Auditors report and caro 2015

Auditors Report and
CARO 2015
HYDERABAD BRANCH OF SIRC OF ICAI 12-05-2015
CA.G.GANESH – PARTNER SEKHAR & CO
SECUNDERABAD

Auditor’s Report a Communication
Tool
• Communication Tool - not a compliance exercise
• Increased expectation from Stake holders
• Enhanced responsibility
• Requirement to comply with
• Auditing Standards
• Professional and Ethical Standards
• Other Legal requirement
CA.G.Ganesh - ca.g.ganesh@gmail.com - 8985746390 - 9391043877

IAASB – The organization behind the
format of Audit Reports
• IAASB – Lays down the format of Audit reports and all the
member organizations follow it.
• International Auditing and Assurance Standard is an independent
standard-setting body that serves the public interest by setting
high-quality international standards for auditing, assurance, and
other related standards, and by facilitating the convergence of
international and national auditing and assurance standards. In
doing so, the IAASB enhances the quality and consistency of
practice throughout the world and strengthens public confidence
in the global auditing assurance profession.

Indian Scenario
• ICAI being a member body of IAASB follows the guidance issued
by IAASB with a time lag.
• The present format which was issued by ICAI 2 years back was
issued by IAASB much earlier
• All the Standards on Auditing (SA) including the numbering
series are as issued by IAASB are adopted by ICAI
• We can say if IFRS is for Accounting - International Auditing
Standards IAS is for Auditing

Auditors Reporting Under CA 2013
• Enhanced Responsibility
• More Rights to Stakeholders which include
• Government and Statutory Authorities
• Bankers
• Lenders and Creditors
• Shareholders
• Employees - ?
• Severe Penalties including prosecution.

Companies Act 2013 - Auditors
• 139 – Appointment
• 140- Removal & Resignation
• 141 – Eligibility, qualifications and disqualifications
• 142 – Remuneration 143 – Powers & duties of Auditors & Auditing
Standards
• 144 – Restriction on certain services 145 – Signing of Audit Report
• 146 – To attend General Meeting
• 147 – Punishment & Prosecution

Two Reports - Under C A 2013
• Reporting on Financial Statements
• Reporting on Other Legal Requirements – Including CARO 2015
• Reporting on Internal Financial Controls – Deferred to Financial
years beginning 01-04-2015 - Not applicable for the current
professional reporting period

Main Report - Important changes
• Report on Financial Statements
• Managements Responsibility
• Auditors Responsibility
• Opinion
• Emphasis of Matter
• Other Matters
• Report on other Legal and Regulatory Requirments

Main Report
• Stress on Independence in Title
• Clear Mention on what the report is
• Standalone
• Consolidated
• Report on Consolidated Financial Statements to be addressed to Members – change
from to that of Directors
• Management Responsibility
• Auditors Responsibility

Managements Responsibility
• Compliance with applicable Accounting Standards – Sec 133
• Consistent Accounting Policy
• Preparation on Going Concern Basis
• Laying down of Internal Financial Controls and its effective
operations
• Compliance with applicable laws and regulations applicable to the
entity
• Directors Responsibility statement.

Auditors Responsibility
• Ensure compliance with Accounting Standards
• Conduct Audit in compliance with applicable Auditing Standards
• Documentation holds the Key
• Auditing Standards prescribed for first time under the Act – Sec 143
• Comply with Ethical Requirements – Professional Ethics
• Plan and Perform
• Reasonable assurance – Free from material Misstatement
• Evaluate the Internal Control relevant to preparation of FS laid
down by Company

Section 143 - Powers & Duties – matters
to enquire into
• Loans & Advances given on basis of security are properly secured
• Transactions by way of book entries are prejudicial to the interest
of the company.
• Sale of debentures, shares and securities by banking or investment
company at less than cost price
• Disclosure of Loans as deposits
• Personal expenses charged to revenue
• Shares allotted for cash – receipt of money

Contents prescribed U/s 143
• Whether he has sought and obtained all information required
• Maintenance of proper books of accounts as prescribed by law.
• Receipt of returns from branches not visited.
• Agreement of financials with underlying books.
• Transactions having adverse effect on functioning of the company.
• Director not being disqualified for appointment 164(2)
• Adequacy of Internal Financial Controls
• As May be prescribed ……….. CARO

Contents Prescribed by Rules
• Whether the company has disclosed the impact if any, of pending
litigation on the financial position in its financial statements
• No requirement Under Schedule III ?
• Disclosure under head Contingent Liabilities does not give clear
picture.
• Difficulty to impose on Auditee – No clarity how to bring out as
emphasis of matter.

Requirement by Rules …..
• Whether the company has made provision, as required under any
law Standard, for material foreseeable losses, if any, on long term
derivative contracts.
• Whether there has been any delay in transferring amounts,
required to be transferred, to Investor Education and Protection
fund by the Company.

Negative or Remarks with
qualification
• Where any of the matters required to be included in the audit
report under section 143 is answered in negative or with
qualification, the report shall state the reasons therefor.
• Will it require an impact analysis
• Caro – Cash losses is it a negative remark

Other Issues
• Standard on Auditing 720 - The Auditor’s Responsibilities Relating
to Other Information in Documents Containing Audited Financial
Statements
• The above standard has significant importance especially for the
matters contained in
• Directors Report
• Management Analysis
• Risk Assessment
• etc

Opinion
• Clean - to include Emphasis of Matter – As pre revised SA 700
• Modified Opinion - 705
• Emphasis of Matter - 706
• These are separate Standards for each type of report and the report
has to be made accordingly.

CARO 2013
• Applicability
• All Listed Companies & Its subsidiaries whether Private or Public
irrespective of other Factors
• Public Limited Companies
• Private Limited Companies
• Paid up Capital of Rs. 50 Lacs or More
• Share Holders funds of Rs. 50 Lacs or More - includes accumulated profits
• Turnover exceeding Rs. 5 Crore at any point of time during the financial years
• Borrowings from Financial Institutions in excess of 25 Lacs
• Criteria if satisfied at any point in financial year
• Once applied to be continued

CARO – 2015 - May not be the final
• Order Issued on 10th April 2015
• Effective for reporting periods ending on 31st March 2015
• One Person Company – Exempt
• Section 8 Company – Exempt
• Banking and Insurance Companies Exempt

What is retained – What is dropped
• New order has 12 clauses in place of 21 in earlier order.
• Clause 1 – Fixed Assets
• Sub-clause C relating to substantial disposal of fixed assets effecting
going concern assumption in preparation of FS Dropped
• Clause 2 – Inventories Retained
• Clause 3 – Loan given and Taken by the Company
• Comments on Loans taken dropped

CARO 2015 ….
• Clause 4(iv) -- Internal Control on purchase of inventory, fixed
assets and sales of goods and services – retained
• Clause 4(v) –Entries of contracts and arrangements in the register
prescribed - DROPPED
• Clause 4(vi) – Acceptance of Deposits (Sections 73 to 76) Old
(58A & 58AA) - retained
• Clause 4(vii) – Adequacy of Internal Audit system – DROPPED
• Clause 4(viii) – Cost records retained

CARO 2015….
• Clause 4(ix) – Payments of Statutory Dues - Retained –
• Added Investor Protection and Education Fund
• Clause 4(x) – Comment on Cash Losses / Accumulated Losses for
companies in existence for more than 5 years retained
• Clause 4(xi) – Payment of dues to Financial Institution – retained
• Clause 4(xii) – Maintenance of documents where loans have been
granted on basis of security of shares - DROPPED

CARO 2015 ….
• Clause 4(xiii) - Comments on provisions applicable to Nidhi –
Chit fund companies – DROPPED
• Clause 4(xiv) – Companies dealing in Shares & Securities –
DROPPED
• Clause 4(xv) – Giving guarantee on loans taken by others –
conditions thereof – retained
• Clause 4(xvi) – Application of loans for the purpose obtained –
retained
• Clause 4(xvii) – Usage of Short term loans for long term purpose -
DROPPED

CARO 2015….
• Clause 4(xviii) – Terms and conditions of preferential allotment of
shares to related parties – DROPPED
• Clause 4(xix) – Creation of charge on debentures – DROPPED
• Clause 4(xx) – Disclosure of utilization of money for which it has
been raised – DROPPED
• Clause 4(xxi) – Reporting on Fraud - Regained

Newton’s Law of Auditing
• For every auditor there is an equal and opposite auditor
• Both of them are wrong.

Those whose
opinion you can
rely on
Those whose
opinion you
can’t

It is a learning time

Auditors report and caro 2015

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Auditors report and caro 2015