A Short Point-wise summary on CARO 2015

Applicability of CARO

Applicable to every company including foreign company.

Exceptions from Applicability of CARO 2015

• Banking Companies 
• Insurance Companies
• Not for Profit Companies ( Section 8 Companies)
• One Person Companies
• A private limited companies with:- 

1. paid up capital and reserves not more than INR Fifty Lakhs and;
2. doesn’t have outstanding loan INR 25 Lakhs from any bank or financial institution and;
3. Doesn’t have turnover exceeding INR five crore during at any point during FY  

*Applicable From 10th April 2015

Matters to be Included in Audit Report

Fixed Assets

• Weather a 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.

Inventory

• Whether physical verification of inventory has been conducted at reasonable intervals by management
• Are the procedures of physical verification of inventory followed by management reasonable and adequate in relation to the size of the company and nature of its business. If not, adequacies of such procedure shall be reported.
• Whether the company is maintaining proper records of inventory and whether any material discrepancies were noticed on physical verification and if so, weather the same has been properly dealt with in the books of accounts. 

Loans u/s 189

• 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,whether receipt of the principal amount and interest are also regular; and
• 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;

*Section 189 of Companies Act 2013: Section 189 mandates companies to maintain registers giving separately the particulars of all the contracts or arrangement to which subsection 2 of section 184 (directly or indirectly concerned in a contract or arrangement or proposed contract) or section 188 applies ( Related Party Transaction) 

Internal Controls System

• 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.

Deposits

• In case company has accepted deposits, ensure that it has complied with directives issued by Reserve Bank of India and the provision of sections 73 to 76 or any other relevant provision of companies act and the rules framed under there, where applicable, complied with? 
• If Not, nature of contraventions should be stated; 
• If an order has been passed by company law board or RBI or any court or any other tribunal, whether the same has been complied or not.

*General Circular 5/2015 Dated 30/03/2015 : Deposits received by private companies prior to 1st April, 2014 shall not be treated as 'deposits‘ subject to the condition that  relevant private company shall disclose, in the notes to its financial statement for the financial year commencing on or after 1st  April, 2014 the figure of such amounts and the accounting head in which such amounts have been shown in the financial statement.

Any renewal or acceptance of fresh deposits on or after 1st April, 2014 shall, however, be in accordance with the provisions of Companies Act, 20 13 and rules made thereunder

Cost Records

• Where maintenance of cost records  has been specified by Central Government under Sub-section 1 of section 148 of the companies act, whether such accounts have been made and maintained.

*Section 148 of companies act 2013: Central Government to specify audit of items of cost in respect of certain companies.

Brief description of section 73 and 76 :

Section 73 of Companies act 2013 prohibits invite, accept or renew of deposits from public (except for banking and non banking financial company)  except prescribed in manner laid down by Chapter V.  

Section 76 allows certain companies to accept deposits from public subject to compliance of requirements of section 73 (2) 

Statutory Dues

• Undisputed Statutory Dues: Is company regular in depositing all kind of statutory dues including provident fund, employees state insurance, income-tax, sales tax, wealth tax, service tax, duty of excise, VAT, cess and any other statutory dues as at the day of last day of financial year concerned for a period of more than six months of they become payable shall be indicated by the auditor.
• Disputed Statutory Dues: 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).

• Transferred to investor education and protection fund: 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) or Companies Act, 2013, and rules made thereunder has been transferred to such fund within time.

Accumulated Losses

• In case of those companies 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;

Defaults and Guarantees of Loans

• 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:
• 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

*Please Note : Default and Guarantee of loan has been described under two separate paragraphs on document released by MCA. I have just merged it to utilize the space. 

Usage of Loans

• whether term loans were applied for the purpose for which the loans were obtained

Fraud Reporting

• 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.

-Compiled from Various Sources by Ketan Kapoor