The Real Estate (Regulation and Development) Act, 2016 Presented by

RERA Audit – Challenges and Preparedness Session CA. Vinay Thyagaraj B.Com., LLB Chartered Accountant Bengaluru RERA Audit – Challenges and Preparedness 21st September, Friday at 5 PM At Vasavi Vidyaniketan Trust, Bangalore Venu & Vinay, Chartered Accountants

Presentation Overview - Contents Post Registration – Financial Management Funds collected from Allottees Utilisation of / withdrawal of funds Professional Certification 2. RERA Audit – Challenges and possible solutions Q & A Session Venu & Vinay, Chartered Accountants

Post Registration – Financial Management Funds collected from Allottees Utilisation of / withdrawal of funds Professional Certifications Venu & Vinay, Chartered Accountants

Types of Certificates – CA’s Sl No Certificate for Act / Rule Ref Certifying 1 Ongoing Project – 1st time Karnataka 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 – 2nd proviso to sec 4(2)(l)(D) Withdrawal of money from project bank account is in proportion to the % of completion of the project 3 Annual Audit under RERD 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

Venu & Vinay, Chartered Accountants

Why Whom When Who How What Venu & Vinay, Chartered Accountants

Legal Mandate of RERA Audit Why Legal Mandate of RERA Audit Annual Audit under RERD Act RERD 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

RERA Audit – Applicable to Whom 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 project Project is stopped / discontinued – NGT / litigation Exclusions – Projects not under RERA Venu & Vinay, Chartered Accountants

Accordingly 30th September is the due date When RERA Audit – Due date for furnishing report Accounts to be audited within six months after the end of financial year Accordingly 30th 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 Venu & Vinay, Chartered Accountants

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 - no Can Tax Auditor certify– no Can Statutory Auditor - yes Can ? The Same CA, who issued periodical withdrawal certificate – yes / no Venu & Vinay, Chartered Accountants

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 Venu & Vinay, Chartered Accountants

RERA Audit – how to start Group – multiple entities Entity – multiple Projects Project - multiple Phases / tower RERA Project Understand the scheme of the project first Venu & Vinay, Chartered Accountants

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 Project Estimated Cost of Land Estimated Cost of Development Amount collected from Allottees Amount Spent as on date of application Amount remaining with promoter, if any Venu & Vinay, Chartered Accountants

RERA Audit – how to start ….continued Note 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 Venu & Vinay, Chartered Accountants

RERA Audit – how to start ….continued Collect 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 Venu & Vinay, Chartered Accountants

RERA Audit –start …. continued How - 4 RERA Audit –start …. continued If 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 Crores Receivables as on 10-7-2017 are 8 Crores 30 / 70 is not applicable as per proviso to KRERA Rule 4(5) Venu & Vinay, Chartered Accountants

RERA Audit –start ….audit now begin RERA Audit –start ….audit now Consolidate 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 project Withdrawals have been in proportion to the % of completion of the project Venu & Vinay, Chartered Accountants

process 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 allottees GST 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 Venu & Vinay, Chartered Accountants

RERA Audit – utilised And have been utilised for the same project process 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 promoter Venu & Vinay, Chartered Accountants

RERA Audit – utilisation process 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 – yes Income Tax payments – NO – it is out of 30 % Refund to clients – Yes Payment to associate / related party / sister concern as advance – yes / no Venu & Vinay, Chartered Accountants

RERA Audit – proportion and % of completion process RERA Audit – proportion and % of completion Withdrawal 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 Venu & Vinay, Chartered Accountants

RERA Audit – Qualification / Non Compliance Report RERA Audit – Qualification / Non Compliance Qualification / 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 project Non maintenance of prescribed register / records / documents (like professional certificates) Venu & Vinay, Chartered Accountants

RERA Audit – Challenges Sufficient Knowledge of Act and Rules –Both promoter and professionals Information 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 records Clarity 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) Venu & Vinay, Chartered Accountants

RERA Audit – unanswered questions avyakrta RERA Audit – unanswered questions Certificate has a mention of YEAR – however RERD Act 2016 applicable WEF 1-5-2017 Which 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 Venu & Vinay, Chartered Accountants

RERA Audit – Best Practices To Follow RERA Audit – Best Practices Don’t be biased on the information and report Don’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 Venu & Vinay, Chartered Accountants

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 COP CA 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.

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. Venu & Vinay, Chartered Accountants

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

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:

Documents Accounting records – updated books of accounts Copy of application filed for registration of project under RERD Act Details 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 etc All 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 etc All development expenses bills, vouchers, invoices for both onsite and offsite expenditures Advance paid for supply of materials or services vouchers, references etc Certificates from Engineer, Architect and CA for withdrawal of money based on % of completion of construction Project Loan or other loan statements Interest calculation / attribution towards the project. Indirect taxes / GST paid from time to time

Offences and Penalty – under RERA Act RERA Provision Promoter Agent Allottee Non-registration of project/agent with RERA and continue to do so Up to 10% of project cost and imprisonment of 3 years for continuous default Penalty of INR10,000 per day during default tenure up to 5% of property cost False information while making an application to RERA Up to 5% of the estimated project cost Non-compliance with any provision of the Act Up to 5% of the property cost Non-compliance with the order of RERA Up to 5% of cost property cost Non-compliance with the order of the Appellate Tribunal Up to 10% of cost and imprisonment of up of up to 3 years or both Up to 10% of cost and imprisonment of up of up to 1 years or both Venu & Vinay, Chartered Accountants

Sl No Challenges 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 report 3 Differences in % of Completion between statutes (e.g., Income Tax, Accounts) 1. Yes, always there will be a difference between RERA and other statutes, reconcile and retain the details and documents 4 Non obtaining of professional certificate - 1st 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

Sl No Challenges 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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