t ion and Dev e lopment Act 2016 Presented by Session CA Vinay Thyagaraj BCom LLB Chartered Accountant Bengaluru RERA Audit Challenges and Preparedness 21 st ID: 808037
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Slide1
T
he Real Estate (Regulation and Development) Act, 2016
Presented by
Slide2Session
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
Slide3Presentation 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
Slide4Post
Registration – Financial Management Funds collected from AllotteesUtilisation of / withdrawal of funds Professional CertificationsVenu & Vinay, Chartered Accountants
Slide5Types of Certificates – CA’s
Sl No
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
Slide6Venu & Vinay, Chartered Accountants
Slide7Venu & Vinay, Chartered Accountants
Slide8Legal 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
Venu & Vinay, Chartered Accountants
Slide9RERA 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
Venu & Vinay, Chartered Accountants
Slide10RERA 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
Venu & Vinay, Chartered Accountants
Slide11RERA 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
Slide12RERA 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
Slide13RERA Audit – how to start
Understand the scheme of the project first
How
Venu & Vinay, Chartered Accountants
Slide14RERA 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
Slide15RERA 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
Slide16RERA 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
Venu & Vinay, Chartered Accountants
Slide17RERA 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
Slide18RERA 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
Slide19RERA 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
Slide20RERA 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
Slide21RERA 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
Slide22RERA 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
Venu & Vinay, Chartered Accountants
Slide23RERA 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
Slide24RERA 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
Slide25RERA 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
Slide26RERA 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
Slide27Certificates – 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.
Slide28RERA 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.
Venu & Vinay, Chartered Accountants
Slide29RERA 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
Slide30RERA 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:
Slide31Documents
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
Slide32Offences 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
Slide33Sl
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
Slide34Sl
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
Slide35080 - 23462003
consult@reraconsultants.in
www.reraconsultants.in
write to
vinay@vnv.ca
Slide36RERA
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