CA Rahul Modi
Applicability :- Companies (Auditor’s Report) Order, 2016 is Applicable to all companies except the following type of Companies :-
1. Banking companies
2. Insurance Companies
3. Section 8 Companies
4. One person Companies
It also exempts private companies (not being subsidiary or holding company of a public company ) upon fulfillment of certain conditions :-
1. Paid up capital and reserves Not over Rs100 Lakhs
2. Total borrowing from bank / FI at any point of time Not over Rs. 100 Lakhs
3. Revenue during the year Not over Rs 10 Crores
Note : The Order specifically provides that it shall not apply to the auditor’s report on consolidated financial statements.
|Clause no.||Particulars||Yes/No/NA||WP Ref||Remarks|
|3(i)(a)||Fixed Assets :-|
|(a)||Whether proper records of Fixed assets(tangible, intangible and leased assets) are maintained which shows the following particulars:-|
|(i) Description of Fixed Assets (purchase agreement) to make its identification possible|
|(ii) Classification i.e., under which head|
|(iii) Location of Fixed Assets|
|(iv) Original Cost|
|(v) Year of Purchase|
|(vi) Quantity (in nos. )|
|(vii) If there is Revaluation , then|
• Date of Revaluation ( if any )
• Adjustment for revaluation or for any increase or decrease in cost, e.g., on revaluation of foreign exchange liabilities
|(viii) Depreciation, amortization, impairment for the current year. Also check whether depreciation is as per Schedule II of Companies Act 2013|
|(ix) Particulars of Fixed Assets that have been fully depreciated or amortized and held for disposal|
|(x) Particulars of Fixed Assets that have been fully impaired during the period covered by the audit report.|
|(xi) Whether Fixed assets located in the residential premises of members of the staff , If yes, then Fixed Asset Register should indicate the name & designation of the person who has the custody of the asset for the time being|
|(xii) Particulars of Fixed Assets Disposed off during the year|
|(b)||Whether aggregate original cost, depreciation or amortisation to date and impairment loss, if any, as per the register/records agrees with General Ledger balances? If not, note the disagreements in respect of each class of assets.|
|(b)||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 account , Following points should be taken care in this regard :|
|(a)||(i) Whether management has physically verified the Fixed Asset|
|(ii) What is the periodicity of physical verification and whether the same is reasonable?|
|(iii) Whether assets physically verified reconciled with book figures?|
If not, note the discrepancies against each class of assets in terms of value and state how the discrepancies have been dealt with.
|(iv) Instructions to officials for carrying out physical verification to include procedures, timing, competency of team members, count sheets / tags, formats etc.|
|(b)||Physically verify few items From the Fixed Assets Register and vice versa.|
|(c)||Obtain Written representation from management which shows following details :|
• Fixed Assets are physically verified by the company as per the policy of the company
• Periodicity of physical verification
• Detail of material discrepancies noticed during physical verification
• If no discrepancies were noted during physical verification, the same should be clearly mentioned.
|(c)||Whether the title deeds of immovable properties are held in the name of the company. If not, provide the details thereof;|
|(a)||Does the company have any immovable properties (land and buildings)?|
Has the company identified land and building on the basis of Fixed Assets Register.
|(b)||Whether the title deeds of these immovable properties are in the name of company?|
|(c)||Has the management provided details of immovable properties not held in company’s name (for example, location, description, and reasons for not being held in the company’s name)?|
|(i) If title deeds are lost then check:|
• the certified copies of the documents ( if available )
• Details about the FIR filed about the loss of such document
• Other actions taken by management.
|(ii) In case the title deeds are mortgaged with the lenders, assess if the confirmation from the lenders is obtained for the same.|
|(a)||Has the management physically verified the inventory, as defined in AS 2?|
|(b)||Whether evidence regarding physical verification has been seen and the reasonableness of periodicity of physical verification? If yes, verify:|
• Written instruction issued by the management
• Duly authenticated physical verification sheets.
• Duly authenticated summary sheets/consolidation sheet
• Internal memo etc regarding issues arising on physical verification
• Any other documents evidencing the physical verification
|(c)||Whether the original physical verification sheets have been reviewed and selected items traced into the final inventories? (including the more valuable ones as per ABC classification)|
|(d)||Whether the comparison of final inventories with stock has been done?|
Whether records and other corroborative evidence, e.g. inventory statements submitted to banks?
|In case of continuous stock taking check whether management:|
¨ Maintain adequate and upto date stock records
¨ Procedures established for physical verification of inventories
¨ Examine thoroughly and corrects all material differences between the book records and the physical counts.
|(f)||Whether stock register is updated?|
|(g)||If any material discrepancies were found as compared to stock records, what were the extent of discrepancies (in terms of value) and how the same|
have been dealt with in the books of account as well as in the stock records?
|3(iii)||Loans & Advances|
|(i) Has the company has granted any loans, secured or unsecured to companies, firms, LLPs or other parties covered in the register maintained under section 189 of the Companies Act .If so, then|
• Obtain list of section 189 parties from the company (Form no MBP – 1 from director )
• Whether loans given to section 189 parties are squared off during the year.
|(ii) Whether receipt of principal amount and interest are regular on due dates or thereafter If not then the same should be reported|
|(iii) Check whether terms & conditions on which loan granted are prejudicial to the interest of the company. If yes, then report the same|
|(iv) If the amount of loan is overdue then|
⇒ State amount overdue for more than 90 days : For calculating amount overdue check the repayment schedule
⇒ Steps taken by the company for the recovery of overdue amount For ex: Issue of reminder, sending of auditor or solicitor’s note.
⇒ Obtain management representation regarding the same
⇒ Report in the following manner :
|3(iv)||Loans, Investments, Guarantees and Securities|
|(a)||(i) Check the Memorandum of Association to know whether the company has power to provide loans, making investment , or providing guarantee or providing security to Lenders against loan taken by third party|
|(ii) Whether the list of guarantees or securities given by the company during the financial year obtained? If not then obtain it|
|(iii) Check whether the rate of interest on loan is lower than the prevailing yield of one year, three year, five year or ten year Government property closet to the tenure of the loan. If yes then report it|
|(iv) Check whether company has provided any loan (incl. any loan represented by a book debt), to any of its directors or to any other person in which the director is interested or give any guarantee or provide security in connection with any loan taken by him or such other person . For this firstly obtain a list from the management which shows the directors name and the persons in whom the directors are interested|
|(v)(a) If answer to (iv) above is yes then check whether the company has provided loan to MD or WTD|
If yes then check loan is provided
• As a part of the conditions of service extended by the company to all of its employees, or
• Pursuant to any scheme approved by members by special resolution
(b) Check whether company in ordinary course of its business provides loans , or gives guarantee or security for the due repayment of any loan and in respect of such loan an interest is charged at a rate not less then bank rate decided by RBI
|(vi) Check whether company has maintained the register which shows the loan provided , or guarantee given , securities provided , or acquisition made|
|(vii) Has the company defaulted in the repayment of any deposits accepted or in payment of interest thereon? If yes ,then the company is not allowed to give any loan or guarantee or any security or an acquisition till such default is subsisting|| |
|(b)||Check whether company has given any loan or provide security or guarantee in connection with a loan to any other body corporate or person other than director If yes then following points should be looked into :|
(a) Company can provide loan, or provided guarantee or security upto :
60% of Paid up capital + Free Reserves + Securities Premium, or 100% of Free Reserves + Securities Premium (whichever is higher)
(b) Before giving any loan or guarantee or security or making investment check :
• Board Resolution has obtained (100% Consent)
• Public Financial Institution approval has been obtained if any term loan is subsisting
• If the aggregate of loan given, investment made , guarantees and securities exceeds the above mentioned limit then check whether special resolution has been obtained from share holder in general meeting.
Note : Public Financial Institution approval not required in following :
• the aggregate of the loans and investments so far made, the amount for which guarantee or security so far provided to or in all other bodies corporate ,along with the investments , loans, guarantee or security proposed to be made or given does not exceed the limit as specified , and there is no default in repayment of loan installments or payment of interest thereon as per the terms and conditions of such loan to the public financial institution corporate ,along with the of interest thereon as per the terms and conditions of such loan to the public financial institution
|(c)||(i) Whether the nature of company is|
• Housing Finance Company
• Companies engaged in finance of companies
• Investment companies exempted from limits on acquisition of shares
• Wholly owned subsidiaries
• Joint Ventures
If the nature of the company is other then those mentioned above then proceed to clause (ii)
|(ii) Check the investment made by the company?|
Note : Company cannot make investment through not more than 2 layers of investment companies
What do you mean by Layers : Section 2(87) refers it to mean subsidiary or subsidiaries of the holding company
NOTE : Company can make investment in following cases beyond 2 layers:
(a) If a company acquires any other company incorporated in a country outside India if such other company has investment subsidiaries beyond two layers as per the laws of such country;
(b) a subsidiary company from having any investment subsidiary for the purposes of meeting the requirements under any law or under any rule or regulation framed under any law for the time being in force
(iii) Check whether the company has disclosed the full particulars of the loan given, investment made or guarantee given or security provided in the financial statement including the purpose for which the same is proposed to be utilized by the recipient
|(a)||What type of deposit does the company generally accepts?|
|(b)||If company has accepted deposit from its members then :|
(a) Check whether resolution in general meeting has been passed?
(b) Check the terms & conditions of deposits
(c) Whether company has issued circular to its members that shows credit rating obtained, no. of depositors, amount due and other particulars in such form and in such manner as may be prescribed.
(d) Whether copy of circular has been filed with Registrar within 30 days from the date of issue of circular?
(e) Whether company has deposited the sum equivalent to 15% of deposits maturing during the financial year and next following financial year and whether these are kept in a separate bank account.
(f) Check whether company has provided any security for the repayment of deposits or the interest thereon
|(c)||If company accepted deposit from public then|
(a) Check whether resolution in general meeting has been passed?
(b) Check the terms & conditions of deposits
(c) Whether company has issued circular to the public that shows credit rating obtained, no. of depositors, amount due and other particulars in such form and in such manner as may be prescribed.
(d) Whether copy of circular has been filed with Registrar within 30 days from the date of issue of circular?
(e). Check whether Company has disclosed the rating to the general public before accepting deposit
(f) Check whether company has created charge on its assets of an amount not less than the amount of deposits accepted in favor of the deposit holders within 30 days from acceptance.
|(d)||If an order has been passed by Company Law Board or National Company Law Tribunal or Reserve Bank of India or any court or any other tribunal , state whether the same has been compiled or not ?|
|(a)||Whether cost accounting records have been prescribed for the company under section 148(1) of the Companies Act 2013?|
|(b)||If so, then verify whether the proper accounts and records prescribed are made and maintained by the company|
|(a)||Whether the list of applicable statues has been obtained under which company is required to make payments regularly to appropriate authorities? If not, then obtain it.|
|(b)||(i) Is the company regular in depositing undisputed statutory dues including provident fund, employees’ state insurance, income-tax, sales-tax, wealth tax, service tax, duty of customs, duty of excise, value added tax, cess and any other statutory dues with the appropriate authorities|
|(ii) If not, the extent of the arrears of outstanding Statutory dues as 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?|
|(iv) Are there any cases where there are no arrears at balance sheet date but the company is irregular in depositing dues during the year. If yes then report the same|
|(c)||If company has defaulted then penalty and interest should be checked|
|(d)||Obtain information about arrears of outstanding statutory dues in following :|
• Name of Statue
• Nature of dues
• Amount (Rs)
• Due Date
• Date of payment
|(e)||Auditor should check SA – 250 as to find out the laws applicable to the entity which can affect the company (whether company has maintained the register)|
|(f)||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 following shall be mentioned|
• Name of the statue
• Nature of the dues
• Period to which amount relates
• Forum where dispute is pending
|3(viii)||Repayment of dues|
|(a)||Check whether the company has taken loan or borrowing from financial institution or bank or government or dues from debenture holder. ?|
|(b)||Whether the company has defaulted in repayment of loans or borrowing to a financial institution, bank, government or dues to debenture holder. For this check whether the repayment schedule has been obtained or not , if not obtained then obtain it|
|(c)||If yes , then period and amount of default to be reported ( In case of defaults to bank ,financial institutions , and government, lender wise details to be provided )|
|(d)||Check the agreement is there any interest provisions on late payment or non-payment. If yes, then interest properly accounted in books or not|
|(e)||Check whether all the defaults existing at balance sheet date are reported|
|(f)||Confirmation of the concerned bank or financial institution as to the status of the loan account including the overdue position as at the balance sheet date|
|If the company has submitted application for reschedulement / restructuring proposals to the lenders, which may be in different stages of processing. Submission of application for reschedulement / restructuring does not mean that no default has occurred.|
Accordingly, in such situations report the period of default and the amount of default.
|(h)||If application of reschedulement of loan has been made/accepted or default has been made good during the accounting period, whether the fact has been stated.|
|(i)||Whether the disputes between the company and the lender on various issues give rise to disclaimer stating the fact there is a dispute between the company and the lender and auditor is unable to determine whether there is a default in repayment of dues to the lender concerned.|
|3(ix)||Money Raised by way of Initial Public Offer , Term Loan|
|(a)||Whether the company has raised money through IPOs, , Further Public offers( Incl. debt Instruments) or term loans ?|
|(b)||Examine the terms and conditions subject to which the company has raised the above mentioned money.|
|(c)||Whether the end use of the money raised (as mentioned above) is capable of being determined? If not state the fact|
|(d)||If the money is not applied for the purpose it was obtained mention the reasons and amount involved|
|(e)||Obtain a representation from the management as to the completeness of the disclosure with regard to the end-use of money raised as well as actual end”utilization of money raised by Initial Public Offer or Further Public Offer (including debt instruments)|
|(f)||In case during a construction phase surplus funds were temporarily invested, however, subsequently the same are utilised for the stated objectives, mention the fact that the funds were temporarily used for the purpose other than for which the loan was sanctioned but were ultimately utilised for the stated end-use.|
|(g)||Examine the various documents submitted to SEBI, offer document and also examine the report of board of directors, if available, to find out whether funds raised have been utilized for the purpose for which they were raised|
|(a)||Whether there are evidences that fraud exist in the company? For Identifying fraud following points should be taken care of :|
|(b)||Has SA – 240 Compiled with ? (Attach the checklist for compliance of SA 240 with this checklist also )|
|(c)||Whether Auditor is able to find fraud then following points should be looked into :|
|(i) Nature and Amount involved in fraud|
|(ii) List out the parties involved in fraud|
|(iii) Remedial action taken by management|
|(d)||Check whether there is any manipulation, alteration, omission in books of accounts or supporting documents. If yes then report it|
|(e)||What are entity policy to safeguard the assets of company so that assets should not be misappropriated|
|(f)||Whether written representations has been obtained by management regarding :|
• Management responsibility for implementation of control system which can detect fraud.
• Management has disclosed auditor all the facts relating to fraud which are known to them
• It has disclosed to the auditor the results of its assessment of the risk that the financial statements may be materially misstated as a result of fraud.
|(a)||Calculate the amount of managerial Remuneration the company paid ?|
|(b)||Is the Remuneration paid is within the limits of section 197 read with schedule V of the Companies Act 2013 .If not, then what are the steps taken by the company for securing the refund of the same.|
|(a)||Is the Company a nidhi company?|
Assess if the Company is registered as a Nidhi Company as per provisions of Section 406 of the Companies Act 2013 or Section 620A of the Companies Act, 1956.
Note : All Nidhi companies within one year from the commencement of Nidhi Rules 2014, ensure that it has :
(i) not less than two hundred members;
(ii) net owned funds of ten lakh rupees or more;
(iii) unencumbered term deposits of not less than ten per cent of the outstanding deposits as specified in Rule 14; and
(iv) ratio of net owned funds to deposits of not more than 1:20.
|(b)||In case of shortfall in the ratio of net owned funds to the deposits, report the amount of shortfall and state the actual ratio of net owned funds to the deposits.|
Note: Net owned funds shall includes equity share capital and free reserves as reduced by accumulated losses and intangible assets appearing in the last audited balance sheet.
|©||In case of shortfall with regard to the minimum amount of 10% as unencumbered term deposits, as specified in Nidhi Rules 2014, report the amount thereof.|
|XIII||Related Party Transactions|
|(a)||Obtain a statement containing Related party transactions?|
Obtain a list of companies, firms or other parties, the particulars of which are required to be entered in the register maintained under section 189 of the Act.
Obtain declarations made by the directors in Form MBP-1 i.e., general notice received from a director under Rule 9(1) of The Companies (Meetings of Board and Power) Rules, 2014
Verify the entries made in the register under section 189 with such statement from management and declarations received from directors.
Assess the additions/ deletions to such list for appropriateness based on relevant declarations
|(b)||Whether the transaction with the Related party are done at Arm length Price ?|
|(c)||Whether Audit committee as required under section 177 of the Companies Act 2013 is formed?|
|(d)||Examine minutes of meetings of the audit committee and agreements underlying related party transactions to ascertain audit committee approval for the transactions.|
|(e)||Examine the minutes of Board meetings to ascertain whether requisite approvals of Board is obtained for certain related party transactions as required under section 188 of the Act|
|(f)||Where shareholders’ approval is required, check whether the requisite approvals have been obtained as required under Section 188 of the Act|
|(g)||Examine whether related party disclosures are made in the financial statements as per the requirements of Accounting Standard 18|
|(h)||Examine whether disclosure related to contracts or arrangements with related parties as mandated by section 188 are made in Board’s report Including the assessment of identification of related parties and whether the transaction is at arm’s length and basis of such conclusion.|
|(i)||Consider the implications of non compliances above also in the auditors’ opinion on the financial statements.|
|XIV||Preferential Allotment or Private placement of Shares|
|(a)||Check whether the company has made any preferential allotment or private placement of|
• Shares ,or
• Fully or partly convertible debentures
|(b)||Check whether the offer or invitation of securities has been made to maximum of 50 persons at a time and 200 persons in aggregate during a Financial year. This limit excludes Qualified Institutional Buyers and Employees to whom ESOPs are offered.|
|(c)||Check whether the amount raised has been applied for the purpose for which it was raised|
|(d)|| If it is preferential allotment of shares then :|
(a) Obtain a list from the company of persons to whom preferential allotment of shares was offered
(b) Check whether all the persons fall under following:
• Existing Equity share holders
• Employees under ESOP
• Any person authorized through special resolution
(c) Check the terms & conditions under which these shares are issued
(d) Check whether allotment has been made or not
|(e)||If it is private placement then :|
(a) Payment should be received by cheque , demand draft or other bank channels but not by cash
(b) Check whether separate bank account is opened for keeping the application money
(c) Check whether special resolution has been passed or not in the general meeting
(d) Are there are those cases in which the allottee has transferred his/its securities to more than 20 persons in a quarter and the company has registered the same. If yes then record the same
(e) The offer of private placement shall not exceed 4 times in a financial year and not more than once in a calendar quarter with a minimum gap of 60 days between any such two offers. If yes , then report the same
(f) Check the investment size of the offer ?
If it is less then Rs 50000 then report the same
(g) Check whether any public advertisement has been given, if yes then report the same.
(h) Check whether allotment has been made within 60 days of receipt of application money
(i) If not then check whether the amount has been refunded within 15 days after the expiry of 60 days
(j) If the amount is not refunded then check whether interest @12% is properly calculated and paid from the expiry of 60th Day
|XV||Non Cash Transactions|
|(a)||Check whether prior approval from the shareholder has been obtained in the general meeting?|
|(b)||Examine whether the company has entered into any non cash transactions with the director, or holding or subsidiary or associate company or any person connected with them? For this purpose following documents can be checked:|
(i) Form No. MBP 1, Notice of Interest by Director, filed pursuant to the Companies (Meetings of Board and Its Powers) Rules, 2014
(ii) Form No. MBP 2, Register of Loans, Guarantee, Security and Acquisition Made by the Company, filed pursuant to the Companies (Meetings of Board and Its Powers) Rules, 2014
(iii) Form No. MBP 4, Register of Contracts with Related Party and Contracts and Bodies etc in which Directors are Interested, filed pursuant to the Companies (Meetings of Board and Its Powers) Rules, 2014
(iv) Movements in the Fixed Asset Register
(v) Minutes book of the General Meeting and Meetings of Directors
(vi) Report on Annual General Meeting pursuant to Companies (Management and Administration) Rules, 2014
Minutes of meetings of Board of Directors and Audit committee
|(c)||Obtain a statement from management containing transactions between the Company and director(s) referred to above|
|XVI||Requirement of Registration under RBI Act|
|(a)||Examine the financial statements of the company and assess whether the company has financial assets and financial income|
Note: A company will be treated as NBFC if the company’s financial assets constitute more than 50 per cent of the total assets and income from financial assets constitute more than 50 per cent of the gross income.
|(b)||If it is NBFC then check :|
(a) whether it has obtained registration under section 45IA of the RBI Act 1934, and
(b) having the net owned fund of twenty-five lakh rupees or such other amount which central government in official gazette may specify but shall not exceed Rs 200 Lakhs