A Study of Provisions of MSMED Act and Statutory Auditors’ Responsibility

Considering the importance of MSMEs (Micro Small and Medium Enterprises) for the entire economy, which contribute close to 35% to India’s GDP, the government always tries to incentivize them. One such very important incentive for MICRO and SMALL Enterprises is, regulating their CREDIT PERIOD, which is governed by MSMED Act 2006. The regulated credit period of 45 days for all purchases made from MICRO and SMALL units has casted big responsibility on the Auditors as well. The following paper is about the Duties and Responsibilities of Auditors and the audit procedure to be followed by them.

I. Can any Entity be called an MSME?

No, only the entity that has obtained Udyam Registration (online self-declaration based registration – www.udyamregistration.gov.in) is said to be MSME. Further, the Enterprise has been divided into 3 categories called as Micro, Small and Medium.

II. Liability of buyer to make payment

Where any supplier supplies any goods or renders any services to any buyer, the buyer shall make payment therefore on or before the date agreed upon between him and the supplier in writing or, where there is no agreement in this behalf, before the appointed day. Provided that in no case the period agreed upon between the supplier and the buyer in writing shall exceed forty-five days from the day of acceptance or the day of deemed acceptance.

III. Credit period advantage

Sec 15 states that buyer shall make payment to MSEs (Only MICRO and SMALL Enterprises) who have Udyam Registration within 45 Days of acceptance/deemed acceptance. While sec 16 states that if buyer fails to make payment to the registered entity within 45 days, he is liable to pay interest at thrice the bank rate as notified by the RBI.

IV. Auditors’ Responsibility under the Companies Act 2013

(a) To check whether the Company is a Specified Company

(b) Filing of MSME-1 return

(c) Disclosure in Notes to accounts

(d) Audit Procedure – Understand the process to identify MSE suppliers, yearly correspondence, MSME (Udyam) RC, outstanding dues and delayed dues to Micro & Small Enterprises, interest due on delayed payments, any claim/legal notice is received from any of the suppliers.

(e) Audit conclusion on findings & Reporting of non-compliance

(f) Management Representation Letter (MRL) for identified/not identified MSEs.

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