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Role of Auditors of NBFCs

Role of Auditors of NBFCs


What Is NBFC?

Section 45-I (c) and 45-I (f) of RBI Act, 1934
A non-banking institution which is a company and which has as its principal business the receiving of deposits, under any scheme or arrangement or in any other manner, or lending in any manner; i.e. engaged in principal business of receiving of deposits or financing by way of making loans and advances, acquisition of shares and securities, leasing, hire-purchase, insurance business, chit business.

Does not include- any institution whose principal business is that of agriculture activity, industrial activity, sale/purchase of goods, sale/purchase/construction of immovable property

Certificate of Registration (CoR) from RBI is must before starting NBFI business
Powers under Section 45 NC to exempt a company or class of companies from CoR requirement . Issue of dual regulation -Exempted from requirement of CoR-

Role of Auditors of NBFCs

Role of Auditors of NBFCs

Role of NBFC Auditors
Role of Auditor begins with appointment letter issued by NBFC – objective and scope of the audit, extent of the auditor’s responsibilities, form of audit reports

Every NBFC is required to include the requirement to report to RBI by exception, the violations or irregularities if any, noticed by them in the course of audit of an NBFC, in the appointment letter to be issued by the NBFC to the auditors, so as to ensure that the auditors are aware of their obligations.
Powers and duties as per RBI Act,1934
45 MA(1) – Auditors to check submission of information to RBI, if not, report to RBI

45 MA(2) – Exceptions to be included in Auditor report

45 MA(1A) – Empowers RBI to issue directions to NBFCs or auditors of NBFCs

Statutory Auditor Certificate

To be submitted within one month from the date of finalization of the balance sheet and in any case not later than December 30th of that year

Whether the Company is engaged in NBFI activity and obtained CoR (minimum NOF)

Whether the NBFC is entitled to hold CoR for its asset/income pattern as on March 31 (PBC)

In case of an AFC/MFI/Factor, whether it continues to be classified as per extant guidelines

NBFC Auditor’s Report Directions, 2008

Auditors to submit additional Report to Board of Directors of company

Whether the company is engaged in the business of NBFI and whether it has obtained a CoR

If the company is holding CoR issued by the Bank, whether it is entitled to continue to hold such CoR in terms of its Asset/Income pattern

Exception Report mandatory if company is found to be doing NBFI Activity and fulfilling the Asset/Income Criteria without a CoR

In case of exemption granted by RBI from registration- Include a statement that the company is complying with the conditions stipulated by RBI

Reasons for unfavourable or qualified statements – Where the auditor is unable to express any opinion on any of the specified items, indicate such fact together with reasons

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