What is an audit and who is an auditor?
An audit of a company is said to be done as it is a systematic process of examining accounts, books financial records and non- financial disclosures and statutory reports. An auditor is the person who is appointed by the company who does the process of audit for the company both internal and external. According to provisions, a company at its first Annual General meeting has to appoint an auditor for tenure of 5 years. The Companies Act, 2013, also says that whenever the financial report of the company is released, it has to be followed by the auditor’s report. There are various requirements placed on auditor, in this article we shall look upon auditor under CARO report 2016. Company Vakil is a leading legal registration platform that helps solve all your legal queries.
CARO 2016 applicability
CARO 2016 is not applicable on all reports taken out by auditor- CA for a company. CARO is only applicable to certain types of companies in India, which includes a foreign company too. CARO is applicable to the following companies-
- Companies with paid up capital of more than Rs. 100 lakhs.
- Companies who have borrowed a fund of Rs. 1 crore or more from any bank or financial institution at any time in the financial year.
- Companies which are holding or subsidiary companies.
- Companies which have total revenue exceeding Rs. 10 crore during the financial year.
Companies not under purview of CARO
- Banking company
- Insurance company
- One person company
- Section 8 company
- Private limited company that is regarded as small company in the company’s act 2013.
Matters required being included in CARO 2016
Fixed assets have been physically verified before by the management at regular intervals.
The auditor has to ensure that whether there was proper physical verification of the inventories. Also to check the maintenance of records of inventory and outwards of inventory. And if there was any discrepancy observed then what was done to resolve it.
Loans and investments
Whether the provisions of section 185 and 186 of the companies act, 2013 have been complied with loans, investments and guarantees. If not complied with then what are the reasons provided.
Repayment of loan
If the company has defaulted in repayment of loans to any financial institution or banks or to the debenture holders, the amount of default has to be reported.
This comes under section 148(1) of the company’s act, 2013, so whether the cost records have been maintained or not has to be checked.
There are a few regulations by RBI or government that have to be complied with by the company regarding deposits
- Provisions of sections- 73, 74, 75, 76 or any other relevant provisions or the companies act, 2013 or any other relevant provision under it.
- Any other such has been passed by NCLT or RBI or any other court or any other tribunal.
- If there is any non -compliance with the rules, then nature of contraventions are required to be stated.
Utilization of IPO and further public offer
If any money is raised by any public offer which they were applied to or not, the details for delay, ratification and all need to be reported.
Reporting of fraud
Whether the company or any of the employees have been found or noticed or reported of being indulges in any fraudulent activities in the financial year, and then the amount of fraud and the nature of fraud are to be mentioned.
Whether the company has complied with or taken requisite approvals mandated by the provision of section 197 of the companies’ act, 2013, before the managerial remuneration has been paid or provided by the company.
Related party transaction
Related party transactions, provisions fall under section 188 and 177 or the companies’ act, 2013 and therefore, the details have to be disclosed about the financial statements as prescribed by accounting standards.
Loan is given by the company
If the company has given loans to any company, LLP, or any other parties covered under section 189 of companies act, 2013, the auditor has to ensure that-
- The terms and conditions of such loans should not hamper the company’s objectives.
- Whether the repayment of loans or principal amount or interest is stipulated and receipts are issued at regular basis.
- If any amount to be collected is overdue and the total amount overdue and also the total amount which is overdue for more than 90 days is to be mentioned.
If the company is a NIDHI company then the auditor needs to ensure that the ratio of the net owned funds to the deposits is 1:20 to meet out of liability and to check whether the company has maintained 10% unencumbered deposits as provided in NIDHI rules 2014.
Private placement of preferential issues
When the company has issued preferential shares or private placement shares or debentures for the year in review the auditor has to ensure and check that whether the company has complied to the provisions of section 42 of the companies act, 2013 and thereafter the amount raised has been for the purpose of which the funds were raised. If the compliance has not been provided with, the details and the amount and the nature on non- compliance has to be mentioned.
Non- cash transaction
The auditor needs to check if any non- cash transaction has been made by the company or any other person concerned is done with complying with provisions of section 192 of the companies’ act 2013.
To check whether the company is regularly depositing the statutory dues like- GST, income tax, Provident fund, sales tax, service tax, customs duty, excise duty, ESI, etc. if the company is not regularly reporting for the same then the auditor shall write in his reports mentioning the same.
Register under Reserve Bank of India 1934
The company is required to obtain registration under 45 IA of Reserve bank of India, 1934 and whether the registration has been obtained.