Suggestions on Statutory Audit & Auditing Standards for Micro, Small & Medium Companies (MSMCS) by BJP CA cell

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Team Studycafe | Nov 24, 2021 | Views 13984

Suggestions on Statutory Audit & Auditing Standards for Micro, Small & Medium Companies (MSMCS) by BJP CA cell

Suggestions on Statutory Audit & Auditing Standards for Micro, Small & Medium Companies (MSMCS) by BJP CA cell

Representation made by BJP CA cell to convey professional feelings and suggestions on the consultation paper issued on Statutory Audit and Auditing Standards for Micro, Small, and Medium Companies (MSMCs) for the implementation of the threshold limit for the purpose of Audit of the Company and removing the burden of Audit requirement for the MSMCs.

It is well known that the role of an auditor is that of a ‘watchdog,’ not a ‘bloodhound,’ and a Chartered Accountant plays a significant role in nation building, and their suggestions, advice, and role assists business entrepreneurs and stakeholders in complying with the statutory requirements under various laws that are currently in force in a vigilant and courteous manner.

We hereby make an appeal to you to recognise the function and value of an audit and auditors, and we request that you immediately urge NFRA to alter its supposed consultation document on Statutory Audit and Auditing Standards on MSMCs in light of the following points:

It should be emphasised that auditing is required for the goal of providing a genuine and fair perspective of a business’s financials by an auditor who is an external party and independent of the transactions taking place in the firm, providing an unbiased opinion on the company’s affairs. Such true and fair financial status is submitted to various government authorities such as the Ministry of Corporate Affairs, Income Tax Authorities, GST Departments, Labor Law Authorities, and so on.

Audit is a vigilance mechanism that instils in promoters a dread psychosis of not doing anything unlawful in the eyes of the law. If the audited need for MSMCs is waived, the promoters of such companies are much more likely to provide misleading and phoney financials to the Government of India.

Furthermore, many promoters are unaware of the numerous compliances that must be met under various laws, such as the Companies Act, GST, Income Tax, PF, ESI, and so on. They don’t even understand the basics of accounting standards. Companies do appoint individuals under their financial department to handle such matters; however, such resources do not have the same level of appropriate and professional competence as an auditor, nor can they make unbiased judgements because they are on the payroll of the company’s stakeholders. The auditor keeps a close eye on all such compliances and monitors them with vigilance and objectivity.

In March 2021, 94.93 percent of the 1299710 companies are Private Limited. Out of these 94.93 percent private limited companies, nearly 90 percent will be MSMCs, with more than 90 percent of these MSMCs being family owned companies with the same shareholders and directors formed for the purpose of limited liability or to obtain bank loans, bus route permits, mining licences, and the like. However, there is a higher risk of fund syphoning and mismanagement in such businesses. Also, because there are so many statutory compliances that must be followed under numerous laws that are currently in effect, the breach of such compliances cannot be ruled out in the absence of any audit review.

Furthermore, because the primary source of income for Chartered Accountants and other professionals is audit and assurance services, exemption from such requirements may jeopardise the lives of such professionals who are solely engaged in providing these services, as well as limit the role of a Chartered Accountant and audit. Furthermore, it cannot be ruled out that the income collected from business entrepreneurs in the form of Income Tax, GST, and Government Fees is only due to the efforts of these specialists who guide and support the businessmen in taking care of their compliance aspect. Without the requirement of audit, there is a significant risk that such revenue will not be generated adequately with the revenue departments, as no promoter will be under any pressure or fear to provide a fair view of the transactions taking place in the company, resulting in a significant loss to the Indian economy.

Furthermore, in the absence of audit of such organisations, Tax Authorities will find it impossible to estimate the actual tax burden and actual profits of such companies. This, more than anything else, has the potential to harm the Indian economy.

An auditor is a third-party entity that provides an unbiased, truthful, and fair assessment of a company’s operations and financials. Without the oversight of an auditor, there is a high risk of imbalance in the Indian economy. This may give the promoters the flexibility to handle the finances on their own without fear of being found in violation of any law, resulting in the misuse of funds.

Also, with the exemption of audit requirements, the relevance of AS and Ind-AS introduced for such companies will fade, and there will be many International Units with such Domestic Units that rely on the financials of such Indian units, reducing the reliability and confidence of MSMEs’ financials at the international level. Most importantly, several financial benefits are granted to such MSMCs by banks and other financial organisations. These banks and FIs also rely on auditors’ audit reports. If such audits are not performed, it will be difficult for banks and FIs to make loans to such companies, and the accounts of such companies will be at risk of becoming NPA.

Furthermore, when it comes to the quality of audit for micro and small businesses, we believe that there should be a minimum audit price criterion set based on the turnover/paid-up capital of the firms, so that the quality of the audit can be maintained for all types of businesses. This would not only improve the quality of the audit, but will also help the professionals who provide such services to raise their living standards.

Furthermore, we propose that, in order to improve the quality and level of audit reports of MSMCs, a separate set of audit report and financials formats be mandated for such firms, with minimum information to be revealed in accordance with such companies’ requirements.

In light of the foregoing, we propose that the Government of India refrain from imposing such exemption requirements on statutory audit and auditing standards for such MSMCs, and instruct NFRA to revise such consultation paper.

To Read the Representation Letter Download PDF Given Below :

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