Question

The Standards on Auditing have been accorded legal sanctity in the 2013 Act and would be subject to notification by the

• A. NFRA
• B. NRFA
• C. NARF
• D. SEBI

Hint:

Remember NFRA (National Financial Reporting Authority) as the super-regulator for auditors of listed and large companies, established under Section 132 of the Companies Act, 2013. Its role is analogous to the PCAOB (Public Company Accounting Oversight Board) in the United States.

Answer 1

The Correct Option is A

Step 1: Understanding the Concept:
The Companies Act, 2013, established a new, powerful regulatory body to oversee the auditing profession and enforce auditing standards in India. This was done to improve corporate governance and restore confidence in the audit process, especially for large and listed companies.
Step 2: Detailed Explanation:
Section 143(2) of the Companies Act, 2013, states that the auditor shall make a report to the members of the company on the accounts examined by him and on every financial statement which are required by or under this Act to be laid before the company in general meeting and the report shall after taking into account the provisions of this Act, the accounting and auditing standards state whether in his opinion and to the best of his information and according to the explanations given to him, the said accounts give the information required by this Act in the manner so required and give a true and fair view.
Section 132 of the Act provides for the constitution of the National Financial Reporting Authority (NFRA).
Among the duties of NFRA, as laid down in Section 132(2), is to:
(a) make recommendations to the Central Government on the formulation and laying down of accounting and auditing policies and standards for adoption by companies or class of companies or their auditors.
Furthermore, Section 143(10) empowers the Central Government to prescribe the standards of auditing or any addendum thereto, as recommended by the Institute of Chartered Accountants of India, in consultation with and after examination of the recommendations made by the NFRA.
Therefore, NFRA is the body that has the ultimate authority to recommend and oversee the notification of Auditing Standards, giving them legal sanctity under the Act.