The National Financial Reporting Authority (NFRA) is an independent regulatory body, established as a statutory quasi-judicial institution under Section 132 of the Companies Act, 2013. It was formally constituted by the Government of India on October 1, 2018. The NFRA was created to solve the problem of inadequate self-regulation of the auditing profession, which was previously overseen by the Institute of Chartered Accountants of India (ICAI). Concerns about potential conflicts of interest and the effectiveness of the self-regulatory model, highlighted by the Satyam scandal in 2009, necessitated a more robust, independent oversight body to enhance transparency and investor confidence.
The NFRA's mechanism is defined by its duties under Section 132(2) of the Companies Act, 2013, which include recommending accounting and auditing policies and standards for adoption by companies, and monitoring and enforcing compliance with these standards. It has the power to investigate professional or other misconduct by chartered accountants and audit firms, and can impose sanctions, including monetary penalties and debarment from practice for up to 10 years. The NFRA's jurisdiction extends to auditors of listed companies, and large unlisted public companies that meet certain thresholds specified in the NFRA Rules, 2018.
The NFRA replaced the advisory role of the National Advisory Committee on Accounting Standards (NACAS), transforming it into a regulatory and enforcement authority. It connects directly to the Companies Act, 2013, and its oversight is crucial for Public Interest Entities (PIEs). Recently, the NFRA has tightened its oversight, with new guidelines setting stricter timelines for audit firms to fix quality issues, requiring corrective plans within three months and full implementation within six months. Furthermore, the proposed Corporate Laws (Amendment) Bill, 2026, aims to strengthen the NFRA by establishing it as a body corporate with expanded enforcement powers.