In News: The National Financial Reporting Authority (NFRA) has published the draft requirements on preparation and publication of Annual Transparency Report (ATR) by auditors and audit firms, towards enhancing transparency about management and governance of audit firms and their internal policy framework.
National Financial Reporting Authority (NFRA)
Aim
Protect the public interest and the interests of investors, creditors and others associated with the companies or bodies corporate governed under Rule 3 by establishing high quality standards of accounting and auditing and exercising effective oversight of accounting functions performed by the companies and bodies corporate and auditing functions performed by auditors.
About:
NFRA is an independent regulator for the auditing profession under Ministry of Corporate Affairs
Constituted in 2018 by the Government of India under Sub Section (1) of section 132 of the Companies Act, 2013.
The authority consists of a chairperson, three full-time members and a secretary and total number of members should not exceed fifteen
Over 6,800 companies come under NFRA purview, which include listed as well as unlisted companies.
The NFRA can impose a penalty of not less than ₹1 lakh but not exceeding 5 times the fees collected.
Functions:
Recommend accounting and auditing policies and standards to be adopted by companies for approval by the Central Government;
Monitor and enforce compliance with accounting standards and auditing standards;
Oversee the quality of service of the professions associated with ensuring compliance with such standards and suggest measures for improvement in the quality of service
ATR requirements:
Objective is to ensure high quality audits and preventing the conflict of interest by maintaining independence.
The ATR requirements are on the lines of the contemporary international best practices implemented by certain prominent Independent Audit Regulators in other jurisdictions
Rule 8(2) of the NFRA Rules 2018 empowers the NFRA to require an auditor to report on its governance practices and internal processes designed to promote audit quality, protect its reputation and reduce risks including risk of failure of the auditor and may take such action on the report as may be necessary.
It contains certain critical information about the auditor’s operational activities, management, governance and ownership structures, and policies and procedures necessary to deliver high-quality audits etc.
The information contained in the ATR will be useful to the Investors, Audit Committees, Independent Directors and public at large.
The ATR requirements are proposed to be implemented in a gradual manner for PIEs starting with Statutory Auditors of Top 1000 Listed Companies (by market capitalisation) with effect from the financial year ending on 31 March 2023. The ATR has to be published within three months from the end of each financial year.
