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CA Final · Advanced Auditing, Assurance and Professional Ethics · Special Features of Audit of Banks & Non-Banking Financial Companies

Auditor Rohit is auditing Vindhya Finance Ltd, an NBFC. Management provides information on a group company that uses the same registered brand name and in which the NBFC holds no shares. The RBI had directed furnishing group company information. Rohit's ruling on whether the entity is a 'group company' under Section 45NAA, and a related RBI power, is:

Common brand name, meaning use of a registered brand name by another entity, is one of the listed relationships making an entity a group company under Section 45NAA, regardless of shareholding. The RBI may also inspect or audit its books notwithstanding the Companies Act, 2013.

  1. ANot a group company, since there is no equity investment of 20% or more
  2. BA group company by common brand name, and the RBI may cause an inspection or audit of its books even though the Companies Act, 2013 provides otherwiseCorrect
  3. CA group company only if it is also a subsidiary
  4. DA group company, but the RBI may only call for statements and cannot inspect its books

Explanation

The Explanation to Section 45NAA lists relationships including common brand name (use of a registered brand name by another entity), independent of equity holding. Section 45NAA(2) lets the Bank cause an inspection or audit of a group company's books notwithstanding the Companies Act, 2013. The 20% test is only one of several alternative criteria.

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