NFRA has issued ‘Consultation Paper’ to review the requirement of compulsory statutory audit and compliance with auditing standards for all companies irrespective of their size and/ or public interest, specially the ‘Micro, Small and Medium Companies (MSMCs)’. Stakeholders have been invited to submit their comments by 10/11/2021.
MCA Press Release dt. 29/09/2021: NFRA’s Consultation Paper on Statutory Audit and Auditing Standards for MSMCs
India is unique among the big economies of the world in statutorily mandating compulsory audit for all companies, irrespective of their size and characteristics. In view of the significant role played by companies in India in the economic growth and development of the Nation, it is essential that the regulatory environment is conducive to support, and not burden, the growth in business and economic activities of these entities.
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.
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.
It is, therefore, appropriate to revisit the requirement of compulsory statutory audit for all companies irrespective of their size and/ or public interest. NFRA has prepared a Consultation Paper explaining the issues involved and providing the data and information required for responding to the questions raised in an informed manner, with the objective to seek the comments/ suggestions of the wider stakeholder group and the public at large on questions raised.
NFRA’s Consultation Paper dt. 29/09/2021 on Statutory Audit and Auditing Standards for Micro, Small and Medium Companies (MSMCs) has sought comments/ suggestions from stakeholders on the four specific questions:
1. 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?
2. 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?
3. 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?
4. 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?
The last date for receipt of comments is 10/11/2021. The comments may be submitted by email at: comments-tac.paper@nfra.gov.in
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ICAI Concerns over NFRA Consultation Paper on Review of Audit Requirement
I am surprised to see this Consultation Paper of NFRA. I am wondering what was the need for the ICAI President to clarify few weeks back that MCA has no plans to do away with audit of small companies?
It is quite clear from the ‘Consultation Paper’ of NFRA that statutory audit of small companies is to be abolished soon.
For statutory audit, the big corporates prefer Big4 brands and the small companies are likely to get away with the requirement, as per NFRA move. So definitely its arrival of ‘ACHCHHE DIN’ for small or medium sized CA Firms. They can relax now as far as audit work is concerned.
In case the requirement of statutory audit of small companies is scrapped and it helps in the national cause of ‘EASE OF DOING BUSINESS IN INDIA’, I support it. However, it’s like giving a ‘JHUNJHUNA’ in the hands of a kid crying for other things. Likewise businessman is more concerned on various governance issues instead of these small operational issues.
NFRA has plans to exempt the MSMCs from requirement of Statutory Audit in the name of ‘Ease of Doing Business’. As per para 3.1.1 of the NFRA Consultation Paper itself, … “Out of the total companies which have made filings, 99.41% (5,99,487 Companies) have reported Net Worth below Rs. 250 Crores (MSMCs for the purpose of this consultation paper)”. So we can simply assume that NFRA is working for exempting such 99.41% small companies from statutory audit requirements. No one can help it. However, ICAI should at least take cognizance of such NFRA moves and should review the requirement of fresh Chartered Accountants as well, before distributing degrees to more and more Chartered Accountants every six months.
In case 99.41% of the Companies are exempted from requirement of statutory audit, then what is the future of CA Practice?
It’s not clear as to what is the concern of NFRA on audit fee of MSMCs… is it under charged, over charged or else what? By the way, I doubt that the amount of ‘audit fee’ can be used as a parameter to decide anything for the sake of ‘EASE OF DOING BUSINESS’? In my opinion, the NFRA needs to revisit the theory. Also that this ‘Consultation Paper’ indicates some sort of NFRA vs. ICAI. Therefore, the MCA/ GOI should look into these developments and take the remedial measures to avoid conflicting views of apex bodies in the public domain. Not worth.
NFRA data presentation needs to be reviewed on facts also. There seems to be some inconsistency on page 29 of NFRA Consultation Paper, wherein it is mentioned that out of 6915 active listed companies, only 4349 (63%) companies have filed their Annual Financial Statements, MGT-7, etc., i.e. Non-compliance by 37% listed companies, in respect of FY 2018-19 (upto June 2021) is not possible at all (beyond acceptance level) !!