Checklist for Audit of Nidhi Company

Ashish M. Shaji

14 Jan, 2021

The Audit and annual returns to MCA of the Nidhi Company is a statutory requirement and a company registered as Nidhi Company must comply with the Companies Act, 2013^[1]. In this article, we will discuss the Checklist for Audit of Nidhi Company.

What is Audit of Nidhi Company Accounts?

• For the purpose of the statutory audit of Nidhi Company, Regulatory Authority would suggest the names of three auditors and the Nidhi will select one. Such auditor selected will perform his duties continuously for three years unless the situation demands a change.
• As per the procedure at the end of the three years period, new auditor will be appointed. Apart from the annual audit, the auditor should send to the Regulatory Authority financial quarterly reports as per format which will include important prudential norms.
• In case there are any complaints related to the functioning of the Nidhi or the quarterly reports of auditor discloses information requiring further probing then the Regulatory Authority will have the power to order a departmental inspection and also to order a special audit.

Checklist for Audit of Nidhi Company: Additional items of reporting by Auditors of Nidhi Company

• In monitoring the activities of the Nidhi which consists of a quarterly certification of the returns to be submitted by the Nidhi Company to the Regulatory Authorities and the annual audit of its accounts comprising of the true and fair financial health of the company, thus the Committee has recommended a wider role for auditors.
• While the need for insight examination of any Nidhi by the Regulatory Authority at periodical interval cannot be underestimated, it is the considered view that the auditors could be given additional responsibility of reporting, by exception, to the Regulatory Authority, the contraventions of regulations by the Nidhi is, so as to trigger correcting/effective steps for the welfare of the depositors.

The Exception Report could include at least the following non-compliance by the Nidhi:

1. Whether the Nidhi has commenced its operations only after obtaining a Certificate of Commencement of Business from the ROC.
2. Whether the minimum capital is more than ₹10 lakhs as on the date of Balance Sheet.
3. Whether the Net-owned Funds to Deposit liability ratio is more than 1:20 as on the date of Balance Sheet.
4. Whether the company has issued fresh preference shares, have been excluded from the Net Owned Funds and whether the preference shares due for redemption have not been redeemed.
5. Whether the company is mobilizing the deposits as per the regulations in relation to contents of the application form, period of deposits, rate of interest payable on deposits, foreclosure of deposits, maximum balance outstanding in savings deposit accounts, etc.
6. Whether the company has opened any branch as per the regulations.
7. Whether the ban on entering into any transactions with any corporate party has been honored.
8. Whether the company has maintained liquid assets.
9. Whether the liquid assets securities have been lodged with the designator scheduled commercial banks.
10. Whether the company has complied with the prudential norms on income recognition and provisioning against sub-standard/default/loss assets.
11. Whether the company for appraisal of credit proposals/requests, assessment of credit needs and repayment capacity of the borrowers it has adequate procedures.
12. Whether the repayment schedule of various loans granted by the Nidhi is based on the repayment capacity of the borrower and would be conducive to the recovery of the loan account.
13. Whether the value of securities against which the loans is above the outstanding amount has deteriorated in each borrower account.
14. Whether the company has granted loans against eligible securities within the ceiling for loan accounts against a particular asset.
15. Whether the aggregate of loans against house mortgage and other securities is within the prescribed sectoral exposure limits.
16. Whether the documents obtained by the Nidhi including the original securities are in order.
17. Whether the ban on loans to directors has been honored.
18. Whether loans were given, if any, to the directors are being repaid in accordance with the repayment schedule.
19. Whether the company has furnished to the Regulatory Authorities the relevant returns at prescribed periodicity and within the stipulated time.
20. Whether the returns have properly compiled and the information/data reported therein has been taken from the actual books of accounts.
21. Whether the management affairs of the company are being run in accordance with the provisions of the Companies Act and Nidhi Regulations.
22. Whether the conduct of business by the Board of Directors, the composition of the board of directors, the compliance with the regulatory framework covering the board of directors has been found in order.
23. Wherever in the report of auditor, the statement related to any of the points mentioned in any of the paragraphs is adverse or qualified, the auditors will also state the reasons for such adverse or qualified statement as the case may be where the auditor is unable to express the opinion on any of the items referred to in the above paragraphs his report shall indicate such facts together with the reasons thereof.

• A copy of his report on the non-compliance would be submitted to the board of directors of the Nidhi which would be included in the auditor’s report to the shareholders of the company and would also be sent through a separate communication, to the Regulatory Authority.
• After registration, the Nidhi companies require to function in accordance with the provisions of the Memorandum of Association and Articles of Association and according to such notification of the DCA and such guidelines as issued by the Regulatory Authority, if the Nidhi company breaches any of these aforementioned provisions, notification and guidelines then they shall be liable for administrative and penal action which is taken by the Regulatory Authority also and it requires for appointment of Special Officer to take over the management of Nidhi. As per the guidelines stipulated by the Regulatory Authority Special Officer will function.

Conclusion

A Nidhi Company is required to comply with every compliance related to audit of Nidhi Company. In case you have any doubt regarding audit compliances of Nidhi Company, you may contact Enterslice.

Read our article: FAQs on Nidhi Company