Post on 09-Apr-2018
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Overview of Companies
(Auditors Report) Order2003
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Sec 227 is Audit Code for
Companies
227(1) Right of Auditors
227(1A) Inquire in 6 matters 227(1A) (a) to (f)
227(2) Report to the members about true and
fair view of Balance Sheet & Profit & LossAccount
227(3) 8 matters(a),(b),(bb),,(d),(e),(f),(g)
227(4) Reasons for the negative answers 227(2)
Clauses (i) & (ii)227(3) (a),(b),(bb),,(d)
227(4A) Central Government general or specialorder
227(5) Deeming Provision
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Non Applicability of
CARO,2003
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
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Paragraph 4(i)- Fixed
Assets Questions
Proper records with particulars like quantity and location
Physical verification at reasonable intervals
Dealing with discrepancies. if any
Disposal of substantial portion of FA
Documentation
Fixed Assets Register showing classification
Management representation on physical verification
Evidence of verification and differences Shareholders resolution for disposal [section 293(1)(a)]
References
Companies Act(section 293), AS 10, 24,and 26 and AAS16
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Paragraph 4(ii)- Inventory
Questions Physical verification at reasonable intervals
Verification procedure is adequate to companys sizeand nature of business
Proper records
Discrepancies noted are properly dealt with
Documentation Evidence of physical verification
List of location & inventory
Management representation regarding Verificationprocedure
References
AS 2, SA501
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Paragraph 4(iii)- Loans
Documentation Details of loans taken from & given to persons
covered in register under section 301
Terms , conditions and rate of interest of above loans
prima facie prejudicial to the interest of company Repayments regular
Management representation on reasonable stepstaken for recovery of amounts >1 lakh
References Companies Act(section 227,297,299,301)
Non-Banking Financial Companies Prudential Norms(Reserve Bank) Directions, 1998 (Paragraph 6A)
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Paragraph 4(iv)- internal control
system
Questions Adequacy of internal control system commensurate with
company size and business for purchase of inventory andfixed assets and for sale of goods and services
Continuing failure to correct major weaknesses
Documentation Internal control questionnaire, flowchart
Management representation on steps taken to correctmajor weaknesses
Internal audit reports
References AAS 6
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Paragraph 4(v)-Contracts
Questions Details of contracts/arrangements referred in section 301
entered in register
Transactions made at reasonable prices with regard to
prevailing market prices Documentation
List of companies, firms, parties covered u/s 301
Copy of Form 24AA
Details of statement of contracts u/s 301 Prevailing market prices of similar items
management representation on reasonableness of prices
References Companies Act(section 301), AS 18, SA540
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Paragraph 4(vi)-Deposits
Questions Compliance with RBI directives , section 58A,58AA & other
relevant provisions of the Act
Details of nature of contraventions
Compliance with orders of CLB, NCLT, RBI or any Court
Documentation Return filed with ROC
Checklist for rules u/s 58A & 58AA
Copy of order of CLB, NCLT, RBI or any Court Management representation for compliance with RBI
directives
References Companies Act(section 58A & 58AA)
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Paragraph 4(vii)-Internal control
system
Questions Existence of internal audit system commensurate with
size & nature of business for: Listed companies or,
Companies with paid up capital and reserves >50 lakhs or, Average annual turnover >5 crores for 3 consecutive years
Documentation Existence of internal audit department
Its organisational chart Internal audit reports
References SA 600
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Paragraph 4(viii)-Cost
records
Questions
Maintenance of cost records prescribed by
Central Government u/s 209 (1)(d)
Documentation
List of records maintained u/s 209 (1)(d)
Reference
Companies Act(section 209)
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Paragraph 4(ix)-Statutory
dues Questions Regular payment of undisputed statutory dues including PF,
ESI,Income tax, Sales tax, service tax , custom duty, exciseduty, cess or other statutory dues
Auditor to give details of Arrears of outstanding statutory dues formore than 6 months
Details of disputed dues
Documentation List of statutory dues with details and evidence of payment
Management representation regarding completeness ofinformation
List of disputed dues
Schedule of contingent liability
Reference Companies Act(section 205C), Income tax (section 44AB)
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Paragraph 4(x)-Sickness
Questions
For a company registered for not < 5 years
Accumulated losses not < 50% of net worth
Cash losses in current financial year andpreceding financial year
Documentation
Statement of net worth and accumulatedlosses, if any
Reference Companies Act[section 2(29A)]
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Paragraph 4(xi)-Default in
repayment
Questions Details of default, if any , in repayment of dues to financial
institutions, banks or debenture holders
Period and amount of default
Documentation Schedule showing loans taken with terms, conditions &
repayment schedule
Details of debentures with redemption date, payment dateetc
Loan agreement, debenture trust deeds
Reference Companies Act, 1956 (section 372A)& SEBI DIP
Guidelines, 2000(chapter X)
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Paragraph 4(xii)-Loans on
security
Questions
Adequacy of records & documents where loans &advances granted on security of shares,debentures & other securities Details of deficiencies , if any
Documentation List of loans & advances granted by pledge of security
List of records maintained by company
Statement of holding stating registration in companysname( D-mat shares & securities)
Reference Companies Act, 1956 (section 125, 372A and Schedule
VI)
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Paragraph 4(xiii) Chit Fund/Nidhi/
Mutual benefit fund / societies
Questions
Compliance with provisions of any special statutes
applicable
Checka)Net Owned Funds to Deposit Liability Ratio > 1:20 as on date
of Balance Sheet
b)Compliance with prudential norms on income recognition
and provisioning against Non Performing Assets
c)Existence of proper credit appraisal procedures
d) Repayment schedule of various loans granted by nidhi
based on the borrowers capacity to repay
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Paragraph 4(xiii) Chit Fund/Nidhi/
Mutual benefit fund / societies
Documentation
Management representation on applicability of
special statute
Procedure of company for credit appraisal,credit needs, borrowers repayment capacity
Statement showing net owned funds vis a vis
liability ratio
Reference
Companies Act (section 620A),Chit Fund Act
,1982
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Paragraph 4(xiv) Companies
Dealing in shares etc.
Questions
Maintenance of proper records of transactions andcontracts and timely recording of entries bycompanies who deal or trade in shares,securities, debentures and other investments. securities to be held in companys own name subject
to exemption under Section 49 of the Companies Act
Documentation List of records maintained
Statement of holding stating registration in companysname( D-mat shares & securities)
Reference
Companies Act (section 49),AS 13
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Paragraph 4 (xv)- Guarantees
QuestionsWhether the company has given guarantee for loans taken
by others from bank or financial institutions, the termsand conditions whereof are prejudicial to the interest of
the company Documentation
List of guarantees provided with details of name,amount ,period and purpose
Board resolution Management representation stating reason for
guarantee
Reference Companies Act (section 372A)
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Paragraph (xvi) Application of
Term Loans
Questions
Whether term loan applied for purpose
obtained
Documentation
List of loans taken
Board resolution
Sanction letter to verify the purpose of loan
Reference
The Companies Act [section 227(1A)]
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Paragraph (xvii) Short term
Funds
Questions
Verify whether the funds raised on short-
term basis used for long term investment;
if yes, the nature and amount is to be
indicated
Documentation
Prepare statement showing long term sourcesof funds vis a vis long term application of
funds
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Paragraph (xviii) Preferential
Allotment
Questions
Preferential allotment of shares to parties andcompanies covered in the Register maintainedunder section 301 of the Companies Act Issue price of shares is prejudicial to the interest of the
company
Documentation List of companies, firms, parties covered u/s 301
Board resolution for preferential allotment Valuation report
Reference The Companies Act (section 301),SEBI DIP Guidelines,
2000
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Paragraph (xix) Security for
Debentures
Questions
Creation of security or charge for debenturesissued
Documentation List of debentures issued
Board resolution for creation of charge or security
Verify creation of charge from ROC
documentation Reference
The Companies Act , SEBI Act, 1992
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Paragraph (xx) End Use of
Money
Questions
Disclosure of end use of money raised by
public issues
Verification of same by auditor
Documentation
Copy of prospectus
Management representation on completeness ofdisclosure
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Paragraph (xxi) - Fraud
Questionswhether any fraud on or by the company has
been noticed or reported during the year,
if yes, the nature and amount involved is to beindicated
Documentation
Representation by management regarding
the fraud risk factors their assessment andcourse of actions
Reference SA240
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Questions
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