Short notes on NFRA

The National Financial Reporting Authority (NFRA) is a body constituted under the
provisions of Section 132 of the Companies Act, 2013. The constitution of this authority is
effective from 1st October 2018.

NFRA is the government body responsible for setting accounting standards in the country. Its
mandate is to improve the quality and consistency of financial statements in the country and
ensure that businesses and financial institutions disclose accurate and fair information.

The aim of the Central Government in this regard appears to be:

 Setting up of a separate and independent regulatory body to assist in the framing and
enforcement of legislation relating to accounting & auditing and
 Improving investor and public confidence in the financial reporting of an entity.

The National Financial Reporting Authority was created by the Supreme Court of India to
strengthen the regulatory process of the audit profession. It will enforce accounting standards
and supervise auditors. It's a government body whose members include listed companies,
securities and subsidiaries. The authority consists of a chairperson, three full-time members
and a secretary.

The NFRA has the following responsibilities:

 Make recommendations on the foundation and laying down of accounting and

auditing policies and standards;
 Monitor and enforce the compliance of the accounting standards and auditing
standards:
 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.

Prior to the constitution of this authority, the Central Government would prescribe accounting
standards on the recommendation of ICAI. The ICAI would prescribe the same only after
consulting with the National Advisory Committee on Accounting Standards who will provide
their recommendations.

The ICAI will now have to consult with the NFRA and examine its recommendations in this
regard. Thus the National Advisory Committee on Accounting Standards is effectively
replaced by the NFRA.

The NFRA shall have the following powers:

 To investigate the matters of professional or other misconduct committed by a

prescribed class of CA firms or CAs. No other authority can initiate or continue
proceedings where the NFRA has initiated an investigation. Such an investigation can
be initiated either suo moto (by itself) or on a reference made by the Central
Government.
  The same powers as a Civil Court under the Code of Criminal Procedure, 1908, in
respect of a suit involving the following matters.
1. Discovery and production of books of account and other documents, at
such place and time as may be specified by the NFRA
2. Summoning and enforcing the attendance of persons and examining them
under oath
3. Inspection of any books, registers, and other documents of any person at
any place
4. Issuing commissions for the examination of witnesses or documents
 Where professional or other misconduct is proved, it shall have the power to impose
the following punishment:
1. Penalty:
For individuals a fine between Rs. 1,00,000 to 5 times the fees received.

For firms a fine Between Rs. 5,00,000 to 10 times the fees received.

Debarring the member/firm from practice as a member of ICAI between 6

months to 10 years as may be decided.

Any person who is not satisfied with the order of the NFRA can then make an appeal to the
Appellate Authority.

Conclusion

The authority must maintain books of account and other books related to accounts and shall
consult the Comptroller and Auditor-General of India for the purpose of auditing. The
authority must have its accounts audited by the Comptroller and Auditor-General of India
regularly, and it must also provide a report to the Central Government.

The NFRA shall also ensure that it is independent of audit firms and related consultancy
firms. The NFRA will also oversee the practices of firms and chartered accountants. Its scope
will be limited to auditing large listed and unlisted companies, and the Centre will refer such
entities to it.

Short notes on accounting equations:

The accounting equation summarizes the essential nature of double-entry system of
accounting. Under which, the debit always equal to credit, and assets always equal to the sum
of equities and liabilities. Accounting equation can be simply defined as a relationship
between assets, liabilities and owner’s equity in the business.

Accounting Equations Rules:

The accounting equation connotes two equations that are basic and core to accrual
accounting and double-entry accounting system.The following are two basic rules of
accounting equation that distinguishes the accrual system of accounting from cash basis
accounting, and single-entry system from the double-entry system:
  The first among them is the basic accounting equation which written as Assets =
Liabilities + Equities.
 The second one is termed as ‘Expanded Accounting Equation’ which is a combination
of the basic equation and secondary equation i.e. Debit = Credit.

It derives its status only from the accrual system of accounting and thereby, it does not apply
in a cash-based, single-entry accounting system.

Accounting Equation Fundamentals:

It is pertinent to note that the term basic accounting equation is another name for the ‘Balance
Sheet Equation’. The reason balance sheet always balances is because of the following
equation:

Assets = Liabilities + Owners Equities

The ingredients of this equation - Assets, Liabilities, and Owner's equities are the three major
sections of the Balance sheet. By using the above equation, the bookkeepers and accountants
ensure that the "balance" always holds

The accounting equation represents an extension of the ‘Basic Equation’ to include another
fundamental rule that applies to every accounting transaction when a double-entry system of
bookkeeping is used by the businesses.

Debits = Credits

This Accounting Equation summarizes the following:

 Debit and Credit should be equal for every event that impacts accounts.

 Across any specified timespan, the sum of all debit entries must equal the total of all
credit entries, meaning the same balance applies for every pair of ‘entries’ that
follows a transaction.

This equation serves to provide an essential form of built-in error checking mechanism for
accountants while preparing the financial statements.

Formulae correlation:

The entire financial accounting depends on the accounting equation which is also known as
the ‘Balance Sheet Equation’. The following are the different types of basic accounting
equation:
 Asset = Liability + Capital
This balance sheet equation tells you that all the assets owned by the business are either
sponsored using the owners’ equity or the amount which company should owe others like
suppliers or borrowings like Loans

 Liabilities= Assets – Capital

The difference of assets and owner’s investment into business is your liabilities
which you owe others in the form of payables to suppliers, banks etc
  Owners’ Equity (Capital) = Assets – Liabilities
This equation reveals the value of assets owned purely by owner equity.
While trying to do this correlation, we can note that incomes or gains will increase
owner’s equity and expenses, or losses will reduce it.

Describe Accounting Standards:

Indian accounting standards are nothing but guidelines to be followed in the accounting system. It
means rules & regulations that are to be followed while recording accounting & financial
transactions. It governs the manner in which financial statements are prepared & presented in a
company.

In India, Institute of Chartered Accountants formulate & issue accounting standards. These
standards are followed by accountants of all the companies registered in India. As we have
mentioned before, these accounting standards help in preparation and presentation of financial
statements.

These are some of the major objectives of Indian accounting standards

 The main objective of Indian accounting standards is to bring in more transparency of

annual financial statements in company accounts.
 Ensure companies in India adopt these standards to implement internationally recognized
best practices.
 One systematic, single accounting system common for all the companies. Cutting out
confusions and frauds.
 The Indian accounting standards are so simplified that they can be understood worldwide,
globally.
 There are several global requirements and the Indian accounting standards are designed to
match the global requirements.
 To increase the reliability of the financial statements.

Indian Accounting Standards:

 Ind AS 1 Presentation of Financial Statements

Objective: This standard sets out generally speaking necessities for show of financial
statements, rules for their construction and least prerequisites for their substance to
guarantee likeness.

 Ind AS 2 Inventories Accounting

Objective: Its arrangements with accounting of inventories like estimation of stock,

incorporations and avoidances in its expense, divulgence necessities, and so forth.
  Ind AS 7 Statement of Cash Flows

Objective: It manages cash got or paid during the period from working, financing
and contributing exercises. It additionally shows any adjustment of the money and money
counterparts of any element.

 Ind AS 12 Income Taxes

Objective: This standard recommends accounting for income tax. The chief issue in
representing annual duties is the means by which to represent the current and future
assessment.

 Ind AS 21 The Effects of Changes in Foreign Exchange Rates

Objective: This standard helps to understand how to incorporate unfamiliar cash

exchanges and unfamiliar activities in the financial reports of a company and how
to make an interpretation of budget reports into a presentation currency.

 Ind AS 27 Separate Financial Statements

Objective: This recommends bookkeeping and revelation necessities for interests in

auxiliaries, joint endeavors and partners when a company plans separate budget
reports.

 Ind AS 103 Business Combination

Objective: It applies to exchanges or other occasions that meet the meaning of a

business mix. This standard aids in working on the significance, unwavering quality
and equivalence of the data that a revealing substance gives in its budget
summaries about a business mix and its belongings.

 Ind AS 105 Non-Current Assets Held for Sale and Discontinued Operations

Objective: This determines representing resources held available to be purchased,

and sold and divulgence of uncompleted activities.

 Ind AS 115 Revenue from Contracts with Customers

Objective: This sets up rules that an organization will apply to report helpful data to
clients of financial statements about, sum, timing and vulnerability of income and
incomes emerging from an agreement with a customer.