Create a Checklist for Statutory Audit of Real Estate Company

Once notified by your state real estate department of an audit, create a transaction checklist to help your brokerage prepare. This will ensure all documents are complete for an easy audit experience.

Many real estate construction/promoter companies are shouldering significant liabilities to homebuyers due to the non-completion of projects; however, these liabilities haven't been disclosed in their notes to accounts.

1. Review the Financial Statements

Real estate audits provide an effective means for verifying compliance between brokerage practices and regulatory requirements. From finances to transaction management processes and documents, this audit serves as a vital way of assuring that your brokerage meets the highest standards of integrity and accountability.

Make sure that, prior to an audit, all financial statements and any violations you discover have been reviewed carefully in order to minimize fines and penalties - this will also help keep future violations of rules at bay.

As part of an audit, statutory auditors assess whether financial statements presented are presented fairly and in all material respects in accordance with Indian Accounting Standards (Ind AS) and generally accepted accounting principles (GAAP). They will also examine internal controls and test operating mechanisms against industrial guidelines to ensure they abide by industry requirements. It would be beneficial for companies to provide all of the required documentation and information to allow an efficient audit to take place.

2. Review the Business Plan

A business plan is an important document that details the goals and objectives of a company, outlining how its goals can be accomplished, such as financial information. A plan also describes its culture and organizational structure - an indispensable resource for real estate firms.

Statutory auditing agencies should scrutinize management's planning processes for effective operation, verifying that fixed assets are capitalized in accordance with accounting standards, and conducting two-way tests of physical verification versus books to ensure the company has an accurate fixed asset register.

Many real estate construction/promoter companies fail to disclose significant liabilities to landowners in their notes of accounts or audit reports of their Statutory Auditors, leading to numerous grievances within various RERAs across states and alarm among homebuyers.

3. Review the Financial Information

As a business owner, it is imperative to understand the laws and regulations affecting your organization. These regulations dictate how your funds and account balances should be utilized; auditing financial statements regularly is one way of ensuring compliance with such laws.

An audit should consist of reviewing accounts receivable and payable, cash deposits and current assets, the depreciation method used for fixed assets and reconciling between general ledger and fixed asset register. Furthermore, an inspection agency should check to see that long-term loans have been properly recorded within their limits and that any statutory limits have not been exceeded.

Real estate construction/promoter companies frequently build projects without owning plots of land themselves and instead enter into registered development agreements with landowners for specific periods. Under such agreements, promoters incur significant liabilities to landowners which are neither disclosed in their notes of accounts nor qualified/commented upon by Statutory Auditors in their audit reports.

4. Review the Financial Documents

Real estate companies utilizing statutory audits as an integral component of maintaining transparency and accountability are reaping many rewards from this process. By verifying all financial statements are accurate and complete, statutory audits help companies gain investors' trust while improving their business reputation. To prepare your company for its statutory audit, begin gathering all relevant documents - this way when requested, they're already ready!

A statutory auditor should review whether cash payments and receipts have been properly recorded in the books of accounts; ageing of long-term loans has been calculated correctly, the value of securities against loans available are sufficient, as well as tracking ESI/PF/other Statutory Payments accurately. They should also confirm whether cost records for activities carried out by the Company have been kept.

Statutory audits have quickly become an integral component of modern financial reporting and accounting, providing essential transparency and accountability in service of both investors and the general public.