Companies (Auditor’s Report) Order 2015

CARO 2015

Presented by : CA Kusai Goawala30th May 2015Pune Branch of ICAI, Pune

APPLICABILITY OF CARO Applicable to every company including foreign company - place of Business in India – even through agent – electronic

mode – conducts business in India.

Exceptions from Applicability of CARO 2015

1) Banking Companies

2) Insurance Companies as defined under Insurance Act

3) Not for Profit Companies ( Section 8 Companies)

4) One Person Companies

5) Small Company – Capital < 50 lacs and Turnover < 2 crore – holding and subsidiary not covered

6) A private limited companies with

a) paid up capital and reserves not more than Rs. fifty Lakhs and;

b) doesn’t have outstanding loan Rs. 25 Lakhs from any bank or financial institution and;

c) Doesn’t have turnover exceeding Rs five crore

at any point during FYCA KUSAI GOAWALA

DELETED CLAUSES

Clause 1. (c)

if a substantial part of fixed assets have been disposed off during the year, whether it has affected the going concern Clause 3 (e) (f) and (g)

(a) Loan taken from parties listed in Register u/s 301

(b) Terms and Conditions not prejudicial

© Repayment of principle and interest is regular

In respect of loans given, the details of number of parties and maximum amount involved need not be given.

Further, clause regarding terms and conditions and interest rates prejudicial has been deleted. Clause 5

(a) Recording of transactions in Register u/s 301;

(b Transactions at prices which are reasonable and at market price; Clause 7.

Existence of Internal Audit CA KUSAI GOAWALA

DELETED CLAUSES

Clause 12.

Documentation regarding loans granted against pledge of shares, debentures or other security Clause 13

Compliance with provisions of special statutes wherever applicable to chit funds.

Further regarding Nidhi/Mutual benefit fund/societies – information relating to certain financial parameters, compliance with prudential norms, procedures for credit appraisals and guidelines for granting of loans.

Clause 14

In respect of trading of shares, maintenance of records and timely entries in the books of account

Further, whether the investment is held in the name of the Company

CA KUSAI GOAWALA

Clause 17.

Short term funds used for long term purposes

Clause 18.

In case of preferential allotment to parties listed in 301 register – price is not prejudicial to the interest of the company

Clause 19.

whether securities have been created in respect of debentures issued?

Clause 20.

whether the management has disclosed on the end use of money raised by public issues and the same has been verified

DELETED CLAUSES

CA KUSAI GOAWALA

FIXED ASSETS

Fixed Asset Register to be maintained giving particulars of quantitative and situation of fixed assets

Physical verification by management at reasonable intervals

Discrepancies – how dealt with.

Audit W/P Verification list of assets by the management

Discrepancies

Tallying the Fixed Asset Register with carrying amount as per Financial Records

CA KUSAI GOAWALA

Physical verification by management at reasonable intervals

Procedure for conducting physical verification – reasonable and adequate – inadequacies to be reported

Proper stock records maintained – any discrepancies on verification – proper adjustment in books of accounts

Audit W/P Stock Verification sheet and discrepancies

Reconciliation with Stock Ledger

Note in relation to procedure for physical verification

INVENTORY

CA KUSAI GOAWALA

Loans granted to parties listed in Register maintained u/s 189

Principle and interest receipts are regular

Overdue of more than Rs. 1 lacs – steps taken to recover the same.

Provisions relating to reporting number of parties and maximum amount deleted.

No need to report on the terms and conditions and interest rates whether they are prejudicial to the Company

Audit W/P Parties required to be listed in Register u/s 189

Provisions of Section 185/186 to be kept in mind.

Letter for granting of loan

LOANS TO PARTIES COVERED U/S 189

CA KUSAI GOAWALA

DIRECTORS INTERESTED - DISCLOSURES

Section 189 refers to a disclosure of Register for parties as per Section 184(2) and 188

As per Section 184 (2) following parties are covered : Director in relation to other Body Corporate

– 2% shareholding (including with other directors)

Promoter

Manager

CEO

Director in relation to any other entities Partner

Owner

Member

CA KUSAI GOAWALA

LOANS TO RELATED PARTIES

Related parties as per Section 188

Who are RTP Director/Relatives KMP/Relatives Firm – Director, Manager, Relative partner Pvt Co – Director – member or director Pub Co – Director – Director – or holds with Relatives 2% shares Co – where Director directs the Board Any person – where Director directs Holding, Subsidiary or their associates Fellow Subsidiaries

CA KUSAI GOAWALA

Adequate Internal Control System – commensurate to

Size of the Company Nature of its business

In relation to Purchase of inventory Fixed Assets Sale of Goods and Services

Continuing failure to correct major weaknesses in internal control system Audit W/P

ICQ Testing of Internal Control process with sample data

INTERNAL CONTROL SYSTEM

CA KUSAI GOAWALA

A stringent and wide provisions for acceptance of deposit under Companies Act 2013

Loopholes plugged – Loan from shareholders/Advances for properties

Penalty for violation

Deposit as defined u/s 73 and 76

Not an exempt deposit

Compliance with directives of RBI and provisions of Section 73 and 76

Nature of Contravention

Order from RBI/CLB /Court complied with

DEPOSITS

CA KUSAI GOAWALA

DEPOSITS (CONTD) Provisions of Section 73 and 76 All amounts received by Company considered as Deposits unless exempted Exempted category

Inter Corporate Deposits/Commercial Paper

Loans from Banks/FI/Foreign Source as per FEMA

Amounts received from Government

Loans from Directors out of their own funds

Advances from customers unless remaining unadjusted beyond 365 days

Advances for property unless supported by Contract or Agreement

Promoters Contributions

Employee Security Deposit not in excess of one years salary

Secured Debentures or Convertible Debentures

Share Application money where shares are not allotted within 60 days and not refunded after 15 days

CA KUSAI GOAWALA

DEPOSITS

If a receipt is considered as Deposit, compliance u/s 73 and 76 as under :

Only Public Companies having networth of Rs.100 crores or Sales turnover of Rs.500 cr can accept deposits

Deposit cannot exceed 25% of capital plus free reserves

Interest rates not exceeding rates prescribed by RBI

Maturity Period not to exceed 36 mths

15% of deposits due for renewal in next 12 months to be kept under liquid deposit

Advertisement or Circular to be published

Return of Deposit to be filed

CA KUSAI GOAWALA

Maintenance of Cost Records specified – Section 148

Prima facia maintained

Reconciliation of cost records with financial records

Section 148 and requirement for maintaining cost records

COST RECORDS

CA KUSAI GOAWALA

COST ACCOUNTING RULES

Application of Rules for maintenance of cost records:- These rules shall apply to every company, including the foreign company as

defined under section 591 of the Act., Which are engaged in production, processing, manufacturing or mining activities. SMC are exempt.

Wherein the aggregate value of the turnover made by the company from sale or supply of all products or activities during the immediately preceding financial year exceeds thirty five crores of rupees; or

COST RECORDS – WHAT CONSTITUTES RECORDS

Cost Records which enable the Company to :

Control over various operating cost.

Optimum utilisation of resources

It enables to compute per unit cost of production/operations/services

It includes documents like

GRN

Material Issue Note

Labour Hour utilisation

Overhead allocations

CA KUSAI GOAWALA

COST RECORD RULES

Separate Rules for Cost Accounting Records (Bulk Drugs) Rules, 1974

Cost Accounting Records (Formulations) Rules, 1988

Cost Accounting Records (Fertilizer) Rules, 1993

Cost Accounting Records (Sugar) Rules, 1997

Cost Accounting Records (Industrial Alcohol) Rules, 1997

Cost Accounting Records (Electricity Industry) Rules, 2001

Cost Accounting Records (Petroleum Industry) Rules, 2002

Cost Accounting Records (Telecommunications) Rules, 2002

CA KUSAI GOAWALA

Undisputed Statutory Dues outstanding for more than six months from the due date Provident Fund / ESIC

Income tax including advance tax

Sales tax/VAT

Wealth Tax

Service Tax / Excise Duty

Cess – 441A Companies Act 1956 – no corresponding section under Companies Act 2013

Any other statutory liability

Disputed Statutory Dues Amount due and disputed At which forum (mere representation is not a dispute) Transfer to Investor Education protection fund : - compliance for amount and timely transfer – reference to

Companies Act 1956. Also reference of the same in main report

STATUTORY DUES

CA KUSAI GOAWALA

Applicable to Companies that has completed five years after incorporation

Accumulated losses at the end of the financial year greater than or equal to fifty percent of its networth

Cash losses (Loss before depreciation and amortisation but after taxes) in current financial year

Immediately preceding financial year

Cash losses – deferred tax ?

ACCUMULATED LOSSES

CA KUSAI GOAWALA

Default in repayment and interest to financial institution

bank

debenture holders

To be reported even if default made good

Period of Default – Number of months or days

Amount defaulted

DEFAULT OF LOAN

CA KUSAI GOAWALA

Guarantee given for loan taken by others From Bank

Financial Institutions

Terms and Conditions – whether prejudicial

Any guarantee given will be prejudicial unless there is a quid pro quo

Audit W/P Refer and Reconcile with Contingent liabilities

Refer Sanction letters for guarantee given by the Company and loans availed by others

Assess Risk of Guarantee

Quid pro quo

Evaluate whether benefit to the Company higher than the risk involved

GUARANTEE FOR LOAN

CA KUSAI GOAWALA

Term Loan availed during the year

Term loan availed in preceding year and utilised during the year

Purpose for which sanctioned/availed

End use of the loan

Money is fungible – Bridge finance

Repayment of liability for end use incurred earlier

USAGE OF LOAN

CA KUSAI GOAWALA

Fraud noticed or reported : On the Company

By the Company

Whistle Blower provisions under the Companies Act 2013 – 143(12)

Guidance note for fraud by ICAI

Nature of fraud

Amount involved

FRAUD REPORTING

CA KUSAI GOAWALA

ANY QUERIES?ANY QUERIES?

CA KUSAI GOAWALA