COMPANIES (AUDITOR’S REPORT) ORDER, 2003 (CARO) - PowerPoint PPT Presentation

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COMPANIES (AUDITOR’S REPORT) ORDER, 2003 (CARO)

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  1. COMPANIES (AUDITOR’S REPORT) ORDER, 2003 (CARO) NIRC April 3, 2004

  2. CARO Introduction • Changes towards more corporate disclosures and Investor protection • New clauses towards corporate disclosures • Clauses increase the protection of interest of depositors/lenders • Enhancement of limits/ coverage of reporting • Procedural/ consequential changes • No Change

  3. CARO Clauses Modified • Internal Control System- Clause (iv) • Transactions with related parties & pricing policy at relevant time-Clause (xi) • Acceptance of public deposits-Clause (xiii) • Internal Audit -Clause (xv) • Undisputed statutory dues-clause (xviii)

  4. CARO New Clauses • Substantial disposal of fixed assets-Clause [I (c )] • Erosion of net worth - clause (x) • Default to Banks/Financial Institution-Clause (xi) • Guarantee given for others- Clause (xv) • Application of term loans-Clause (xvi)

  5. CARO New Clauses-contd…. • Application of short term funds-clause (xvii) • Preferential allotment-Clause (xviii) • Security for debenture issued-clause (xix) • End use of public issued proceeds-Clause (xx) • Reporting of frauds- Clause (xxi)

  6. CARO Coverage Enlargement • Applicability of CARO • Maintenance of adequate records & documents for secured loans and advances granted-Clause (D)(ii) • Nidhi /mutual benefit fund/ societies-Clause (D)(iii) • Companies dealing in shares etc.-clause (D)(iv)

  7. CARO Clauses deleted • Revaluation of fixed assets- Clause (ii) • Stock Valuation- clause (vi) • Loans to Companies u/s 370-Clause (vii) • Repayment of loans to parties- Clause (ix) • Unserviceable scock/goods-Clause (xiii)

  8. CARO Clauses deleted contd…. • Scrap and by products- Clauses ( xiv) • Personal Expenses- Clauses (xix) • Reference to BIFR- Clause (xx) • Activity based clauses-Clauses B,C & D

  9. Companies (Auditor’s Report) Order, 2003An Analysis Exemptions

  10. Companies (Auditor’s Report) Order, 2003Exemption Special Exemption to Private Companies, if: • Paid up Capital & Reserves < Rs. 50 lacs • Not accepted any public deposits • No outstanding loans exceeding Rs.10 lacs from Bank/ FI • Turnover during the year not exceeding Rs. 5 crores

  11. Companies (Auditor’s Report) Order, 2003Exemption-Explanation Private Companies to Include: • Companies under Section 3(1)(iii) • Private Unlimited Companies under Section 12(2)(c) Paid-up Capital to Include: Called up Equity + Preference Capital Less: Calls Unpaid Add: Amount originally paid on forfeited shares

  12. Companies (Auditor’s Report) Order, 2003Exemption-Explanation Reserve, for determining applicability of CARO to Pvt. Ltd. Company to Include: Capital Reserve+ Revenue Reserve • Revaluation Reserve to be considered • Balance of P&L a/c to be taken into a/c • Misc. expense not written off not to be reduced from Reserve • Share application received not to be considered

  13. Companies (Auditor’s Report) Order, 2003Exemption- Explanation • Outstanding Loan: • Limit of 10 lacs to be taken in aggregate from all banks & FIs. • Turnover: • Aggregate amount of sales and service income excluding Excise duty & Sales Tax if credited separately • Trade discount but not commission allowed to third parties.

  14. Companies (Auditor’s Report) Order, 2003Matters to be Reported Fixed assets - Clause (i)

  15. Companies (Auditor’s Report) Order, 2003Matters to be Reported Inventory - Clause (ii)

  16. Companies (Auditor’s Report) Order, 2003Matters to be Reported Loans - Clause (iii)

  17. Companies (Auditor’s Report) Order, 2003Matters to be Reported Loans - Clause (iii)….contd.

  18. Companies (Auditor’s Report) Order, 2003Matters to be Reported Internal Control - Clause (iv)

  19. Companies (Auditor’s Report) Order, 2003Matters to be Reported Internal Control - Clause (iv)- Explanations • Major Weaknesses: weakness in the internal control that may result into - • Significant loss to company • Material mis-statement in financials • Continuing Failure: • Weakness that existed at time of previous year’s audit/ during the year and still continues.

  20. Companies (Auditor’s Report) Order, 2003Matters to be Reported Related Party Transactions - Clause (v)

  21. Companies (Auditor’s Report) Order, 2003Matters to be Reported Public Deposits - Clause (Vi)

  22. Companies (Auditor’s Report) Order, 2003Matters to be Reported Internal Audit - Clause (vii)

  23. Companies (Auditor’s Report) Order, 2003Matters to be Reported Statutory Dues/Liabilities - Clause (ix a)

  24. Companies (Auditor’s Report) Order, 2003Matters to be Reported Statutory Dues/Liabilities - Clause [ix (b)]

  25. Companies (Auditor’s Report) Order, 2003Matters to be Reported Sick Company - Clause (x)

  26. Companies (Auditor’s Report) Order, 2003Matters to be Reported Sick Company - Clause (x): Explanation Net Worth As defined u/s 2(29A), adjusted with quantifiable qualifications in Audit Report Cash Loss Loss shown by P&L a/c adjusted for non-cash transactions such as depreciation, amortisation, deferred tax expenses

  27. Companies (Auditor’s Report) Order, 2003Matters to be Reported Repayment of dues to FIs - Clause (xi)

  28. Companies (Auditor’s Report) Order, 2003Matters to be Reported Special Statute applicable to Chit Fund, etc. -Clause (xiii)

  29. Companies (Auditor’s Report) Order, 2003Matters to be Reported Chit fund/Nidhi/Mutual Benefit Fund/Societies - Clause (xiii)… Contd.

  30. Companies (Auditor’s Report) Order, 2003Matters to be Reported Dealing in securities - Clause (xiv)

  31. Companies (Auditor’s Report) Order, 2003Matters to be Reported Guarantee - Clause (xv)

  32. Companies (Auditor’s Report) Order, 2003Matters to be Reported Term Loans - Clause (xvi)

  33. Companies (Auditor’s Report) Order, 2003Matters to be Reported Investments - Clause (xvii)

  34. Companies (Auditor’s Report) Order, 2003Matters to be Reported Preferential Allotment - Clause (xviii)

  35. Companies (Auditor’s Report) Order, 2003Matters to be Reported Debenture Security - Clause (xix)

  36. Companies (Auditor’s Report) Order, 2003Matters to be Reported Money Raised through Public Issue -Clause (xx)

  37. Companies (Auditor’s Report) Order, 2003 Matters to be Reported Fraud on/by Company - Clause (xxi)