Monday, February 7

Companies (Auditor's Report) Order - CARO 2003

Companies (Auditors Report) Order, 2003 [CARO 2003]


‘CARO’ is applicable to every company including a foreign company as defined in section 591 of the Companies Act, 1956 (‘the Act’), except to:
- a banking company,
- an insurance company,
- a company licensed to operate under section 25 of the Act and
- to private company meeting all of the following conditions:
    -- paid up capital and reserves not more than Rs.50 lacs
    -- has not accepted any public deposit
    -- does not have a loan outstanding from any bank or financial institution of Rs.10 lacs or more
    -- does not have a turnover > Rs.5 crores

The Order deals with the matters to be contained in the Auditor’s report under Sec 227 of the Companies Act, 1957.

Fixed Assets
Whether the company is maintaining proper records showing full particulars, including quantitative details and situation of fixed assets

Whether these fixed assets have been physically verified by the management 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

If a substantial part of fixed assets have been disposed off during the year, whether it has affected the going concern

Inventory

Whether physical verification of inventory has been conducted at reasonable intervals by the management

Are the procedures of physical verification of inventory followed by the management reasonable and adequate in relation to the size of the company and the nature of its business. If not, the inadequacies in such procedures should be reported

Whether the company is maintaining proper records of inventory and whether any material discrepancies were noticed on physical verification and if so, whether the same have been properly dealt with in the books of account

Loans

Has the company either granted or taken any loans, secured or unsecured to/from companies, firms or other parties covered in the register maintained under section 301 of the Act. If so, give the number of parties and amount involved in the transactions;

Whether the rate of interest and other terms and conditions of loans given or taken by the company, secured or unsecured, are prima facie prejudicial to the interest of the company;

Whether payment of the principal amount and interest are also regular

If overdue amount is more than one lakh, whether reasonable steps have been taken by the company for recovery/payment of the principal and interest

Internal control

Is there an adequate internal control procedure commensurate with the size of the company and the nature of its business, for the purchase of inventory and fixed assets and for the sale of goods. Whether there is a continuing failure to correct major weaknesses in internal control

Transactions u/s 301

Whether transactions that need to be entered into a register in pursuance of section 301 of the Act have been so entered

Whether each of these transactions have been made at prices which are reasonable having regard to the prevailing market prices at the relevant time

Public Deposits

In case the company has accepted deposits from the public, whether the directives issued by the Reserve Bank of India and the provisions of sections 58A and 58AA of the Act and the rules framed there under, where applicable, have been complied with. If not, the nature contraventions should be stated; If an order has been passed by Company Law Board whether the same has been complied with or not

Internal Audit System

In the case of listed companies and/or other companies having a paid-up capital and reserves exceeding Rs.50 lakhs as at the commencement of the financial year concerned, or having an average annual turnover exceeding five crore rupees for a period of three consecutive financial years immediately preceding the financial year concerned, whether the company has an internal audit system commensurate with its size and nature of its business;

Accounts and Records

Where maintenance of cost records has been prescribed by the Central Government under clause (d) of sub-section (1) of section 209 of the Act, whether such accounts and records have been made and maintained

Depositing dues with Statutory authorities

Is the company regular in depositing undisputed statutory dues including Provident Fund, Investor Education and Protection Fund, Employees’ State Insurance, Income-tax, Sales-tax, Wealth Tax, Custom Duty, Excise Duty, cess and any other statutory dues with the appropriate authorities and if not, the extent of the arrears of outstanding statutory dues as at the last day of the financial year concerned for a period of more than six months from the date they became payable, shall be indicated by the auditor in case dues of sales tax/income tax/custom tax/wealth tax/excise duty/cess have not been deposited on account of any dispute, then the amounts involved and the forum where dispute is pending may please be mentioned; (A mere representation to the Department shall not constitute the dispute).

Accumulated Losses

Whether in case of a company which has been registered for a period not less than five years, its accumulated losses at the end of the financial year are not less than fifty per cent of its net worth and whether it has incurred cash losses in such financial year and in the financial year immediately preceding such financial year also;

Repayment of dues to Banks / FIs

Whether the company has defaulted in repayment of dues to a financial institution or bank or debenture holders? If yes, the period and amount of default to be reported

Granted Loans and Advances

Whether adequate documents and records are maintained in cases where the company has granted loans and advances on the basis of security by way of pledge of shares, debentures and other securities; If not, the deficiencies to be pointed out

Special statutes

Whether the provisions of any special statute applicable to chit fund/nidhi/mutual benefit fund/ societies have been duly complied with?

Trading in securities

If the company is dealing or trading in shares, securities, debentures and other investments, whether proper records have been maintained of the transactions and contracts and whether timely entries have been made therein; also whether the shares, securities, debentures and other securities have been held by the company, in its own name except to the extent of the exemption, if any, granted under section 49 of the Act;

Guarantee for loans taken

Whether the company has given any guarantee for loans taken by others from bank or financial institutions, the terms and conditions whereof are prejudicial to the interest of the company

Whether term loans were applied for the purpose for which the loans were obtained

Funds raised on Short term basis

Whether the funds raised on short-term basis have been used for long term investment and vice versa; If yes, the nature and amount is to be indicated

Preferential allotment of shares

Whether the company has made any preferential allotment of shares to parties and companies covered in the Register maintained under section 301 of the Act and if so whether the price at which shares have been issued is prejudicial to the interest of the company

Debenture issues

Whether securities have been created in respect of debentures issued.

Use of money raised by public issues

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

Fraud

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

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