The National Financial Reporting Authority (NFRA) is a body incorporated under the provisions of Section 132 of the Companies Act, 2013. The constitution of NFRA is effective from 1st October 2018.
The National Financial Reporting Authority (NFRA) Composition
The NFRA shall comprise of one Chairperson, three posts of full-time Members as well as one post of Secretary. The Chairperson of NFRA shall be appointed by the Central Government and the chairman is required to have expertise in accountancy, auditing, finance or law.
The Chairperson and the members of the NFRA should make a declaration towards the Central Government pertaining to no conflict of interest or lack of independence with regard to his or their appointment. Also, the Chairperson and the NFRA members cannot be associated with any audit corporation (which includes related consultancy corporations) during their appointment and 2 years after ceasing to hold such appointment.
Importance of the NFRA
According to the notification dated 13th November 2018, the NFRA has the following duties:
• Making recommendations on the foundation and stating down of accounting as well as auditing policies and standards;
• Monitor and enforcing compliance of the accounting standards and auditing standards:
• Overseeing the quality of service of the professionals like auditors, CFOs, etc, and propose measures necessary for improvement in the quality of service;
• Performing any other functions associated with the above.
• shall also have the authority towards undertaking the investigation suo-moto or on a reference made towards it by Central Government, regarding the matters of professional or other misconduct carried out by any member or corporation of Chartered Accountant registered under the Chartered Accountants Act, 1949 for the following class of corporations and bodies corporate.
This authority of NFRA is notwithstanding anything contained in any other law for the time being in force. When the investigation was started through NFRA, no other institute (which includes Institute of Chartered Accountants of India) or any other body would start or carry on any proceedings concerning the misconduct of Chartered Accountant.
NFRA 1 Form
NFRA 1 Form is an annual return form which is required to be filed by the auditor of Indian body corporates or foreign companies who fall under rule number 3(3).
Eligibility towards Filling NFRA Form 1
The list of corporations that are covered by Rule 3 of NFRA rules are required to file NFRA Form 1, they are:-
• Corporations, whose stocks are listed on any of the stock exchange in India,
• Unlisted Public Companies who have paid capital, not below INR 500 crores or annual turnover of INR 1000 crores and more or total aggregate outstanding loans, debentures or deposits not below INR 500 crores.
• Insurance corporations, banking corporations, and other corporations that are actively working in the electricity generation or supply of electricity.
• Corporations governed through any special Act which at present in force or bodies corporate incorporated through an Act according to the clauses (b), (c), (d), (e) and (f) of sub-section (4) of section 1 of the Act;
• Any body corporate or individual or corporation that has been suggested by the central government to the NFRA.
• Body Corporate who are
o Registered out of India and is a subsidiary corporation or an associate corporation of the company that is registered in India according to the aforementioned points.
o The income or net worth surpasses 20% of the consolidated net worth or consolidated income of such corporation.
Applicability to file NFRA-1
• Insurance companies (LIC, Reliance Life Insurance, Sahara Life Insurance, – not registered under the Companies Act, 2013)
• Banking companies (SBI, PNB, UCO, SBOP, etc.- not registered under the Companies Act, 2013)
• Corporations engaged in the generation or supply of electricity,
• Corporations governed by any special Act for the time being in force (ICSI, ICAI) 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;
Companies who are not required filing NFRA-1
• Private Companies
• Unlisted public companies that are having a paid-up capital or turnover or aggregate of loans, debentures, and deposits below the prescribed limit
• Limited Liability Partnership (LLP
NFRA Form 1 Filing Requirements
• Every existing body corporate directed by these rules (apart from corporations as defined under section 2(20), which are not required towards filing this form) would inform the Authority within 30 days of the commencement of these rules, in Form NFRA-1, the particulars of the auditor as on the date of commencement of these rules.
• The corporations (excluding the corporations as mentioned under section 2(20) which are not required towards filing this form) formed in India as well as directed under this rule shall, within 15 days of appointment of an auditor under sub-section (1) of section 139, notify the Authority in Form NFRA-1, the particulars of the auditor appointed through such body corporate
• Provided that a body corporate directed under clause (e) of sub-rule (1) must provide particulars of appointment of its auditor in Form NFRA-1.
Due Date for NFRA-1 filing
• Every corporation or Body Corporate falling that falls under the applicability rules is required to file e-Form NFRA-1 concerning the particulars of the auditor within 30 days of deployment of Form NFRA-1, that is by 31st July 2019.
• Filing of Form NFRA-1 through the body corporate within 15 days of the appointment of an auditor.
It is relevant to note that one time NFRA-1 must be filed by all the Corporations on which these rules are applicable while event-based NFRA-1 i.e. within 15 days of the appointment of the auditor must be filed by all body corporate excluding Indian Companies.
Documents required for filling NFRA-1 Form
For Indian Body Corporates or Businesses:
• PAN Details of the authorized Indian individual
• Body corporate PAN Details
• DIN of Director/Membership No. of CS/PAN of Manager or CEO or CFO;
• Income tax PAN number of the Auditor/audit firm
• Membership number of auditor/auditor firm registration number
• In case the auditor is appointed owing to casual vacancy, then membership no. of auditor or registration no. of audit firm who/which vacated the office requires to be provided in the form.
• Copy of the written consent that is given by the auditor
• Copy of resolution passed from Body Corporate side
• Digital signature (DSC) of the User (Director/Manager/CEO/CFO/Company Secretary)
For Foreign Corporations
• Passport Number of the Foreign authorized individual
• Foreign body corporate Registration number and registration number provider Name
Registration Procedure for Form NFRA-1
The user registration processes towards filing Form NFRA-1 are:
• To proceed with Form NFRA- 1 submission, the applicant should register on the NFRA portal and then sign in using the log-in credentials to complete the form submission.
• The applicant than just click on the New Registration or sign up option for registering on the NFRA portal. The applicant is required to provide personal details like mobile number, email address, etc.
• Once the applicant enters the official email address, click on the “Generate email OTP” to receive the OTP on the given email address
• Once the applicant enters the mobile number, click on the “Generate Mobile OTP” to receive the OTP on the given number
• Once the applicant enters both OTP for mobile and email, click on the “verify email & mobile” option. A pop-up window for “successfully verified” message shall appear on the screen.
• After successful mobile and email verification, the applicant should enter the personal details at the next step.
• In the personal information section, the applicant must enter details like name, address, state, PIN, and PAN.
• In case, the country is not selected as India, the applicant would get the option of PAN availability or not
• In case, the applicant selects no PAN, then the applicant should enter the details of their Passport number.
• In the “designation” field, the applicant should select whether he/she is a Director/Chief Executive Officer/Chief Financial Officer/ Manager/Company Secretary
• DIN number must be entered if the applicant opts for Director Option
• The applicant should enter the membership number if Company Secretary Option is chosen.
• For information about Body Corporate, the applicant should select the rule under which their respective corporation falls, they should also select whether the body corporate is registered in India or not. If yes, then the PAN of body corporate also must be entered
• If the body corporate does not belong to India, then the applicant should enter the name of Indian associate corporation along with detailed like CIN. The applicant should also check whether the body corporate has PAN for business operations in India
• If the “Yes” option is selected for PAN, then the applicant should enter the PAN details.
• The applicant should also enter the registration number and authority name, in case the PAN option is neglected by the applicant.
• The applicant is required to upload the authorization letter, which gives permission to the applicant to file the NFRA-1. This letter also requires to be physically signed by the key managerial person on the letterhead of the body corporate and should be uploaded in the PDF format. The applicant could download the sample authorization letter for more details.
• The applicant, after converting the letter into PDF, could click on the “Choose File” option for uploading it.
• When the PDF for acknowledgment letter is uploaded, the applicant is required to enter the wanted password and re-enter the same for confirmation. The applicant is also required to enter the security code and click on the “Register My Account” option.
• When the register option is clicked, the application shall be sent towards the administrator for the approval or rejection. Once the application is delivered, the applicant would see a confirmation email and SMS for the application successful submission
• If the application gets approved, the applicant is required to move ahead with DSC registration that is compulsory for successful form submission.
• If the application is rejected, the applicant would see the following error message and shall be informed by the Email and SMS. The applicant should on the “update” button to rectify mistakes and make improvements.
• When the update option is selected, the applicant could see the submitted application in editable form and should make the corrections and resubmit the application by clicking on the “Update My Account” option.
• Finally, after clicking “Update my account” option, the applicant would view the message that his application has been sent to the administrator for approval.
Filling of Annual Return by the auditors
Every auditor, appointed under section 139 of the Act, and as mentioned to in rule 3 must file a return with the Authority on or before 30th April every year in such form as might be stated by the Central Government.
Punishment for non-compliance
If any corporation or any officer of a firm or auditor or any other individual who falls under the provision of NFRA Rules violate any of these rules are bound to get punished as per the provisions of section 450 of the Act.
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