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

Powers and Functions of NFRA Explained

Updated 10 October 2026 · Fact-checked

NFRA is the National Financial Reporting Authority set up under section 132 of the Companies Act, 2013. Under section 132(2) it recommends accounting and auditing policies and standards, monitors and enforces compliance, and oversees the quality of service of the professions, including suggesting improvements. It can investigate under section 132(4) and has civil court powers.

Understand Powers and Functions of NFRA

Before NFRA, standard setting and discipline sat mainly with the professional institutes. The law now gives an independent regulator, NFRA, the job of watching over accounting and audit quality. It is created under section 132 of the Companies Act, 2013.

Think of NFRA's duties under section 132(2) in three parts. First, recommend: it makes recommendations to the Central Government on accounting and auditing policies and standards for adoption by companies or classes of companies and their auditors. It does not notify them itself. The Central Government notifies them. Second, monitor and enforce: it monitors and enforces compliance with accounting standards and auditing standards. Third, oversee quality: it oversees the quality of service of the professions associated with ensuring compliance with those standards, and suggests the measures needed to improve that quality. Suggesting improvements is part of this quality oversight, not a separate head. Section 132(2) also lets NFRA perform other related functions as may be prescribed.

Investigation and penalties. Section 132(4) gives NFRA the power to investigate, either on a reference by the Central Government or suo motu, professional or other misconduct by members or firms of chartered accountants. This applies to the prescribed classes of companies and bodies corporate, not to every company. The section speaks of chartered accountants, so confirm from your ICMAI study material how it applies in the CMA context. The investigation and penalty provisions run from section 132(4) onward. On proof of misconduct, NFRA can impose penalties and debar the member or firm from practice for a period from six months up to ten years.

For investigation and inquiry, NFRA also has the powers of a civil court under the Code of Civil Procedure, 1908. These cover things such as summoning and examining a person on oath, requiring documents to be produced, receiving evidence on affidavit, and issuing commissions for examining witnesses or documents. This is what gives its inquiries real force.

A good exam answer keeps duties (what NFRA must do) separate from powers (what it can use to do it). Mixing these two is the most common way to lose marks.

Key rules to remember

Source of NFRA: Companies Act, 2013, section 132; Section 132 constitutes NFRA. Its functions and duties are in section 132(2).
Core functions (section 132(2)): Recommend policies and standards + Monitor and enforce compliance + Oversee quality of service (and suggest improvements) + Other related functions as prescribed; Remember as: recommend, monitor, oversee. Suggesting improvements sits inside the quality oversight limb.
Recommendation route: NFRA recommends → Central Government notifies; NFRA does not itself notify the standards.
Investigation and penalty: Section 132(4): investigate (on reference or suo motu) → penalty and debarment from six months up to ten years; Applies to prescribed classes of companies and bodies corporate. Misconduct must be proved before penalty or debarment.
Civil court powers: Summon and examine on oath + Production of documents + Evidence on affidavit + Commissions for witnesses or documents; These are the powers of a civil court under the Code of Civil Procedure, 1908, while inquiring into a matter.

How to solve Powers and Functions of NFRA questions

Use this method for any question asking what NFRA does, what it can do, or how it enforces compliance.

1Read the verb in the question: functions or duties, powers, or enforcement. Decide which part of the answer is the main one.
2State the source first: NFRA is constituted under section 132 of the Companies Act, 2013, and its functions and duties are in section 132(2).
3List the functions in a clear order: recommend accounting and auditing policies and standards, monitor and enforce compliance, and oversee the quality of service of the professions, including suggesting measures for improvement.
4Add who acts on each point, for example that the Central Government notifies the standards NFRA recommends.
5For enforcement, state that under section 132(4) NFRA can investigate on a reference or suo motu for prescribed classes of companies, and on proof of misconduct can impose penalties and debar for six months up to ten years.
6For powers, state that NFRA has the powers of a civil court for inquiries and list the main ones: summoning on oath, documents, affidavit evidence, commissions.
7Link functions to powers in one line: the powers are the tools used to carry out monitoring and enforcement, and close with why this improves reporting quality and public trust.

Quickest way: Three-verb recall

When to use it: Use for MCQs and short notes when you have only a few minutes.

Recall the three verbs: recommend, monitor and enforce, oversee quality (with suggestions for improvement).
Attach the actor to each: NFRA recommends, Central Government notifies.
Recall enforcement as: investigate under section 132(4), penalty, debarment up to ten years.
Recall civil court powers as: summon, documents, affidavit, commission.
In an MCQ, reject options that say NFRA notifies standards by itself or has no investigation or court-like powers.

Common mistakes in Powers and Functions of NFRA

Saying NFRA notifies accounting and auditing standards.
Students assume a regulator makes final rules.
Fix: Write that NFRA recommends and the Central Government notifies.
Mixing up functions and powers in one list.
Both appear in the same section of notes and sound similar.
Fix: Keep separate headings in your answer: duties under section 132(2), and investigation and civil court powers.
Leaving out the oversight of quality of service.
Students remember only standards and compliance.
Fix: Always include the quality-of-service function, with suggestions for improvement, as the third point.
Writing the wrong section number.
Section 132 and its sub-sections get confused with other sections on audit.
Fix: Fix it in memory: NFRA is section 132, functions are 132(2), investigation is 132(4).
Saying NFRA can only advise, or that its only teeth are civil court powers.
Students remember the recommending role and the civil court powers but forget section 132(4).
Fix: Add that NFRA can investigate, impose penalties and debar a member or firm for six months up to ten years on proof of misconduct.
Describing civil court powers as the power to try criminal cases.
The words court and power sound broad.
Fix: Say NFRA has the powers of a civil court for inquiry purposes, such as summoning and requiring documents, not that it is a criminal court.

Worked examples

Example 1

State the functions of NFRA under section 132(2) of the Companies Act, 2013. (Short answer)

Show the solution

Source: NFRA is constituted under section 132 of the Companies Act, 2013. Its functions and duties are set out in section 132(2).
Policies and standards: It makes recommendations to the Central Government on accounting and auditing policies and standards for companies or classes of companies and their auditors. The Central Government notifies them.
Compliance: It monitors and enforces compliance with accounting standards and auditing standards.
Quality: It oversees the quality of service of the professions associated with ensuring compliance, and suggests measures required for improvement.
Other work: It performs other related functions as may be prescribed.

Answer: NFRA recommends accounting and auditing policies and standards, monitors and enforces compliance, oversees the quality of service of the professions (suggesting improvements), and performs other related prescribed functions, as provided in section 132(2).

Example 2

Choose the correct statement. (a) NFRA notifies accounting standards on its own. (b) NFRA has the powers of a civil court while inquiring into a matter. (c) NFRA can only advise and has no enforcement role. (d) NFRA deals only with the quality of tax returns.

Show the solution

Option (a) is wrong. NFRA recommends standards and the Central Government notifies them.
Option (c) is wrong. NFRA monitors and enforces compliance with standards, and under section 132(4) it can investigate and impose penalties.
Option (d) is wrong. Its field is accounting and auditing standards and audit quality, not tax returns.
Option (b) matches the law: for inquiries NFRA has the powers of a civil court, such as summoning and examining on oath and requiring production of documents.

Answer: Option (b)

Exam tips

Learn the three-verb list: recommend, monitor and enforce, oversee quality. Add suggesting improvements under the third. It fits both short notes and MCQs.
Always write who notifies standards. Examiners often test this in a statement-style MCQ.
In a written answer, give separate headings for functions, investigation and penalty, and civil court powers. It reads cleanly and earns step marks.
Use only the section numbers you are sure of: section 132, section 132(2) for functions and section 132(4) for investigation.
Link this topic with NFRA's composition, jurisdiction and investigation, since questions often combine them.

Practice questions from National Financial Reporting Authority (NFRA)

Powers and Functions of NFRA: frequently asked questions

What are the main functions of NFRA?

NFRA recommends accounting and auditing policies and standards to the Central Government, monitors and enforces compliance with them, and oversees the quality of service of the professions involved, suggesting measures for improvement. It can also perform other related functions as prescribed. These duties are in section 132(2) of the Companies Act, 2013.

Does NFRA make accounting standards?

NFRA recommends accounting and auditing standards to the Central Government. The Central Government notifies them. So NFRA's role is advisory at the standard-setting stage.

What are the powers of a civil court that NFRA has?

For inquiries, NFRA has the powers of a civil court under the Code of Civil Procedure, 1908. These include summoning and examining a person on oath, requiring production of documents, receiving evidence on affidavit and issuing commissions for witnesses or documents.

How does NFRA monitor and enforce compliance with standards?

It examines whether companies follow the accounting standards and whether auditors follow the auditing standards. Under section 132(4) it can investigate, on a reference by the Central Government or suo motu, for prescribed classes of companies. On proof of misconduct it can impose penalties and debar the member or firm for a period from six months up to ten years.