T he Real Est a te (Regula - PowerPoint Presentation

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T

he Real Estate (Regulation and Development) Act, 2016

Presented by

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Session

CA. Vinay ThyagarajB.Com., LLBChartered Accountant

Bengaluru

RERA Audit –

Challenges and Preparedness

21

st September, Friday at 5 PMAt Vasavi Vidyaniketan Trust, Bangalore

Venu & Vinay, Chartered Accountants

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Presentation Overview - Contents

Post Registration – Financial Management Funds collected from AllotteesUtilisation of / withdrawal of funds Professional Certification2. RERA Audit – Challenges and possible solutionsQ & A Session

Venu & Vinay, Chartered Accountants

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Post

Registration – Financial Management Funds collected from AllotteesUtilisation of / withdrawal of funds Professional CertificationsVenu & Vinay, Chartered Accountants

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Types of Certificates – CA’s

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Certificate for

Act / Rule Ref

Certifying

1

Ongoing Project – 1st timeKarnataka RERD Rule- Rule 4(2)(c )

Extent of development carried out, pending – money collected from

allottees

, spent for project and balance with promoter

 

2

On every withdrawal from project Bank Account

RERD Act –

 

2

nd proviso to sec 4(2)(l)(D) Withdrawal of money from project bank account is in proportion to the % of completion of the project 3Annual Audit under RERD ActRERD Act –  3rd proviso to sec 4(2)(l)(D)Amounts collected from Allottees for a particular project have been utilised for the same project and  the withdrawal has been in compliance with the proportion to the % of completion of the project

Venu & Vinay, Chartered Accountants

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Venu & Vinay, Chartered Accountants

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Venu & Vinay, Chartered Accountants

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Legal Mandate of RERA Audit

Annual Audit under RERD ActRERD Act –

 

3

rd proviso to sec 4(2)(l)(D)

Amounts collected from Allottees for a

particular project have been utilised for the same project and the withdrawal has been in compliance with the proportion to the % of completion of the project

Why

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RERA Audit – Applicable to

Applicable to All promoters of Real Estate Projects registered under RERA and not completed project :-Questions – is it applicable if -

No

money is

collected

from intending buyers Development work has not been started - many reasons Any treshhold limit – like turnover criteria / size of the projectProject is stopped / discontinued – NGT / litigation

Exclusions –

Projects not under RERA

Whom

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RERA Audit –

Due date for furnishing reportAccounts to be audited within six months after the end of financial year

Accordingly 30

th

September is the due date

Questions :- is audit applicable if Project registered with RERA post 31st

March 2018 – yes / no

Project abandoned / filed under IBC

When

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RERA Audit – who should issue report

Chartered Accountant in practice shall issue audit report

Questions :-

Who is CA -is it defined in the Act – yes

Can CA in employment audit / certify - no

Can internal auditor audit / certify - noCan Tax Auditor certify– no Can Statutory Auditor - yes

Can ? The Same CA, who issued periodical withdrawal certificate – yes / no

Who

Venu & Vinay, Chartered Accountants

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RERA Audit – where to submit

Act and Rules silent about method of submission of the Audit Report and Certificates

However authorities have made a provision to upload these reports online / manual submissions

where

Venu & Vinay, Chartered Accountants

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RERA Audit – how to start

Understand the scheme of the project first

How

Venu & Vinay, Chartered Accountants

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RERA Audit – how to start

Understand the scheme of the project first – one cannot issue the RERA audit certificate in isolate without understanding project details :-

Start with RERA Application and details available there on

Understand what is mentioned in RERA Application about the project

Note down financial aspects of project as per RERA Application

Ascertain on what basis the financial details are give /declared

Estimated Cost of the ProjectEstimated Cost of LandEstimated Cost of DevelopmentAmount collected from Allottees

Amount Spent as on date of application

Amount remaining with promoter, if any

How

Venu & Vinay, Chartered Accountants

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RERA Audit – how to start ….

continuedNote down project bank account declared in the RERA Application Collect list of bank accounts maintained by promoter for a project

policy of promoter in managing the finance of a project –

Collection account and transfer viz., 30/70

Lender / JV / JD Escrow account ,if any

Passthrough

charges bank account GST / taxes bank account

How - 2

Venu & Vinay, Chartered Accountants

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RERA Audit – how to start ….

continuedCollect professional certificates till 31st March 2018 obtained by the promoter on every withdrawal (refer Sec 4(2)(l)(D) 2nd

proviso) – A / C / E

First time certificate from professionals as per KA RERD Rules

Excess money collected if any

Deposit into project account with in 90 days from the date of application

Collect total money collected from allottees

Deposit of such money in 30 / 70

Withdrawal of such 70 % money from project bank account

Supported by A / C / E certificates

How - 3

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RERA Audit –start

…. continuedIf receivables in an ongoing project are less than the estimated cost of balance construction, then the promoter shall deposit 100 per cent of the amounts to be

realised

in the separate account

Check and ensure this information from application

Check 100 % collections are deposited (without taking 30 %)

Eg., funds required to complete the project – 10 CroresReceivables as on 10-7-2017 are 8

Crores

30 / 70 is not applicable as per proviso to KRERA Rule 4(5)

How - 4

Venu & Vinay, Chartered Accountants

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RERA Audit –start ….

audit nowConsolidate all the information / documents received till 31st

March 2018 in a Excel to arrive at conclusion on :-

Amounts

collected

for a particular project have been

utilised for the same projectWithdrawals have been in proportion to the % of completion of the project

begin

Venu & Vinay, Chartered Accountants

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RERA Audit –

collected Amounts collected for a particular project to be deposited in project bank -

From

allottees

only

If project loan / borrowing made, it should not be deposited into PB A/c

Reconcile the receipts from various sources Agreements / demand sent 26 AS – 1 % deduction made by allotteesGST filed (difficult as it has been filed Company wise)

Bank account statements

Amount collected during the year for this project is

Rs

. ___________ and

amounts

collected till date

is

Rs

. __________ (since inception)

Question – RERD Act 2016 WEF 1-5-2017, however certificate has a mention of during the year processVenu & Vinay, Chartered Accountants

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RERA Audit –

utilised And have been utilised for the same project

Having drawn money for PB A/c, money has been

utilised

to make payment to vendors, suppliers, expenses, establishment cost etc.,

Intent is not to divert the funds, having collected from

allottees Amount withdrawn during the year for this project is Rs. _____________ and

amount

withdrawn till date

is

Rs

. ________

(since inception)

collected till date and withdrawn TILL DATE means to review the details since inception of the project -

how to rely on the information

means a duplication of review

Additional work to promoterprocessVenu & Vinay, Chartered Accountants

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RERA Audit –

utilisation Questions:-

utilisation

Repayment of Loan – permitted if loan obtained is for this project

Payment of penalty or fines – no restrictions as such

Advance to suppliers – permitted – ensure such materials are supplied GST / Indirect Tax payments – yesIncome Tax payments – NO – it is out of 30 % Refund to clients – Yes

Payment to associate / related party / sister concern as advance – yes / no

process

Venu & Vinay, Chartered Accountants

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RERA Audit –

proportion and % of completionWithdrawal has been in compliance with the proportion

to the % of completion of the project :-

Based on Architect and Engineer Certificate

Calculate % based on financial statements / books of accounts

Prudence to be followed (which ever is lower) + advance payments towards supply of materials and services shall be considered

process

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RERA Audit –

Qualification / Non ComplianceQualification / Non Compliance :-

collection from customers are deposited in other than 70 %RERA project Bank Account

collection from customers in cash, not at all deposited into bank

amount withdrawn in excess of eligible amount

Withdrawn amount has not been

utilised for the same projectNon maintenance of prescribed register / records / documents (like professional certificates)

Report

Venu & Vinay, Chartered Accountants

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RERA Audit –

ChallengesSufficient Knowledge of Act and Rules –Both promoter and professionalsInformation filled during registration is erroneous – what stand will u take

Record / data / expenses maintenance

RERA Project wise

Allocation of common expenses RERA project-wise

Basis of allocation

Loan availed and interest apportionment to RERA project-wise Reconciliation at various stages and different recordsClarity on the statute, being new to all In case of single RERA registration – information from Landlord and compliance there on under RERD (being a Co- Promoter)

Challenges

Venu & Vinay, Chartered Accountants

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RERA Audit –

unanswered questions Certificate has a mention of YEAR – however RERD Act 2016 applicable WEF 1-5-2017Which format to issue Audit Report in KA

Who should certify – as few states have published the format of certificate to be issued - STATUTORY AUDITOR of the promoter to issue certificate in the absence of clarity

Where to submit – online or manual

avyakrta

Venu & Vinay, Chartered Accountants

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RERA Audit –

Best PracticesDon’t be biased on the information and reportDon’t be under the influence of Promoters

Don’t be casual on report / certification

Collect sufficient documents / information

If you don’t know, ask others

If you are not sure – report it

Certificates issued may become public documents and amenable under RTI

To Follow

Venu & Vinay, Chartered Accountants

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Certificates – CA’s

Different states may prescribe different formats of certificates. Currently, the regulators in few states (MH, KA, AP, TN, GJ etc.,) have prescribed the formats.This certificate shall be issued by a CA holding COPCA to collect project financial information from the promoter.Collect estimated cost of project, escalation if any and details there on

CA to collect and consider all professional certificates issued from time to time for withdrawal of project

.

This certificate shall be submitted to authorities and is a public document. It could be made available for viewing at the portal of the regulators in the respective states. The comments in this note are purely a matter of interpretation and not binding on any regulatory authorities. Therefore, there can be no assurance that the regulatory authorities will not take a position contrary to our comments or views.

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RERA Audit Certificate – Form

Annual Report on Statement of Accounts(on the letter head of chartered accountants who is statutory auditor of the promoter’s company/firm) To,[NAME & ADDRESS OF PROMOTER] SUBJECT: Report on Statement of Accounts on project fund utilization and withdrawal by [Promoter] for the period from ____ to ___with respect to project______ RERA Registration Number ________ 

1. This certificate is issued in accordance with the provisions of the Real Estate (Regulation and Development) Act, 2016 read along with the Real Estate (Regulation and Development)(Registration of Real Estate Projects, Registration of Real Estate Agents, Rates of Interest and Disclosures on Website) Rules, 2017 Karnataka.

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RERA Audit Certificate – Form

2. I/We have obtained all necessary information and explanation from the Promoter/ Company, during the course of our audit, which in my/our opinion are necessary for the purpose of this certificate. 3. I/We hereby confirm that I/We have examined the prescribed registers, books and documents, and the relevant records of [Promoter] for the period ended ________ and hereby certify that: i. M/s.____ (Promoter) have completed ________% of the project titled ______ RERA Registration No._____located at ____________.ii. Amount collected during the year for this project is Rs. ___________ and amounts collected till date is Rs. __________.iii. Amount withdrawn during the year for this project is Rs. _____________ and amount withdrawn till date is

Rs

. ________.

Venu & Vinay, Chartered Accountants

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RERA Audit Certificate – Form

4. I/We certify that the [Name of Promoter] has utilized the amounts collected for___ project only for that project and the withdrawal from the designated bank account(s) of the said project has been in accordance with the proportion to the percentage of completion of the project. (If not, please specify the amount withdrawn in excess of eligible amount or any other exceptions)  Signature and Stamp/Seal of the Signatory CA) Name of the Signatory: Place: Full Address: Date: Membership No.: Contact No. : E mail:

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Documents

Accounting records – updated books of accountsCopy of application filed for registration of project under RERD ActDetails of calculations considered to arrive at estimated cost of project. All project related documents like land documents, sanctions, clearances, NOC’s Amount incurred towards acquisition of land or TDR etcAll bank statements of RERA project account and other bank accounts Statement of customers, list of agreement of sales entered, advances received, balance receivables

etc

Money collected from

allottees, 70 % deposit made to RERA project bank account

All government fees challahs for all clearances etcAll development expenses bills, vouchers, invoices for both onsite and offsite expenditures

Advance paid for supply of materials or services vouchers, references etcCertificates from Engineer, Architect and CA for withdrawal of money based on % of completion of constructionProject Loan or other loan statementsInterest calculation / attribution towards the project.Indirect taxes / GST paid from time to time

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Offences and Penalty – under RERA Act

RERA Provision

P

r

o

m

oterAgent

Al

l

o

t

t

ee

Non-

r

e

gistration of project/agent with RERA and continue to do soUp to 10% of project cost and im

p

r

i

sonm

e

n

t of

3

y

ea

r

s

f

or

c

on

t

i

nuous d

e

f

a

u

l

t

P

e

n

al

t

y

of

INR1

0,

000 p

e

r

d

a

y dur

i

ng d

e

f

ault

t

e

n

u

r

e

up

t

o 5%

of

p

r

oper

t

y

c

o

s

t

F

alse i

n

f

orm

a

t

i

on wh

il

e

mak

i

ng

an app

li

c

a

t

i

on

t

o

RERA

Up

t

o

5%

of

the e

s

t

i

ma

t

ed p

r

oj

e

c

t

c

o

s

t

Non-

c

ompl

i

ance

w

i

th a

n

y p

r

o

vis

i

on

of the ActUp to 5% of the estimated project costUp to 5% of the property costNon-compliance with the order of RERAUp to 5% of the estimated project costUp to 5% of costproperty costUp to 5% of costproperty costNon-compliance with the order of the Appellate TribunalUp to 10% of cost and imprisonment of up of up to 3 years or bothUp to 10% of cost and imprisonment of up of up to 1 years or bothUp to 10% of cost and imprisonment of up of up to 3 years or both

Venu & Vinay, Chartered Accountants

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Sl

NoChallenges

Probable Solutions

1

Estimated Cost of Project declared is wrong in the Application – while registration

Let Promoter

file application for amendment

Satisfy yourself before accepting such changes

Take undertaking to that effect from promoter

Issue report based on revised with a note in the certificate

2

Project is registered as

ONE

– No

co-operation from either

promoter / Co-promoter

Proper note and qualification in the Audit report Mentioning the basis of issuance of report3Differences in % of Completion between statutes (e.g., Income Tax, Accounts)

1. Yes, always there will be a difference between RERA and other statute

s, reconcile and retain the details and documents

4

Non obtaining of

professional certificate -

1

st

time certificate

For every withdrawal

@

first instance many are not aware of these compliances

Do the audit and issue the certificate

Mention in the certificate fact of non obtaining of periodical certificates for withdrawal of funds

5

Not Followed 30 / 70

1. Report

in the certificate

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Sl

NoChallenges

Probable Solutions

6

Not

Deposited 70 % of the amount collected in the RERA Designated bank account

1.

Report

in the certificate

7

8

9

10

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080 - 23462003

consult@reraconsultants.in

www.reraconsultants.in

write to

vinay@vnv.ca

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RERA

CONSULTANTS LLP

No 13, Palace Cross Road, Bangalore

080 - 23462003

consult@reraconsultants.in

www.reraconsultants.in

Services Offered

–

End

to End Services under RERA

Workshops

and Trainings

Consultation on Structure of Project

Project

and Agent

Registration

First Time and Quarterly UpdateLegal Title CertificationCA, Architect, Engineer CertificationsFormation of Association for AllotteesExtension of projectRERA compliances Review / Health checkupDefect Liability Training and Best PracticesSOP’s and Best Practices under RERA