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Companies Auditor’s Report O d 2016Order, 2016

Sumit Binani, [email protected], +919830810003,

B.Com (H), MBA (IIM‐Cal), FCA, FCS, ACMA

Regulatory Framework

A• Sec 143(11) of CA 2013

A

B• ICAI Guidance Notes on CARO, 2016 (Awaited)

B

• ICAI Standards of AuditingC

ICAI Standards of Auditing

Other Applicable Provisions of CA 2013 & RulesD

• Other Applicable Provisions of CA 2013 & Rules

Applicability of CARO 2016

Applicable to every company including foreign company Exemptions from Applicability

1)Banking Company 2) Insurance Company3)Section 8, 25 Company4)OPCs 5)S ll C / 2(85) f CA 20135)Small Company u/s 2(85) of CA 20136)Select Private Company

Effective from FY commencing on or after 1st April

2015CFSBranch

Auditor

Applicability of CARO 2016

The applicability of the Order would be based onthe status of the company as at the balancesheet date

It may also be noted that in case a company iscovered under the definition of small company, itwill remain exempted from the applicability ofthe Order even if it falls under any of the criteriaspecified for private company.

Illustrations on CARO Applicability

Particulars Applicability CommentsParticulars Applicability Comments

Public company (irrespective of size of its paidup capital, reserves, surplus, borrowings &

Yes Applicable to all publiccos except certainp p , , p , g

revenue)p

categories exemptedPrivate company having paid up capital of Rs 25lacs, Reserves, Surplus of Rs 80 lacs, borrowings

No General exemption tosmall company

of Rs 2 Crores from Bank, Revenue of Rs 2 croresPrivate company having paid up capital of Rs 1.5Crores with no Reserves and Turnover

Yes Not a select private orsmall company

Private Company (a subsidiary of publiccompany) having paid up capital of Rs 25 lacswith no Reserves and Turnover

Yes Not a select private orsmall company

Private Company (an associate of publiccompany) having Paid up Capital of Rs 25 lacswith R & S of Rs 1 Crore, Revenue of Rs 2 Crores

No General exemption tosmall company

P i t C h i it l R & S f 1 N E ti t l tPrivate Company having capital, R & S of 1 crore,inter corporate borrowings of 5 crores, revenueof 1 crore

No Exemption to a selectprivate company

General Approach

• the auditor is not to carry out an investigation but give specificinformation on certain aspects of his work

• reporting is supplemental to the audit of FS 11, not to beconstrued as a separate reporting engagement

• section 143(9) the Act, casts a duty on the auditor to complywith the auditing standards specified under section 143(10) ofthe Act.

• auditor’s procedures for reporting on the Order would as in theauditor s procedures for reporting on the Order would, as in thecase of audit of financial statements, need to be within theframework of the principles enunciated in SA.

General Approach

• the auditor should also consider obtaining managementrepresentations, on matters on which the Order requires theauditor make a statement on certain aspectsauditor make a statement on certain aspects.

• necessity for preserving working papers by auditors assumesi i f h i f h O dgreater importance in context of the requirements of the Order

• SA 230 “Audit Documentation, SA 315 Materiality in Planning &Performing an Audit, Exercise of Judgement

• where a requirement of the Order is not complied with but thewhere a requirement of the Order is not complied with but theauditor decides not to make an adverse comment, in view ofthe immateriality of the item, he should record rationale for the

i hi kisame in his working papers

Matters to be Included in Audit ReportFixed Assets

Inventory

Loans

Auditor's Report to Contain Matters Specified in Paragraphs 3 and 4 of the Order..as may be applicable

Loans

185, 186

Deposits

Cost Records

Statutory Dues

Repayment of Dues

Reporting under this Order shall be applicable for thefinancial year 2015‐16 and onwards

Moneys Raised ‐Appl

Fraud

Managerial

financial year 2015 16 and onwards

In case auditor has to report on the FS for the FY prior toManagerial Remuneration

Nidhi Cos

Related Party Txns

2015‐16, then the relevant earlier Order shall be applicable.

Reporting on the matters specified in paragraph 3 and 4 ofParty Txns

Private Placements

Non Cash i

p g p p g pthe Order are to be made only on those matters which areapplicable to the Company.

Transactions

NBFCs


Inventory

LoansWhether the company is maintaining proper records showing fullparticulars, including quantitative details and situation of fixedassets.

Loans

185, 186

Deposits

Cost Records

Whether these fixed assets have been physically verified by themanagement at reasonable intervals; whether any materialdiscrepancies were noticed on such verification and if so

Statutory Dues

Repayment of Dues discrepancies were noticed on such verification and if so,

whether the same have been properly dealt with in the books ofaccount


Fraud

ManagerialManagerial Remuneration

Nidhi Cos

Related Party Txns

Whether title deeds of immovable properties are held in thename of the company. If not, provide details thereof.

Party Txns

Private Placements

Non Cash iTransactions

NBFCs


Inventory

Loans

Whether physical verification of inventory has beenconducted at reasonable intervals by the management and

Loans

185, 186

Deposits

Cost Records

whether any material discrepancies were noticed and if so,whether they have been dealt with in the books of account

Statutory Dues

Repayment of Dues Moneys

Raised ‐Appl

Fraud


Nidhi Cos

Related Party TxnsParty Txns

Private Placements


NBFCs


Inventory

Loans

Whether the company has granted any loans, secured orunsecured to companies, firms, LLPs, or other parties

Loans

185, 186

Deposits

Cost Records

covered in the register maintained under section 189 of theCompanies Act, If so:

Statutory Dues


Raised ‐Appl

Fraud

Managerial

Whether the terms and conditions of the grant of suchloans are not prejudicial to the company’s interest?

Managerial Remuneration

Nidhi Cos

Related Party Txns

Whether the schedule of repayment of principal andpayment of interest has been stipulated and whetherthe repayments or receipts are regularParty Txns

Private Placements

Non Cash i

p y p g

If the amount is overdue, state the total amount due for90 days and whether reasonable steps have been taken

Transactions

NBFCsby the company for recovery of the principal or interest


Inventory

Loans

In respect of loans, investments guarantees and security,whether provisions of Section 185 and 186 of the

Loans

185, 186

Deposits

Cost Records

Companies Act, 2013 have been complied with. If not,provide details thereof.

Statutory Dues


Raised ‐Appl

Fraud


Nidhi Cos


Private Placements


NBFCs


Inventory

Loans

in case the company has accepted deposits, whether thedirectives issued by the Reserve Bank of India and the

i i f ti 73 t 76 th l t

Loans

185, 186

Deposits

Cost Recordsprovisions of sections 73 to 76 or any other relevantprovisions of the Companies Act and the rules framed thereunder, where applicable, have been complied with? If not,

Statutory Dues

Repayment of Dues

the nature of such contraventions be stated; If an order hasbeen passed by Company Law Board or National CompanyLaw Tribunal or Reserve Bank of India or any court or any


Fraud

Managerial Law Tribunal or Reserve Bank of India or any court or anyother tribunal, whether the same has been complied withor not?


Nidhi Cos


Private Placements


NBFCs


Inventory

Loans

Where maintenance of cost records has been specified bythe Central Government under sub‐section (1) of section

Loans

185, 186

Deposits

Cost Records

148 of the Companies Act, whether such accounts andrecords have been so made and maintained

Statutory Dues


Raised ‐Appl

Fraud


Nidhi Cos


Private Placements


NBFCs


Inventory

Loans

Is the company regular in depositing undisputed statutory duesincluding provident fund, employees' state insurance, income‐t l t lth t i t d t f t d t f

Loans

185, 186

Deposits

Cost Records tax, sales‐tax, wealth tax, service tax, duty of customs, duty ofexcise, value added tax, cess and any other statutory dues to theappropriate authorities and if not, the extent of the arrears of

t t di t t t d th l t d f th fi i l

Statutory Dues

Repayment of Dues

outstanding statutory dues as on the last day of the financial yearconcerned for a period of more than six months from the datethey became payable, shall be indicated by the auditor


Fraud


Nidhi Cos

Related Party Txns

where dues of income tax or sales tax or wealth tax or service taxor duty of customs or duty of excise or value added tax or cesshave not been deposited on account of any dispute then theParty Txns

Private Placements

Non Cash i

have not been deposited on account of any dispute, then theamounts involved and the forum where dispute is pending shallbe mentioned. (A mere representation to the concernedD t t h ll t b t t d di t )Transactions

NBFCsDepartment shall not be treated as a dispute)


Inventory

LoansLoans

185, 186

Deposits

Cost Records

Whether the company has defaulted in repayment of loansor borrowings to a financial institution, bank, government

d t d b t h ld ? If th i d dStatutory Dues

Repayment of Dues

or dues to debenture holders? If yes, the period andamount of default to be reported (in case of banks financialinstitutions and government, lender wise details to be


Fraud

Managerial

provided).


Nidhi Cos


Private Placements


NBFCs


Inventory

LoansLoans

185, 186

Deposits

Cost Records

Whether moneys raised by way of initial public offer orfurther public offer (including debt instruments) and terml li d f th f hi h thStatutory

DuesRepayment of Dues

loans were applied for the purposes for which those areraised. If not, the details together with delays / default andsubsequent rectification, if any, as may be applicable, be


Fraud

Managerial

reported


Nidhi Cos


Private Placements


NBFCs


Inventory

LoansLoans

185, 186

Deposits

Cost Records

Whether any fraud by the company or any fraud on theCompany by its officers/employees has been noticed or

Statutory Dues

Repayment of Dues

reported during the year; If yes, the nature and the amountinvolved is to be indicated


Fraud


Nidhi Cos


Private Placements


NBFCs


Inventory

LoansLoans

185, 186

Deposits

Cost Records

Whether managerial remuneration has been paid /provided in accordance with the requisite approvals

Statutory Dues

Repayment of Dues

mandated by the provisions of section 197 read withSchedule V to the Companies Act? If not, state the amountinvolved and steps taken by the company for securing


Fraud

Managerial

p y p y f grefund of the same.


Nidhi Cos


Private Placements


NBFCs


Inventory

LoansLoans

185, 186

Deposits

Cost Records

Whether the Nidhi Company has complied with the NetOwned Fund to Deposits in the ratio of 1: 20 to meet out the

Statutory Dues

Repayment of Dues

liability and whether the Nidhi Company is maintaining 10%unencumbered term deposits as specified in the Nidhi Rules,2014 to meet out the liability


Fraud

Managerial

y


Nidhi Cos


Private Placements


NBFCs


Inventory

LoansLoans

185, 186

Deposits

Cost Records

Whether all transactions with the related parties are incompliance with Section 177 and 188 of Companies Act,

Statutory Dues

Repayment of Dues

2013 where applicable and the details have been disclosedin the Financial Statements etc as required by the applicableaccounting standards


Fraud

Managerial

g


Nidhi Cos


Private Placements


NBFCs


Inventory

LoansLoans

185, 186

Deposits

Cost Records

Whether the company has made any preferential allotment/ private placement of shares or fully or partly convertibled b d h d d fStatutory

DuesRepayment of Dues

debentures during the year under review and if so, as towhether the requirement of Section 42 of the CompaniesAct, 2013 have been complied and the amount raised have


Fraud

Managerial

pbeen used for the purposes for which the funds were raised.If not, provide details in respect of the amount involved andnature of non complianceManagerial

Remuneration

Nidhi Cos

Related Party Txns

nature of non compliance.

Party Txns

Private Placements


NBFCs


Inventory

LoansLoans

185, 186

Deposits

Cost Records

Whether the company has entered into any non‐cashtransactions with directors or persons connected with him

Statutory Dues

Repayment of Dues

and if so, whether provisions of Section 192 of CompaniesAct, 2013 have been complied with.


Fraud


Nidhi Cos


Private Placements


NBFCs


Inventory

LoansLoans

185, 186

Deposits

Cost Records

Whether the company is required to be registered undersection 45‐IA of the Reserve Bank of India Act, 1934 and if

Statutory Dues

Repayment of Dues

so, whether the registration has been obtained.


Fraud


Nidhi Cos


Private Placements


NBFCs

Comments on Form of Report

h di i blwhere an auditor is unable to express anyopinion, he should indicate such fact

the auditor is also required to give reasons forf bl lifi dany unfavourable or qualified answer

h th dit i bl t i iwhere the auditor is unable to express an opinionon any such matter which is applicable to the

h i l i d t i di t i hicompany, he is also required to indicate in hisreport such fact together with the reasons as toh h i bl t i iwhy he is unable to express any opinion

Reference in Main Reporting

“R t Oth L l d R l t R i t“Report on Other Legal and Regulatory Requirements

As required by the Companies (Auditor’s Report) OrderAs required by the Companies (Auditor s Report) Order,2016 (“the Order”), issued by the Central Government ofIndia in terms of sub‐section (11) of section 143 of the( )Companies Act, 2013, we give in the Annexure astatement on the matters specified in paragraphs 3 and 4of the Order, to the extent applicable.

As required by Section 143 (3) of the Act we report that:As required by Section 143 (3) of the Act, we report that:.............................……………………………”

Sumit Binani, [email protected], +919830810003,

B.Com (H), PGDBM (IIM‐Cal), FCA, FCS, ACMA

5/2/2016

Foreign Company

The Order also applies to foreign companies as defined inclause (42) of section 2 of the Act. According to the aforesaidsection, a “foreign company” means:section, a foreign company means:

“Any company or body corporate incorporated outside Indiahi hwhich ‐

(a) has a place of business in India whether by itself or throughan agent, physically or through electronic mode; andg , p y y g ;(b) conducts any business activity in India in any othermanner.”

In the case of a foreign company, wherever under any of theprovisions of the Act, an audit under Chapter X of the Act isrequired to be carried out, the Order would be applicable

Small Company u/s 2(85) of CA 2013

Meaning of a Small Company•Meaning of a Small Company•The limits of paid up capital and turnover are as follows:Criteria Existing Limit (Rs) Maximum Prescribed Proposed Maximum*Criteria Existing Limit (Rs) Maximum Prescribed Proposed Maximum*

Paid Up Capital 50 lacs 5 crores 10 crores

Turnover 2 crores 20 crores 100 crores

* Under Companies Bill, 2016

•Additional Conditions

Turnover 2 crores 20 crores 100 crores

Additional Conditions• needs to be a private company• It cannot be a holding or subsidiary company• It cannot be a section 8 company• It cannot be a company regulated by a special act

Turnover

• Defined u/s 2(91) of CA 2013...amendment also proposed inCompanies Bill 2016

• "turnover" means the aggregate value of the realisation ofamount made from the sale, supply or distribution of goods oron account of services rendered or both by the companyon account of services rendered, or both, by the companyduring a financial year gross amount of revenue recognised inthe profit and loss account from the sale, supply, or distributionof goods or on account of services rendered, or both, by acompany during a financial year

• Order does not define turnover separately

Select Private Company

• Not a holding company of a public companyNot a holding company of a public company

• Not a subsidiary company of a public company

• Private Company with:a) paid up capital + reserves + surplus up to Rs 1 crore as at the

balance sheet datebalance sheet dateb) total borrowings up to Rs 1 crore from any Bank or FI

at any point of time during the FYc) total revenue up to Rs 10 crores as disclosed in Schedule IIIc) total revenue up to Rs 10 crores as disclosed in Schedule III

(including revenue from discontinuing operations) during theFY as per Financial Statement

A private limited company, to be exempt from the applicability of CARO,must satisfy all the conditions mentioned above collectively. In other

d if f h di i i i fi d i li i dwords, even if one of the conditions is not satisfied, a private limitedcompany’s auditor has to report on the matters specified in the Order.

Paid Up Capital, Reserves, Borrowings

• Share application money not to be consideredShare application money not to be considered

• Both capital and revenue reserves to be considered. Revaluationreserve to be consideredreserve to be considered

• Non fund based limits not to be considered as borrowings

• Interest accrued and due to be considered. Interest accrued but notdue not be considered as borrowings

• If guarantee has been invoked and encashed or where, say, a letter ofcredit has been devolved on the company, to be considered.

• For cash credit facility, the Order would apply to the company in caseon any day during the financial year concerned, the amountoutstanding in the cash credit facility exceeds Rs. 1 crore as perbooks of the company along with other borrowings.

Title deed of Immovable Property [Para 3(i)(c)]

• This clause shall cover the immovable properties which areincluded under the head Fixed Assets, as the reportingunder Clause 3(i)(a) & 3(i)(b) pertains to Fixed Assets onlyunder Clause 3(i)(a) & 3(i)(b) pertains to Fixed Assets only

• The Act does not define the term “Immovable Property”.However, as per General Clauses Act, 1897, “ImmovableProperty” shall include land, benefits to arise out of land,and things attached to the earth or permanently fastenedand things attached to the earth, or permanently fastenedto anything attached to the earth.

• TDRs (Transfer Development Rights), Plant and Machineryembedded in land etc., are not considered as animmovable propertyimmovable property

Title deed of Immovable Property [Para 3(i)(c)]

• title deeds of the immovable property in case of leasehold landand land & buildings together, covered under the head fixedassets, the lease agreement duly registered with the, g y gappropriate authority

• detailed examination required in the cases where immovable• detailed examination required in the cases where immovableproperty is transferred as a result of conversion of partnershipfirm or LLP into company or amalgamation of companies

• mortgaged title deeds

• lost cases, legal dispute cases

• the management is responsible for legal determination of the• the management is responsible for legal determination of thevalidity of title deeds

Sec 192

Following transactions are permitted subject to conditions

An arrangement by which a director of the company or its holding,g y p y g,subsidiary or associate company or a person connected with suchdirector acquires or is to acquire assets for consideration otherthan cash from the companythan cash, from the company.

An arrangement by which the company acquires or is to acquireassets for consideration other than cash, from such director orperson so connected.

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