NATIONAL FINANCIAL REPORTING AUTHORITY

[Mr. M. GOVINDARAJAN]

Section 132 of the Companies Act, 2013 (‘Act’ for short)   provides for the constitution of National Financial Reporting Authority (‘Authority’ for short).  Section 132(3) and 132(11) of the Act came into effect from 21.03.2018.

Constitution

Section 132 (1) provides that the Central Government, by notification, constitute a National Financial Reporting Authority to provides for matters relating to accounting and auditing standards under this Act.

Functions of the Authority

Section 132 (2) provides that the Authority shall perform the following functions-

(a) to 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) to monitor and enforce the compliance with accounting standards and auditing standards in such manner as may be prescribed;

(c) to oversee the quality of service of the professions associated with ensuring compliance with such standards, and suggest measures required for improvement in quality of services and such other related matters as may be prescribed; and

(d) perform such other functions relating to (a) to (c) as may be prescribed.

Members of the Authority

Section 132(2) provides that the 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 15 consisting of part time and full time members as may be prescribed.

For this purpose the Central Government made the rule called ‘The National Financial Reporting Authority (Manner of appointment and other terms and conditions of service of Chairperson and Members) Rules, 2018 (‘Rules’ for short).

Number of Members

The Rules provides that the Authority shall consist of the following persons to be appointed by the Central Government-

• a Chairperson;
• 3 full time members; and
• 9 part time members.

Qualification of Members

The Chairperson shall be a person of eminence, ability, integrity and standing and having expertise and experience of not less than twenty five years in the field of accountancy, auditing , finance or law.

A full time member shall be a person of ability, integrity and standing and having expertise and experience of not less than twenty years in the field of accountancy, auditing, finance or law.

A part time member shall be a person who shall not have any such financial or other interests as is likely to affect prejudicially his functions as a part time member.

Manner of appointment

The Central Government shall appoint the chairperson and a full time member on the recommendation of a search-cum-selection committee consisting of –

• Cabinet Secretary - Chairperson;
• Additional Principal Secretary to the Prime Minister - Member;
• Secretary - Ministry of Corporate Affairs- Member;
• Chairperson, National Financial Reporting Authority (for selection of full-time members) - Member;
•  three experts of repute from a panel of experts in the field of accountancy, auditing, finance, law (to be nominated by the Central Government) – Members

The Secretary, Ministry of Corporate Affairs shall be the convener of the search-cum-selection committee.   The search-cum-selection committee shall determine its procedure for making its recommendation.  No appointment of chairperson or a full time member shall be invalid merely by reason of any vacancy or absence in the search-cum-selection committee.    The search-cum-selection committee shall make its recommendations in regard to appointment of chairperson or the members, as the case may be, to the Central Government within a period not exceeding one hundred and twenty days from the date of reference made to it by the Central Government.

The following persons shall be appointed as part time members of the Authority-

• one member to represent the Ministry of Corporate Affairs, who shall be an officer not below the rank of Joint Secretary – ex-officio;
• one member to represent Comptroller and Auditor General of India, who shall be an officer not below the rank of Accountant General or Principal Director – ex-officio;
• one member to represent RBI, who shall be an officer not below the rank of Executive Director – ex-officio;
• one member to represent SEBI, who shall be officer not below the rank of Executive Director – ex-officio;
• President, The Institute of Chartered Accountants of India – ex-officio;
• Chairperson, Accounting Standards Board, The Institute of Chartered Accountants of India – ex-officio;
• Chairperson – Auditing and Assurances Standard Board of the Institute of Chartered Accountants of India – ex-officio;
• two experts from the field of accountancy, auditing, finance or law.

Declaration

The Chairperson and members of the Authority shall make a declaration to the Central Government in the form I regarding no conflict of interest or lack of independence in respect of his or their appointment, before their appointment.  If they failed to file declaration their appointment will not be considered.

Conditions of service

The following are the conditions in appointment of the chairperson and the members-

• -No person shall be appointed as the chairperson or full time member unless he is declared medically fit by an authority specified by the Central Government in this behalf. 
• The chairperson or a member may, by writing under his hand addressed to the Central Government, resign from his office at any time:
• The Central Government may, on the recommendation of a Committee referred to in sub-rule (1) of rule 4, remove from office the chairperson or a member, who-

•  has been adjudged as an insolvent; or
• has been convicted of an offence which, in the opinion of the Central Government, involves moral turpitude; or
• has become physically or mentally incapable of acting as the chairperson or member; or
•  has acquired such financial or other interest as is likely to affect pre-judicially his functions as the chairperson or member; or
• has so abused his position as to render his continuance in office prejudicial to the  public interest:

• The terms and conditions of service of a chairperson or a full time member with respect to which no express provision has been made in these rules, shall be such as are admissible to a Central Government officer holding a Group 'A' post carrying the same pay.
• The chairperson or a full time member shall not practise before the Authority after retirement or resignation or removal from the service of the Authority.
• The chairperson or a full time member shall not undertake any arbitration work while functioning in the Authority.
• The chairperson or a full time member shall not, for a period of two years from the date on which he ceases to hold office, accept any employment in, or connected with the management or administration of, any person who has been a party to a proceeding before the Authority:

Powers of Authority

Section 132(4) provides the powers of the Authority. The National Financial Reporting Authority 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;
• 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;
• have the same powers as are vested in a civil court under the Code of Civil Procedure, 1908 (5 of 1908), while trying a suit, in respect of the following matters, namely:-

•  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;
• summoning and enforcing the attendance of persons and examining them on oath;
• inspection of any books, registers and other documents of any person at any place;
•  issuing commissions for examination of witnesses or documents;

• where professional or other misconduct is proved, have the power to make order for-

•  imposing penalty of-

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

•  debarring the member or the firm from engaging himself or itself from practice as member of the institute 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.

Appeal

            Any person aggrieved by any order of the National Financial Reporting Authority issued, may prefer an appeal before the Appellate Tribunal in such manner and on payment of such fee as may be prescribed.

Meeting of Authority

The 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.

Appointment of employees

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

Office of Authority

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

Books of Accounts

The 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.

Audit

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.

Report

            The 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.