National Financial Reporting Authority
The National Financial Reporting Authority (NFRA) is an independent regulatory body constituted under Section 132 of the Companies Act, 2013 to oversee auditing and accounting standards and to investigate and take disciplinary action against auditors of certain classes of companies.
The National Financial Reporting Authority (NFRA) was established in October 2018 by the Government of India under Section 132 of the Companies Act, 2013, following a series of high-profile audit failures and accounting frauds — most notably the IL&FS crisis. NFRA was created to provide an independent, arm's-length oversight of the auditing profession, separate from the Institute of Chartered Accountants of India (ICAI), which had both a standard-setting and a self-regulatory disciplinary role that critics argued created a conflict of interest.
NFRA has two primary mandates. First, it is responsible for recommending accounting and auditing standards for adoption by the Central Government. In this capacity, it works in conjunction with existing standard-setting bodies. Second, and more significantly, it has the authority to investigate matters of professional misconduct by auditors of certain categories of companies — listed companies, unlisted public companies above prescribed thresholds, and companies of public interest. Upon investigation, NFRA can impose penalties and debar auditors and audit firms from practice.
The scope of NFRA's jurisdiction was a contentious issue initially, particularly its relationship with ICAI's disciplinary mechanism. The Companies Act makes clear that for companies within NFRA's jurisdiction, NFRA's oversight supersedes ICAI's disciplinary role — auditors cannot be tried by ICAI for the same matter.
NFRA has completed several high-profile investigations since its inception, including into auditors of IL&FS, DHFL, and Café Coffee Day, resulting in significant monetary penalties and practice debarments. These actions have served as a deterrent and elevated the accountability of audit firms.
For investors in listed companies, NFRA's existence and its investigations provide an additional layer of assurance that audit quality and independence will be scrutinised by an independent authority. NFRA's annual reports and inspection reports of audit firms provide useful public domain information on the state of audit quality in India.