Caro 21

These notes are NOT FOR SALE. These notes are incomplete without our videos.
Study from these notes at your own risk. We keep on updating our books, notes and
videos. You should always study from updated notes with our videos. Many concepts are there which are missing in these notes, some are obsolete. We have
discussed everything in our video classes. www.neerajaroraclasses.com Amendments and updates will taught in classes and videos. Extra notes and charts will
also be given.

CARO - COMPANIES (AUDITOR'S REPORT)

ORDER, 2016
Section 143(11)
(11) The Central Government may,
● in consultation with the National Financial Reporting Authority,
● by general or special order,
● direct, in respect of
○ such class or description of companies,
○ as may be specified in the order,
○ that the
■ auditor's report shall also include a statement on
■ such matters as may be specified therein
Applicability
It shall apply to every company including a foreign company as defined in clause (42) of section 2 of the Companies
Act. 2013 except
● A banking company;
● An insurance company;
● A company licensed to operate u/s 8 of the Companies Act;
● A One person company as defined in sec. 2(62) of the Companies Act and a small Company as defined in Sec.
2(85) of the Companies Act; and
● A private limited company, not being a subsidiary or holding of a public company,
○ Having a paid up capital & Reserves & surplus not more than Rs 1 Cr. as on the balance sheet date, and
○ Which does not have total borrowings exceeding Rs 1 Cr. from any bank or financial institution at any
point of time during the financial year; and
○ Which does not have a total revenue as disclosed in Schedule III to the Companies Act, 2013 (Including
revenue from discontinuing operations) exceeding Rs. 10 Crore during the financial year as per the
financial statements.
Paid up Share capital

● Paid up capital includes equity as well as preference.
● Amount originally paid up on forfeited shares should be added to the figure of paid up capital.
● Share Application money - NO.
● Securities Premium - YES
● General Reserve - YES
● Reserves includes Capital reserves, revenue reserves as well as Revaluation Reserves.
● Credit Balance of Profit and Loss Account will form part of reserve.
● In case of debit balance of profit or loss, the same shall be netted for computing reserves & surplus.

To get the best out of these notes visit www.neerajaroraclasses.com CARO | 1
Join Us on YouTube www.youtube.com/neerjarora
Join Us on Telegram https://t.me/neerajaroraclasses
These notes are NOT FOR SALE. These notes are incomplete without our videos. Study from these notes at your own risk. We keep on updating our books, notes and
also be given.

Borrowings
● Loans from banks and financial institutions are to be considered in aggregate.
● Financial Institutions includes NBFC.
● Loans may be in any form like term loan, demand loans, cash credit overdraft, export credit, bill
purchased/discounted.
● Long term, loans as well as short term loans, secured as well as unsecured will be considered .
● Outstanding dues, in respect of credit cards will also be considered.
● Fund based facilities are counted in borrowings whereas non fund based facilities are not counted.
● Security amount is not to be adjusted
● Loans from other than banking and financial institutions shall not be considered
● Limit or actual Amount? -
● Loans from NBFC?
● Balance Sheet Borrowings “Zero”
Total Revenue
● Revenue from operations and other Income.
● Here revenue will also include revenue from discontinuing operations as specified in the Order.
● Other income shall consist of the following;
❖ Interest Income (other than a finance company);
❖ Dividend Income;
❖ Net gain/loss on sale of investments;
❖ Other non-operating income (net of expenses directly attributable to such income).
● Commision
● Taxes
● Sales return

also be given.

also be given.

also be given.

also be given.

Matters to be included in the auditor’s report under CARO,

2016
Fixed Assets
Whether the company is
● maintaining proper records showing full particulars,
■ including (Fixed asset register) quantitative details and (For Verification)
● situation of fixed assets.
Points to be considered
● These records should also contain particulars in respect of those items of fixed assets that have been fully
depreciated or amortized or have been retired from active use and held for disposal.
● The records should also contain necessary particulars in respect of item of fixed assets that have been fully
impaired during the period covered by the audit report.
● Where assets like furniture etc., are located in the residential premises of members of the staff, the fixed assets
register should indicate the name/ designation of the person.
Whether these fixed assets have been

● physically verified
● by the management o at reasonable intervals;
Whether any
● material discrepancies were noticed on such verification and if so,
● whether the same have been properly dealt with in the books of account.
● Physical verification of the assets has to be made by the management and not by the auditor.
● The auditor may observe the verification, particularly when verification of all assets can be made by the
management on a single day or within a relatively short period of time.
● It is necessary to ensure that the person making the verification had the required technical knowledge, where
such knowledge is required.
● It is also possible for verification to be made by outside expert agencies engaged by the management for the
purpose.
Whether the title deeds of immovable properties are held in the name of the company. If not, provide the details
thereof.
● The auditor should obtain the fixed asset register and reconcile it with the title deeds of immovable
properties.
● He should seek confirmation from banks if the title deeds have been kept with them as a charge against loan.
Inventory
● Whether
○ physical verification of inventory has been conducted at
○ reasonable intervals by the management and

also be given.

● Whether any material discrepancies were noticed and if so, whether they have been properly dealt with in the
books of account.
● Inventories include goods purchased and held for resale, for example, merchandise purchased by a retailer
and held for resale.
● Inventories also include finished goods produced, or work in progress and materials, stores and spares,
consumables and loose tools.
● Physical verification of inventory is the responsibility of the management of the company.
● The periodicity of the physical verification of inventories depends upon the nature of inventories and their
location.
● This would require the auditor to make use of his professional judgment.
● The SA-501, "Audit Evidence - Additional Consideration for specific items", lays down the guidance
regarding the audit procedures to be applied for physical verification of inventory.

also be given.

Loans and Advances
Whether the company has granted

● any loans, secured or unsecured
● to companies, firms, LLPs or other parties covered
● in the register maintained under section 189 of the Act. if so,
a) Whether the terms and conditions of the grant of such loans are not prejudicial to the company’s
interest;
b) Whether the schedule of repayment of principal and payment of interest has been stipulated and
whether the repayments or receipts are regular.
c) If the amount is overdue, state the total amount overdue for more than 90 days and whether
reasonable steps have been taken by the company for recovery of the principal and interest;
➔ Section 189 - Register of contracts or arrangements in which directors are interested. Basically in this
register particulars of all contracts or arrangements to which subsection (2) of section 184 or section 188
applies are maintained
➔ Section 184(2) - Gives us an overview of the parties for whom register under section 189 has to be
maintained.
◆ The parties are generally with whom the director is associated
◆ for example
● a partnership firm in which director is a partner or
● a body corporate in in which such director
○ is in association with any other director,
○ holds more than two per cent shareholding of that body corporate,
○ or is a promoter, manager, Chief Executive Officer of that body corporate
➔ Section 188 Deals with related party transaction and discuss the procedure to be followed while transacting
anything with related party
➔ Related Party is defined in Section 2(76)
➔ Auditor should obtain a list of the parties covered under Section 184(2) and 189

also be given.

Compliance of provisions of Sections 185 & 186

In respect of loans, investments, guarantees, and security whether provisions of Sections 185 and 186 of the
Companies Act, 2013 have been complied with. If not, provide details thereof.

also be given.

Public Deposits
● In case the company has accepted deposits from the public,

○ whether the d irectives issued by the RBI and
○ the provisions of section 73 to 76 or
○ any other relevant provisions of the Companies Act and the rules framed there under , where
applicable,
■ have been complied with.
● ature of contraventions be stated;
If not, the n
● If an order has been passed by Company Law Board or National Company Law Tribunal or Reserve Bank of
India or any Court or any other Tribunal,
○ whether the same have been complied with or not ?

also be given.

Cost Records
Where maintenance of cost records has been specified by the CG u/s 148 (1) of the Companies Act, 2013
whether such accounts and records have been so made and maintained.
● The auditor should obtain a written representation from the management.

● The auditor should, conduct a general review of the cost records to ensure that the records as prescribed arc
made and maintained.
Dues

also be given.

Repayment of Dues
● Whether the company has defaulted in repayment of loans or borrowings to a financial institution , bank
government or dues to debenture holders?
● If yes,
○ the period and
○ amount of default to be reported
○ in case of defaults to banks, fi nancial institutions, and Government, lender wise details to be
provided
● Auditors should obtain a list of loans and borrowings from FI. banks and government & dues to
debenture holders from the management.
● He should obtain c onfirmation from lenders in accordance with SA-____
● The auditor should obtain a s chedule of repayments to banks, financial institutions, government and
debenture- holders from the management of the company.
● The auditor should examine the a greement or other documents containing the terms and conditions of
the loans and borrowings of the company from banks and financial institution.
● The auditor should also examine the d ebenture t rust d
eed.
● It is clarified that the auditor should report the period and amount of all defaults existing at the
balance sheet date irrespective of when those defaults have occurred
Moneys raised by way of initial public offer etc.

● Whether money raised by way of
○ initial public offers or
○ further public offer (including debt instruments ) and
○ terms loans
■ were applied for the purposes for which those are raised.
● If not, the details together with delays or default and subsequent rectification, if any, as may be applicable, be
reported.
Fraud on or by Company
Whether any fraud on or by the company has been noticed or reported during the year, if yes, the nature and the
amount involved is to be indicated.
● The clause does not require the auditor to discover the on the company and by the company.
● The auditor is also required to comply with the requirements of SA-240.
● The auditor should examine the reports of the internal auditor with a view to ascertain whether any fraud
has been reported or noticed by the management.
● The auditor should also discuss the matter with other employees of the company. The auditor should also
examine the minute book of the board meeting of the company in regard.

also be given.

Managerial Remuneration
● Whether managerial remuneration has been paid or provided in accordance with the requisite approvals
mandated by the provisions of Section 197 read with Schedule V to the Companies Act?
● If not. state the amount involved and steps taken by the company for securing refund of the same.

also be given.

NIDHI Company
Whether the Nidhi Company has complied with the Net Owned Funds to Deposits in the ratio of 1: 20 to meet out the
liability and whether the Nidhi Company is maintaining ten per cent unencumbered term deposits as specified in the
Nidhi Rules, 2014 to meet out the liability
Related Party Transaction

Whether all transactions with the related parties are in compliance with sections 177 and 188 of Companies Act, 2013
where applicable and the details have been disclosed in the Financial Statements etc., as required by the applicable
accounting standards.
NOTES
1. As per requirements of section 188, all related party transactions (which are not arm's length transactions)
require board resolution.
2. Moreover, if such transactions exceed limits as provided, approval by members is also obtained in general
meeting.
3. In this regard, auditor shall read the agenda of board meeting wherein such proposal was considered. He shall
obtain a copy of board resolution approving such transaction with related party.
4. In case member's approval was required, he shall obtain a copy of such resolution also, to check compliance
with section 188.
5. In case, company is required to constitute audit committee as per the provision of section 177 of the
companies Act' 2013. the transactions with related parties require approval of audit committee.
6. The auditor shall examine if approval of audit committee has been obtained or not.
7. For this he shall examine the minutes of the meeting of the audit committee.
8. As per relevant Accounting standard, (AS-18) the transaction with related party needs to be disclosed within
financial statements by the management.
9. The auditor shall, as per SA - 550 "Related Parties", ensure that all the details with respect to such transactions
have been provided in accordance with applicable accounting standards.
Preferential allotment or private placement of shares

● Whether the company has made any preferential allotment or private placement of shares or fully or partly
convertible debentures during the year under review and if so, as to
● whether the requirement of section 42 of the Companies Act, 2013 have been complied with and
○ the amount raised have been used for the purposes for which the funds were raised.
● If not, provide the details in respect of the amount involved and nature of non-compliance.
NOTES
● As per the provisions of section 42 of the companies Act, 2013, a company may make private placement
through issue of a private placement offer letter.
● A private placement shall be made only to a select group of persons who have been identified by the Board
(herein referred to as "identified persons"),
● whose number shall not exceed fifty or such higher number as may be prescribed
○ excluding the qualified institutional buyers and
○ employees of the company being offered securities under a scheme of employees stock option in terms
of provisions of clause (b) of sub-section (1) of section 62,
■ in a financial year subject to such conditions as may be prescribe
● Any offer or invitation not in compliance with the provisions of section 42 shall be treated as a public offer.

also be given.

● He shall obtain a written representation from management & TCWG as well.
● He should examine if the funds raised have been used for the purposes for which the funds were raised.
● He should study the funds flow statement to verify the application of funds.
NON Cash Transaction with Directors

Whether the company has entered into any non-cash transactions with directors or persons connected with him and if
so, whether the provisions of section 192 of Companies Act, 2013 have been complied with
NOTES
● As per section 192 of the companies Act' 2013. prior approval of the company in GM is required for an
arrangement by which
○ A director of the company or its holding, subsidiary or associate company or a person connected with
him acquires or is
■ to acquire assets for consideration other than cash from the company.or
○ The Company acquires or is to acquire
■ assets for consideration other than cash, from such director or person so connected.
NBFC
● Whether the company is required to be registered under section 45-IA of the Reserve Bank of India Act, 1934
and if so, whether the registration has been obtained.
● NOTES
○ Section 45-IA of the Reserve Bank of India Act, 1934 requires a non-banking financial company to be
registered with RBI.
○ Without obtaining registration certificate, a company cannot commence the business of non-banking
financial company (NBFC)
○ The auditor shall obtain a copy of such registration certificate from the company.


Caro 21

Uploaded by

Copyright:

Available Formats

You might also like

Caro 21

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Caro 21

Uploaded by

Copyright:

Available Formats

These notes are NOT FOR SALE. These notes are incomplete without our videos.

CARO - COMPANIES (AUDITOR'S REPORT)

Paid up Share capital

Matters to be included in the auditor’s report under CARO,

Whether these fixed assets have been

Loans and Advances

Whether the company has granted

Compliance of provisions of Sections 185 & 186

● In case the company has accepted deposits from the public,

● The auditor should obtain a written representation from the management.

Moneys raised by way of initial public offer etc.

Related Party Transaction

Preferential allotment or private placement of shares

NON Cash Transaction with Directors

You might also like

Caro 21

Uploaded by

Copyright:

Available Formats

You might also like

Caro 21

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Caro 21

Uploaded by

Copyright:

Available Formats

These notes are ​NOT FOR SALE. ​ These notes are incomplete without our videos.

CARO - COMPANIES (AUDITOR'S REPORT)

Paid up Share capital

Matters to be included in the auditor’s report under CARO,

Whether these fixed assets have been

Loans and Advances

Whether the company has granted

Compliance of provisions of Sections 185 & 186

● In case the company has accepted deposits from the public,

● The auditor should obtain a written representation from the management.

Moneys raised by way of initial public offer etc.

Related Party Transaction

Preferential allotment or private placement of shares

NON Cash Transaction with Directors

You might also like

These notes are NOT FOR SALE. These notes are incomplete without our videos.