Statutory Audit requirements for various entities will be ending soon? NFRA consultation paper says that “It is appropriate to revisit the requirement of compulsory statutory audit for all companies irrespective of their size and/or public interest”
A preliminary analysis has been done by National Financial Reporting Authority (NFRA) on the key financial parameters of the companies registered in India from their MCA-21 filings and it is found that the fees paid to auditors by a large majority of Micro, Small and Medium Companies (MSMCs) are way below what an audit, when performed in compliance with the letter and spirit of the Standards of Auditing, would require.
It may be recalled that National Financial Reporting Authority (NFRA) was established by the Central Government in October 2018 under Section 132(1) of the Companies Act, 2013. An important function of NFRA under section 132(2)(a) of the Companies Act, 2013 is to make recommendation to 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.
NFRA has issued a consultation paper explaining the issues involved and providing the data and information required for responding to the questions raised in an informed manner.
The consultation paper further points out that all the major economies of the world require statutory audit for small companies only in case some minimum criteria of public interest are satisfied. Even in India, income tax audit is now not compulsory where the turnover is Rs. 10 crore or less provided not more than 5% of the transactions are in cash. GST audit has also been completely done away with.
Major Question which is framed by NFRA are as under:
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Do you think that Micro, Small and Medium Companies (MSMCs) depending upon some criteria and threshold should be exempted from the mandatory statutory audit under Companies Act, 2013? If not, why not and if yes, what would be the criteria and thresholds for exemption?
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Do you think there is a requirement for a separate set of auditing standards for MSMCs as it exists for accounting standards? If no, why not and if yes, what should be the basis for the same?
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The cost of conducting an audit as per the prescribed standards is an important input for the responses to Questions 1 and 2. Do you agree with the approach for estimating standard cost of audit computed by NFRA? If not, which areas/ assumptions need changes?
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Do you think the current exemption thresholds for CARO, ICFR and statutory audit applicability need to be standardised and made uniform? If no, why not and if yes, what would be the criteria and thresholds?
