NFRA-2

Note on NFRA Rules 2018:-

  • MCA vide its notification dated 13th November 2018 notified National Financial Reporting Authority (NFRA) Rules 2018.
  • Also MCA vide its further notification dated 5th September, 2019 has amended the NFRA Rules 2008 and these rules shall be called as NFRA (Amendment) Rules 2019.
  • This step by MCA attempts to strengthen the country’s financial system in order to avoid major frauds done by companies.
  • As per the Companies Act, 2013 the NFRA is tasked with the job of recommending accounting and auditing standards, ensuring compliance with them and overseeing the quality of service of the accounting and audit professions.
  • The NFRA rules deal with the jurisdiction, function, duties and powers of the NFRA.
  • As per Rule 3 (1) of NFRA Rules, 2018, NFRA will have jurisdiction over the following class of companies or body corporates, namely:
    1. Every Listed Companies/ Body Corporates.
    2. Every Unlisted Companies with:
      1. Paid up capital or loans more than 500 Crores or
      2. Turnover more than 1000 Crores or
  • Outstanding loan, debenture and deposit more than 500 Crores.
  1. Every banking companies, insurance companies and electricity supply companies as well as body corporates which are incorporated by special Act are to be governed by respective special Act and shall apply upon them only from the date of notification.
  2. Body corporate/ companies/ persons or any class thereof as referred by Central Government to NFRA in public interest.
  3. Body corporate incorporated or registered outside India which is:
    1. Subsidiary or Associate of the company or body corporate registered in India as referred above and
    2. Income or net worth of such Subsidiary or Associate company exceeds 20% of the consolidated income or consolidated net worth of such company or the body corporate.
  • It is to be noted that the companies or body corporates, other than a company governed under this rule, shall continue to be governed by the NFRA for a period of 3 years after it ceases to be listed or it’s paid up capital or turnover or aggregate of loans, debentures and deposits falls below the limit stated therein.
  • Considering the above Rule 3, following classes of companies will not be governed by NFRA:
    1. Every Private Companies.
    2. Every Unlisted Companies with paid up capital or turnover or aggregate loans, debentures or deposits is below the limit stated in Rule 3 (1).
    3. Every Limited Liability Partnership.
  • MCA has introduced Form NFRA-2 which is for annual return to be filed by auditor with the NFRA.
  • The above Form NFRA-2 will cover the following points:
    1. Identity of the auditor and contact persons.
    2. Reporting period.
    3. General information concerning the auditor.
    4. Audit clients and audit reports of the auditor.
    5. Audit related memberships, affiliations or similar arrangements of the auditor.
    6. Partners and employees of the auditors.
    7. Details of disciplinary or other proceedings initiated against the auditor.
    8. Special circumstances.
    9. Quality control policies of the auditor.
  • It is to be noted that every auditor covered in Rule 3 of the NFRA Rules shall file an annual return in Form NFRA-2 on or before 30th November every year. However prior to NFRA (Amendment) Rules 2019, the due date was on 30th April of every year.
  • MCA vide its general circular no. 14/2019 dated 27th November, 2019has decided to extend the time limit for filing of Form NFRA-2 for the reporting period Financial Year 2018-19 and now as per MCA circular dated 6th March, 2020, it will be 150 days from the date of deployment of this form on the website of NFRA.

 

 

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