Real Estate Bill - Internal control implications

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Customer Care No. 91-11-45562222
Real Estate Bill - Internal control implications
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• 1.0 Introduction
• The Real Estate (Regulation and Development) Bill
  has been cleared by both houses of parliament.
  The provisions of this new legislation assume
  critical importance in the context of internal
  controls at real estate companies. CFOs,
  controllers and audit committees of companies in
  this sector need to gear up for system and
  process changes to ensure compliance with this
  new legislation and at the same time comply with
  the provisions of section 134 of the Companies
  Act.

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• 2.0 Internal Controls - Provisions of Companies
  Act
• As per section 134 of the Companies Act, 2013,
  the Board of Directors, in case of a listed
  company, are responsible for laying down internal
  financial controls and ensuring the adequacy and
  effectiveness of such controls. The Directors are
  also responsible for devising proper systems to
  ensure compliance with the provisions of all
  applicable laws and that such systems are
  adequate and operating effectively.
• The companies legislation articulates that the
  term "internal financial controls" to mean those
  policies and procedures adopted by the company
  for ensuring the orderly and efficient conduct of
  its business, including adherence to company's
  policies, the safeguarding of its assets, the
  prevention and detection of frauds and errors,
  the accuracy and completeness of the accounting
  records, and the timely preparation of reliable
  financial information
• 3.0 Real Estate Regulation and Development Bill -
  Salient features
• The salient features of the impending regulation
  are discussed herein below
• a. Every commercial and residential project
  (greater than 500 sq.m or having eight units) to
  be registered with the Real Estate Regulatory
  Authority (RERA) to be set up in each state,
• b. Project registration requirements apply to
  both on-going and new projects,
• c. Disclosures encompassing details of promoters,
  project plans, status of land, approvals etc.
  need to be submitted at the time of project
  registration,

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• d. Builders required to deposit 70 of money
  collected from buyers in an escrow account to be
  utilized only for purpose of construction and
  payment of land,
• e. Sale of units to be based on carpet area,
• f. Developers and buyers to pay same rate of
  interest on default,
• g. Developers to advertise and sell homes in
  projects only after all approvals are obtained
  from local authorities.
• 4.0 Conclusion
• The present legislation was anticipated as the
  Bill was in public domain for some time. The
  Board of Directors in general and audit
  committees in particular are responsible for
  ensuring that an organization has good internal
  controls in place to ensure compliance with all
  applicable laws and legislations. Systems,
  process and controls need to be dynamic as
  changes to regulatory requirements are a common
  and expected feature of the business environment.
• It is time to gear up for these changes, more so,
  in the context of an impending convergence with
  International Financial Reporting Standards
  (IFRS)

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