National Financial Reporting Authority (NFRA)

The National Financial Reporting Authority is a body constituted under Section 132 of the Companies Act, 2013. Know more about NFRA and the benefits of NFRA.
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3 min
10 June 2024

The National Financial Reporting Authority (NFRA) is a regulatory body in India established under the Companies Act, 2013. Its primary role is to oversee and regulate the auditing and accounting standards of companies and auditors. The NFRA aims to improve transparency, accuracy, and reliability in financial reporting, thereby enhancing investor confidence and protecting the public interest.

Role of the NFRA

The NFRA plays a crucial role in ensuring high-quality financial reporting by:

  1. Regulating auditors: Monitoring and enforcing compliance among auditors and audit firms.
  2. Standard setting: Establishing and implementing accounting and auditing standards.
  3. Inspections: Conducting periodic reviews and inspections of audit reports.
  4. Disciplinary actions: Taking disciplinary measures against non-compliance and professional misconduct.

Scope of the NFRA

The scope of the NFRA includes:

  1. Public Interest Entities: Regulating companies of public interest, including listed companies and large unlisted public companies.
  2. Standard enforcement: Enforcing accounting and auditing standards.
  3. Inspections and investigations: Conducting inspections and investigations of audit firms and their audits.
  4. International cooperation: Collaborating with international regulatory bodies to ensure global best practices.

Additional read: What is working capital?

Powers of the NFRA

The NFRA possesses extensive powers to ensure effective regulation, including:

  1. Regulatory authority: Regulating accounting and auditing practices.
  2. Investigative powers: Investigating misconduct and non-compliance by audit firms and companies.
  3. Enforcement: Enforcing compliance with accounting and auditing standards.
  4. Disciplinary actions: Imposing penalties and sanctions for professional misconduct and non-compliance.

Difference Between MoA and AoA

Aspect

Memorandum of Association (MoA)

Articles of Association (AoA)

Purpose

Defines the company’s objectives and scope of activities.

Governs the internal management and operational procedures.

Content

Includes name, registered office, objectives, liability, and capital.

Includes rules for meetings, roles of directors, and financial handling.

Legal Requirement

Mandatory for company incorporation.

Mandatory for company management and governance.

Alteration

Requires special resolution and court approval for changes.

Can be altered by passing a special resolution.

Scope

External and defines the company’s relationship with the outside world.

Internal and focuses on the company’s internal governance.

 

Role of MoA

The Memorandum of Association (MoA) plays a vital role in company registration:

  1. Legal foundation: Establishes the legal foundation of the company.
  2. Objectives: Clearly defines the company’s objectives and scope of activities.
  3. Shareholder relationship: Outlines the relationship between the company and its shareholders.
  4. Compliance: Ensures the company adheres to regulatory requirements.
  5. Public document: Acts as a public document, providing transparency to stakeholders.

Additional read: Company Registration

Contents of AoA

The Articles of Association (AoA) typically include:

  1. Shareholder Rights: Details the rights and responsibilities of shareholders.
  2. Voting Procedures: Specifies how voting is conducted during meetings.
  3. Director Appointments: Outlines the criteria and process for appointing directors.
  4. Financial Management: Includes policies for financial record-keeping and audits.
  5. Dispute Resolution: Provides methods for resolving internal conflicts.

Additional read: One Person Company

Conclusion

The NFRA and foundational documents like the MoA and AoA play crucial roles in ensuring effective corporate governance and regulatory compliance. The NFRA enhances financial reporting quality, while the MoA and AoA provide a clear framework for a company’s operations and management. For further assistance with financing your business, consider exploring options for a business loan.

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Disclaimer

Bajaj Finance Limited (“BFL”) is an NBFC offering loans, deposits and third-party wealth management products.

The information contained in this article is for general informational purposes only and does not constitute any financial advice. The content herein has been prepared by BFL on the basis of publicly available information, internal sources and other third-party sources believed to be reliable. However, BFL cannot guarantee the accuracy of such information, assure its completeness, or warrant such information will not be changed. 

This information should not be relied upon as the sole basis for any investment decisions. Hence, User is advised to independently exercise diligence by verifying complete information, including by consulting independent financial experts, if any, and the investor shall be the sole owner of the decision taken, if any, about suitability of the same.

Frequently asked questions

What does National Financial Reporting Authority do?
The National Financial Reporting Authority (NFRA) regulates and oversees accounting and auditing standards in India. It ensures transparency, accuracy, and reliability in financial reporting by:

Monitoring compliance: Enforcing adherence to accounting and auditing standards.

Conducting inspections: Periodically reviewing audit reports and practices.

Setting standards: Establishing and updating auditing and accounting standards.

Disciplinary Actions: Taking corrective measures against non-compliance and misconduct.

What has NFRA replaced under the Companies Act 2013?
Under the Companies Act 2013, the NFRA has replaced the National Advisory Committee on Accounting Standards (NACAS). The NFRA's establishment aimed to enhance the regulatory framework for auditing and accounting, providing more robust oversight and enforcement compared to NACAS.
Is NFRA a statutory body?
Yes, the National Financial Reporting Authority (NFRA) is a statutory body. It was established under Section 132 of the Companies Act 2013. As a statutory authority, NFRA has the legal mandate to oversee and regulate accounting and auditing standards, ensuring compliance and enhancing the quality of financial reporting in India.

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