auditor’s report under the companies act,2013, read with rules framed thereunder presentation by...

AUDITOR’S REPORT UNDER THE COMPANIES ACT,2013,

READ WITH RULES FRAMED THEREUNDER

Presentation by

CA. (Dr.) Debashis MitraM.Com, LL.B, F.C.A, A.C.M.A, A.C.S, DISA ( ICAI) Phd

INTRODUCTION CARO, 2003 was introduced vide Notification in the

Official Gazette on 12th June , 2013. It came into force on 01-07-2013.

Vide Notification dated 25-11-2014 substantial amendments were made in CARO, 2003.

Vide Notification dated 10-04-2015, CARO, 2015 has been issued.

ICAI has issued Guidance on Reporting under CARO, 2015 in April 2015.

ICAI has also issued Guidance Note on Reporting on Fraud u/s. 143(12) of the Companies Act, 2013.

CHANGES MADE IN CARO, 2015 AS COMPARED TO CARO 2003

Title CARO 2003 read with CARO Amendment 2004

CARO, 2015 Remarks

Exclusions

Banking Company, Insurance Company, Sec 25 Company and a Private Company with a paid up capital and reserves not more than Rs 50 lacs and which does not have loan outstanding exceeding Rs 25 lacs from any bank or financial institution and does not have a turnover exceeding Rs 5 crores at any point of time during the financial year.

Banking Company, Insurance Company, Section 8 Company, Small Company, One Person Company and Private Companies (with a paid up capital and reserves not more than Rs.50 lacs and which does not have loan outstanding exceeding Rs.25 lacs from any bank or financial institution and does not have a turnover exceeding Rs.5 crores at any point of time during the financial year.

Small Company & One person Companies additionally excluded

CHANGES MADE IN CARO, 2015 AS COMPARED TO CARO 2003 (Contd.)

Title CARO 2003 read with CARO

Amendment 2004

CARO, 2015 Remarks

Definitions

Provided Definitions of Chit Fund, Nidhi & Mutual Benefit Companies

Does not provide any definitions

Auditor’s Report to contain matters

Every report made by the auditor under section 227 of Act, on the accounts of every company examined by him to which this Order applies for every financial year ending on any day on or after the commencement of this Order, shall contain the matters specified in paragraphs 4 and 5 (given in the following paragraphs)

Every report made by the auditor under section 143 of the Companies Act, on the accounts of every company examined by him to which this Order applies for the financial year commencing on or after 1st April, 2014, shall contain the matters specified in the paragraphs 3 and 4 (given in the following paragraphs)

Applies for the F.Y. commencing on or after 01-04-2014

CHANGES MADE IN CARO, 2015 AS COMPARED TO CARO 2003(Contd.)

• Matters to be included in the auditor's reportTitle CARO 2003 read with CARO

Amendment 2004CARO, 2015 Remarks

Fixed Assets

If a substantial part of fixed assets have been disposed off during the year, whether it has affected the going concern

-- Deleted in CARO - 2015


(Contd.)• Matters to be included in the auditor's report


CARO, 2015 Remarks

Loans

Has the company granted any loans, secured or unsecured to companies, firms or other parties covered in the register maintained under section 301 of the Act. If so, give the number of parties and amount involved in the transactions

Whether the company has granted any loans, secured or unsecured to companies, firms or other parties covered in the register maintained under section 189 of the Companies Act

Underlined portion now deleted

Whether the rate of interest and other terms and conditions of loans given by the company, secured or unsecured, are prima facie prejudicial to the interest of the company

-- Deleted




CARO, 2015 Remarks

Loans

Has the company taken any loans, secured or unsecured from companies, firms or other parties covered in the register maintained under section 301 of the Act. If so, give the number of parties and the amount involved in the transactions

-- Deleted

whether the rate of interest and other terms and conditions of loans taken by the company, secured or unsecured, are prima facie prejudicial to the interest of the company

-- Deleted

whether payment of the principal amount and interest are also regular

-- Deleted




CARO, 2015 Remarks

Transactions with entities

in which directors are

interested

whether the particulars of contracts or arrangements referred to in section 301 of the Act have been entered in the register required to be maintained under that section

-- Deleted

whether transactions made in pursuance of such contracts or arrangements have been made at prices which are reasonable having regard to the prevailing market prices at the relevant time

-- Deleted




CARO, 2015 Remarks

Internal Audit

System

In the case of listed companies and/or other companies having a paid-up capital and reserves exceeding Rs.50 lakhs as at the commencement of the financial year concerned, or having an average annual turnover exceeding five crore rupees for a period of three consecutive financial years immediately preceding the financial year concerned, whether the company has an internal audit system commensurate with its size and nature of its business

-- Deleted. Refer Provisions relating to Internal contained in section 138 of the Act read with Rule 13 of the Companies (Accounts) Rule, 2014.




CARO, 2015 Remarks

Statutory Dues

Is the company regular in depositing undisputed statutory dues including Provident Fund, Investor Education and Protection Fund, Employees' State Insurance, Income-tax, Sales-tax, Wealth Tax, Service tax, Custom Duty, Excise Duty, cess and any other statutory dues with the appropriate authorities and if not, the extent of the arrears of outstanding statutory dues as at the last day of the financial year concerned for a period of more than six months from the date they became payable, shall be indicated by the auditor

Is the company regular in depositing undisputed statutory dues including provident fund, employees' state insurance, income-tax, sales-tax, wealth tax, service tax, duty of customs, duty of excise, value added tax, cess and any other statutory dues with the appropriate authorities and if not, the extent of the arrears of outstanding statutory dues as at the last day of the financial year concerned for a period of more than six months from the date they became payable, shall be indicated by the auditor

Investor Education & protection Fund deleted from the list of statutory dues

In case dues of Income tax/ Sales tax /Wealth tax/ Service tax/ Custom duty/ Excise duty/ cess have not been deposited on account of any dispute, then the amounts involved and the forum where dispute is pending shall be mentioned.

In case dues of income tax or sales tax or wealth tax or service tax or duty of customs or duty of excise or value added tax or cess have not been deposited on account of any dispute, then the amounts involved and the forum where dispute is pending shall be mentioned. (A mere representation to the concerned Department shall not constitute a dispute)

Amendments Underlined

Whether the amount required to be transferred to investor education and protection fund in accordance with the relevant provisions of the Companies Act, 1956 (1 of 1956) and rules made there under has been transferred to such fund within time

New Addition




CARO, 2015 Remarks

Documents & Records for Loans

and Advances

Whether adequate documents and records are maintained in cases where the company has granted loans and advances on the basis of security by way of pledge of shares, debentures and other securities; If not, the deficiencies to be pointed out

-- Deleted




CARO, 2015 Remarks

Provisions relating to

Special Statute

Prescribed reporting pertaining to Chit Fund/Nidhi & Mutual Benefit Company

-- Deleted

Records etc for

Companies dealing and trading in securities

If the company is dealing or trading in shares, securities, debentures and other investments, whether proper records have been maintained of the transactions and contracts and whether timely entries have been made therein; also whether the shares, securities, debentures and other investments have been held by the company, in its own name except to the extent of the exemption, if any, granted under section 49 of the Act

-- Deleted




CARO, 2015 Remarks

Usage of funds raised

Whether the funds raised on short-term basis have been used for long term investment; If yes, the nature and amount is to be indicated

-- Deleted

Preferential Allotment of

Shares

Whether the company has made any preferential allotment of shares to parties and companies covered in the Register maintained under section 301 of the Act and if so whether the price at which shares have been issued is prejudicial to the interest of the company

-- Deleted




CARO, 2015 Remarks

Debenture

Whether security or charge has have been created in respect of debentures issued?

-- Deleted

End use of public money raised

Whether the management has disclosed on the end use of money raised by public issues and the same has been verified

-- Removed

Fraud

Whether any fraud on or by the company has been noticed or reported during the year; If yes, the nature and the amount involved is to be indicated

Whether any fraud on or by the company has been noticed or reported during the year; If yes, the nature and the amount involved is to be indicated

Retained. Fraud Reporting to be also done u/s 143(12) of the Act

Thank you!

ISSUES ARISING OUT OF ILLUSTRATIVE FORMATS OF INDEPENDENT AUDITOR’S

REPORTS AS APPROVED BY THE COUNCIL OF ICAI IN NOVEMBER 2014

Presentation by CA. (Dr.) Debashis Mitra

M.Com, LL.B, F.C.A, A.C.M.A, A.C.S, DISA ( ICAI) Phd

ILLUSTRATIVE FORMAT OF INDEPENDENT AUDITOR’S’ REPORT

The Council of ICAI in its meeting held in November, 2014 approved 6 sets of Illustrative Formats of Independent Auditor’s Report on Standalone Financial Statements of a Company under the Companies Act, 2013 & Rules Framed thereunder.

The Six Formats are for matters as under:Illus. 1 Unmodified Opinion on Standalone Financial Statements, Emphasis of Matter Paragraphs, Reporting on clause 143(3)(i) regarding internal financial controls is required

Illus. 2 Unmodified Opinion on Standalone Financial Statements, Emphasis of Matter Paragraphs, Reporting on clause 143(3)(i) regarding internal financial controls is not required

Illus. 3 Qualified Opinion on Standalone Financial Statements, Qualification is quantifiable, Reporting on clause 143(3)(i) regarding internal financial controls is not required

Illus. 4 Qualified Opinion on Standalone Financial Statements, Qualification is not quantifiable, Reporting on clause 143(3)(i) regarding internal financial controls is not required

Illus. 5 Adverse Opinion on Standalone Financial Statements, Reporting on clause 143(3)(i) regarding internal financial controls is not required

Illus. 6 Disclaimer of Opinion on Standalone Financial Statements, Reporting on clause 143(3)(i) regarding internal financial controls is not required

ILLUSTRATIVE FORMAT OF INDEPENDENT AUDITOR’S REPORT (CONTD.)

Illustrative formats of Independent Auditor’s Report on Consolidated Financial Statements issued by ICAI on 01-05-2015.

Guidance Note on Reporting under sections 143 (f) and 143(h) of the Companies Act, 2013 issued by ICAI in April 2015.

This presentation discusses Illustrative Format – 3 relating to standalone financial statements.


Circumstances include the following: Audit of a complete set of standalone general purpose

financial statements of a company prepared under the Companies Act, 2013 financial reporting framework.

The terms of audit engagement reflect description of management’s responsibility for the financial statements in SA 210, Agreeing the Terms of Audit Engagement.

The independent auditor : Has issued a Qualified Opinion with respect to the true and fair

view of the financial statements on account of misstatement of inventories. The misstatement is deemed to be material but not pervasive to the financial statements.


In addition to expressing an opinion on the true and fair view of the financial statements, the auditor has other reporting responsibilities required under the Companies Act 2013 and/or other regulatory requirements. However, the auditor does not have the responsibility to report on internal financial controls pursuant to section 143(3)(i) of the Companies Act 2013.


INDEPENDENT AUDITOR’S’ REPORTTO THE MEMBERS OF ABC COMPANY LIMITEDReport on the Standalone Financial Statements

We have audited the accompanying standalone financial statements of ABC COMPANY LIMITED (“the Company”), which comprise the Balance Sheet as at 31st March, 20XX, the Statement of Profit and Loss, the Cash Flow Statement, and a summary of the significant accounting policies and other explanatory information for the year then ended, [in which are incorporated the Returns for the year ended on that date audited by the branch auditors of the Company’s branches at (location of the branches)


Management’s Responsibility for the Standalone Financial Statements

The Company’s Board of Directors is responsible for the matters stated in Section 134(5) of the Companies Act, 2013 (“the Act”) with respect to the preparation of these standalone financial statements that give a true and fair view of the financial position, financial performance and cash flows of the Company in accordance with the accounting principles generally accepted in India, including the Accounting Standards specified under Section 133 of the Act, read with Rule 7 of the Companies (Accounts) Rules, 2014. This responsibility also includes maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding the assets of the Company and for preventing and detecting frauds and other irregularities; selection and application of appropriate accounting policies; making judgments and estimates that are reasonable and prudent; and design, implementation and maintenance of adequate internal financial controls, that were operating effectively for ensuring the accuracy and completeness of the accounting records, relevant to the preparation and presentation of the financial statements that give a true and fair view and are free from material misstatement, whether due to fraud or error.


Auditor’s’ Responsibility

Our responsibility is to express an opinion on these standalone financial statements based on our audit. We have taken into account the provisions of the Act, the accounting and auditing standards and matters which are required to be included in the audit report under the provisions of the Act and the Rules made thereunder. We conducted our audit in accordance with the Standards on Auditing specified under Section 143(10) of the Act. Those Standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and the disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal financial control relevant to the Company’s preparation of the financial statements that give a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on whether the Company has in place an adequate internal financial control system over financial reporting and the operating effectiveness of such controls. An audit also includes evaluating the appropriateness of the accounting policies used and the reasonableness of the accounting estimates made by the Company’s Directors, as well as evaluating the overall presentation of the financial statements.


We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our qualified audit opinion on the standalone financial statements.

Basis for Qualified Opinion The Company’s inventories are carried in the Balance Sheet at Rs. XXX (As at 31st March 20YY: Rs. YYY). The Management has not stated the inventories at the lower of cost and net realisable value but has stated them solely at cost, which constitutes a departure from the Accounting Standard - 2 “Valuation of Inventories”. The Company’s records indicate that had the Management stated the inventories at the lower of cost and net realisable value, an amount of Rs. XXX (As at 31st March 20YY: Rs. YYY) would have been required to write the inventories down to their net realisable value. Accordingly, cost of sales would have been increased by Rs. XXX (Previous year ended 31st March, 20YY: Rs.YYY), and income tax, profit for the year and shareholders’ funds would have been reduced by Rs. X, Rs. XX and Rs. XXX, respectively (Previous year ended 31st March, 20YY: Rs.Y, Rs.YY and Rs.YYY, respectively). This matter was also qualified in our report/ the report of the predecessor auditors on the financial statements for the year ended 31st March 20YY


Qualified OpinionIn our opinion and to the best of our information and according to the explanations given to us, except for the effects of the matter described in the Basis for Qualified Opinion paragraph above, the aforesaid standalone financial statements give the information required by the Act in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India, of the state of affairs of the Company as at 31st March, 20XX, and its profit/loss and its cash flows for the year ended on that date.

Other MatterWe did not audit the financial statements/information of ________(number) branches included in the standalone financial statements of the Company whose financial statements / financial information reflect total assets of Rs.______ as at 31st March, 20XX and total revenues of Rs._______ for the year ended on that date, as considered in the standalone financial statements. The financial statements/information of these branches have been audited by the branch auditors whose reports have been furnished to us, and our opinion in so far as it relates to the amounts and disclosures included in respect of these branches, is based solely on the report of such branch auditors.

Our opinion is not qualified in respect of this matter.


Report on Other Legal and Regulatory Requirements

As required by Section 143 (3) of the Act, we report that: a)We have sought and obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purposes of our audit. b)Except for the effects of the matter described in the Basis for Qualified Opinion paragraph above, in our opinion, proper books of account as required by law have been kept by the Company so far as it appears from our examination of those books [and proper returns adequate for the purposes of our audit have been received from the branches not visited by us. c)The reports on the accounts of the branch offices of the Company audited under Section 143 (8) of the Act by branch auditors have been sent to us and have been properly dealt with by us in preparing this report .d)The Balance Sheet, the Statement of Profit and Loss, and the Cash Flow Statement dealt with by this Report are in agreement with the books of account [and with the returns received from the branches not visited by us.


e) Except for the effects of the matter described in the Basis for Qualified Opinion paragraph above, in our opinion, the aforesaid standalone financial statements comply with the Accounting Standards specified under Section 133 of the Act, read with Rule 7 of the Companies (Accounts) Rules, 2014.

f) The matter described in the Basis for Qualified Opinion paragraph above, in our opinion, may have an adverse effect on the functioning of the Company.

g) On the basis of the written representations received from the directors as on 31st March, 20XX taken on record by the Board of Directors, none of the directors is disqualified as on 31st March, 20XX from being appointed as a director in terms of Section 164 (2) of the Act.

h) The qualification relating to the maintenance of accounts and other matters connected therewith are as stated in the Basis for Qualified Opinion paragraph above


i) With respect to the other matters to be included in the Auditor’s Report in accordance with Rule 11 of the Companies (Audit and Auditors) Rules, 2014, in our opinion and to the best of our information and according to the explanations given to us:

i. The Company has disclosed the impact of pending litigations on its financial position in its financial statements – Refer Note XX to the financial statements; [or the Company does not have any pending litigations which would impact its financial position.

ii. The Company has made provision, as required under the applicable law or accounting standards, for material foreseeable losses, if any, on long-term contracts including derivative contracts – Refer Note XX to the financial statements; [or the Company did not have any long-term contracts including derivative contracts for which there were any material foreseeable losses.


iii. There has been no delay in transferring amounts, required to be transferred, to the Investor Education and Protection Fund by the Company {or, following are the instances of delay in transferring amounts, required to be transferred, to the Investor Education and Protection Fund by the Company or there were no amounts which were required to be transferred to the Investor Education and Protection Fund by the Company.

For XYZ & Co Chartered

Accountants (Firm’s

Registration No.) Signature (Xxxxx X. Xxxx)

(Designation) (Membership No.

XXXXX) Place of Signature:

Date

Thank you!

auditor’s report under the companies act,2013, read with rules framed thereunder presentation by...

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companies act

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