AUDITOR’S REPORT

CARO
SUBMITTED BY:-

ANU GUPTA - ”9”

PGDM A
JIMS KALKAJI
 DECLARATION

I hereby declare that the project work entitled

“AUDITORS REPORT CARO”, Submitted to the
“JAGANNATH INTERNATIONAL MANAGEMENT
SCHOOL, KALKAJI” is a record of an original
work done under the guidance of
“Ms SWATI AGGARWAL”.
CERTIFICATION

This is to certify that this project report

“AUDITOR’S REPORT CARO is the bona
fide work of “ANU GUPTA”
who carried out the project work under
my supervision.

SIGNATURE
Ms SWATI AGGARWAL
 Applicability
CARO shall apply to every company including a foreign company
as defined in section591 of the Act, except the following :-

1. A Banking company as defined in clause (c) of section 5 of the

Banking Regulation Act, 1949 (10 of 1949);
2. An insurance company as defined in clause (21) of section 2 of the
Act;
3. A company licensed to operate under section 25 of the Act; and
4. A private limited company with a paid up capital and reserves not
more than fifty lakh rupees and has not accepted any public
deposit and does not have loan outstandingten lakh rupees or
more from any bank or financial institution and does not have a
turnover exceeding five crore rupees.
Clause 4(i) on Fixed Assets
1. The company has maintained proper record showing full
particulars including quantitative details and situations
of fixed assets.
2. All the assets have been physically verified by the
management in accordance with a phased programme
of verification, which in our opinion is reasonable,
considering the size and the nature of business. The
frequency of verification is reasonable and no material
discrepancies have been noticed on such physical
verification.
3. The assets disposed during the year are not significant
and therefore do not affect the on going concern
assumptions.
Clause 4(ii) on Inventories
1. The inventories have been physically verified by
the management during the year at reasonable
intervals.
2. The procedure of physical verification of the
inventories followed by the management is
reasonable and adequate in relation to the size of
the company and the nature of its business.
3. The Company has maintained proper records of
inventories and discrepancies noticed on physical
verification of inventories as compared to books
records were not material.
 Clause 4(iii) on Loans
• Documentation
– Details of loans taken from & given to persons covered in
register under section 301
– Terms , conditions and rate of interest of above loans
prima facie prejudicial to the interest of company
– Repayments regular
– Management representation on reasonable steps taken for
recovery of amounts >1 lakh
• References
– Companies Act(section 227,297,299,301)
– Non-Banking Financial Companies Prudential Norms
(Reserve Bank) Directions, 1998 (Paragraph 6A)
 Clause 4(iv) on Internal
Control System
• Adequacy of internal control system commensurate with
company size and business for purchase of inventory and fixed
assets and for sale of goods and services
• Continuing failure to correct major weaknesses
Documentation
• Internal control questionnaire, flowchart
• Management representation on steps taken to correct major
weaknesses
• Internal audit reports
References
• AAS 6
 Clause 4(v) on Contracts or arrangements
referred to in Section 301 of the Companies
Act, 1956.
1. According to the information, the transactions that need to be
entered into the register maintained under section 301 of the
Companies Act, 1956 have been so entered.

2. Whether the transactions made in pursuance of contracts or

arrangements entered in the register maintained under section
301 of the Companies Act, 1956 and exceeding the value of
rupees five lakhs in respect of any party during the year have
been made at prices which are reasonable having regard to
prevailing market prices at the relevant time
 Clause 4(vi) on Deposits
1. In case the company has accepted deposits from the
public, whether the directives issued by the reserve
bank of india and the provision of section 58A and 58AA
or any other relevant provision of the act and the rules
framed there under, whether applicable,have been
complied with. if not,the nature of contravention should
be started; if an order has been passed by company law
tribunal or reserve bank of india or any court or any
other tribunal whether the same has been complied with
or not.
Clause 4(vii) on Internal Audit
Existence of internal audit system commensurate with size &
nature of business for:
• Listed companies or,
• Companies with paid up capital and reserves >50 lakhs
or,
• Average annual turnover >5 crores for 3 consecutive
years
• Documentation
– Existence of internal audit department
– Its organizational chart
– Internal audit reports
• References
– AAS 7
Clause 4(viii) on Cost Records
We have broadly reviewed the books of account
relating to materials, labour and other items of
cost maintained by the company
pursuant to the Rules made by the Central
Government for the maintenance of cost
records under section 209 (1) (d) of the
Companies Act, 1956 and we are of the opinion
that prima facie the prescribed accounts and
records have been made and maintained.
Clause 4(ix) on Statutory dues
1. The company is regular in depositing with appropriate
authorities undisputed statutory dues including provident
fund, investor education protection fund, employees’ state
insurance, income tax, sales tax, wealth tax custom duty,
excise duty, and other material statutory dues applicable to it.
2. According to the information and explanations given to us, no
undisputed amounts payable in respect of income tax, wealth
tax, sales tax, customs duty, excise duty were in arrears, as
at……… For a period of more than six months from the date
they became payable.
3. According to the information and explanation given to us,
there are no dues of sale tax, income tax, customs duty,
wealth tax, excise duty which have not been deposited on
account of any dispute.
Clause 4(x) on Cash losses

The accumulated losses of the company are

not more than fifty percent of its net worth.
The company has not incurred cash losses
during the financial year covered by our
audit and the immediately preceding
financial year.
Clause 4(xi) on default in repayment
of dues
Details of default, if any , in repayment of dues to financial
institutions, banks or debenture holders
Period and amount of default
Documentation
– Schedule showing loans taken with terms, conditions &
repayment schedule
– Details of debentures with redemption date, payment date etc
– Loan agreement, debenture trust deeds
Reference
– Companies Act, 1956 (section 372A)& SEBI DIP Guidelines,
2000(chapter X)
Clause 4(xii) on loans granted
against securities
Adequacy of records & documents where loans &
advances granted on security of shares, debentures
& other securities
– Details of deficiencies , if any
Documentation
– List of loans & advances granted by pledge of security
– List of records maintained by company
– Statement of holding stating registration in company’s
name( D-mat shares & securities)
Reference
– Companies Act, 1956 (section 125, 372A and Schedule VI)
Clause 4(xiii) special statutes
to chit fund
Compliance with provisions of any special statutes
applicable
– Check
a)Net Owned Funds to Deposit Liability Ratio > 1:20 as on date of
Balance Sheet
b)Compliance with prudential norms on income recognition and
provisioning against Non Performing Assets
c) Existence of proper credit appraisal procedures
d) Repayment schedule of various loans granted by nidhi based on
the borrowers capacity to repay
Clause 4(xiv) on dealing/trading
of securities
Maintenance of proper records of transactions and
contracts and timely recording of entries by
companies who deal or trade in shares, securities,
debentures and other investments.
– securities to be held in company’s own name subject to
exemption under Section 49 of the Companies Act
Documentation
– List of records maintained
– Statement of holding stating registration in company’s
name( D-mat shares & securities)
Reference
– Companies Act (section 49),AS 13
 Clause 4(xv) on guarantee
for others
Whether the company has given guarantee for loans taken by
others from bank or financial institutions, the terms and
conditions whereof are prejudicial to the interest of the
company
Documentation
– List of guarantees provided with details of name,
amount ,period and purpose
– Board resolution
– Management representation stating reason for
guarantee
Reference
– Companies Act (section 372A)
 Clause 4(xvi) on use of term
loans
Whether term loan applied for purpose
obtained
Documentation
– List of loans taken
– Board resolution
– Sanction letter to verify the purpose of loan
Reference
– The Companies Act [section 227(1A)]
Clause 4(xvii) on short-term funds
used for long term purpose
According to the information and
explanations given to us and on an
overall examination of the balance sheet
of the company, we report that the no
funds raised on short-term basis have
been used for long-term investment. No
long-term funds have been used to
finance short-term assets except
permanent working capital.
Clause 4(xviii) on preferential
allotment
Preferential allotment of shares to parties and companies
covered in the Register maintained under section 301 of
the Companies Act
– Issue price of shares is prejudicial to the interest of the
company
Documentation
– List of companies, firms, parties covered u/s 301
– Board resolution for preferential allotment
– Valuation report
Reference
– The Companies Act (section 301),SEBI DIP Guidelines, 2000
 Clause 4(xix) on debentures
Creation of security or charge for debentures
issued
Documentation
– List of debentures issued
– Board resolution for creation of charge or security
– Verify creation of charge from ROC documentation
Reference
– The Companies Act , SEBI Act, 1992
 Clause 4(xx) on end use of
public issue
Disclosure of end use of money raised by public
issues
– Verification of same by auditor
Documentation
– Copy of prospectus
– Management representation on completeness of
disclosure
 Clause 4(xxi) on frauds
Whether any fraud on or by the company has been noticed
or reported during the year,
– if yes, the nature and amount involved is to be indicated
Documentation
– List of debentures issued
– Board resolution for creation of charge or security
– Verify creation of charge from ROC documentation
Reference
– AAS 4
BIBLOGRAPHY –
1. BESTWORD’S AUDITING(CA SURBHI
BANSAL)
2. www.icai.org/post.html
3. www.caclubindia.com