What does an NBFC audit cover?
An NBFC audit is the statutory audit of a non-banking financial company under the Companies Act, plus the checks the Reserve Bank’s directions require on how that company recognises income, classifies assets, and holds capital. Registration with the Reserve Bank is not a substitute for the audit.
Which audit does every NBFC company have?
The statutory audit. An NBFC is a company, so it appoints a chartered accountant in practice, holds the annual general meeting, and files the financial statements. The appointment steps are on the auditor page. What a company audit examines is the same starting point.
The certificate under section 45-IA, the ₹10 crore Net Owned Funds for a new Investment and Credit Company, and the principal-business test are on the NBFC registration page. The company does not lend before that certificate.
What does the Reserve Bank add?
The statutory auditor also reports on whether the accounts follow the Reserve Bank’s directions for that NBFC. The usual matters are income recognition, asset classification, provisioning, capital, and the fair-practices and governance directions that apply to its layer. Those are Reserve Bank returns and certificates. They are not AOC-4.
An NBFC cannot accept demand deposits. Insurance business is not what this registration covers.
When do other audits apply?
A tax audit under section 44AB applies only when the turnover test on the audits page is crossed. The report is Form 3CA with Form 3CD.
How formal the internal audit is depends on the Reserve Bank’s directions for the NBFC’s layer. A base-layer company is not automatically required to keep the same audit committee as a larger one. Rotation of the statutory auditor applies only when section 139(2) and the Audit and Auditors Rules put the company in that class.
Which accounting standards apply?
An NBFC with net worth of ₹250 crore or more prepares its financial statements under Ind AS, on the roadmap notified for NBFCs. An NBFC below that net worth follows the Accounting Standards. Net worth here is not the same figure as the ₹10 crore Net Owned Funds required for a new certificate.
Frequently asked questions
Four questions cover the certificate, auditor rotation, Form 3CB, and demand deposits.
Is the Reserve Bank certificate the same as the audit?
No. Section 45-IA is the certificate before the company carries on the business. The audit is the yearly examination of the accounts after that.
Does every NBFC rotate its auditor?
No. Rotation under section 139(2) applies only to the classes named in the Audit and Auditors Rules, such as a listed company or a private company that crosses the capital or borrowing line in those rules.
Does an NBFC file Form 3CB for a tax audit?
No. A company whose accounts are already audited under the Companies Act files Form 3CA with Form 3CD, and only when section 44AB applies.
Can an NBFC accept demand deposits?
No. An NBFC cannot accept demand deposits, and it cannot issue cheques drawn on itself.
Sources
The company audit is the Companies Act. The business is regulated under the Reserve Bank of India Act, 1934.