accounts and other books will be maintained. Audit of the accounts of NFRA will be performed by C&AG and reports will be forwarded to Central Government annually. NFRA shall prepare and forward an annual report as certified by C&AG giving its full activities to the Central Government which will be laid before each house of the Parliament along with annual report and audit report.
The NFRA shall consist of the following persons to be appointed by the Central Government, namely:
1) A Chairperson who is an eminent person and has expertise in accounting, auditing, finance or law.
2) A maximum of 15 members comprising of
a) Member- Accounting,
b) Member- Auditing and
c) Member- Enforcement.
3) A representative of the Ministry of Corporate Affairs who is not below the rank of Joint Secretary or equivalent.
4) A representative of RBI, nominated by it, and who is a member of the RBI Board.
5) A representative of SEBI who is its Chairman or whole-time member and is nominated by SEBI.
6) A retired Chief Justice of a High Court or a person who had been a High Court Judge for not less than 5 years to be nominated by the central government.
7) President of the Institute of Chartered Accountants of India (ICAI).
Structure of NFRA
NFRA shall consist of the following committees:
i) Accounting Standards Committee,
ii) Auditing Standards Committee, and
iii) Enforcement Committee.
Powers and Functions of NFRA
1. NFRA may investigate either suomotu or on a reference made by the Central Government in matters of professional misconduct committed by any member of Chartered Accountants firm.
2. To make recommendations to the Central Government on formulation and laying down of accounting standards and auditing policies for adoption by companies or their auditors.
3. To monitor and implement compliance relating to accounting standards and auditing policies as prescribed.
4. To oversee the quality of service of professions associated with compliance of accounting standards and auditing policies and suggest measures for improvement
5. NFRA shall have equivalent powers as a civil court under the Code of Civil Procedure, 1908. It can exercise the powers related to:
a) discovery and production of books or other documents as specified by NFRA;
b) summoning and enforcing the attendance of persons and examining them on oath;
c) inspection of books, registers, and other documents of any person;
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