Corporate Accounting and Auditing · National Financial Reporting Authority (NFRA)

NFRA Constitution and Composition under Section 132

Updated 10 October 2026 · Fact-checked

The National Financial Reporting Authority (NFRA) is a body the Central Government may constitute by notification under Section 132 of the Companies Act, 2013. It deals with accounting and auditing standards. It has a chairperson and up to fifteen other members, part-time and full-time. Its head office is at New Delhi.

Understand NFRA: Constitution and Composition

Companies publish financial statements, and auditors certify them. Someone must make sure the accounting and auditing standards behind them are good and are actually followed. Section 132 creates the National Financial Reporting Authority (NFRA) for this purpose.

The Act says the Central Government may, by notification, constitute NFRA "to provide for matters relating to accounting and auditing standards under this Act". The word is "may", not "shall". The power is discretionary, and the Authority comes into existence by a government notification.

Why was it set up? The Act's text shows the purpose through its functions. NFRA recommends accounting and auditing policies and standards to the Central Government, monitors and enforces compliance, oversees the quality of service of the professions associated with compliance, and can investigate misconduct by chartered accountants and firms. So it brings standard-setting advice, enforcement and quality oversight under one statutory body. The Act does not give a history of earlier bodies in these sections, so for the 'how it replaced earlier arrangements' part, link it to what the proviso to Section 133 says: until NFRA is constituted, the Central Government may prescribe accounting standards on the recommendation of ICAI after examining the recommendations of the National Advisory Committee on Accounting Standards (NACAS), set up under Section 210A of the Companies Act, 1956. After NFRA exists, the consultation is with NFRA.

Composition: a chairperson plus other members not exceeding fifteen, part-time and full-time, as prescribed. The chairperson must be a person of eminence with expertise in accountancy, auditing, finance or law, appointed by the Central Government. Terms, conditions and the manner of appointment are prescribed by rules.

NFRA works through divisions as prescribed (Section 132(1A)). Each division is presided over by the Chairperson or a full-time Member authorised by the Chairperson. An executive body of the Chairperson and full-time Members handles efficient discharge of functions under sub-section (2) other than clause (a), and sub-section (4).

Key rules to remember

Constitution: Section 132(1): Central Government may, by notification, constitute NFRA; Power is discretionary ("may"). Purpose: matters relating to accounting and auditing standards under the Act.
Composition: Chairperson + other members not exceeding fifteen (part-time and full-time); Section 132(3). Chairperson is appointed by the Central Government and must be a person of eminence with expertise in accountancy, auditing, finance or law. Other terms are as prescribed.
Declaration: Chairperson and members declare no conflict of interest or lack of independence; Second proviso to Section 132(3). Made to the Central Government in the prescribed form.
Cooling-off for full-time persons: No association with any audit firm (including related consultancy firms) during appointment and for 2 years after ceasing; Third proviso to Section 132(3). Applies to chairperson and members in full-time employment with NFRA.
Divisions and executive body: Section 132(1A), (3A), (3B); Functions are performed through prescribed divisions. A division is presided over by the Chairperson or an authorised full-time Member. The executive body is the Chairperson and full-time Members.
Head office: New Delhi (Section 132(12)); NFRA may meet at other places in India as it deems fit.
Accounts and report: Accounts audited by the C&AG (s.132(14)); annual report laid before each House of Parliament (s.132(15)); The Central Government causes the annual report and the C&AG audit report to be laid before Parliament.

How to solve NFRA: Constitution and Composition questions

Questions on this topic ask you to state, explain or apply the provisions of Section 132 on how NFRA is set up and staffed. Use this method.

1Identify what is asked: purpose, constitution, composition, appointment, independence or administration.
2Start with the source: Section 132 of the Companies Act, 2013 and who acts (the Central Government, by notification).
3State the purpose: matters relating to accounting and auditing standards under the Act.
4Give the composition: chairperson with the required expertise, plus other members not exceeding fifteen, part-time and full-time.
5Add safeguards: the declaration of no conflict of interest and the two-year bar on association with audit firms for full-time persons.
6Add structure if relevant: divisions, executive body, head office at New Delhi, accounts audited by the C&AG.
7For scenario questions, match each fact to the exact provision and conclude clearly.
8Use only the section numbers you are sure of, and say 'as prescribed' where the Act leaves details to rules.

Quickest way: Remember it as C-C-D-H-A

When to use it: Use for short notes and 2-mark MCQs when time is tight.

C - Constituted by the Central Government through notification.
C - Chairperson (eminent, expert in accountancy, auditing, finance or law) plus not more than fifteen members.
D - Divisions and a declaration of no conflict of interest.
H - Head office at New Delhi.
A - Accounts audited by the C&AG; annual report goes to Parliament.

Common mistakes in NFRA: Constitution and Composition

Writing that the Central Government 'shall' constitute NFRA.
Students assume a regulator is compulsory once the Act mentions it.
Fix: Section 132(1) says 'may'. Use 'may, by notification'.
Saying NFRA has fifteen members in total.
The number fifteen is remembered without its context.
Fix: The Act says a chairperson and other members not exceeding fifteen. So the limit applies to members besides the chairperson.
Saying NFRA itself prescribes accounting standards.
Students mix up recommending with prescribing.
Fix: NFRA makes recommendations on standards. Under Section 133 the Central Government prescribes accounting standards, as recommended by ICAI after examining NFRA's recommendations.
Applying the two-year bar to all members.
The proviso wording is skipped.
Fix: It applies to the chairperson and members in full-time employment with NFRA. Their bar covers the appointment and two years after it ends.
Naming the old Company Law Board or NACAS as if the sections given set out how NFRA replaced them.
Students memorise textbook history rather than the text.
Fix: Anchor on Section 133's proviso: NACAS recommendations are used only until NFRA is constituted. State other history in general words without section numbers.
Writing 'appeal to NCLAT' without the Act's wording.
Short-form memory.
Fix: Section 132(5) provides an appeal against penalty or debarring orders before the Appellate Tribunal, in the prescribed manner and on payment of the prescribed fee.

Worked examples

Example 1

Explain the constitution and composition of the National Financial Reporting Authority under Section 132 of the Companies Act, 2013. (Short answer)

Show the solution

Constitution: the Central Government may, by notification, constitute NFRA to provide for matters relating to accounting and auditing standards under the Act.
Composition: a chairperson, who is a person of eminence with expertise in accountancy, auditing, finance or law, appointed by the Central Government.
Other members: not exceeding fifteen, part-time and full-time, as prescribed.
Safeguards: the chairperson and members declare no conflict of interest or lack of independence. Full-time persons must not be associated with any audit firm during appointment and for two years after.
Structure: work is done through prescribed divisions, each presided over by the Chairperson or an authorised full-time Member. An executive body of the Chairperson and full-time Members exists.
Administration: head office at New Delhi; accounts audited by the C&AG; annual report laid before Parliament.

Answer: NFRA is a Central Government-notified authority under Section 132 with a chairperson and up to fifteen other part-time and full-time members, working through divisions, with safeguards for independence.

Example 2

Mr. Rao, a full-time member of NFRA, completes his term on 31 March 2028. He proposes to join a chartered accountancy firm's audit practice on 1 October 2028. Can he do so under Section 132?

Show the solution

Rule: a chairperson or member in full-time employment with NFRA shall not be associated with any audit firm (including related consultancy firms) during the appointment and for two years after ceasing to hold it.
Mr. Rao is a full-time member, so the bar applies.
The two years run from 31 March 2028 to 31 March 2030.
1 October 2028 falls inside this period, so the proposed association is not permitted.

Answer: No. As a full-time member, Mr. Rao cannot be associated with any audit firm until the two years after his appointment ends, that is, until 31 March 2030.

Exam tips

Learn the exact wording: 'may', 'by notification', 'not exceeding fifteen', 'two years after ceasing'.
In a descriptive answer, give a short heading for each point: constitution, chairperson, members, safeguards, divisions, administration.
For MCQs, watch for option traps: 'shall' versus 'may', fifteen members versus fifteen plus chairperson, part-time versus full-time.
Pair this topic with the NFRA powers and functions topic; a question often asks for both in one answer.
Mention 'as prescribed' where the Act leaves terms and procedure to rules instead of inventing details.

Practice questions from National Financial Reporting Authority (NFRA)

NFRA: Constitution and Composition: frequently asked questions

What is NFRA in simple words?

NFRA is a statutory authority that the Central Government may constitute under Section 132 of the Companies Act, 2013. It deals with accounting and auditing standards. It recommends policies, monitors compliance, oversees the quality of professionals and investigates misconduct by chartered accountants.

Who appoints the NFRA chairperson and what qualifications are needed?

The Central Government appoints the chairperson. The person must be of eminence with expertise in accountancy, auditing, finance or law. Terms and conditions and the manner of appointment are as prescribed.

How many members can NFRA have?

Besides the chairperson, the Authority can have other members not exceeding fifteen. They may be part-time or full-time, as prescribed.

Where is the NFRA head office?

Section 132(12) fixes the head office at New Delhi. NFRA may meet at other places in India as it deems fit.