RERA Certification & Annual Audit of Project Accounts

What the Act requires

The separate account. Seventy per cent of the amounts realised from allottees for a real estate project must be deposited in a separate account maintained in a scheduled bank, and used only to cover the cost of construction and the cost of land for that project. Funds of one project cannot be applied to another.

Certification for each withdrawal. Amounts may be withdrawn from that account only after certification by three professionals — an engineer, an architect, and a Chartered Accountant in practice — that the withdrawal is in proportion to the percentage of completion of the project. All three certificates are required; the Chartered Accountant's is one of them and cannot be substituted.

Annual audit of project accounts. The promoter must get its accounts audited within six months after the end of every financial year by a Chartered Accountant in practice, and produce a statement of accounts duly certified and signed. The audit must verify two things specifically: that the amounts collected for a particular project have been used for that project, and that withdrawals have been in compliance with the proportion to the percentage of completion.

Both obligations arise from Section 4(2)(l)(D) of the Real Estate (Regulation and Development) Act, 2016 — the second proviso for withdrawals and the third proviso for the annual audit.

Only a Chartered Accountant can issue these

The Act reserves both the withdrawal certificate and the annual report on the statement of accounts to a Chartered Accountant in practice. A Cost Accountant or a Company Secretary cannot issue either. This is not a matter of preference or convention — it is what the statute provides, which is why a promoter has no alternative but to engage a Chartered Accountant for this work.

There is a further point that promoters frequently do not know until it causes a problem. The Chartered Accountant who certifies project progress for the purpose of withdrawal is generally required to be a different person from the Chartered Accountant who acts as the promoter's annual auditor and issues the annual report on the statement of accounts. The two roles are deliberately separated, so that the annual audit is a genuine check on the withdrawal certificates rather than a review of one's own work.

The practical consequence is that a promoter needs two Chartered Accountants, not one — and where a promoter's existing auditor has been issuing both, the position should be corrected. We are able to take on either role, and we establish at the outset which one is appropriate given who else is engaged.

The certificates in practice

The withdrawal certificate. Required at registration and again each time the promoter proposes to withdraw from the separate account. In practice it is commonly obtained periodically alongside the project's progress reporting, often quarterly, because construction draws are continuous rather than occasional. It is submitted to the bank, together with the architect's and engineer's certificates, as the basis on which funds are released.

Issuing it properly requires the estimated cost of the project, the cost incurred to date, an assessment of the percentage of completion, and a reconciliation of amounts received from allottees against amounts deposited into and withdrawn from the separate account. Where the professional certificates from the architect and engineer do not agree with each other or with the financial position, that has to be resolved before the certificate is issued rather than noted afterwards.

The annual report on the statement of accounts. Due within six months of the financial year end, issued by the promoter's statutory auditor, and covering the whole year's movement on the separate account. It is filed with the authority and is a public document — allottees can read it. Where it discloses that a withdrawal was not in proportion to completion, or that project funds were applied elsewhere, that disclosure is on the record permanently.

Because it is a public document, and because it reports on certificates issued during the year by others, this is not a routine certification exercise. It is an audit, and the work has to be capable of supporting the opinion.

Form numbering. The obligations are central, arising from the Act itself, but the certificate formats are notified by each state authority and the form numbers differ between states. Certificates for projects in Chhattisgarh follow the formats notified by the Chhattisgarh authority. Where a promoter operates in more than one state, the formats will not be the same in each.

What we need from the promoter

• The RERA registration certificate for the project, and the declared project details
• The estimated cost of the project — land cost and cost of construction, with any revision
• Bank statements for the separate account, and for the collection account where a separate one is used
• Details of amounts realised from allottees, allottee-wise
• Ledgers of project expenditure, with supporting bills and payment records
• The architect's and engineer's certificates for the period
• Copies of certificates previously issued, for the annual audit
• Details of any borrowing against the project, and its application

Why this matters to a promoter beyond compliance

Funds do not move without it. The bank releases money from the separate account against the certificates. A promoter without current certification cannot access its own project receipts, which stops construction and, in turn, delays the completion on which the next set of withdrawals depends.

The account is examined annually and publicly. The annual report is filed and available. Discrepancies do not stay private.

Contravention carries penalty. Breach of the separate-account requirement is a contravention of Section 4, which attracts penalty under the Act. More practically, it also attracts the attention of the authority to the project as a whole.

Allottees have remedies. Where project funds have been diverted, allottees can complain to the authority, and the promoter's own records become the evidence.

Projects in Raipur and Naya Raipur

Chhattisgarh has an active development pipeline — residential and plotted development around Raipur, and continuing development in Naya Raipur — and promoters here face the same certification requirements as anywhere else in India, applied through the state authority's notified formats.

Two situations recur locally. The first is the promoter developing a plotted or small residential project for the first time, who registers the project without appreciating that seventy per cent of receipts must go into a designated account from which withdrawals require three professional certificates. The second is the established builder running several projects through common accounts, for whom the separation of project funds is the real work. Both are better addressed at registration than at the first withdrawal.

Scope of our work

We advise on the operation of the designated account and on the records needed to support certification; assess the percentage of completion in conjunction with the architect's and engineer's certificates; issue the Chartered Accountant's certificate for withdrawal in the format notified by the authority; conduct the annual audit of project accounts and issue the annual report on the statement of accounts within the six-month period; reconcile amounts realised from allottees against deposits into and withdrawals from the designated account; and advise promoters running multiple projects on separating project accounting so that each project can be certified independently.

Where we act as the annual auditor, we do not also issue withdrawal certificates for the same promoter, and vice versa — for the reason set out above.