Companies (Auditor’s Report) Order,2015:Matters to be included in the Auditor’s Report

Ministry of Corporate Affairs has issued the order on 10th April 2015: Companies (Auditor’s Report) Order,2015 (CARO 2015) order specifically prescribe the matter which has to be included or reported by the Auditors (Chartered Accountants)of the Company.

Applicability of CARO 2015: It shall apply to every company including a foreign company as defined in clause (42) of section 2 of the Companies Act, 2013. Comments/reporting is required from the auditor related to matters of fixed assets, inventory, loans & advances take /given by the company, internal control of the company, cost records, Payment of statutory dues, end use of funds taken by the company.Where auditor comments on any matter is negative/unfavorable then auditor has to give the reason for such unfavorable comments

But CARO 2015 will not be applicable on  

  • a banking company
  • an insurance company
  • a company licensed to operate under section 8 of the Companies Act
  • a One Person Company as defined under clause (62) of section 2 of the Companies Act
  • a private limited company with a paid up capital and reserves not more than rupees fifty lakhs and which does not have loan outstanding exceeding rupees twenty five lakhs from any bank or financial institution and does not have a turnover exceeding rupees five crore at any point of time during the financial year.

Matters to be Included in CARO 2015: Auditors has to comment on the following matters in his audit report

Comment on Fixed Assets 

(a) whether the company is maintaining proper records showing full particulars, including quantitative details and situation of fixed assets;

(b) 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;

Comment on Inventory/Stock

(a) whether physical verification of inventory has been conducted at reasonable intervals by the management; (b) 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; (c) 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;

Comments on Loans & Advances given by Company

whether the company has granted any loans, secured or unsecured to companies, firms or other parties covered in the register maintained under section 189 of the Companies Act. If so,

(a) whether receipt of the principal amount and interest are also regular; and (b) if overdue amount is more than rupees one lakh, whether reasonable steps have been taken by the company for recovery of the principal and interest;

Comments of Internal Control 

(iv) is there an adequate internal control system 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 and services. Whether there is a continuing failure to correct major weaknesses in internal control system.

Comments on Loans & Advances taken by Company

(v) in case the company has accepted deposits, whether the directives issued by the Reserve Bank of India and the provisions of sections 73 to 76 or any other relevant provisions of the Companies Act and the rules framed there under, where applicable, have been complied with? If not, the nature of contraventions should be stated; 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 has been complied with or not?

Comments of Cost Records 

(vi) where maintenance of cost records Government under sub-section (l) of section been specified by the Central of the Companies Act, whether such accounts and records have been made and maintained:

Comments of Statutory Dues/ Tax Liability  

(vii) (a) is the company regular in depositing undisputed statutory dues including provident fund, employees’state insurance, income-tax, sales-tax, wealth tax, service tax, duty of customs, duty of excise, value added tax cess and any other statutory dues with the appropriate authorities and ii 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. (b) in case dues of income tax or sales tax or wealth tax or service tax or duty of customs or duty of excise or value added tax or cess have not been deposited on account of any dispute, then the amount$ involved and the forum where dispute is pending shall be mentioned. (A mere representation to the concerned Department shall not constitute a dispute). (c) whether the amount required to be transferred to investor education and protection fund in accordance with the relevant provisions of the Companies Act, 1956 (1 of 1956) and rules made there under has been transferred to such fund within time.

Comments on Accumulated Losses by Company

(viii) 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 immediately preceding financial year;

Comments on  defaulted in repayment of dues to a financial institution

(ix) whether the company has defaulted in repayment of dues to a financial institution or bank or debenture holders? tf yes, the period and amount of default to be reported:

Comments on guarantee for loans taken by others

(x) 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;

Comments on end use of loan taken by the Company

(xi) whether term loans were applied for the purpose for which the loans were obtained;

Comments on any fraud on or by the company has been noticed or reported 

(xii) 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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