Manu Finance Ltd. is a Non-Banking Finance Company and was in the business of accepting public deposits and giving loans since 2019. The company was…

As per Clause (xvi) of Paragraph 3 of CARO 2020, the auditor is required to report that “whether the company is required to be registered under section 45-IA of the Reserve Bank of India Act, 1934 and if so, whether the registration has been obtained.” The auditor is required to examine whether the company is engaged in the business which attracts the requirement of the registration. The registration is required where the financing activity is a principal business of the company. The RBI restrict companies from carrying on the business of a non-banking financial institution without obtaining the certificate of registration. Audit Procedures and Reporting: (i) The auditor should examine the transactions of the company with relation to the activities covered under the RBI Act and directions related to the Non-Banking Financial Companies. (ii) The financial statements should be examined to ascertain whether company's financial assets constitute more than 50 per cent of the total assets and income from financial assets constitute more than 50 per cent of the gross income. (iii) Whether the company has net owned funds as required for the registration as NBFC. (iv) Whether the company has obtained the registration as NBFC, if not, the reasons should be sought from the management and documented. (v) The auditor should report incorporating the following:- (1) Whether the registration is required under section 45-IA of the RBI Act, 1934. (2) If so, whether it has obtained the registration. (3) If the registration not obtained, reasons thereof. In the given case, Manu Finance Ltd. is a Non-Banking Finance Company and was in the business of accepting public deposits and giving loans since 2019. The company was having net owned funds of 1,75,00,000/-(one crore seventy five lakhs) which is less in comparison to the prescribed limit i.e. 2 crore rupees and was also not having registration certificate from RBI (though applied for it on 29th March 2024). The auditor is required to report on the same as per Clause (xvi) of Paragraph 3 of CARO 2020.