MCA notifies penalty for Non-Compliance with NFRA Rules

MCA NOTIFIES PENALTY FOR NON-COMPLIANCE WITH NFRA RULES

Overview of National Financial Reporting Authority (NFRA), Rules 2018

MCA has introduced National Financial Reporting Authority Rules, 2018 vide notification dated 13th November, 2018 to provide for matters relating to accounting and auditing standards under the Companies Act, 2013.

Applicable Laws:

Section 132(2) :Constitution of National Financial Reporting Authority.

Section 132(4) : Powers of National Financial Reporting Authority.

Section 139(1) : Appointment of Auditors

Section 469(1) : Power of Central Government to Make Rules.

Companies which are required to file E-Form NFRA-1:

Companies mentioned Rule 3(2) and 3(3) of The National Financial Reporting Authority Rules, 2018

Rule 3(2) : (First time return)

Due date is 31.07.2019 (form deployed on 01.07.2019)

Every existing body corporate other than a company governed by these rules, shall inform the Authority within 30 days of the commencement of these rules, in Form NFRA-1, the particulars of the auditor as on the date of commencement of these rules.

Rule 3(3) : (Regular Return/ Annual Return)

Due date: Within 15 days of appointment of an auditor under section 139(1)

Companies not required to file NFRA-1:

Companies registered in India under the Companies Act 2013/1956
Unlisted Public Companies having paid-up capital of less than Rs. 500 crores or having annual turnover less than Rs. 1000 crores or having, in aggregate, outstanding loans, debentures and deposits less than Rs. 500 crores as on the 31st March of immediately preceding financial year;
a body corporate incorporated or registered outside India, which is a subsidiary or associate company of any company or body corporate incorporated or registered in India as referred to in clauses (a) to (d) of Rule 3(1), if the income or networth of such subsidiary or associate company does not exceeds 20%of the consolidated income or consolidated networth of such company or the body corporate

The Ministry of Corporate Affairs (MCA) has notified that the non-compliance with the National Financial Reporting Authority Rules, 2018 would attract a penalty of not exceeding Rs. 5,000. A notification issued on Friday amended the existing rules and inserted a clause prescribing a punishment in case of non-compliance with the said rules.

A notification issued on Friday amended the existing rules and inserted a clause prescribing a punishment in case of non-compliance with the said rules.

As per the new rule, “Whoever contravenes any of the provisions of these rules, shall be punishable with fine not exceeding five thousand rupees. and where the contravention is a continuing one, with a further fine not exceeding five hundred rupees every day after the first during which the contravention continues.”

NFRA was constituted in the year 2018 to oversee the quality of service of the professionals (such as auditors, CFOs, etc., and suggest measures required for improvement in the quality of service; Perform such other functions related to the above.

The NFRA Rules mandates that every auditor shall file a return with the Authority on or before the prescribed due date every year in such form as may be specified by the Central Government. The authority shall receive recommendations from the ICAI on proposals for new accounting standards or auditing standards or for amendments to existing accounting standards or auditing standards.