The Government on 21-03-2018 notified the rules for establishment of National Financial Reporting Authority (NFRA) and creation of one post of Chairperson, three posts of full-time Members and one post of Secretary for NFRA. The rules aim at establishment of NFRA as an independent regulator for auditing (one of the key changes brought in by the Companies Act, 2013). In the wake of accounting scams, a need to establish NFRA is felt across various jurisdictions in the world, to enhance investor and public confidence in financial disclosures of companies. The NFRAs’ jurisdiction for investigation of Chartered Accountants u/Section 132 of the Companies Act would extend to listed companies and large unlisted public companies. Also, the Central Government can refer other entities for investigation in cases where public interest is involved. Consequently, the introduction of these rules will result in improved foreign/domestic investments, economic growth, enhancement of globalisation, and further development of the ‘audit profession’.
The Central Government has, in exercise of powers conferred by Section 132 (3) of Companies Act, 2013 (18 of 2013), notified the National Financial Reporting Authority (Manner of Appointment and other Terms and Conditions of Service of Chairperson and Members) Rules, 2018, to be in effect from date of publication in the Official Gazette.
The ‘key highlights’ are as follows —
1. Composition of Authority — The Authority shall consist of the following persons as appointed by Central Government:-
- A chairperson — who shall be a person of eminence, ability, integrity and standing with expertise and experience of not less than 25 years in the field of accountancy, auditing, finance or law.
- Three full time members — who shall be a person of ability, integrity and standing with expertise and experience of not less than 25 years in the field of accountancy, auditing, finance or law.
- Nine part time members — a person to be eligible, should not have any such financial or other interest as is likely to affect prejudicially his functions as a part time member.
2. Manner of Appointment — The Chairperson and full time member shall be appointed by Central Government on recommendation of search-cum-selection committee (‘the committee’)consisting of :-
- Cabinet Secy. as Chairperson
- Principal Secy. to the PM as Member
- (of Ministry of Corporate Affairs) as Member, who shall be the convener of the committee
- Chairperson of NFRA (during selection of full time members) as Member
- Three experts from a panel of experts in the field of accountancy, auditing, finance and law (to be nominated by Central Government) as Members
The committee has to submit the recommendations to the Central Government within 120 days from the date of reference made to it by the Central Government.
The following shall be appointed as part-time members :-
- One member shall represent the Ministry of Corporate Affairs, and shall not be below the rank of Joint Secy., ex-officio
- One member shall represent the Comptroller and Auditor General of India, and shall be not be below the rank of Accountant General or Principal Director, ex-officio
- One member shall represent RBI, and shall not be below the rank of Executive Director, ex-officio
- One member shall represent SEBI, and shall not be below the rank of Executive Director, ex-officio
- President, ICAI, ex-officio
- Chairperson (Accounting Standards Boards), ICAI, ex-officio
- Chairperson (Auditing and Assurance Standards Board), ICAI, ex-officio
- Two experts from the field of accountancy, auditing, finance or law.
3. Resignation — A chairperson/member can resign any time, by giving a hand-written letter addressed to the Central Government, provided that unless the government grants permission to relinquish the office sooner, the person resigning shall continue to hold office until expiry of 3 months from date of receipt of the notice or until a successor is appointed or until the expiry of his term in office, whichever is earliest.
4. Removal from office — After giving a reasonable opportunity of being heard and on recommendation of the committee, the Central Government can remove the chairperson/member from office, who has been adjudged insolvent; or has been convicted of an offence of moral turpitude; or has become mentally/physically incapable of acting as chairperson/member; or has acquired any financial/other interest which is likely to affect prejudicially his functions (as a chairperson/member); or has abused his position to render his continuance in office prejudicial to the public interest; provided that the chairperson/interested member shall not be a part of the committee, where the subject matter of cause is against him.
5. Term of Office — The term of office for a chairperson and a full time member shall be 3 years from the date of his entering the office or until he attains 65 years of age, whichever is earlier, and shall be eligible for re-appointment for one more term. For a part time member, he shall hold office for a period, not exceeding 3 years, as specified in his appointment order or the period for which he holds substantive post by virtue of which he has been appointed as the part time member, whichever is earlier, and shall be eligible for re-appointment.
6. Vacancy — In case of a vacancy the Central Government shall appoint the senior most full time member or in his absence or any other full time member to officiate as chairperson.
7. Salary and allowances — The chairperson and a full time member shall be paid Rs 2,50,000 and shall be entitled to such other allowances and benefits similar to a Central Government officer (for a full time member allowances/benefits would be equal to a Central Government officer holding Group ‘A’ post) having the same pay. A part time member (other than ex-office members), shall receive a sitting fee of Rs 6,000 for each meeting he attends, and shall also be entitled to TA, DA similar to a Group ‘A’ officer in Senior Administrative Grade in the Central Government.
8. Other conditions of Service — The terms and conditions for a chairperson/full time member are similar to a Central Government officer of Group ‘A’ post carrying the same pay. A chairperson/full time member cannot practice before the authority after retirement/resignation/removal, and also cannot take up any arbitration work, or accept any employment (for 2 years from the date on which they cease to hold office) in, or connected with the management/administration of, any person who has been a party to a proceeding before the NFRA.
In case of any dispute/questions regarding the interpretation of these rules, the Central Governments’ decision shall be final.
Ministry of Corporate Affairs