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

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– (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

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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.