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NFRA Amendment Rules 2022

The Ministry of Corporate Affairs (MCA) vides a Notification No. F. No. 7/14/2021-CL-I dated 17th June 2022 has notified National Financial Reporting Authority (NFRA) amendment rules 2022. With this new rule, the Ministry of Corporate Affairs (MCA) has amended the audit rules, rationalizing the penalty provision for certain contraventions aimed at encouraging compliance.

The Gist of NFRA Amendment Rules 2022

The NFRA amendment rules 2022 say that failure to comply with the National Financial Reporting Authority Rules (NFRA), 2018 will attract a penalty of Rs.5, 000 and where the contravention is a continuing one, a further fine of Rs.500 for every day during the period of contravention. This applies to offenses for which the penalty is not specified elsewhere in the NFRA law.

Form NFRA-2 – Annual return to be filed by the specified Auditor

Form NFRA-2 has to be filed by the Statutory Auditor of the Company in pursuance of section 132 of Companies Act, 2013 and Rule 5 of NFRA Rules, 2018.

For more details on Form NFRA-2 Extension, Click here

Section 132 of the Companies Act

Section 132 of the Companies Act refers to the ‘Constitution of the National Financial Reporting Authority’ which states the roles and responsibility of the NFRA for matters relating to accounting and auditing standards under the Companies Act, 2013.

Rule 5 of NFRA Rules, 2018

Rule 5 of NFRA Rules, 2018 provides that every auditor referred to in Rule 3 of NFRA Rules, 2018 shall file a return with the Authority on or before 30th April every year in such form as may be specified by the Central Government.

Rule 3 of NFRA Rule, 2018

Rule 3 of NFRA Rule provided for the requirement of filing of Form NFRA 2 (Annual Return) by auditors for which classes of companies and bodies corporate governed by the Authority.

Classes of companies and bodies corporate governed by the Authority

Rule 3 gives power to the Authority (NFRA) to monitor and enforce compliance with accounting standards and auditing standards, oversee the quality of service or undertake an investigation as per s.132 of the auditors of the following class of companies and bodies corporate:

All companies listed on any stock exchange in India or outside India
Unlisted public companies
- having paid-up capital of not less than Rs. 500 Crores
- having an annual turnover of not less than Rs. 1000 Crores
- having, in the aggregate, outstanding loans, debentures, and deposits of not less than Rs. 500 Crores as on the 31st March of immediately preceding financial year;
Insurance/ Banking/ Companies engaged in the generation or supply of Electricity, companies governed by any special act
Any class of or any other body corporate or company or person, on a reference, made to the Authority by the Central Government in the public interest
A body corporate incorporated or registered outside India is a subsidiary or associate company of any company or body corporate incorporated or registered in India

Penalty for Non-Compliance – Earlier Penalty Provisions under NFRA

Earlier the general penalty as mentioned in section 450 of the Companies Act, 2013 used to be levied.

The rule has been amended to drop a reference to section 450 of the Companies Act which specifies a cap of Rs.200, 000 in the case of a company and Rs.50, 000 for an officer in default or any other person for offenses that persist.

While the reference to the upper limit for the continued offense has been dropped, the fine specified in the new rules for the first instance of the breach and each day of continued offense is less than the maximum that the law allows. Section 450 of the Companies Act allows a maximum of Rs.10, 000 at the first instance and Rs.1000 for every day during the period in which the breach continues.