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

The Reserve Bank directs Yamuna Credit Ltd, an NBFC, to furnish statements on the affairs of Yamuna Retail Pvt Ltd, which uses the same registered brand name as the NBFC and has no shareholding link. The auditor of Yamuna Retail objects that the Bank has no power over a non-NBFC. Which conclusion is correct under Section 45NAA?

The objection fails. Section 45NAA treats an entity using a common registered brand name as a group company, so the Bank may direct the NBFC to furnish information about it and may cause an inspection or audit of its books, notwithstanding the Companies Act, 2013.

  1. AThe objection is valid, as the Bank's powers extend only to NBFCs
  2. BThe objection fails, because a common brand name makes the entity a group company, and the Bank may direct the NBFC to furnish information and may cause inspection or audit of the group company's books notwithstanding the Companies Act, 2013Correct
  3. CThe objection fails only if the NBFC holds at least 51% equity in the entity
  4. DThe Bank may direct furnishing of information but cannot inspect the group company's books

Explanation

Section 45NAA Explanation (a)(vi) includes common brand name use as a group-company relationship. Under 45NAA(1) the Bank may direct the NBFC to furnish statements and information on any group company, and under 45NAA(2), notwithstanding the Companies Act, 2013, it may cause an inspection or audit of the group company's books. Equity investment of twenty per cent and above is a separate relationship, not a precondition. Option 3 ignores sub-section (2).

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