One of the concerns of the real estate industry is to collect money from allottees, use the money so collected for the purpose for which the money was collected and used and enable the promoters to complete the development of the project and deliver the units to the buyer. This financial discipline is enshrined in the Real Estate (Regulation and Development) Act of 2016. One such provision of the RERA Act is the annual audit of project financial statements. Let us have a look at the RERA Audit 2022.
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What is a RERA Audit?
An audit under RERA is an independent examination of projects registered under RERA. A certified public accountant’s certificate is intended to be issued to express an expert opinion or state facts based on information, explanations, and documents received from the submitter or developer.
As part of the RERA audit, a Chartered Accountant’s certificate is to be issued with a set of subjects and intentions to express an expert opinion or state facts based on the information, explanations, and documents received from the promoter.
When to do the RERA audit?
RERA audit needs to be done every financial year. After conducting the RERA audit, the audit report is required to be submitted on the official website of RERA in Form -5. The audited financial statements must be attached to FORM-5. Form 5 is the annual report on the financial statements within 6 months of the end of the financial year.
Documentation and verification of records by CA
- Accounting records– updated ledgers
- Copy of application submitted for project registration under the RERA Act
- Details of calculations considered to arrive at estimated project cost.
- All project-related documents like land, sanction, permission, NOC amount spent for land acquisition or TDR, etc.
- All bank statements of the RERA project account and other bank accounts Customer statements, list of sales agreements entered, advances received, balance due, etc.
- Money collected from allottees 70% deposit in RERA project bank account
- All government fees challahs for all permits, etc.
- All development expenses bills, vouchers, invoices for on and off-site expenses
- Advance paid for the supply of material or services, vouchers, references, etc.
- Estimated project variance and reasons thereon.
- Certificates from Engineer, Architect, and CA for withdrawal of money based on % completion of construction
- Project loan or other loan statements
- Calculation of interest/crediting to RERA project.
- Indirect Taxes/GST paid – Reconciliation/Assurance
- TDS done by buyers @ 1% – Reconciliation/Assurance
Responsibility of Real Estate Project Promoters
- Promoter to maintain financial information and other information related to the real estate project.
- Provide such information to Chartered Accountant professionals to obtain RERA Annual Audit Report.
- Submit this report to the authority online or offline.
- Compare receivables, received, used, and money balances in the bank account as of 31-03-2022.
- Follow best practices/Standard Operating Procedures.
- Project costs under RERA must be reconciled as per the ledger for audit and compliance with other laws like GST, Income Tax, ROC, etc.
- Maintain and update books of accounts.
- Maintenance of data as per RERA project in books of accounts (rather company or project) for better and easier reconciliation between various laws.
- Take the support of consultants and experts to understand the importance of implementation as per law.
Basic Laws Relating to RERA Audit
The basic laws regarding developers regarding auditing are:
- According to Article 5 of the rules, RERA will have all rights to monitor and supervise the activities of developers and owner associations and audit their books and records.
- According to Article 6 of the rules, certified financial statements containing the budgeted costs and revenues of the project should be submitted to open an escrow account.
- An ESCROW agent must regularly provide details of the income and expenditure of its ESCROW accounts. The Department may at any time require its ESCROW Agent to submit any information or data, and the Department may, if necessary, order an audit of such information by an independent auditor.
- In case RERA cancels the project, RERA will appoint a certified auditor to verify the current financial status of the project, the total amount deposited in the ESCROW account, and the verification of all expenditures.
RERA Audit – Challenges
- Adequate knowledge of law and rules– Organizers and professionals
- Information filled in registration is wrong– what stand will you take
- Maintenance of records/data/expenditure
- RERA by project
- Allocation of RERA common expenditure project wise
- Basis of allotment
- Loan availed and RERA interest apportionment project wise
- Reconciliation at various stages and various records
- Clarity of statute, new to all
- In the case of single RERA registration– information from the lessor and compliance thereof RERA is mentioned below (being co-promoter).
RERA Audit– Pro tip
- Do not be biased by information and reports
- Do not be influenced by promoters/others
- Do not be biased about non-binding reports/certification
- Collect a sufficient amount before issuing a report of documents/information
- If you do not know, ask others
- If you are not sure- report it
- Certificates issued may become public documents and are subject to RTI.
Best Practices
Promoter may have appointed external experts from time to time to obtain certificates, consult the same professional who issued previous professional certificates– hand over these certificates to the RERA auditor.
The entire RERA audit report must comply with standard guarantees issued by ICAI.
The RERA audit report shall be supported by appropriate documentation in the form of a management declaration letter and the basis for the preparation of such certificates. In case the regulatory authorities propose a format later or issue any clarification in this regard, the template suggested above can be suitably aligned.
Final words
Audit of accounts under RERA expands and requires the auditor to verify and report on all relevant provisions of law, rules, etc., and RERA authorities may notify a different format for RERA audit to include additional provisions.
