Even though, Companies (Auditor’s Report) Order, 2015 is placed along with Removal of difficulty orders, both are complete of different genre.
Companies (Auditor’s Report) Order, 2015 is issued in exercise of powers conferred by Section 143(11). The Central Government may, in consultation with the National Financial Reporting Authority, by general or special order, direct, in respect of such class or description of companies, as may be specified in the order, that the auditor’s report shall also include a statement on such matters as may be specified therein. National Financial Reporting Authority under Section 132 is not yet constituted and this order is issued after consultation with the Institute of chartered Accountants of India. [I am not commenting on Legal status of the Order. However, it may be enough if a Removal of Difficulty order issued simultaneously.]
This order all apply to every company including foreign company, except –
- Banking Company,
- Insurance Company,
- Section 8 Company,
- One Person Company,
- A private limited company with a paid up capital and reserves not more than rupees fifty lakh and which does not have loan outstanding exceeding rupees twenty five lakh from any bank or financial institution and does not have a turnover exceeding rupees five crore at any point of time during the financial year.
For this exception a company need all of following requirements:
- Private company (not a public company)
- Limited company (not an unlimited company)
- With paid up capital (even if limited by members do not have paid up capital))
- Reserve not more than rupees fifty lakh
- Loan outstanding not more than twenty five lakh form bank and financial institution (other loans not to be counted for this purpose)
- Turnover not exceeding rupees five crore
- All above conditions all the time in the financial year.
The Companies (Auditors’ Report) Order, 2015 was published in Official Gazette on 10th April 2015.
Contents of Reports:
Every report made by the auditor on the accounts of every company examined by him to which this order applies for the financial year commencing on or after 1st April 2014 shall contain the matters specified in paragraph 3 and 4. [Paragraph 2]
Now, paragraph 2 read with paragraph 1(3), make it clear every report on or after 10th April 2015 issued on accounts for financial year on or after 1st April 2014 shall contain these matters.
Matters to be included:
- Fixed Assets
- Whether the 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 accounts;
- Whether physical verification of inventory has been conducted at reasonable intervals by the management;
- Are the procedure of physical verification of inventory followed by the management reasonable and adequate in relation to the size of the company and the nature of its business? If not, the inadequacies in such procedures should be reported;
- Whether the company is maintaining proper records of inventory and whether any material discrepancies were noticed on physical verification and if so, whether the same have been properly dealt with in the books of account;
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;
- Internal control 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 weakness in the internal control system.
In case the company has accepted deposits, whether the directives issued by the Reserve Bank of India and the provisions of Section 73 to 76 or any other relevant provisions of the Companies Act and the rules framed there under, were applicable, have been complied with? If not, the nature of contraventions should be stated; if an order has been passed by Company Law board or National Company Law tribunal pr Reserve Bank of India or any court or any other tribunal, whether the same has been complied with or not?
- Cost Record
Where maintenance of cost records has been specified by the Central Government under sub – section (1) of Section 148 of the Companies Act, whether such accounts and records have been made and maintained;
- Statutory Dues
- Is the company regular in depositing undisputed statutory dues including provident fund, employees’ state insurance, income – tax, sale 0 tax, wealth tax, service tax, duty of customs, duty of excise, value added tax, cess and any other statutory dues with the appropriate authorities and if not, the extent of the arrears of outstanding statutory dues at the last day of the financial year concerned for a period of more than six months from the date they became payable, shall be indicated by the auditor.
- 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 amounts involved and the forum where dispute is pending shall be mentioned. (A mere representation to the concerned Department shall not constitute a dispute).
- 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) and rules made thereunder has been transferred to such fund within time.
[Note that there is no mentioned of relevant provision of the Companies Act 2013]
- Accumulated Losses
Whether in case of a company 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;
- Default in repayment
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;
- Guarantee for loan
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;
- Application of loan
Whether term loans were applied for the purpose for which the loans were obtained;
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. [Paragraph 3]
Reason for unfavourable or qualified answers:
Where, in the auditor’s report, the answer to any of the questions referred to in paragraph 3 is unfavourable or qualified, the auditor’s report shall also state the reasons for such unfavourable or qualified answer, as the case may be.
Where the auditor is unable to express any opinion in answer to a particular question, his report shall indicate such fact together with the reasons why it is not possible for him to give an answer to such question.