1. DEPARTMENT OF MANAGEMENT STUDIES
ACCOUNTING FOR MANAGERS
MODULE-6
AUDITOR REPORT

2.  Information is key for decision making.
Success of mangers depends on how
effectively they make decision. Their
efficiency is measured in terms of their
timely and results oriented decision. An
effective decision to attain the objectives
of the concern is possible only if they are
provided with the proper information in the
needed form in time. Presentation of
information to the management to support
decision making is called as MIS or MR. 2

3.  Rights to access the books of a/c.
 Rights to obtain information and
explanations.
 Rights to attend general body meeting.
 Rights to visit the branch office and access
the books of a/c and the vouchers
maintained by BO.
 Rights to receive his remuneration.
 Rights to receive notice of his removal.
 Rights to make a representation on 3

4.  Duty to make an audit report: it is the basic
duty of an auditor to prepare a report to
the members of the company
 Duty to make required disclosures in the
report: this basically concerns the true and
fair view of an auditor for his opinion
regarding the FR.
 Duty to give reasons for qualifications.
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5.  An Auditor of a Joint stock company has
to be a Chartered Accountant as per
the Chartered Accountants act 1949. He
takes office on his appointment as a
Statutory auditor. He may also confirm as
to what is his role if he not appointed for
the statutory role as an Statutory Auditor.
Such an Auditor is required to provide his
report to the shareholders based on
certain assertions, and specific enquiries.
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6.  Whether Loans and Advances made by the company on
the basis of security have been properly secured and
whether the terms on which these have been provided
are not prejudicial to the interests of the company.
 Whether book entries are prejudicial to the interests of the
company.
 Whether the sale price of shares, debentures and other
securities held by the company is less than their purchase
price.
 Whether loans and advances made by the company
have been shown as deposits.
 Whether personal expenses have been charged to
revenue account.
 When shares have been allotted for cash as per the books
of account then whether cash actually has been
received.
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7.  Section 227 (2) requires the Statutory
Auditor has to state whether in his
opinion and to the best of his information
and the explanations given to him the
Profit and loss statements and the
Balance sheet provide information
required by the act and also provide a
true and fair view of the state of affairs of
the company.
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8.  Section 227(3) requires that the Statutory
Auditor should comment on the following:-
 Whether he has obtained all the
information and explanations necessary for
his audit.
 Whether in his opinion, proper books of
account as required by the law have been
kept by the company.
 Whether the balance sheet and the profit
and loss account are in agreement with the
books of account and the returns. 8

9.  Whether the report of branch auditor has
been forwarded to him and how he has
dealt with the same in preparing his
audit.
 Whether Accounting Standards have
been complied with.
 Whether any director is disqualified from
being appointed as a director.
 Whether the cess payable by the
company has been paid.
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10.  Unqualified opinion
 Qualified opinion
 Disclaimer opinion
 Adverse opinion
CMA. Prof. D Gopinath 6 April 2013 10

11.  APPLICABILITY
 The order is not applicable to a Banking
Company, an Insurance Company and the
companies which are licensed to operate
under sec 25 of the companies act 1956.
(Section 25 companies are those
companies which are formed for the sole
purpose of promoting commerce, art,
science, religion, charity or any other useful
object and have been granted a licence
by the central government recognizing
them as such),
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12.  A private limited company which satisfies
the following conditions :(a) Its paid up
capital and reserves do not exceed Rs.50
lacs; (b) It has not accepted any public
deposits;(c) Its turnover does not exceed
Rs.5 crores ; and(d) Its outstanding loan
from any bank or financial institution does
not exceed Rs.10 lacs. If any of the above
conditions are not satisfied, the above
order will apply to the private limited
company. 12

13.  As per sec 227 the Auditor’s report shall
provide his opinion on the following :-
 FIXED ASSETS:-
 Maintenance of proper records showing
particulars and location of fixed assets,
physical verification by management at
reasonable intervals and treatment of
material discrepancies in the books of
accounts.
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14.  Whether physical verification of
inventories is conducted by the
management at reasonable intervals.
Whether procedure for physical
verification of inventories is reasonable
and adequate. If not, inadequacies to
be reported. Whether material
discrepancies noticed on physical
verification are properly dealt with in the
books of accounts.
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15.  Secured or unsecured loans granted or
taken by the company to or from
companies, firms or other parties in
which directors are interested. Whether
rate of interest and other terms and
conditions of such loans are prima facie
prejudicial to the interest of the
company. Whether the receipt of
principal and interest are regular.
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16.  The requirements of reporting on the
existence of internal control procedures
commensurate with the size of the
company and the nature of business, for
purchase of inventory and fixed assets
and for sale of goods. In addition, CARO
provides that the auditor should report
whether there is continuing failure to
correct major weaknesses in internal
control procedures.
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17.  CARO now provides that this reporting
requirement about internal audit system will
apply to any of the following companies :(i)
Listed company(ii) Any other company with
paid up capital and reserves exceeding
Rs.50 lacs as at the commencement of the
financial year, or(iii) Any company having
an average turnover exceeding Rs.5 crores
for a period of 3 consecutive financial years
immediately preceding the relevant
financial year. 17

18.  The Auditor has to mention whether the
company has accepted Public Deposits
and whether the terms and conditions
are prejudicial to the interests of the
company. This is the same as was in
MAOCARO 1998. the auditor has to
report whether the company has
complied with any order passed by the
Company Law Board in respect of such
public deposit.
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19.  The reporting requirements with regard
to maintenance of cost records by the
company as prescribed u/s.209(1)(d) of
the Act .
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20.  whether undisputed statutory dues such as
Provident Fund,
 Investor Education and Protection Fund, ESIC,
Income-tax, Wealth tax, Sales Tax, Customs Duty,
Excise Duty, Cess, etc. with various statutory
authorities have been deposited regularly, and the
extent of outstanding dues in arrears as on the last
day of the financial year for a period exceeding six
months are to be disclosed.
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21.  CARO provides that the auditor should
report, in the case of a company which has
been registered for a period of not less than
5 years, whether the accumulated losses of
the company at the end of the relevant
financial year are not less than 50% of its net
worth and whether it has incurred cash
losses in that financial year and
immediately preceding such financial year.
This is a new requirement which will give
signal about the impending financial
sickness of the company
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22.  CARO has put additional responsibilities on
auditors who will now have to report about
defaults in repayment of dues to a financial
institution, bank or debenture holders. If
there is any default, the period and amount
involved in the default should be reported.
This reporting requirement will require the
auditor to ascertain the due dates for
repayment of loans taken from the banks
and financial institutions as well as loans
taken against debentures.
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23.  CARO now requires the auditor to report
whether the company has given any
guarantee for loans taken by others from a
bank or financial institution where the terms
and conditions are prejudicial to the interest of
the company. In other words, if any loan taken
by a staff member or an associate concern is
guaranteed by the company, the auditor will
have to examine whether any counter
guarantee is taken by the company and
whether such counter guarantee gives
sufficient comfort against any liability that may
arise if the lender invokes the guarantee.
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24.  CARO has placed additional responsibility
on the auditor who will now have to report
about end use of the borrowed funds . For
this purpose, the auditor will have to
examine the cash flow statement in greater
detail so that any diversion of funds can be
ascertained. He will have to examine
whether short term funds raised are used for
long term purposes etc and what if they are
used as short term investments.
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25.  CARO requires the auditor to report whether
during the financial year any fraud on the
company is noticed. Similarly, he has also to
report whether he has noticed that the
company has committed any fraud on others.
If the auditor has not noticed any such fraud,
but the same is reported to the company or by
the company, he will have to refer to such
report in the audit report. The reporting of the
fraud may be in the media. It appears that the
auditor will have to take note of such media
reports also and refer to the same in his audit
report, if such reports are found to be
authentic.
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26.  Whether adequate documents and records
are maintained in cases where the
company has granted loans and advances
on the basis of security by way of pledge of
shares, debentures and other securities.
Under CARO, apart from the above, it is
necessary to point out in the report the
deficiencies in the maintenance of above
documents and records. Whether the
provisions of any special statute applicable
to chit fund have been duly complied with.
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27.  CARO requires that the auditor should
make a statement on the matters
contained in the order. This requirement
applies even where the answers to any of
the questions are un favourable or
qualified. In such cases, the
auditor should state his un favourable or
qualified answers and the reasons for the
same. If the auditor is not able to express his
opinion about any of the items contained in
the order, he should indicate such fact, and
give reasons as to why he is unable to
express an opinion.
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28.  Director’s report is a statement by a company’s
directors in its annual a/c giving the directors
opinion or the state of the company, and how
much should be paid to people owning share in
the company
Contents of report
 The state of the company’s affairs.
 The amount, which it proposes to carry to any
reserves in such a balance sheet.
 The amount, which it recommends should be paid
by way of dividend,
 Details of appointment with respect to whole time
director.
 Details of fixed deposits.
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29.  In the preparation of the annual a/c, the applicable
accounting standards have been followed and that
there are no material departures .
 That they have selected such accounting policies
and applied them consistently and made judgments
and estimates that are reasonable and prudent.
 That the director’s had taken proper and sufficient
care for the maintenance of the adequate
accounting records in accordance with the
provision of the act.
 That the director’s had prepared the annual a/c on a
going concern basis.
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