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
Matters to be Included in Audit ReportFixed Assets
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
Moneys Raised ‐Appl
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
Matters to be Included in Audit ReportFixed Assets
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
ManagerialManagerial Remuneration
Nidhi Cos
Related Party TxnsParty Txns
Private Placements
Non Cash iTransactions
NBFCs
Matters to be Included in Audit ReportFixed Assets
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
Repayment of Dues Moneys
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
Matters to be Included in Audit ReportFixed Assets
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
Repayment of Dues Moneys
Raised ‐Appl
Fraud
ManagerialManagerial Remuneration
Nidhi Cos
Related Party TxnsParty Txns
Private Placements
Non Cash iTransactions
NBFCs
Matters to be Included in Audit ReportFixed Assets
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
Moneys Raised ‐Appl
Fraud
Managerial Law Tribunal or Reserve Bank of India or any court or anyother tribunal, whether the same has been complied withor not?
Managerial Remuneration
Nidhi Cos
Related Party TxnsParty Txns
Private Placements
Non Cash iTransactions
NBFCs
Matters to be Included in Audit ReportFixed Assets
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
Repayment of Dues Moneys
Raised ‐Appl
Fraud
ManagerialManagerial Remuneration
Nidhi Cos
Related Party TxnsParty Txns
Private Placements
Non Cash iTransactions
NBFCs
Matters to be Included in Audit ReportFixed Assets
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
Moneys Raised ‐Appl
Fraud
ManagerialManagerial Remuneration
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)
Matters to be Included in Audit ReportFixed Assets
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
Moneys Raised ‐Appl
Fraud
Managerial
provided).
Managerial Remuneration
Nidhi Cos
Related Party TxnsParty Txns
Private Placements
Non Cash iTransactions
NBFCs
Matters to be Included in Audit ReportFixed Assets
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
Moneys Raised ‐Appl
Fraud
Managerial
reported
Managerial Remuneration
Nidhi Cos
Related Party TxnsParty Txns
Private Placements
Non Cash iTransactions
NBFCs
Matters to be Included in Audit ReportFixed Assets
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
Moneys Raised ‐Appl
Fraud
ManagerialManagerial Remuneration
Nidhi Cos
Related Party TxnsParty Txns
Private Placements
Non Cash iTransactions
NBFCs
Matters to be Included in Audit ReportFixed Assets
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
Moneys Raised ‐Appl
Fraud
Managerial
p y p y f grefund of the same.
Managerial Remuneration
Nidhi Cos
Related Party TxnsParty Txns
Private Placements
Non Cash iTransactions
NBFCs
Matters to be Included in Audit ReportFixed Assets
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
Moneys Raised ‐Appl
Fraud
Managerial
y
Managerial Remuneration
Nidhi Cos
Related Party TxnsParty Txns
Private Placements
Non Cash iTransactions
NBFCs
Matters to be Included in Audit ReportFixed Assets
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
Moneys Raised ‐Appl
Fraud
Managerial
g
Managerial Remuneration
Nidhi Cos
Related Party TxnsParty Txns
Private Placements
Non Cash iTransactions
NBFCs
Matters to be Included in Audit ReportFixed Assets
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
Moneys Raised ‐Appl
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
Non Cash iTransactions
NBFCs
Matters to be Included in Audit ReportFixed Assets
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.
Moneys Raised ‐Appl
Fraud
ManagerialManagerial Remuneration
Nidhi Cos
Related Party TxnsParty Txns
Private Placements
Non Cash iTransactions
NBFCs
Matters to be Included in Audit ReportFixed Assets
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.
Moneys Raised ‐Appl
Fraud
ManagerialManagerial Remuneration
Nidhi Cos
Related Party TxnsParty Txns
Private Placements
Non Cash iTransactions
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:.............................……………………………”
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.