What is NFRA?
NFRA stands for “The National Financial Reporting Authority”. This government Authority was constituted on 01st of October, 2018 under the provision of Sub Section (1) of section 132 of the Companies Act, 2013.
The primary reason for the constitution of this entity by the central government in India is to set up an independent and separate regulatory body that will provide its contribute to framing & enforcement of specific laws & regulations concerning accounting & auditing as well as improving the investor & public confidence in financial reporting of an entity. The recent corporate scams have led to the formation of this body in India.
Some of the key roles, responsibilities, and functions handled by NFRA include:
- Provides key recommendations for laying down the accounting & auditing policies and standards for companies in India
- Continually monitor and ensure compliance concerning accounting & auditing standards;
- To monitor and observe the quality of service of the professions engaged in ensuring compliance as per the devised auditing standards and measures suggested by NFRA;
- Perform other functions & duties that are vital to fulfilling the above tasks.
One must note that before the formation of NFRA, all the accounting standards prescribed by the central government were based on the guidelines or suggestions received from the ICAI. The ICAI, on their part, consult with the National Advisory Committee on Accounting Standards (NACAS) before recommending such accounting standards & practices to the central government.
Now, after the formation of NFRA, the ICAI would be obliged to consult with NFRA, instead of NACAS for the same. NFRA officially take over the duties of the National Advisory Committee on Accounting Standards regarding the same.
On the ICAI part, it will continue to undertake its role & responsibilities concerning training & qualifying chartered accountants (CAs), offering them licence to practice, and regulating CAs, including scrutinising audit quality. The disciplinary jurisdiction of ICAI will not be replaced by NFRA in any case.
What is the NFRA 1 Form?
NFRA 1 Form is an annual return form that is filed by the auditor of Indian body corporates or foreign companies that fall under rule number 3(3).
Eligibility to File NFRA Form 1
The list of companies covered by rule 3 of NFRA rules to file NFRA Form 1 are:-
- Companies, whose stocks are listed on any of the stock exchanges in India.
- Unlisted Public Companies that have paid capital not less than INR 500 crores or annual turnover of INR 1000 crores and above or total aggregate outstanding loans, debentures or deposits not less than INR 500 crores.
- Insurance companies, banking companies, and other companies that are actively working in the electricity generation or supply of electricity.
- Companies governed by any special Act for the time being in force or bodies corporate incorporated by an Act as per the clauses (b), (c), (d), (e) and (f) of sub-section (4) of section 1 of the Act;
- Anybody corporate or person or company that has been suggested by the central government to the NFRA.
- Body Corporate that is
- Registered outside India and is a subsidiary company or an associate company of the company that is registered in India as per the aforementioned points.
- The income or net worth exceeds 20% of the consolidated net worth or consolidated income of such company.
The list of companies that do not need to file NFRA Form 1 is given below:
- Private Companies
- Unlisted public companies that have a paid-up capital or turnover or aggregate of loans, debentures and deposits below the prescribed limit
- Limited Liability Partnership (LLP)
Filing Requirements for NFRA Form 1
One Time disclosure of commencement of NFRA rules by Companies
With the help of Form NFRA-1, the classes of companies governed by NFRA Rules (excluding companies that are defined under section 2(20)) must report or disclose details of their company auditor within 30 days from the deployment of this form on the website i.e. 31st July 2019 to NFRA.
Disclosure by companies about the Appointment of Auditors
Similarly, the companies (excluding the ones that are mentioned under section 2(20)) governed by the NFRA must also report to the NFRA within 15 days after the appointment of an auditor. The companies or body corporates are required to furnish the particulars of the auditor to the authority.
Prerequisites for Submission of NFRA-1 Form
For Indian Body Corporates or Companies:
- PAN Details of the authorized Indian individual
- Body corporate PAN Details
- Director/Membership No. of CS/PAN of Manager or CEO or CFO
- Auditor/audit firm income tax PAN number
- Membership number of auditor/auditor firm registration number
- In case the auditor is appointed due to casual vacancy, then the membership no. of the auditor or registration no. of the audit firm who/which vacated the office needs to be provided in the form.
- Written consent copy that is given by the auditor
- Copy of resolution passed from Body Corporate side
- User (Director/Manager/CEO/CFO/Company Secretary) digital signature (DSC)
For Foreign Companies
- Foreign authorized individual Passport Number
- Foreign body corporate Registration number & registration number provider Name
User Registration Procedure for Form NFRA-1
The user registration procedure to file Form NFRA-1 has been explained in a step-by-step manner below:
Step 1: In order to proceed with Form NFRA- 1 submission, the users must register on the NFRA portal and then sign in using the login credentials to complete the form submission.
Step 2: Click on the New Registration or sign up option to register on the NFRA portal (see screenshot). Users need to provide personal details like mobile number, email address, etc.
Step 3: Once you enter the official email address, click on the “Generate email OTP” to receive the OTP on the given email address (see screenshot).
Step 4: Once you enter the mobile number, click on the “Generate Mobile OTP” to receive the OTP on the given number. (refer screenshot below).
Step 5: Once you enter both OTP for mobile & email, click on the “verify email & mobile” option. A pop-up window for “successfully verified” message will appear on the screen (refer screenshot).
Step 6: After successful mobile & email verification, the user must enter the personal details at the next step (see screenshot below).
Step 7: In the personal information section, enter details like name, address, state, PIN, and PAN. refer screenshot below.
Step 8: In case, the country is not selected as India, you will get the option of PAN availability or not. Enter as available. (see screenshot below).
Step 9: In case, you select no PAN, then you must enter the details of your Passport number.
Step 10: In the “designation” field, the user must select whether he/she is a Director/Chief Executive Officer/Chief Financial Officer/ Manager/Company Secretary. (see screenshot for details).
Step 11: DIN number must be entered if you opt for Director option. (see image below)
Step 12: The user must enter the membership number if Company Secretary option is chosen.
Step 13: For information regarding Body Corporate, the user must select the rule under which his/her respective organization falls, they must also select whether the body corporate is registered in India or not. If Yes, then the PAN of body corporate also needs to be entered (see image below).
Step 14: If the body corporate not belongs to India, then the user must enter the name of Indian associate firm along with detailed like CIN. The user must also check whether the body corporate has PAN for business operations in India (see screenshot below).
Step 15: If the “Yes” option is selected for PAN, then the user must enter the PAN details.
Step 16: User must enter the registration number & authority name, in case the PAN option is neglected by the user.
Step 17: User must upload the authorization letter, which gives permission to the user to fil the NFRA-1. This letter also needs to be physically signed by the key managerial individual on the letterhead of the body corporate & must be uploaded in the PDF format. User can download the sample authorization letter for more details. (see below image).
Step 18: The user, after converting the letter into PDF, can click on the “Choose File” option to upload it.
Step 19: Once the PDF for acknowledgement letter is uploaded, the user must enter the desired password and re-enter the same for confirmation. The user also needs to enter the security code and click on the “Register My Account” option.
Step 20: Once the register option is clicked, the application will be sent to the administrator for the approval/rejection. As soon as the application is delivered, the user will see a confirmation email & SMS for the application successful submission. (see screenshot below)
Step 21: If the application gets approved, the user needs to move ahead with DSC registration that is mandatory for successful form submission.
Step 22: In the case of application rejection, the user will see the following error message and will be informed by the Email and SMS as well. Users must click on the “update” button to rectify errors & make improvements.
Step 23: Once the update option is selected, the user can see the submitted application in editable form and must make the corrections and resubmit the application by clicking on the “Update My Account” option.
Step 24: Lastly, after clicking “Update my account” option, the user will view the message that his application has been sent to the administrator for approval. (see image below).
Explanation of FORM NFRA-1
Who Should File Form NFRA-1
This particular form needs to be filed by the auditor of Indian body corporates or foreign companies who fall under rule number 3(3) of the NFRA. The auditor also needs to be functioning as on the date of the commencement of the rules in the company.
How to FIle Form NFRA-1?
Form NFRA-1 contains six key sections wherein each section has multiple fields where the user/auditor needs to fill the required details.
Step 1: In section 1 of the form, the user needs to provide details like Body Corporate identity number and global location number (GLN) in the respective fields (refer screenshot below).
Step 2: The second section of NFRA-1 form requires the user to input basic details like body corporate name, address, and email ID in the given fields (refer screenshot below).
Step 3: The details or particulars of the auditor must be filled in section 3. The third section has 9 subfields where the user must enter details like auditor category, PAN, name of auditor or firm, auditor membership number, auditor address, email ID, service period, number of financial years of appointment, previous tenure details,etc.
Step 4: In this step, the user must tick mark whether the auditor has been appointed via an annual general meeting (AGM) or through a casual vacancy.
Step 5: The date of the auditor appointment needs to be entered in section 5 of the Form.
Step 6: In the last section, the user must enter details about whether the auditor has been appointed due to a casual vacancy in the auditor or office along with other relevant data.
Step 7: The user must also digitally sign the Form NFRA-1 to give his consent regarding the authenticity of the information provided in the Form. Additionally, all the other required documents like written consent copy etc. must be attached by the user at the end of the form. (refer screenshot below)
Punishment in Case of Non-compliance NFRA Form 1
If any company or any officer of a company or auditor or any other person who fall under the provision of NFRA Rules contravene any of these rules are bound to get punished according to the provisions of section 450 of the Act.
