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: [email protected]