Nfra Consultation Paper-Charting the Strategy to Counter
In a move that could help MSMCs in their goals of becoming compliant with auditing standards, the NFRA has issued a ‘Consultation Paper’ to review how well these smaller companies are doing when it comes down to compliance. The stakeholders have been invited by November 11th, 2021 and they must send comments before then.
India is unique among the big economies of today’s world in that it has statutory auditing requirements for all companies, no matter their size or industry. This lack of discrimination between business sectors can be attributed to India’s pivotal role within its economic growth and development as well as one major reason why these entities should not face regulatory burdens but rather support from an environment conducive towards success.
A recent study by the National Financial Reporting Authority (NFRA) on key financial parameters of companies that filed MCA-21 forms found that most Micro, Small and Medium-size firms are paying auditors far less than what an audit would require. The focus of the analysis is companies with Net worth below Rs. 250 crores, which are referred to as Micro, Small, and Medium (MSMC) for this Consultation Paper.
The key findings in economic research tend not only to be concerned about macroeconomics but also other factors such as equity markets or international trade patterns that can have large impacts on country growth rates over time.
MSMCs and MSME companies play a significant role in the economic growth of India. These small businesses have been profiled by NFRA, whose data includes key features from their financial statements as well as primary users for GPFS Companies (general-purpose finance statement). This finding suggests that many MSC’s are likely to belong with Micro-sized Enterprises which contribute greatly towards countrywide development through trade & commerce activities.
The need to increase audit and minimum thresholds for MSMEs was raised by data obtained. This is an important issue that deserves attention, so stakeholders are encouraged to provide responses with their opinions or insights on what should happen next in order to evaluate this matter properly.
A representative sample questionnaire has been sent out asking whether participants agree/disagree depending upon certain statements woven throughout its contents.
The Following are the questions.
- 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 the Companies Act, 2013? If not, why not, and if yes, what would be the criteria and thresholds for exemption?
- 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?
- 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 the standard cost of audit computed by NFRA? If not, which areas/ assumptions need changes?
- Do you think the current exemption thresholds for CARO, ICFR, and statutory audit applicability need to be standardized and made uniform? If no, why not, and if yes, what would be the criteria and thresholds?
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