Festive Season ahead!

Hope you are all enjoying your Navratri and getting ready for Diwali. Wish you all a happy festival season and happy holidays. Have a proper balance of professional—personal life that you spend time in enjoying filing ROC returns, Navratri and Diwali all in it’s own time.

There is a new authority from 1st October, 2018 called as NFRA. We will see about this authority in detail in this edition following with the our usual Legal terms and News Bites related to notifications by MCA, SEBI, RBI, IT and GST.

Saranya Deivasigamani,
CEO

NFRA

The CG, by notification, constituted a National Financial Reporting Authority (“NFRA” or “the Authority”) to provide for matters relating to accounting and auditing standards under the Companies Act, 2013. This constitution came into effect from 1st October 2018.

First let us know what is NFRA. NFRA is a body proposed in Companies Act 2013 for the establishment and enforcement of accounting and auditing standards and oversight of the work of auditors. The Centre has appointed former IAS officer Rangachari Sridharan as chairperson of NFRA.

The Authority is constituted as per section 132 of the Companies Act, which consists of 15 sub-sections. Sub-sections 1 and 12 has been come into effect from 1st October 2018 which is constitution of NFRA and its head office shall be at New Delhi.

The Authority will consist of one post of Chairperson, three posts of full-time Members and one post of Secretary for NFRA.

The decision aims at establishment of NFRA as an independent regulator for the auditing profession which is one of the key changes brought in by the Companies Act, 2013. The inclusion of the provision in the Act was on the specific recommendations of the Standing Committee on Finance (in its 21st report).

This decision will strengthen the quality of audit, regularise the audit standards and enhance the audit profession. The decision is expected to result in improved foreign/domestic investments, enhancement of economic growth, supporting the globalisation of business by meeting international practices, and assist in further development of audit profession.

Jurisdiction:

The jurisdiction of NFRA for investigation of CA and their firms under section 132 of the Act would extend to listed companies and large unlisted public companies, the thresholds for which shall be prescribed in the Rules. The CG can also refer such other entities for investigation where public interest would be involved.

Apart from setting the rules and regulations governing the audit sector, the NFRA will have the power to debar erring auditors or audit firm for up to 10 years and impose significant fines on them.

According to Section 132 of the Companies Act, 2013, the NFRA will have powers to impose a fine of not less than ₹1 lakh, but the amount can extend up to five times of the fees received in case of individuals. The government has to set the rules that will stipulate the jurisdiction of the NFRA. Specifically, it has to set a limit on the size of an unlisted company that comes under the purview of the NFRA.

The inherent regulatory role of ICAI as provided for in the CA Act, 1949 shall continue in respect of its members in general and specifically with respect to audits pertaining to private limited companies, and public unlisted companies below the threshold limit to be notified in the rules.

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. Further, ICAI shall continue to play its advisory role with respect to accounting and auditing standards and policies by making its recommendations to NFRA.

Background:

The need for establishing NFRA has arisen on account of the need felt across various jurisdictions in the world, in the wake of accounting scams, to establish independent regulators, independent from those it regulates, for enforcement of auditing standards and ensuring the quality of audits to strengthen the independence of audit firms, quality of audits and, therefore, enhance investor and public confidence in financial disclosures of companies. However, the idea for an NFRA came following the Satyam scam in 2009, following which the Standing Committee on Finance recommended the creation of an audit regulator. The International Forum of Independent Audit Regulators (IFIAR) was set up in 2006, and now it has more than 52 independent audit regulators worldwide as members.

Extraction of Section 132 of the Companies Act, 2013

(1) The Central Government may, by notification, constitute a National Financial Reporting Authority to provide for matters relating to accounting and auditing standards under this Act.

(2) Notwithstanding anything contained in any other law for the time being in force, the National Financial Reporting Authority shall—

(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.

(3) The National Financial Reporting Authority shall consist of a chairperson, who shall be a person of eminence and having expertise in accountancy, auditing, finance or law to be appointed by the Central Government and such other members not exceeding fifteen consisting of part-time and full-time members as may be prescribed:

Provided that the terms and conditions and the manner of appointment of the chairperson and members shall be such as may be prescribed:

Provided further that the chairperson and members shall make a declaration to the Central Government in the prescribed form regarding no conflict of interest or lack of independence in respect of his or their appointment:

Provided also that the chairperson and members, who are in full-time employment with National Financial Reporting Authority shall not be associated with any audit firm (including related consultancy firms) during the course of their appointment and two years after ceasing to hold such appointment.

(4) Notwithstanding anything contained in any other law for the time being in force, the National Financial Reporting Authority shall—

(a) 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:

Provided that no other institute or body shall initiate or continue any proceedings in such matters of misconduct where the National Financial Reporting Authority has initiated an investigation under this section;

(b) have the same powers as are vested in a civil court under the Code of Civil Procedure, 1908, while trying a suit, in respect of the following matters, namely:—

(i) discovery and production of books of account and other documents, at such place and at such time as may be specified by the National Financial Reporting Authority;

(ii) summoning and enforcing the attendance of persons and examining them on oath;

(iii) inspection of any books, registers and other documents of any person referred to in clause (b) at any place;

(iv) issuing commissions for examination of witnesses or documents;

(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 ten 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 engaging himself or itself from practice as member of the Institute of Chartered Accountant of India referred to in clause (e) of sub-section (1) of section 2 of the Chartered Accountants Act, 1949 for a minimum period of six months or for such higher period not exceeding ten years as may be decided by the National Financial Reporting Authority.

Explanation.—For the purposes of his sub-section, the expression “professional or other misconduct” shall have the same meaning assigned to it under section 22 of the Chartered Accountants Act, 1949.

(5) Any person aggrieved by any order of the National Financial Reporting Authority issued under clause (c) of sub-section (4), may prefer an appeal before the Appellate Authority constituted under sub-section (6) in such manner as may be prescribed.

(6) The Central Government may, by notification, constitute, with effect from such date as may be specified therein, an Appellate Authority consisting of a chairperson and not more then two other members, to be appointed by the Central Government, for hearing appeals arising out of the orders of the National Financial Reporting Authority.

(7) The qualifications for appointment of the chairperson and members of the Appellate Authority, the manner of selection, the terms and conditions of their service and the requirement of the supporting staff and procedure (including places of hearing the appeals, form and manner in which the appeals shall be filed) to be followed by the Appellate Authority shall be such as may be prescribed.

(8) The fee for filing the appeal shall be such as may be prescribed.

(9) The officer authorised by the Appellate Authority shall prepare in such form and at such time as may be prescribed its annual report giving a full account of its activities and forward a copy thereof to the Central Government and the Central Government shall cause the annual report to be laid before each House of Parliament.

(10) The National Financial Reporting Authority shall meet at such times and places and shall observe such rules of procedure in regard to the transaction of business at its meetings in such manner as may be prescribed.

(11) The Central Government may appoint a secretary and such other employees as it may consider necessary for the efficient performance of functions by the National Financial Reporting Authority under this Act and the terms and conditions of service of the secretary and employees shall be such as may be prescribed.

(12) The head office of the National Financial Reporting Authority shall be at New Delhi and the National Financial Reporting Authority may, meet at such other places in India as it deems fit.

(13) The National Financial Reporting Authority shall cause to be maintained such books of account and other books in relation to its accounts in such form and in such manner as the Central Government may, in consultation with the Comptroller and Auditor-General of India prescribe.

(14) The accounts of the National Financial Reporting Authority shall be audited by the Comptroller and Auditor-General of India at such intervals as may be specified by him and such accounts as certified by the Comptroller and Auditor-General of India together with the audit report thereon shall be forwarded annually to the Central Government by the National Financial Reporting Authority.

(15) The National Financial Reporting Authority shall prepare in such form and at such time for each financial year as may be prescribed its annual report giving a full account of its activities during the financial year and forward a copy thereof to the Central Government and the Central Government shall cause the annual report and the audit report given by the Comptroller and Auditor-General of India to be laid before each House of Parliament.

Thus, as an audit professional, we have to be cautious about the standards and promptness that we follow while auditing.

Legal Term

Ad-hoc

Latin meaning “for this purpose only”. Thus, an adhoc committee is formed for a specific purpose, usually appointed to solve a particular problem.

MCA Updates

Forms revised—SPICe w.e.f. 16th OCT, 2018, URC-1 w.e.f. 5th JUL 2018, DIR-12 w.e.f. 4th OCT, 2018. LLP incorporation forms, RUN-LLP, FiLLiP, Addendum to FiLLiP, Form 17, Form 18 and Form 5 w.e.f 2nd OCT 2018.
Amendments in Schedule III to the Companies Act, 2013.
Re-constitution of High level Committee on Corporate Social Responsibility-2018.
Commencement of Sec 132 (1) & (2) and constitution of NFRA Dated 01.10.2018.
Companies (Registered Valuers and Valuation) Third Amendment Rules, 2018.

SEBI Updates

Amendments made in number of SEBI Regulations including: SEBI (SAST), SEBI (ILSDISR), SEBI (ILNCRPS), (ILDS), SEBI (DP), Securities Contracts, (SECC), SEBI (CRA), SEBI (Employees Service, etc

RBI Updates

The Electronic Trading Platforms (Reserve Bank) Directions, 2018
External Commercial Borrowings (ECB) Policy – Liberalisation .

Income Tax Updates

Constituted of the National Committee for Promotion of Social and Economic Welfare.
Nature of acquisition in respect of Section 112A (1) (a) shall not apply in certain transactions.
Section 80D notified for AY 2019-20

GST Updates

Advisory for Taxpayers to file Refund for Multiple Tax period .