Lok Sabha Question No. 3535 (UNSTARRED), answered on 2020-03-16
Subject: Establishment of NFRA
Ministry: CORPORATE AFFAIRS
Asked by: Shashi Tharoor

## GOVERNMENT OF INDIA

## MINISTRY OF CORPORATE AFFAIRS

## LOK SABHA

## UNSTARRED QUESTION NO. 3535 ANSWERED ON MONDAY THE 16 TH  MARCH, 2020 [PHALGUNA 26, 1941 (SAKA)]

## ESTABLISHMENT OF NFRA

## QUESTION

## 3535. DR. SHASHI THAROOR:

Will the Minister of CORPORATE AFFAIRS be pleased to state:

कारपोरेट कार्य मंत्री

- (a) whether  the  creation  of  National  Financial  Reporting  Authority (NFRA)  in  October  2018,  has  resulted  in  presence  of  two  similar Accounting Regulatory Bodies in India, the other being the Institute of Chartered Accountants of India (ICAI);
- (b) if so, the details thereof including the purpose for having duplicate authorities with similar objectives; and
- (c) if not, the details thereof including the key differences between the roles and responsibilities of NFRA and ICAI in major areas?

## ANSWER

THE MINISTER OF STATE FOR FINANCE              (SHRI ANURAG SINGH THAKUR) AND CORPORATE AFFAIRS

वित् त एिं कारपोरेट कार्य मंत्रालर् में राज् र् मंत्री

(

श्री अनुराग स ंह ठाकु र )

- (a)  to  (c):-  NFRA  and  ICAI  are  not  two  similar  accounting  regulatory bodies.  The respective roles and areas of functioning of the NFRA and ICAI are  different.    The  Central  Government  has  constituted  National  Financial Reporting Authority (NFRA) to provide for matters relating to formulation of accounting and auditing standards  and compliance  thereof under the Companies Act, 2013.   Section 132 (2) of the Act provides that the NFRA shall perform the following functions:-
- '(a) make  recommendations  to  the  Central Government  on  the formulation  and  laying  down  of  accounting  and  auditing  policies  and standards  for  adoption  by  companies  or  class  of  companies  or  their auditors, as the case may be;
- (b) monitor and enforce the compliance with accounting standards and auditing standards in such manner as may be prescribed;
- (c) oversee the quality of service of the professions associated with ensuring  compliance  with  such  standards,  and  suggest  measures

- required for improvement in quality of service and such other related matters as may be prescribed; and (d) perform such other functions relating to clauses (a), (b) and (c) as may be Prescribed'. Further, Rule 3 of NFRA Rules, 2018 provides the classes of companies on which NFRA shall have jurisdiction and accordingly provides as under:'3. Classes of companies and bodies corporate governed by the Authority.─ (1) 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  subsection (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 percent 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).'' 2. Section  132(4)  provides  that  the  NFRA  shall  have  the  power  to investigate,  either  suo  motu  or  on  a  reference  made  to  it  by  the  Central Government, for such class of bodies corporate or persons, in such manner as may  be  prescribed  into  the  matters  of  professional  or  other  misconduct committed by any member or firm of chartered accountants, registered under the  Chartered  Accountants  Act,  1949. Further,  where  professional  or  other misconduct is proved, the NFRA shall have the power to make order for-

(A) imposing penalty of-

(I)  not  less  than  one  lakh  rupees,  but which may extend to five times of the fees received, in case of individuals; and (II)  not less than five lakh rupees, but which may extend to ten

- times of the fees received, in case of firms;

(B) debarring the member or the firm from-

- I.   being appointed as an auditor or internal auditor or undertaking any audit in  respect  of  financial  statements  or  internal  audit  of  the  functions  and activities of any company or body corporate; or
- II.   performing any valuation as provided under section 247,

for a minimum period of six months or such higher period not exceeding ten years as may be determined by the National Financial Reporting Authority.

3. In view of above, it may be noted that the inherent regulatory role of ICAI as provided for in the Chartered Accountants Act, 1949 shall continue and it will continue with its core functions of conducting qualifying Examinations for becoming a Chartered Accountant under the Chartered Accountant Act, 1949, registering  qualified  candidates,  issuing  certificate  of  practice,  execute memoranda  of  understanding  and  mutual  recognition  agreements  with  its counterpart bodies in other countries, and finally, regulate audit quality.  The Accounting  Standards  Board  (ASB)  of  ICAI  will  continue  to  perform  its functions and give its recommendations on formulation and modification of accounting standards through the NFRA to the Government, instead of through the National Advisory Committee on Accounting Standards (NACAS) as done earlier which was a body established under the Companies Act, 1956.

Similarly, the Auditing and Assurance Standards Board (AASB) of ICAI will also continue to perform its role and shall submit its recommendations on Auditing Standards to the Government though NFRA. The Quality Review Board (QRB) will also continue quality audit in respect of private limited companies, public unlisted companies below prescribed threshold and also with respect to audit of those companies that may be delegated to QRB by NFRA.  ICAI with continue to exercise disciplinary control over the auditors of all companies which are not being covered by NFRA.   Further, Section 132 (4) of the Companies Act, 2013 has a non-obstante clause and hence NFRA shall have no over-lapping effect on any other law in force.  Therefore, there is no conflict between the jurisdictions  of  ICAI  under  the  Chartered  Accountants  Act,  1949  and  NFRA under the Companies Act, 2013 as their functions and jurisdiction are distinct.

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