Filing of Annual return by Auditors - MMJC

Background:

As per Section 132 of the Companies Act, 2013 read with National Financial Regulatory Authority (NFRA) Rules, 2018, certain companies and other entities as prescribed in these NFRA Rules and their auditors are governed by NFRA.

NFRA 2 – Compliance

MCA has prescribed Form NFRA-2 as the Annual Return which is to be filed by the auditor before 30 November every yeargoverned by the NFRA authority.

Rule 3(1) of NFRA Rules specifies the classes of companies and bodies corporate which shall be governed by the NFRA (“Authority”), i.e.: –

• Companies whose securities are listed on any stock exchange in India or outside India
• Unlisted public companies who have as on 31st March of immediately preceding financial year:
  • Paid up capital of not less than Rs. 500 Cr. or
  • Annual turnover of not less than Rs. 1000 Cr. Or
  • Aggregate outstanding loans, deposits, debentures of not less than Rs. 500 Cr.
• Insurance companies
• Banking companies
• Companies engaged in the generation or supply of electricity
• Companies governed by any Special Act
• Bodies corporate incorporated by an Act in accordance with Section 1(4) (except companies incorporated under Companies Act, 2013 or any previous Companies Act)
• Any company, body corporate, person or class of bodies corporate or companies or persons referred by Central Government to NFRA in public interest
• Foreign subsidiary or associate company of an Indian Company or body corporate, if the net worth OR income of such foreign subsidiary or associate company is more than 20% of the consolidated income OR consolidated net worth of such Indian Company or body corporate

The auditor is expected to report the following in Annual Return: –

• Basic details like PAN, remuneration, details of partners and number of employees
• If the firm has quit the audit assignment of any company in the preceding three years, or
• Has withdrawn the audit report on financial statements or
• Has withdrawn consent to use its name in a report in the preceding three years.
• A statement of quality control policies it has put in place for the reporting period.

These are significant disclosures to be made by the auditor.

Non-filing of NFRA-2 form is a non-compliance under NFRA rules which attracts penal provisions.

Defaulters Liability

A fine of up to ₹5,000, and where the contravention continues, a further fine of up to ₹500 every day after the first, as long as the contravention continues.

The audit regulator has already sent an intimation to defaulting audit firms and auditors.

NFRA brought out separate lists of defaulting auditors that have signed the financial statements of unlisted, listed and banking and insurance companies. The same includes both individual professionals and audit firms. The list can be accessed from the mentioned link below: –

https://nfra.gov.in/nfra_domain

A reminder that due date for the reporting period 2021-22 (audit reports signed during the period 1 April 2021 to 31 March 2022) is 30 November 2022.

Auditors/firms are advised to file NFRA-2, if not already done so.