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

COMPANIES (AUDITOR’S REPORT) ORDER, 2003 (CARO). NIRC. April 3, 2004. CARO Introduction. Changes towards more corporate disclosures and Investor protection New clauses towards corporate disclosures Clauses increase the protection of interest of depositors/lenders

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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)

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