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Moving ahead with implementation of the new companies law, the government today issued draft rules for the proposed National Financial Reporting Authority.
The National Financial Reporting Authority (NFRA), the proposed apex body for accounting and auditing standards, will have powers to probe and review audits of companies, including those which have securities listed outside India.
Besides NFRA, draft rules relate to Serious Fraud Investigation Office (SFIO) and acceptance of deposits by companies have been released under the Companies Act, 2013.
This is the third set of draft rules released by the Corporate Affairs Ministry for various chapters of the new legislation that replaces nearly six-decade old laws governing companies in the country.
The latest tranche pertains to Chapter V (Acceptance of Deposits by Companies), Chapter IX (NFRA) and Chapter XIV (Inspection, Inquiry and Investigation).
Stakeholders and public can provide their comments on the latest set of draft rules till November 1.
The first and second tranches of draft rules covered 16 and 9 chapters respectively. The new legislation has 29 chapters.
NFRA will have powers to lay down accounting and auditing policies and standards for adoption by companies or class of companies or their auditors.
The new entity will be responsible for monitoring and ensuring compliance with accounting and auditing standards.
The new legislation will give more teeth to SFIO that is currently investigating many high profile cases including the Saradha chit fund scam.
So far, the ministry has already received thousands of comments on various topics, including Corporate Social Responsibility (CSR) spending and auditing.
Among others, draft rules for board of directors, auditors, registration and incorporation of companies, revival of sick companies, financial accounts of corporates, National Company Law Tribunal and Appellate Tribunal, have been issued.
NFRA would be a quasi-judicial body under the new Companies Act. It would have the responsibility of monitoring, compliance review and overseeing quality of service, enforcement and standard setting with regard to accounting and auditing standards.
The authority would have powers to carry out "investigation or quality review of audit" of listed and certain class of unlisted companies as well as those having securities listed outside the country, according to draft rules issued by the Corporate Affairs Ministry today.
In addition, NFRA would have the authority to conduct investigation on reference made by the central government or any regulator. It can also suo moto start investigation in public interest.
Further, NFRA can undertake peer review/investigation of auditors or audit firms which conduct audit of 200 companies or more in a year as well as those auditing 20 or more listed entities.
"The penalties on audit firms by NFRA can be very severe, and includes debarment of an audit firm for a maximum period of 10 years.
"The NFRA will prepare once in every year an annual report giving a true and full account of its activities performed in the year, including the results of its various monitoring activities," Dolphy Dsouza, Partner in a member firm of Ernst & Young Global, said.
Meanwhile, the Authority would have three committees -- on Accounting Standards, on Auditing Standards and on Enforcement.
Apart from chairperson, NFRA would have three members and representatives from Corporate Affairs Ministry, Reserve Bank of India (RBI), Securities and Exchange Board of India (Sebi), and central government nominated retired Chief Justice of a High Court or a person who has been the judge of a High Court for at least five years, among others.
"In the matter of implementation of these rules, if any doubt or difficulty arises, the same shall be placed before the Central Government and the decision of the Central Government thereon shall be final," as per the draft rules on NFRA.
