National Financial Reporting Authority (NFRA) has done a preliminary analysis on the key financial parameters of the companies registered in India from their MCA-21 filings.
It observed that the fees paid to auditors by a large majority of Micro, Small and Medium Companies (MSMCs) are under paid. While, an audit, when performed in compliance with the letter and spirit of the Standards of Auditing, would require much more.
Generally, around the world statutory audit for small companies is required only in few cases where some minimum criteria of public interest are satisfied. In India, income tax audit is not compulsory where the turnover is upto Rs 10 crore provided not more than 5% of the transactions are in cash. GST audit has also been completely done away with.
Considering the prevailing scenario, NFRA has recommended to revisit the requirement of compulsory statutory audit for all companies irrespective of their size and/or public interest.
Accordingly, 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 Questions comprises:
- Q1: Do you think that 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?
- Q2: 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?
- Q3: 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?
- Q4: 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 comments/suggestions on above questions may be submitted by 10th November, 2021, by an email at: firstname.lastname@example.org