Post on 29-Mar-2015
COMPANIES(AUDITOR’S REPORT)
ORDER, 2003(CARO)
CARO 2003 issued originally on 12th June 2003 & Amended on 25th November 2004
paragraph 4 has 21 sub paragraphs.
Issues in Corporate governance Streamlining of reporting,deleting
Redundant Paragraphs Emphasis on Internal control,Internal
Audit Reporting on fraud Widening the scope of reporting
3
Banking company Insurance company Section 25 company Private company
paid up capital and reserves upto fifty lakh rupees and
Loan outstanding from bank or FI upto 25 lakhs and
Turnover upto 5 crores
4
• Auditor to respond to 21 items relating to(i)Fixed Assets(ii)Inventories(iii)Terms, conditions of loans and
advances(granted & taken)(iv)Adequacy of internal control system(v)Particulars of contracts or arrangements
referred in section 301(vi)Compliance of 58A,58AA(vii)Internal Audit System in listed
companies/certain specified companies (viii)Maintenance of Cost Records
5
– (ix)Depositing undisputed statutory dues– PF,IEPF,IES,IT,Sales T,WT,Service
T,Customs,Excise,Cess & other statutory dues
– (x) Sick Companies– (xi)Default in repayment of dues
FI/Bank/Debenture holders– (xii)Documents for loans and advances
granted– (xiii)Compliance of Chit fund act
• Nidhi/Mutual benefit fund/societies– (xiv)Dealing or trading in shares & securities– (xv) Guarantee for loans taken by others– (xvi)Application of Term Loan
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xvii) Application of term loan fund raised for short term basis
xviii)Preferential Allotment to parties & companies covered by section 301
xix)Securities & charge on debenture issuesxx)Disclosure on the end use of money
raised by the public issuexxi)Reporting on fraud on or by the
company Noticed or reported
7
Applicability of CARO, 2003
Clause I : Fixed Assets Proper Record Physical Verification at reasonable intervals Material discrepancies properly dealt Substantial part of fixed assets disposed
Clause II : Inventories Physical verification at Reasonable intervals Procedure of physical verification is
Reasonable Proper records maintained material discrepancies properly dealt
Clause III : Loans Granted Number of parties and amount involved Terms and conditions are prejudicial Reasonable steps taken to recover in case
overdue amount is more than Rs. one lac.
Clause III : Loans Taken Number of parties and amount involved Terms and Conditions PrejudicialClause IV : Internal Control System Commensurate with the size of the company
and nature of its business – Identify major weaknesses, if any.
Continuing failure to correct major weakness
Clause V : Section 301 Contracts or Arrangement
Completion of entries in Register Transaction >Rs. 5 lacs are ReasonableClause VI : Public Deposits Compliance with RBI Directives-Examination of
System
Clause VII : Internal Audit Commensurate with nature & size of
businessClause VIII : Cost Records Proper cost records as prescribedClause IX : Undisputed Statutory Dues Statutory dues to be deposited regularly Identification of undisputed amount
Clause X : Sick Company Computation of Accumulated Losses Computation of Net Worth & Adjust QualificationClause XI : Default in repayment of dues What constitutes DefaultClause XII : Adequacy of Documents Maintaining adequate records
Clause XIII : Chit Fund CompaniesClause XIV : Companies dealing in shares,
etc. Proper recordsClause XV : Guarantees for loans taken by
others All guarantees are recorded properly Terms and conditions are prejudicial to interests
of company
Clause XVI : Application of Term Loans Purpose of term loans Actual utilisation of term loans
Clause XVII : Application of Funds – Short-Term
Preparing movement of funds – Source and Application
Clause XVIII : Preferential Allotment Valuation in case of unlisted companiesClause XIX : Debentures Proper Security or charge has been created
in favour of Debenture TrustClause XX : Disclosure of End-use of
funds – Public Issue Raising of funds through public issue
Clause XXI: Frauds Audit Plan to conform Reports of Internal Audit Enquiries made to management
Exemptions
MAOCARO
Banking companies
Insurance companies
Section 25 companies
CARO
Banking companies
Insurance companies
Section 25 companies
Certain Private companies
Fixed assets - Clause (i)
MAOCARO CARO
Maintenance of proper records Same
Physical verification & reporting of material discrepancies
Same
Revaluation of fixed assets & basis thereof [4(A)(ii)]
Deleted
If substantial part of fixed assets have been disposed off, whether it has affected the going concern
Inventory - Clause (ii)MAOCARO CARO
Physical verification of finished goods, stores, spare parts and raw material at regular intervals.
Words ‘finished goods, stores, spare parts and raw material’ replaced with the word ‘Inventory’.
Adequacy of procedures followed for physical verification
Same
Material discrepancies on verification
Same, except Whether proper inventory records being maintained.
Loans - Clause (iii)
MAOCARO CARO
Loans granted/ taken from parties u/s 301
[4(A)(VII) & (VIII)]
Same, clauses combined
Number of parties and amount involved, to be stated in Report.
Rate of interest and other terms – whether prejudicial
Same
Loans - Clause (iii)….contd.MAOCARO CARO
Regularity of payment of
Principal + Interest (only for loan given)
Regularity of payment of
Principal + Interest (for loan given/ taken)
Whether reasonable steps taken for loan recovery.
Whether reasonable steps taken for recovery/ payment (P+I) where overdue amount exceed 1 lac.
Internal Control - Clause (iv) MAOCARO CARO
Adequacy of Internal Control procedure for purchase of stores, raw material, plant & machinery, equipment, etc. and sale of goods.
‘Stores, raw material including components, plant and machinery, equipment and other assets’ replaced with ‘inventory and fixed assets’
Whether there is continuing failure to correct major weaknesses in internal control.
Related Party Transactions - Clause (v)
MAOCARO CARO
transactions entered in 301 register aggregating Rs.50,000 or more
transactions covered u/s 301 need to be entered in register so entered
Public Deposits - Clause (Vi) MAOCARO CARO
In case of acceptance of public deposits, whether RBI directives, Sec 58A & Rules complied.
Section 58AA inserted.
Internal Audit - Clause (vii) MAOCARO CARO
Whether company has internal audit system commensurate with size & nature of business, where:
Whether internal audit system commensurate with size & nature of business exists in all listed companies, and other companies where:
PUC > Rs.25 lacs O PUC & Reserves>Rs.50lacs
Statutory Dues/Liabilities - Clause (ix a)
MAOCARO CARO
Whether undisputed amounts payable under income tax, wealth tax,
Whether regular in depositing undisputed statutory dues including PF... and other statutory dues.
Sick Company - Clause (x)
MAOCARO
Where company is sick company under SICA, whether reference made under BIFR.
CARO
Whether a company, registered for not less than 5 years, has accumulated losses > 50% of net worth at end of any FY.
.
Repayment of dues to FIs - Clause (xi)
MAOCARO
-
CARO
Whether company has defaulted in repayment of dues to FI/bank/debenture holder.
If yes, period and amount of default.
Special Statute applicable to Chit Fund, etc. -Clause (xiii)MAOCARO
Compliance of special statute applicable on Chit Fund , nidhi or mutual benefit society.
CARO
Compliance of special statute applicable on Chit Fund.
In respect of nidhi/mutual benefit fund/societies
Dealing in securities - Clause (xiv)
MAOCARO
Where finance/investment/chit fund/nidhi/ mutual benefit company deals in securities, whether records regarding transactions and contracts maintained and timely updated.
CARO
Same,
Guarantee - Clause (xv)
MAOCARO
-
CARO
Where company has given any guarantee for loans taken by others from bank/FI, whether terms and conditions are prejudicial to company interest.
Term Loans - Clause (xvi)
MAOCARO
-
CARO
Whether term loans applied towards the purpose for which obtained.
Investments - Clause (xvii)
MAOCARO
-
CARO
Whether funds raised on short-term basis used for long term investments and vice versa.
Preferential Allotment - Clause (xviii)
MAOCARO
-
CARO
Whether preferential allotment made to parties/companies covered u/s 301.
Debenture Security - Clause (xix)
MAOCARO
-
CARO
Whether security created for debentures issued.
(Creation of reserve prescribed u/s 117A and SEBI Guidelines)
Fraud on/by Company - Clause (xxi)
MAOCARO
-
CARO
Whether fraud on/by the company been noticed during the year.
If so, nature and amount to be indicated.