5 37 Caro Presentation

8/8/2019 5 37 Caro Presentation

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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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THANK YOU

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