Financial audits or internal audits of banks, MSME units and private limited companies need government approval. ICMAI president P. Raju Iyer said that the institute is waiting for government approval. Cost accountants seek permission to conduct a financial audit. It promotes competition and creates value for the services. This blog engages the readers with interesting points about the performance of MSME units, challenges with MSME units and the need for the financial audit in the MSME sector. ICAI is offering service to the MSME sector with the ICAI MSME exchange. The CA services exchange, MSME illumination, and MSME helpdesk are the three pillars of the institute. Similarly, the cost accountants can implement the global practices, prepare effective budgets and provide insights into the financial audits of the MSME sector. MSME registration benefits are reimbursement for the ISO certification, reduction in electricity bills, help for delayed payments, and exemption from overdraft interest rates, patent registration subsidy, collateral-free bank loans and promotion for industrial promotion.
Performance of MSME units:
The investment, production, employment and exports measure the performance of the MSME units. The schemes for 2021 to 2022 for the MSME sector are ATI scheme, MPDA grant to khadi institutions, coir VikasYojana, SFURTI SI, entrepreneurship and skill development programme, international co-operation schemes, and prime ministers employment generation programme. The percentage of rural and urban MSMEs stands at 51 per cent and 49 per cent. The production of the Khadi sector that falls under the MSME for the years 2021 to 2022 stands at 2617.56. The sales for the years 2021 to 2022 stand at 4632.00. The employment opportunities created by this sector for the year 2021 to 2022 is 4.97 lakh. The production of village industries is 83315.41. The sales of the village industries stand at 108446.21. The employment opportunities created by the village industries are 161.47 lakh.
Major issues of MSME units:
KVIC, Coir board, NSIC, NI-MSME and MGIRI are the statutory body responsible for the working of the MSME industry. MSME sector is classified into two divisions such as service enterprises and manufacturing enterprises. The further divisions are based on the annual profits and investments. Loans and financial support are essential for the domestic market to maintain liquidity.
The internal and external factors contribute to the growth of the MSME sector. The five major challenges of MSMEs are as follows:
The Indian government had given a new definition to the MSME sector. This new meaning divides the sector as per the investment. The Government offer a three lakhs collateral loan to meet the demand for the raw material, operations and restart the business. The government also encourages the global tenders up to 200 crores for the domestic players. Financial hindrance play a major role in the operations of MSMEs. Only 16 per cent of MSMEs get finance. Other businesses rely on their resources. The popular banks offering loans to the sector are SBI, HDFC, and ICICI. Depending upon the scheme, the SBI provides loan and interest rates. The interest rate starts from 9.65 per cent. HDFC bank offers a 15.75 per cent interest rate on the loan. ICICI charge 13 per cent interest on the loans. The repayment period goes from 4 years to 10 years or as per the scheme. The type of business and the size of the business decide the eligible loan amount. The financial knowledge of the entrepreneur helps to know the interest rate and compare the better option in the MSME sector. Banks believe that the repayment capacity is poor for the loans granted to the MSME sector. The loan amount is also small. Credit rating is an essential parameter for getting loans. So, MSMEs need to maintain creditworthiness. MSMEs believe in their resources, and this mindset leads to a lack of trust in the banks.
The infrastructure of rural and urban areas contributes to the transactional cost. Power, roads, and water facility are essential for the smooth functioning of the business. Roads linking major cities, marketing support, power facility, affordable land and dedicated infrastructure are the areas of focus for the development of infrastructure.
Tax payment, labour laws and patent registration laws are creating barriers to the MSME sector. Manufacturing units rely on labour laws. To promote the competitive element reforms to these regulations are essential.
Globalization and the e-commerce industry are bringing the global market inside the domestic market. So, the domestic market is facing competition in industries such as tourism, garments, machinery and agriculture. Predominantly, MSME industries are run by sole proprietors, and their focus is on profits. They fil to understand and improve the ecosystem. Digital marketing and digitalization help for understanding the technology and global reach to the domestic market. The competition that comes from globalization is overruled by digitalization. MSME do not focus on research and development. The financial and resource-related challenges need to be solved first. Then the research help for promoting the business to the world market.
The MSME sector solves the unemployment problem. There is a need for reskilling and upskilling of the employees. Employment opportunities and skill development training empower the MSME sector.
Competition in MSME units and private limited companies:
India has micro-enterprises more than the large industries. China-focused on the rural areas as important vehicles that support transformation. Global competitiveness is essential for the growth of the economy during post covid. As there is low productivity, this sector is not globally competitive. Technological development is the reason that disturbs the growth of the MSME sector. Ajay Sahai, CEO of FIEO said that the big industries must allow the MSMEs to work as the ancillaries. An example of such collaboration is Maruti Suzuki allowed the SMEs to supply the parts. India is the major supplier of auto components. The president of FISME said that government schemes are essential for backing the MSME sector. Banks support the MSME sector only with a linkage of government schemes.
The expectation of employer from cost accountant:
Major industries supporting India are Textiles, jute, iron and steel, cement, sugar, paper, petrochemical, information technology, automobile, and banking. The traditional paradigm of accounting and the current expectations of the industry is different. Cost accountants need to do strategic analysis, sensitivity analysis, do time management, adopt best practices, and financial integrity, and measure intangible assets and tangible assets.
How does a financial audit develop MSME units?
MSME audit checklist focuses on material misstatement. Financial constraints, human resource management, industry performance, regulations, strategic planning, and technology are the areas that need broad focus in the MSME sector. A financial audit from the cost accountants helps the industries to identify their strengths and weakness.
Cost accountant’s body asks the government to allow members to carry out the financial audit. Shri.P. Raju Iyer, President of ICMAI, has placed a request to the Indian government. The cost audit by the cost accountants helps the promotion of the small industries in India. It also helps in managing the competition from domestic and global partners.