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. The last date for receipt of comments is 10^th November, 2021. The comments may be submitted by email at: comments-tac.paper@nfra.gov.in  

 NFRA’s Consultation Paper on Statutory Audit and Auditing Standards for Micro, Small and Medium Companies (MSMCs) can be accessed on NFRA’s website at:

https://nfra.gov.in/sites/default/files/NFRAConsultationPaperMSMCs.pdf

About NFRA

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.

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RM/KMNRelease Id :-1759494

The National Financial Reporting Authority (NFRA) has issued a Financial Reporting Quality Review Report (FRQRR) in respect of  KIOCL Ltd. for the financial year 2019-20.

The FRQRR is one of the two components of the Inspection Programme of the NFRA. The other component is the Audit Quality Review Report (AQRR).

The FRQRR focuses on the role of preparers, i.e., those responsible for the preparation of financial statements and reports in accordance with the applicable accounting standards. Therefore, the FRQRR evaluates how well the Chief Financial Officer, and the rest of the Management, and the Audit Committee, as well as the Board of Directors of the Company, have performed in preparing financial statements that show a true and fair view as required under the Companies Act, and in accordance with the applicable accounting standards.

The FRQRR concludes with an advisory to the preparers, highlighting the matters that need improvement. In case there are violations of accounting standards and the law that require action to be taken under the law, the matter is reported to the authorities who can take action.

The FRQRR in respect of KIOCL Ltd.  is the first FRQRR issued by the NFRA. .

NFRA has prepared this FRQRR on the basis of examination of the financial statements of the Company for the Financial Year 2019-2020 and other information sought from the Company during the course of NFRA’s review.

NFRA Conclusions/Recommendations in respect of its observations have been categorized into ‘High’ and ‘Moderate’ Impact. Some of the main High Impact Non compliances w.r.t. to Accounting Standards on part of KIOCL are as follows:

1. KIOCL’s accounting policy for Foreign Exchange (Fx) Forward Contracts is erroneous and it is non-compliant with the classification and measurement requirements of Ind AS 109, Financial Instruments (Ind AS 109).

2. The accounting policy for a material element i.e. Revenue (with corresponding impact on related assets such as Trade Receivables, Inventories etc.) as stated in its statement of significant accounting policies is erroneous. This erroneous accounting policy raises questions over the reliability and accuracy of the financial statements of the Company.

3. Adequate evidence, such as valuation reports, if any, have not been provided by KIOCL in respect of application of Indian Accounting Standard (Ind AS) 36, Impairment of Assets (Ind AS 36) in the case of the Blast Furnace Unit that was non-operational. Also, there is no evidence that impairment loss computations were considered/reviewed/ presented to Audit Committee and the Board of Directors (BoD) of the Company.

Many other errors have been noticed in disclosures in the Notes to Financial Statements. These disclosures are either not relevant or useful to the users of financial statements, and have the potential to obscure the material information in the financial statements.

NFRA has recommended that KIOCL examine if it is necessary to prepare and publish restated financial statements as per Ind AS 8 and Section 131 of the Companies Act, 2013.

The FRQRR can be seen on NFRA website on the URL:

https://nfra.gov.in/sites/default/files/FRQR%20Report%20KIOCL_1.pdf

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RM/KMN

Release Id :-1758789

In accordance with Rule 6 of National Financial Reporting Authority Rules, 2018, the Institute of Chartered Accountants of India (ICAI) has submitted to National Financial Reporting Authority (NFRA) an Approach Paper for revision of existing Accounting Standards of Companies that are not required to follow Indian Accounting Standards (Ind ASs). Alongwith the Approach Paper, the proposed texts of 18 revised Accounting Standards (ASs) out of a total of 32 revised ASs expected to be prescribed upon completion of this AS revision project was submitted by ICAI.

NFRA notes that most of the companies to which these proposed revised ASs will apply are Private Limited Companies. Many of the companies are of very small net worth or turnover or indebtedness or a combination of these. They would be mostly owned by small families, sometimes along with a small circle of friends and relatives. Therefore, public interest in the General Purpose Financial Statements (GPFSs) of these Companies would most likely be minimal. There are a number of Revised ASs which are very large and complex and may not be relevant and useful to the limited users of GPFSs of these Companies. The expected standard audit cost to perform reasonably good quality audit, performed in compliance with the letter and spirit of the Standards on Auditing (SAs) is significantly more than the presently reported audit fee ranges i.e., a very large percentage of AS Companies have reported Payment to Auditors of less than ₹ 25 thousand. 

Based on the findings above, and persuaded by the limited extent of public interest in the GPFSs of AS Companies, and the need for enabling a regulatory environment conducive for their economic growth, NFRA has recommended to the ICAI that a Regulatory Impact Assessment be conducted of this revision proposal, duly including all the standard features of such a process, and, in particular, to take action as follows:

1. The Approach Paper should be developed in a transparent manner after extensive nation-wide consultation with the primary stakeholders i.e., the Preparers – MSMCs (Micro, Small and Medium-size Companies) and Auditors – MSMPs (Micro, Small and Medium-size Practitioners). ICAI is requested to send NFRA the analysis of the public comments on the Approach Paper if the ICAI had performed any such public consultation in the past.
2. Comprehensive study and research should be undertaken on the costs to the Preparers of compliance with these Revised ASs and their technical resource capacity, which should be evaluated against the likely benefits to all the stakeholders of AS Companies. 
3. ICAI should reconsider the Structure, Form and Contents of Revised ASs for AS Companies and align the same to the nature, size and complexity of the ASs, to their commercial needs, business size, capacity to comply with the prescribed standards, and relevance to their primary users.

ICAI’s Approach Paper and NFRA’s response to the ICAI Approach Paper have been posted on NFRA’s website at:

https://nfra.gov.in/sites/default/files/Letter%20to%20Secretary%20ICAI%20reg%20Recommendations%20of%20ICAI.pdf  

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RM/KMNRelease Id :-1758961

Ministry of Corporate Affairs Press Release dated 24th Aug 2021

Under section 406 of the Companies Act, 2013 (CA, 2013) and Nidhi Rules, 2014 (as amended), companies incorporated as Nidhi Companies need to apply to the Central Government in form NDH-4 for declaration as a Nidhi Company.

It has been observed that companies have been applying to the Central Government for declaration as Nidhi under the CA, 2013 but of the 348 number of forms scrutinized upto 24.08.2021 not a single company could satisfy the requisite criteria for it to be declared as a Nidhi Company by the Central Government. There are large number of companies which though functioning as Nidhi Company have not yet applied to the Central Government for declaration as Nidhi Company which is violation of the CA, 2013 and Nidhi Rules, 2014.

Stakeholders are advised to verify the antecedents of the company functioning as a Nidhi company and ensure that the company has been declared as a Nidhi Company by the Central Government before becoming its member and depositing / investing their hard-earned money in such companies.

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As on 30th June 2021, 4,540 companies were admitted into Corporate Insolvency Resolution Process (CIRP) under Insolvency and Bankruptcy Code, 2016 (IBC). This was stated by Union Minister of State for Corporate Affairs Shri Rao Inderjit Singh in a written reply to a question in Rajya Sabha today.

Giving details on the resolution status, the Minister stated that 394 companies were resolved till 30th June 2021 wherein financial creditors (FCs) including financial institutions, had total claims amounting to Rs 6.80 lakh crore, out of which Rs 2.45 lakh crore have been realised, which is 36% of their claims.

The Minister further stated that the insolvency resolution process of the corporate debtor (CD) is market driven and the outcome depends on market forces which varies from case to case and sector to sector. The value realised by creditors depends on available assets at the stage of admission of case under the Code. Details of cases are available in public domain on the website of Insolvency and Bankruptcy Board of India (www.ibbi.gov.in) which is periodically updated.

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