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The National Financial Reporting Authority (NFRA), an independent audit regulator, sought public and stakeholder comments on whether micro, small and medium companies (MSMCs) — depending upon some criteria and threshold —should be exempted from mandatory statutory audit currently stipulated under company law for all companies.
In a new consultation paper, NFRA has also sought stakeholders’ comments on whether there is a requirement for a separate set of auditing standards for MSMCs as it exists for accounting standards.
It has also sought comments on whether current exemption thresholds for CARO ( Companies Auditors Report Order ( CARO), Internal Controls over Financial Reporting (ICFR) and statutory audit applicability need to be standardised and made uniform. Stakeholders and public comments can be sent to NFRA by November 10, NFRA has said.
Conducive regulatory environment
NFRA also highlighted that 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, NFRA has said.
A preliminary analysis done by NFRA on the key financial parameters of the companies registered in India from their MCA-21 filings showed that the fees paid to auditors by a large majority of MSMCs are way below what an audit, when performed in compliance with the letter and spirit of the Standards of Auditing, would require. The companies analysed are those with networth below ₹250 crore and referred to as MSMCs for the purpose of consultation paper. NFRA also noted that a large proportion of the MSMCs are likely to belong to the micro, small and medium-sized enterprises sector, which plays a significant role in the economic growth and development of the nation.
NFRA has also highlighted that 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 ₹10 crore or less provided not more than 5 per cent 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.
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