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National Financial Reporting Authority (NFRA)

01 Oct 2025 GS 2 Constitutional Statutory & Regulatory Bodies
National Financial Reporting Authority (NFRA) Click to view full image

Introduction

  • Established: 1 October 2018.

  • Legal Basis: Section 132 of the Companies Act, 2013.

  • Nature: Independent statutory regulator for accounting and auditing profession in India.

  • Trigger Events:

    • Satyam Scandal (2009) → Standing Committee on Finance proposed the concept of the National Financial Reporting Authority (NFRA) for the first time in its 21st report

    • PNB Fraud (2018) → Union Cabinet approved NFRA for stricter oversight.

Composition

  • Chairperson: Nitin Gupta (as of July 2025).

  • Members: Full-time and part-time members appointed by the Central Government.

Jurisdiction

  • Listed companies (in India and abroad).

  • Unlisted public companies above prescribed thresholds.

  • Other entities referred by Central Government in public interest.

  • Excludes private companies (unless referred).

Functions & Powers (Sec. 132, Companies Act, 2013)

  1. Standard-setting

    • Recommends accounting and auditing policies and standards to Central Government.

  2. Oversight & Quality Review

    • Monitors services of auditors & audit firms.

    • Suggests measures for improvement.

  3. Compliance & Enforcement

    • Ensures adherence to prescribed standards.

    • Mandates companies to file auditor details via NFRA-1.

  4. Investigative Powers

    • Investigates cases of professional misconduct.

    • Powers to summon, inspect, and demand documents.

    • May impose penalties:

      • Monetary fines.

      • Debarment of auditors/firms up to 10 years.

Purpose and Significance

  • Transparency: Enhances credibility of corporate financial reporting.

  • Investor Confidence: Safeguards investors and stakeholders.

  • Globalisation: Aligns Indian practices with International Financial Reporting Standards (IFRS).

  • Economic Growth: Improves investment climate by ensuring reliable disclosures.

  • Public Interest: Acts against misconduct of auditors in large and sensitive companies.

Impact

  • Acts as a watchdog for corporate governance in financial reporting.

  • Ensures independence of auditing profession, earlier regulated only by the Institute of Chartered Accountants of India (ICAI).

  • Addresses conflict of interest and regulatory capture issues.

Criticism & Challenges

  • Overlap of jurisdiction with ICAI (turf battles).

  • Limited manpower & resources for vast coverage.

  • Compliance burden on companies, especially smaller entities.

  • Need for quicker enforcement to maintain deterrence.



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