The Real Estate (Regulation and Development) Act, 2016 (RERA) was enacted in India to protect the interests of homebuyers and promote transparency in the real estate sector. Under RERA, the role of audits is vital to ensure compliance with the provisions of the Act. Chartered Accountants (CAs) play a crucial role in ensuring compliance with the Real Estate (Regulation and Development) Act, 2016 (RERA). Their involvement in RERA audits is vital for maintaining transparency, accuracy, and adherence to the regulations set forth by the Act.
RERA Audits are conducted to ensure the funds collected from homebuyers are being utilized and are in line with the progress of the development / construction project. These audits help the stakeholder to get the confidence and ensure that the promoters are completing their projects within the stipulated timelines.
Audit under RERA as per the Act and Karnataka RERA Rules 2017 –
3rd Proviso to section 4(2)(L)(D) of the RERA Act 2016 – Provided also that the promoter shall get his accounts audited within six months after the end of every financial year by a chartered accountant in practice, and shall produce a statement of accounts duly certified and signed by such chartered accountant and it shall be verified during the audit that the amounts collected for a particular project have been utilised for the project and the withdrawal has been in compliance with the proportion to the percentage of completion of the project
| Annual Audit under RERA Act | RERA Act –
3rd proviso to sec 4(2)(l)(D) |
1. Amounts collected from Allottees for a particular project have been utilised for the same project and
2. the withdrawal has been in compliance with the proportion to the % of completion of the project 3. Compliance to the provisions of RERA Act |
| Due date for obtaining the Audit Report under RERA | With in six months from the end of the financial year (i.e., 30th Sep, 2024 for the year ending 31st March 2024) |
CERTIFICATE FORMAT NOTIFIED KARNATAKA RERA AUTHORITIES
Karnataka RERA introduced a new format for Form 7 in September 2022, further emphasizing the role of Chartered Accountants (CAs) in ensuring compliance and transparency in real estate projects. Form 7 is a compliance certificate required by the Karnataka Real Estate Regulatory Authority (K-RERA) in pursuance to the provisions of the Act. It is designed to provide a detailed and certified account of the project’s financial status and compliance with RERA guidelines.
This form must be certified by a Chartered Accountant who holds a valid certificate of practice. The certification process involves a thorough examination of the project’s financials to ensure that they align with the regulations set forth by RERA.
The summary of the form 7 is as follows –
1. Report on Statement of Accounts on project fund utilisation and withdrawal –
Annexure A –
a. Table A – amount collected from the allottees of the project – points to be considered while filling and certification –
b. Table B – Amount incurred by the Promoter (the details are similar to the Form 4, Quarterly update CA Certificate format)
c. Table C – summary of total collections and realisation since the inception of the project –
d. Table D – Liabilities towards the Project development
e. Table E – Liabilities towards Bank Borrowings –
f. Table F – Liability based on the orders of RERA authority, Appellate
Annexure B
g. Further the professional shall certify various provisions under RERA. The brief of the compliances is as under –
i. Compliance with respect to the RERA bank account
ii. Details of all quarterly update certificates and details of filings quarter on quarter.
iii. RERA Bank account directions 2020 contents shall be read, understand before certifying this Form 7.
iv. Section 13 compliance – Section 13 mandates the registration of agreement of sale, if the promoter
wishes to collect in excess of 10 % of the project cost and report non-compliances
v. Details of borrowing by mortgaging the project land etc
vi. Details of forms 4,5,6
vii. List of Agents engaged as per project
The Form 7 is in pdf and available at https://rera.karnataka.gov.in/downloadPage –
Click here to start uploading the Annual Audit Report for the Financial Year 2023-24 – https://rera.karnataka.gov.in/applyForAnnualReport
1. The form 7 is exhaustive and covers the entire real estate project financials, cash flow, various compliances mandated under the RERA Act. The certifying professional shall understand each provision before certifying the Annual Report on Statement of accounts and its annexure thereon.
2. Non-compliance / non-furnishing of Form 7 (Annual Audit of Accounts Reports) shall attract penal provisions under RERA Act 2016. The Authority is having the power to revoke Section 60 of the RERA Act. Such penalty may extend upto 5 % of the estimated cost of the real estate project as determined by the Authority.
3. The Authority has levied the penalty of 0.5% of the project cost on 440 projects amounting to Rs.40. Crore plus for non-submission of Annual Audit of Accounts under RERA for the Financial year 2022-23
1. Note –
1) State-Specific Reporting Formats: Different states have prescribed specific formats for the RERA audit report, along with detailed instructions to ensure uniformity and compliance with the regulations.
2) Certification by Chartered Accountant: The report must be issued by a Chartered Accountant (CA) who holds a valid Certificate of Practice, ensuring that only qualified professionals are responsible for certifying the financial health and compliance of the project.
3) Collection of Project Information: The Chartered Accountant is responsible for gathering comprehensive financial and non-financial information related to the project from the promoter. This includes all relevant documentation and records necessary for accurate reporting.
4) Estimation and Cost Analysis: The CA must collect detailed information on the estimated cost of the project, including any potential escalations, and thoroughly document these figures. This ensures that the financial planning of the project is transparent and accounted for.
5) Consideration of Professional Certificates: The CA is required to review and consider all professional certificates issued by other experts, such as Architects, Engineers, and other Chartered Accountants, which are necessary for the withdrawal of funds from the project. These certificates are crucial for verifying the legitimacy and compliance of financial transactions.
6) Identification and Reporting of Deviations: While certifying the amounts, if the CA observes any deviations from the provisions of the RERA Act, Rules, Regulations, Circulars, or Orders, these discrepancies must be clearly listed and reported. Some examples include:
a)Misuse of Allottee Funds: If funds collected from allottees are deposited into an account other than the designated one, the CA must report the specific amount misallocated.
b)Excessive Withdrawals: If funds have been withdrawn in excess of what is permitted under the CA’s certificate (Form-4), the CA must report the overdrawn amount.
c)Diversion of Funds: Any diversion of funds to other projects or purposes must be highlighted and reported as a serious compliance issue.
d)Non-Compliance with Certification Requirements: If an Architect’s (Form-5) or Engineer’s (Form-6) certificate has not been obtained, or if there are discrepancies between these certificates and the project’s financial status, these issues need to be reported by the CA.
This certificate shall be submitted to the authorities and is a public document. It may be made available for viewing on the respective state regulators’ portals. The comments in this certificate are based on interpretation and are not binding on any regulatory authorities. Therefore, there can be no assurance that the regulatory authorities will not take a position contrary to the comments or views expressed herein.
2. Responsibility of the promoters (Landowners, Developers, Builders) of the Real Estate Project
(a) The promoter must maintain financial and other relevant information related to the real estate project.
(b) This information should be provided to Chartered Accountant professionals to obtain the RERA Audit Report on an annual basis.
(c) Submit the audit report to the authority either online or offline.
(d) Reconcile the receivables, received amounts, utilized funds, and the balance in the bank account as of 31-03-2024.
(e) Follow best practices and standard operating procedures.
(f) The project cost and costs incurred as per RERA should be reconciled with the books of accounts for audit and compliance with other statutes, such as GST, Income Tax, ROC, statements submitted to the bankers, investors etc.
(g) Maintain and update data in the books of accounts on a project-wise basis (rather than company-wise) for easier and more accurate reconciliation across various statutes.
(h) Seek support from consultants and experts to understand and implement the requirements as per the statute.
3. Documentation and verification of records for issuance of RERA Audit Report by Chartered Accountant
(a) Accounting Records: Maintain updated books of accounts.
(b) RERA Registration Application: Keep a copy of the application filed for project registration under the RERA Act to verify the details submitted by the promoter.
(c) Project Cost Calculation: Maintain detailed calculations used to determine the estimated cost of the project, including land cost and construction cost.
(d) Project-Related Documents: Keep all project-related documents, such as land documents, sanctions, clearances, and NOCs, to track the costs incurred in obtaining these sanctions and NOCs.
(e) Bank Statements: Retain all bank statements for the RERA project account and any other bank accounts where the promoter deposits funds.
(f) Allottee/Customer Statements: Maintain statements of allottees/customers, including a list of sales agreements, advances received, and balance receivables.
(g) Allottee Funds Management: Ensure that 70% of the money collected from allottees is deposited into the RERA project bank account.
(h) Cost Variance Analysis: Analyze and document any variance between the estimated project cost and the actual cost incurred, along with the reasons for the variance.
(i) Certificates for Fund Withdrawal: Keep certificates from the Engineer, Architect, and CA for the withdrawal of money based on the percentage of construction completion.
(j) Loan Statements: Maintain statements for project loans or other loans.
(k) Interest Allocation: Calculate and allocate interest towards the respective RERA project based on fund utilization, especially if a single loan is used for multiple projects (such as a term loan or overdraft).
(l) Indirect Taxes/GST: Track and reconcile indirect taxes and GST paid from time to time.
(m) TDS Reconciliation: Reconcile and ensure proper TDS deductions made by buyers at 1%.
4. RERA Audit – Challenges
(a) Sufficient Knowledge of Act and Rules –Both promoter and professionals
(b) Information filled during registration is erroneous – what stand will u take
(c) Record / data / expenses maintenance
a. RERA Project wise
(d) Allocation of common expenses RERA project-wise
a. Basis of allocation
b. Loan availed and interest apportionment to RERA project-wise
(e) Reconciliation at various stages and different records
(f) In case of single RERA registration – information from Landlord and compliance there on under RERA (being a Co- Promoter)
5. RERA Audit – tip to professionals
(a) Don’t be biased on the information and report
(b) Don’t be under the influence of Promoters / others
(c) Don’t be casual on report / certification
(d) Collect sufficient documents / information before issue of report
(e) If you don’t know, ask others
(f) If you are not sure – report it
(g) Certificates issued may become public documents and amenable under RTI
6. Penal action may be initiated by the Authority against professionals who have issued certificates for withdrawals or audits which are not in compliance with the Act, Rules, Regulations, Circulars, orders etc.
The Authority, in addition to taking penal actions as contemplated in the Act and the Rules, shall also take up the matter with the concerned regulatory body of the said professionals of the architect, engineer or chartered accountant, for necessary penal action against them, including dismemberment, if the form 4/7 issued by the Chartered Accountant reveals that:
a) any certificate issued by the project architect, engineer or the chartered accountant has false or incorrect information and
b) the amounts collected for a particular project have not been utilized for the project and
c) the withdrawal has not been in compliance with the proportion to the percentage of completion of the project
7. Important Circulars and Notifications issued by Karnataka RERA with respect to the Certificates, Bank Account operations etc –
a) The Karnataka Real Estate Regulatory Authority (General) Regulations, 2022
b) RERA Bank Account Directions, 2020
c) Land Owners having Area/Revenue Share in Real Estate Project to be treated as Promoter (landowner)
d) Mandatory deposit of money into the RERA project designated bank account borrowed by the promoter by mortgage of the project land and utilisation for the same project development purposes
(these can be downloaded from https://rera.karnataka.gov.in/home)
Conclusion – Reconciliation of values across Books of Accounts, RERA submissions, GST returns, and Income Tax filings is essential before finalizing and submitting a RERA Audit Report. This process ensures consistency and accuracy in financial reporting, compliance with regulatory requirements, and minimizes the risk of discrepancies that could lead to penalties or legal issues. Proper reconciliation supports effective decision-making and provides a reliable audit trail, facilitating smoother audits and maintaining stakeholder confidence.
The author, Vinay Thyagaraj, is a partner at M/s. Venu & Vinay, Chartered Accountants. For further clarifications, he can be reached at [email protected].
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