The NFRA Amendment Rules, 2022 were introduced by the Ministry of Corporate Affairs (MCA) to update the functioning of the National Financial Reporting Authority (NFRA). These amendments aim to strengthen the authority’s role in regulating the accounting and auditing profession in India, particularly for companies and auditors under its jurisdiction.
What is NFRA?
The National Financial Reporting Authority (NFRA) is an independent regulatory body established under the Companies Act, 2013. It oversees the auditing and accounting standards in India to ensure that companies, particularly large and public-interest entities, comply with prescribed rules.
NFRA’s primary functions include:
- Monitoring and enforcing compliance with accounting standards.
- Overseeing auditors of listed companies and large public-interest entities.
- Taking disciplinary action against auditors for professional misconduct.
Key Changes in the NFRA Amendment Rules, 2022
1. Mandatory Filing of Annual Returns by Auditors- The most significant change introduced in the amendment is the requirement for auditors to file an annual return with NFRA.
Who needs to file?
Auditors of companies that fall under NFRA’s jurisdiction (such as listed companies, large unlisted public companies, and banks, insurance companies, NBFCs).What to file?
Auditors must file Form NFRA-2, which includes details of their audits, client companies, and any non-compliances observed during the audit.Filing Deadline:
The NFRA-2 form must be filed annually, within 60 days from the end of the financial year.
2. Extension of NFRA’s Powers- The amendment expands NFRA’s powers to take action against auditors for any misconduct or failure to comply with regulations. This includes:
- Imposing penalties.
- Debarring auditors from practicing for a certain period.
- Requiring auditors to correct discrepancies in financial statements.
3. Compliance by Indian and Foreign Entities- The amendment clarifies that NFRA’s rules apply to both Indian and foreign companies that have a significant presence in India. Foreign companies that meet the criteria of public-interest entities will also come under NFRA’s regulatory ambit.
4. Strengthening NFRA’s Investigative Powers- NFRA now has more powers to investigate auditing lapses. It can directly inspect the work of auditors, demand documents, and take suo-motu action in cases of non-compliance.
5. Reporting of Non-Compliance- Auditors are now required to report any non-compliance they observe in the financial statements during their audits. Failure to do so may result in disciplinary action from NFRA.
Penalties for Non-Compliance
If auditors fail to file the annual return (NFRA-2) or comply with NFRA’s regulations, they may face:
- Fines (up to ₹5 lakh or more for serious violations).
- Debarment from practice for a certain period.
Impact of the NFRA Amendment Rules, 2022
| Key Aspect | Before Amendment | After Amendment |
|---|---|---|
| Filing of Annual Returns | Not mandatory | Mandatory for auditors under NFRA’s jurisdiction |
| Reporting Requirements | Less strict | Strict reporting of non-compliance by auditors |
| Scope of NFRA | Limited | Extended to foreign entities with a presence in India |
| Investigative Powers | Limited | Strengthened investigative and disciplinary powers |
FAQs
What is NFRA?
The National Financial Reporting Authority (NFRA) is an independent regulatory body established under the Companies Act, 2013 to oversee:
- Auditing standards
- Accounting practices
- Quality of financial reporting
NFRA ensures that auditors and companies comply with the applicable accounting standards and regulatory requirements.
What are the NFRA Amendment Rules 2022?
The NFRA Amendment Rules 2022 are changes made to the NFRA Rules, 2018, focusing on:
- Expanding the scope of NFRA’s authority
- Improving compliance requirements for auditors and companies
- Enhancing transparency in financial reporting
These amendments were introduced to strengthen audit quality and address non-compliance issues more effectively.
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